IndyMac Bancorp 10Q 2006 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, 2006


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.)

888 East Walnut Street, 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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 21, 2006: 68,652,618 shares

FORM 10-Q QUARTERLY REPORT

For the Period Ended June 30, 2006

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION
Forward-Looking Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2
Highlights			2
Summary of Business Segment Results			6
Product Profitability Analysis			12
Loan Production			19
Loan Sales			23
Mortgage Servicing and Other Retained Assets			25
Mortgage-Backed Securities and Loans Held for Investment			32
Net Interest Margin			38
Interest Rate Sensitivity			41
Credit Risk and Reserves			43
Expenses			47
Share Repurchase Activities			48
Future Outlook			48
Liquidity and Capital Resources			48
Off-Balance Sheet Arrangements			53
Aggregate Contractual Obligations			53
Critical Accounting Policies and Judgments			53
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 1. Financial Statements (Unaudited)			55
	Consolidated Balance Sheets		55
	Consolidated Statements of Earnings		56
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income		57
	Consolidated Statements of Cash Flows		58
	Notes to Consolidated Financial Statements		59
Item 4. Controls and Procedures			67

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			68
Item 1A. Risk Factors			68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			68
Item 4. Submission of Matters to a Vote of Security Holders			68
Item 5. Other Information			69
Item 6. Exhibits			69
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q 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 financial condition, results of operations, plans, objectives and future performance and business. Forward-looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions. These statements reflect our current views with respect to future events and financial performance. They are subject to risks and uncertainties which 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 risk factors, refer to “Risk Factors” in our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2006, filed with the SEC on April 25, 2006.


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

HIGHLIGHTS

The following highlights the Company’s consolidated financial condition and results of operations for the three and six months ended June 30, 2006 and 2005. The 2005 data has been retrospectively adjusted to reflect the stock option expenses under Statement of Financial Accounting Standards No. 123(R),Share-Based Payment(“SFAS No. 123(R)”). References to “Indymac Bancorp” or the “Parent Company” refer to the parent company alone, while references to “Indymac,” the “Company,” or “we” refer to the parent company

and its consolidated subsidiaries. References to “Indymac Bank” or the “Bank” refer to our subsidiary IndyMac Bank, F.S.B. and its consolidated subsidiaries.


			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2006			2005			2006			2006			2005

			(Dollars in millions, except per share data)
Select Balance Sheet Information (at period end)
	Cash and cash equivalents		$	165		$	354		$	442		$	165		$	354
	Securities (trading and available for sale)			4,890			3,622			4,564			4,890			3,622
	Loans held for sale			6,493			6,037			7,434			6,493			6,037
	Loans held for investment			8,773			7,486			8,784			8,773			7,486
	Allowance for loan losses			(58	)		(54	)		(57	)		(58	)		(54	)
	Mortgage servicing rights			1,599			739			1,354			1,599			739
	Other			1,894			1,232			1,682			1,894			1,232
	Total Assets			23,756			19,416			24,203			23,756			19,416
	Deposits			9,352			6,585			8,266			9,352			6,585
	Advances from Federal Home Loan Bank			7,070			7,598			7,995			7,070			7,598
	Other borrowings			4,165			3,166			5,195			4,165			3,166
	Other liabilities			1,366			646			1,104			1,366			646
	Total Liabilities			21,952			17,995			22,560			21,952			17,995
	Shareholders’ Equity			1,804			1,421			1,644			1,804			1,421
Income Statement
	Net interest income before provision for loan losses		$	130		$	97		$	127		$	257		$	202
	Provision for loan losses			2			2			4			6			5
	Gain on sale of loans			202			159			141			343			304
	Service fee income			27			11			31			58			15
	Gain (loss) on mortgage-backed securities, net			8			16			(3	)		6			11
	Fee and other income			12			8			12			24			14
	Net revenues			377			289			305			682			542
	Operating expenses			204			154			172			375			301
	Net earnings			105			82			80			185			145
	Basic earnings per share(1)			1.57			1.31			1.24			2.82			2.34
	Diluted earnings per share(2)			1.49			1.24			1.18			2.68			2.22
Other Operating Data
	Mortgage production		$	20,060		$	14,199		$	19,977		$	40,037		$	25,801
	Total loan production(9)			20,591			14,793			20,340			40,931			26,748
	Mortgage industry share(10)			2.96	%		1.81	%		3.65	%		3.27	%		1.83	%
	Pipeline of mortgage loans in process(11)			12,527			9,682			11,681			12,527			9,682
	Loans sold			19,415			11,534			16,708			36,123			21,188
	Loans sold/mortgage loans produced			97	%		81	%		84	%		90	%		82	%
	Loans serviced for others (as of quarter end)(8)			109,989			63,676			96,512			109,989			63,676
	Total loans serviced (as of quarter end)			117,417			70,358			104,209			117,417			70,358
	Average full-time equivalent headcount			7,861			6,038			7,229			7,545			5,925
Other Per Share Data
	Dividends declared per share		$	0.46		$	0.38		$	0.44		$	0.90		$	0.74
	Dividend payout ratio(3)			30.87	%		30.65	%		37.29	%		33.58	%		33.33	%
	Book value per share at period end			26.29			22.38			25.00			26.29			22.38
	Closing price per share at period end			45.85			40.73			40.93			45.85			40.73
	Average Common Shares (in thousands)
		Basic		66,483			62,304			64,310			65,402			62,052
		Diluted		70,213			65,793			67,528			68,870			65,312
Performance Ratios
	Return on average equity (“ROE”) (annualized)			24.09	%		24.50	%		20.26	%		22.28	%		22.45	%
	Return on average assets(“ROA”) (annualized)			1.51	%		1.64	%		1.22	%		1.37	%		1.52	%
	Net interest income to pretax income after minority interest			75.40	%		72.34	%		96.25	%		84.44	%		84.46	%
	Net interest margin			2.12	%		2.10	%		2.15	%		2.13	%		2.29	%
	Net interest margin, thrift.			2.01	%		2.02	%		2.06	%		2.04	%		2.18	%
	Mortgage banking revenue (“MBR”) margin on loans sold(4)			1.23	%		1.63	%		1.10	%		1.17	%		1.72	%
	Efficiency ratio(5)			54	%		53	%		56	%		55	%		55	%
	Operating expenses to loan production			0.99	%		1.04	%		0.84	%		0.92	%		1.13	%


		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2006			2005			2006			2006			2005

		(Dollars in millions, except per share data)
Balance Sheet and Asset Quality Ratios
	Average interest-earning assets	$	24,681		$	18,561		$	24,034		$	24,357		$	17,800
	Average equity		1,742			1,338			1,598			1,670			1,304
	Debt to equity ratio(6)		12.2:1			12.7:1			13.7:1			12.2:1			12.7:1
	Core capital ratio(7)		8.24	%		7.22	%		7.62	%		8.24	%		7.22	%
	Risk-based capital ratio(7)		11.97	%		11.77	%		11.26	%		11.97	%		11.77	%
	Non-performing assets to total assets		0.49	%		0.38	%		0.43	%		0.49	%		0.38	%
	Allowance for loan losses to total loans held for investment		0.66	%		0.72	%		0.65	%		0.66	%		0.72	%
	Allowance for loan losses to non-performing loans held for investment		90.61	%		126.03	%		106.12	%		90.61	%		126.03	%
Loan Loss Activity
	Allowance for loan losses to annualized net charge-offs		8.8	x		7.4	x		8.6	x		8.8	x		7.3x
	Provision for loan losses to net charge-offs		136.06	%		131.46	%		229.00	%		182.95	%		131.68	%
	Net charge-offs (annualized) to average non-performing loans held for investment		11.12	%		16.96	%		13.71	%		12.33	%		16.17	%
	Net charge-offs (annualized) to average loans held for investment		0.08	%		0.10	%		0.08	%		0.08	%		0.10	%


	(1)	Net earnings for the period divided by weighted average basic shares outstanding for the period.

	(2)	Net earnings for the period divided by weighted average dilutive shares outstanding for the period.

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

	(4)	Mortgage banking revenue margin is calculated using the sum of consolidated gain on sale of loans and the net interest income earned on loans held for sale by our mortgage banking production divisions divided by total loans sold.

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

	(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.


(10)	Our market share is calculated based on our total loan production, both purchased (correspondent and conduit) and originated (retail and wholesale), in all channels (the numerator) divided by the Mortgage Bankers Association (“MBA”) July 12, 2006 Mortgage Finance Long-Term Forecast estimate of the overall mortgage market (the denominator). 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.

(11)	The amount includes $2.5 billion, $1.4 billion and $1.3 billion of non-specific rate locks on bulk purchases in our conduit channel at June 30, 2006, June 30, 2005 and March 31, 2006, respectively.

SUMMARY OF OVERALL RESULTS

Three Months ended June 30, 2006

The Company achieved record net earnings of $104.7 million, or $1.49 per share, for the second quarter of 2006. This represents an increase of 28% and 20% in net earnings and earnings per share, respectively, compared with net earnings of $81.7 million, or $1.24 per share, for the second quarter of 2005. The earnings for the second quarter of 2005 were retrospectively adjusted to reflect the stock option expenses due to the adoption of SFAS No. 123(R). Return on equity was 24% for the second quarter of 2006 compared with 25% for the second quarter of 2005.

Net revenues of $377.1 million in the second quarter of 2006 were at record levels, reflecting an increase of 31% over the second quarter of 2005. Key drivers of this growth included the following items:


1)	Growth in average interest earning assets of 33% from $18.6 billion during the quarter ended June 30, 2005 to $24.7 billion for the quarter ended June 30, 2006, leading to an increase in net interest income of 34% to $130.2 million. Indymac’s net interest margin remained stable at 2.12% in the second quarter of 2006 compared to 2.10% in the second quarter of 2005.

2)	Growth in our mortgage production of 41% over the second quarter of 2005 to an all-time record of $20.1 billion, representing market share of 2.96% based on the industry volume published by the MBA on July 12, 2006. The increase in production led to an increase in loans sold, a key component of net revenue, to $19.4 billion, up 68% over the second quarter of 2005. This increase in loans sold mitigated the year over year decline in the revenue margin on sales, and gain on sale of loans of $201.7 million increased 27% over the second quarter of 2005. The MBR margin on loans sold was 1.23% in the second quarter of 2006, which was down from 1.63% in the second quarter of 2005, but reflects improvement from 1.10% in the first quarter of 2006.

Included in the gain on sale of loans in the second quarter of 2006 were $9.7 million of losses related to the establishment of a reserve for fraud losses on certain lot loans. The Company discovered that 45 lot loans related to two developments in Michigan and Florida were the subject of criminal fraud on the part of the developers, brokers, appraisers and closing agents. Indymac has since performed a full portfolio review and implemented a series of product guideline changes, operational changes and fraud prevention actions to mitigate future occurrences of this kind. At this point Indymac believes that there are no further incidences of fraud in its existing book of lot loans of similar size or scope.


3)	Service fee income of $27.2 million in the second quarter of 2006 grew 152% over the second quarter of 2005 driven by the 73% increase in the principal amount of loans serviced for others during the second quarter to $110.0 billion at June 30, 2006 combined with slowing prepayments as long-term interest rates have increased.

Operating expenses of $203.7 million also reflected growth consistent with the growth in Indymac’s operations and infrastructure investments to open new regional mortgage centers across the country to expand our mortgage operations platform. Total regional centers are 15 at the end of the second quarter of 2006, five more than the ten that we had at the end of the second quarter of 2005. These new regional centers are being opened as part of our strategy to expand our mortgage market share through geographic expansion.

Asset quality remains solid. Non-performing assets remain at low levels for Indymac at 0.49% of total assets at June 30, 2006 compared to 0.38% of total assets at June 30, 2005. The allowance for loan losses currently represents 8.8 times annualized net charge-offs, up from 7.4 times at June 30, 2005. Net charge-offs (annualized) in the second quarter of 2006 represent 0.08% of average loans held for investment, down from 0.10% during the second quarter of 2005.

Six Months ended June 30, 2006

For the six months ended June 30, 2006, the Company’s net earnings were $184.5 million, or $2.68 per share, up 27% from $145.2 million, or $2.22 per share for the same period in 2005. Return on equity was 22% for both the six month periods ended June 30, 2006 and 2005.

Net revenues of $681.6 million in the first half of 2006 reflect an increase of 26% over the first half of 2005. Key drivers of this growth included the following items:


1)	Growth in average interest earning assets of 37% from $17.8 billion in the first half of 2005 to $24.4 billion in the first half of 2006, leading to an increase in net interest income of 27% to $257.4 million. Indymac’s net interest margin declined to 2.13% from 2.29% somewhat mitigating the impact of the average earning asset growth.

2)	Growth in our mortgage production of 55% in the first half of 2006 over the first half of 2005 to $40.0 billion, led to a 70% increase in loans sold to $36.1 billion. The MBR margin on loans sold was 1.17% in the first half of 2006, down from 1.72% in the first half of 2005 as the market reflects a more difficult environment in light of rising mortgage interest rates.

3)	Service fee income of $58.1 million in the first half of 2006 grew 282% over the first half of 2005 driven by the increase in the principal amount of loans serviced for others combined with slowing prepayments as mortgage rates have increased.

Operating expenses of $375.5 million reflected an increase of 25%, consistent with the growth in Indymac’s revenues and operations.

SUMMARY OF BUSINESS SEGMENT RESULTS

The Company conducts business substantially through IndyMac Bank, F.S.B. via two primary operating segments, the mortgage banking and the thrift segments. These segments 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. Please refer to the Company’s annual report on Form 10-K for the year ended December 31, 2005 (“2005 10-K”), page 23, for further discussions of the divisions within the mortgage banking and thrift segments.

The tables below summarize the year-over-year performance of Indymac’s divisions. Detailed operating results for each division are provided on pages 8 to 11.


	Mortgage Banking

				MSRs and
				Other			Mortgage												Total
	Production			Retained			Banking									Elimination			Operating			Corporate			Company
	Divisions			Assets			Overhead(1)			Total			Thrift			& Other			Results			Overhead			Total

	(Dollars in thousands)
Net Income Q206	$	85,149		$	24,752		$	(8,543	)	$	101,358		$	37,704		$	(7,139	)	$	131,923			(27,264	)		104,659
Net Income Q205		76,868			9,254			(7,446	)		78,676			33,370			(7,472	)		104,574			(22,860	)		81,714

$ Change		8,281			15,498			(1,097	)		22,682			4,334			333			27,349			(4,404	)		22,945
% Change		11	%		167	%		(15	)%		29	%		13	%		4	%		26	%		(19	)%		28	%
Average Capital Q206	$	521,875		$	363,809		$	10,930		$	896,614		$	666,085		$	46,573		$	1,609,272			132,965			1,742,237
Average Capital Q205		318,640			176,731			10,430			505,801			508,389			38,477			1,052,667			284,943			1,337,610
% Change		64	%		106	%		5	%		77	%		31	%		21	%		53	%		(53	)%		30	%
ROE Q206		65	%		27	%		N/A			45	%		23	%		N/A			33	%		N/A			24	%
ROE Q205		97	%		21	%		N/A			62	%		26	%		N/A			40	%		N/A			25	%
% Change		(32	)%		30	%		N/A			(27	)%		(14	)%		N/A			(17	)%		N/A			(2	)%


(1)	Included production division overhead and servicing overhead of $6.1 million and $2.4 million, respectively, for the second quarter of 2006. For the second quarter of 2005, the production division overhead and servicing overhead were $5.0 million and $2.4 million, respectively.


	Mortgage Banking Production Divisions

	Mortgage Professionals Group
													Consumer			Financial			Production
	Wholesale			Correspondent			Conduit			Total			Direct			Freedom			Divisions

	(Dollars in thousands)
Net Income Q206	$	47,370		$	7,981		$	17,990		$	73,341		$	668		$	11,140		$	85,149
Net Income Q205		56,490			11,026			4,551			72,067			(434	)		5,235			76,868

$ Change	$	(9,120	)	$	(3,045	)	$	13,439		$	1,274		$	1,102		$	5,905		$	8,281
% Change		(16	)%		(28	)%		295	%		2	%		254	%		113	%		11	%
Average Capital Q206	$	212,697		$	53,252		$	168,293		$	434,242		$	12,872		$	74,761		$	521,875
Average Capital Q205		130,677			25,074			88,957			244,708			13,784			60,148			318,640
% Change		63	%		112	%		89	%		77	%		(7	)%		24	%		64	%
ROE Q206		89	%		60	%		43	%		68	%		21	%		60	%		65	%
ROE Q205		173	%		176	%		21	%		118	%		(13	)%		35	%		97	%
% Change		(48	)%		(66	)%		109	%		(43	)%		265	%		71	%		(32	)%


	Thrift

										Consumer
	Mortgage-			Prime SFR			Home			Construction			Builder
	Backed			Mortgage			Equity			and Lot			Construction			Warehouse			Discontinued
	Securities			Loans			Division			Loans			Financing			Lending			Products			Total Thrift

	(Dollars in thousands)
Net Income Q206	$	5,392		$	10,821		$	6,356		$	7,849		$	7,203		$	24		$	59		$	37,704
Net Income Q205		3,713			12,012			5,023			9,226			3,984			(436	)		(152	)		33,370

$ Change	$	1,679		$	(1,191	)	$	1,333		$	(1,377	)	$	3,219		$	460		$	211		$	4,334
% Change		45	%		(10	)%		27	%		(15	)%		81	%		106	%		139	%		13	%
Average Capital Q206	$	55,974		$	223,102		$	148,496		$	120,104		$	105,365		$	9,331		$	3,713		$	666,085
Average Capital Q205		39,476			205,707			84,073			100,859			72,508			1,329			4,437			508,389
% Change		42	%		8	%		77	%		19%			45	%		602	%		(16	)%		31	%
ROE Q206		39	%		19	%		17	%		26%			27	%		1	%		6	%		23	%
ROE Q205		38	%		23	%		24	%		37%			22	%		(132	)%		(14	)%		26	%
% Change		2	%		(17	)%		(28	)%		(29	)%		24	%		N/M			146	%		(14	)%

Total capital deployed in our operating business segments increased 53% to $1.6 billion in the second quarter of 2006 and earned a 33% return on equity before the impact of corporate overhead. Net of corporate overhead and including the excess undeployed capital, Indymac’s average capital of $1.7 billion earned a 24% return on equity.

We deployed $521.9 million of capital into our mortgage production divisions in the second quarter of 2006, an increase of 64% over the second quarter of 2005. Mortgage production earnings grew 11%; however the return on equity declined from 97% to 65% reflecting the narrower mortgage banking revenue margins. The wholesale and correspondent divisions reflected stronger production year over year, but a reduction in net income as margins were significantly lower in these two business lines year over year. The wholesale division net income also reflected the loss related to the lot loan fraud discussed earlier. Our conduit group had a particularly strong quarter reflecting earnings growth of 295% and return on equity of 43%, up from 21%. The increase was due to improvement in the revenue margins primarily related to their option arm production and strong efficiencies in their pipeline hedge management. Looking forward, we expect the returns in this division to revert to the more normal levels reflected in the prior period. Our reverse mortgage division continued to demonstrate strong returns with earnings and production growth of 113% and 109%, respectively. The strong returns in this business are reflective of the strong growth in demographics for the seniors market and the growing popularity of the reverse mortgage product. We expect this division to continue its strong growth in the future given its industry leadership position in the reverse mortgage market.

We deployed 21% of our capital, or $363.8 million, in the MSRs and Other Retained Assets, up from 13% one year ago. This segment experienced a strong increase in ROE from 21 percent in the second quarter of 2005 to 27% in the second quarter of 2006. We target our pricing and hedging strategies to earn expected ROE of 18% to 23% for this segment. Given the volatility in this segment, returns in a quarter may substantially exceed or fall below the targeted level.

We deployed 38% of our capital or $666.1 million to the Thrift, a 31% increase over last year. This segment continued to earn a solid, stable ROE, earning 23% for the second quarter of 2006.

DETAIL CHANNEL SEGMENT RESULTS

The following tables summarize the Company’s financial results for the three months ended June 30, 2006 and 2005, by its two primary segments via each of its operating divisions:


				Mortgage Banking

							MSRs and			Mortgage												Total
Three Months Ended				Production			Other Retained			Banking									Elimination			Operating			Corporate			Total
June 30, 2006				Divisions			Assets			Overhead(1)			Total			Thrift			& Other(2)			Results			Overhead			Company

				(Dollars in thousands)
Operating Results
Net interest income				$	37,650		$	16,799		$	468		$	54,917		$	67,109		$	10,083		$	132,109		$	(1,955	)	$	130,154
Provision for loan losses					—			—			—			—			(2,230	)		—			(2,230	)		—			(2,230	)
Gain (loss) on sale of loans					191,333			5,591			—			196,924			17,005			(12,270	)		201,659			—			201,659
Service fee income					4,650			23,051			—			27,701			288			(742	)		27,247			—			27,247
Gain (loss) on securities					—			6,506			—			6,506			(1,251	)		3,003			8,258			—			8,258
Other income					484			1,222			725			2,431			9,445			(150	)		11,726			276			12,002

	Net revenues (expense)				234,117			53,169			1,193			288,479			90,366			(76	)		378,769			(1,679	)		377,090
	Operating expenses				152,837			13,944			15,313			182,094			32,646			12,005			226,745			43,901			270,646
	Deferred expense under FAS 91				(59,608	)		(1,687	)		—			(61,295	)		(4,599	)		(281	)		(66,175	)		—			(66,175	)

		Pretax income (loss)			140,888			40,912			(14,120	)		167,680			62,319			(11,800	)		218,199			(45,580	)		172,619

			Net income (loss)	$	85,149		$	24,752		$	(8,543	)	$	101,358		$	37,704		$	(7,139	)	$	131,923		$	(27,264	)	$	104,659

Relevant Financial and Performance Data
Average interest-earning assets				$	8,851,454		$	840,191		$	3,291		$	9,694,936		$	14,231,553		$	740,001		$	24,666,490		$	14,087		$	24,680,577
Allocated capital				$	521,875		$	363,809		$	10,930		$	896,614		$	666,085		$	46,573		$	1,609,272			132,965			1,742,237
Loans produced				$	18,712,491		$	540,228		$	—		$	19,252,719		$	1,337,863		$	—		$	20,590,582		$	—		$	20,590,582
Loans sold				$	19,743,413		$	437,331		$	—		$	20,180,744		$	1,269,497		$	(2,035,077	)	$	19,415,164		$	—		$	19,415,164
MBR margin					1.16	%		1.28	%		N/A			1.16	%		1.34	%		N/A			N/A			N/A			1.23	%
ROE					65	%		27	%		N/A			45	%		23	%		N/A			33	%		N/A			24	%
ROA					3.77	%		3.87	%		N/A			3.46	%		1.05	%		N/A			1.95	%		N/A			1.51	%
Net interest margin, thrift.					N/A			N/A			N/A			N/A			1.89	%		N/A			N/A			N/A			2.01	%
Average FTE					4,405			190			1,067			5,662			648			312			6,622			1,239			7,861


Three Months Ended
June 30, 2005

Operating Results
Net interest income				$	23,785		$	11,372		$	40		$	35,197		$	53,842		$	11,344		$	100,383		$	(3,064	)	$	97,319
Provision for loan losses					—			—			—			—			(2,407	)		—			(2,407	)		—			(2,407	)
Gain (loss) on sale of loans					169,949			1,254			—			171,203			14,325			(26,151	)		159,377			—			159,377
Service fee income					3,035			(4,184	)		—			(1,149	)		1,754			10,194			10,799			—			10,799
Gain (loss) on securities					—			14,361			—			14,361			1,005			485			15,851			—			15,851
Other income					720			561			512			1,793			7,523			(2,373	)		6,943			789			7,732

	Net revenues (expense)				197,489			23,364			552			221,405			76,042			(6,501	)		290,946			(2,275	)		288,671
	Operating expenses				119,046			8,519			12,859			140,424			26,106			8,702			175,232			36,065			211,297
	Deferred expense under FAS 91				(48,638	)		(451	)		—			(49,089	)		(5,222	)		(2,853	)		(57,164	)		—			(57,164	)

		Pretax income (loss)			127,081			15,296			(12,307	)		130,070			55,158			(12,350	)		172,878			(38,340	)		134,538

			Net income (loss)	$	76,868		$	9,254		$	(7,446	)	$	78,676		$	33,370		$	(7,472	)	$	104,574		$	(22,860	)	$	81,714

Relevant Financial and Performance Data
Average interest-earning assets				$	5,689,906		$	555,790		$	77		$	6,245,773		$	11,645,734		$	652,469		$	18,543,976		$	16,805		$	18,560,781
Allocated capital				$	318,640		$	176,731		$	10,430		$	505,801		$	508,389		$	38,477		$	1,052,667		$	284,943		$	1,337,610
Loans produced				$	13,196,407		$	173,754		$	—		$	13,370,161		$	1,422,746		$	—		$	14,792,907		$	—		$	14,792,907
Loans sold				$	11,673,671		$	250,719		$	—		$	11,924,390		$	864,989		$	(1,255,279	)	$	11,534,100		$	—		$	11,534,100
MBR margin					1.66	%		1.33	%		N/A			1.65	%		1.98	%		N/A			N/A			N/A			1.63	%
ROE					97	%		21	%		N/A			62	%		26	%		N/A			40	%		N/A			25	%
ROA					5.29	%		2.66	%		N/A			4.29	%		1.15	%		N/A			2.12	%		N/A			1.64	%
Net interest margin, thrift.					N/A			N/A			N/A			N/A			1.85	%		N/A			N/A			N/A			2.02	%
Average FTE					3,364			114			747			4,225			544			231			5,000			1,038			6,038


(1)	Included in the mortgage banking overhead was $6.1 million and $2.4 million production division overhead and servicing overhead, respectively, for the quarter ended June 30, 2006. For the quarter ended June 30, 2005, the $7.4 million mortgage banking overhead included $5.0 million production division overhead and $2.4 million servicing overhead.

(2)	Included are eliminations, deposits, and treasury items, the details of which are provided on page 11.

The following tables provide additional detail on the results for the production divisions of our mortgage banking segment for the three months ended June 30, 2006 and 2005:


				Mortgage Banking Production Divisions

																			Financial
				Mortgage Professionals															Freedom			Total
Three Months Ended																Consumer			(Reverse			Production
June 30, 2006				Wholesale			Correspondent			Conduit			Total			Direct			Mortgage)			Divisions

				(Dollars in thousands)
Operating Results
Net interest income				$	14,463		$	3,375		$	17,576		$	35,414		$	647		$	1,589		$	37,650
Provision for loan losses					—			—			—			—			—			—			—
Gain (loss) on sale of loans					107,405			16,482			18,918			142,805			10,357			38,171			191,333
Service fee income					—			—			—			—			—			4,650			4,650
Gain (loss) on securities					—			—			—			—			—			—			—
Other income					—			—			(9	)		(9	)		127			366			484

	Net revenues (expense)				121,868			19,857			36,485			178,210			11,131			44,776			234,117
	Operating expenses				82,330			12,862			6,750			101,942			16,231			34,664			152,837
	Deferral of expenses under FAS 91				(38,759	)		(6,197	)		—			(44,956	)		(6,203	)		(8,449	)		(59,608	)

		Pretax income (loss)			78,297			13,192			29,735			121,224			1,103			18,561			140,888

			Net income (loss)	$	47,370		$	7,981		$	17,990		$	73,341		$	668		$	11,140		$	85,149

Relevant Financial and Performance Data
Average interest-earning assets				$	3,680,645		$	919,027		$	3,603,890		$	8,203,562		$	224,931		$	422,961		$	8,851,454
Allocated capital					212,697			53,252			168,293			434,242			12,872			74,761			521,875
Loans produced					8,825,462			2,527,672			5,471,341			16,824,475			551,455			1,336,561			18,712,491
Loans sold					9,296,911			2,601,936			6,054,148			17,952,995			589,577			1,200,841			19,743,413
MBR margin					1.31	%		0.76	%		0.60	%		0.99	%		1.87	%		3.31	%		1.16	%
Pretax income/loan sold					0.84	%		0.51	%		0.49	%		0.68	%		0.19	%		1.55	%		0.71	%
ROE					89	%		60	%		43	%		68	%		21	%		60	%		65	%
ROA					5.15	%		3.48	%		1.98	%		3.57	%		1.13	%		7.66	%		3.77	%
Net interest margin					1.58	%		1.47	%		1.96	%		1.73	%		1.15	%		1.51	%		1.71	%
Average FTE					2,392			229			146			2,767			369			1,269			4,405


Three Months Ended
June 30, 2005

Operating Results
Net interest income				$	9,695		$	2,548		$	9,953		$	22,196		$	1,087		$	502		$	23,785
Provision for loan losses					—			—			—			—			—			—			—
Gain (loss) on sale of loans					116,145			19,246			1,317			136,708			16,013			17,228			169,949
Service fee income					—			—			—			—			—			3,035			3,035
Gain (loss) on securities					—			—			—			—			—			—			—
Other income					4			—			61			65			(1	)		656			720

	Net revenues (expense)				125,844			21,794			11,331			158,969			17,099			21,421			197,489
	Operating expenses				65,399			7,877			3,809			77,085			24,471			17,490			119,046
	Deferral of expenses under FAS 91				(32,927	)		(4,307	)		—			(37,234	)		(6,654	)		(4,750	)		(48,638	)

		Pretax income (loss)			93,372			18,224			7,522			119,118			(718	)		8,681			127,081

			Net income (loss)	$	56,490		$	11,026		$	4,551		$	72,067		$	(434	)	$	5,235		$	76,868

Relevant Financial and Performance Data
Average interest-earning assets				$	2,769,263		$	557,558		$	1,979,241		$	5,306,062		$	277,301		$	106,543		$	5,689,906
Allocated capital					130,677			25,074			88,957			244,708			13,784			60,148			318,640
Loans produced					7,191,986			1,419,921			3,206,983			11,818,890			738,137			639,380			13,196,407
Loans sold					6,568,736			1,291,826			2,542,383			10,402,945			656,290			614,436			11,673,671
MBR margin					1.92	%		1.69	%		0.44	%		1.53	%		2.61	%		2.89	%		1.66	%
Pretax income/loan sold					1.42	%		1.41	%		0.30	%		1.15	%		(0.11	)%		1.41	%		1.09	%
ROE					173	%		176	%		21	%		118	%		(13	)%		35	%		97	%
ROA					8.16	%		7.91	%		0.92	%		5.43	%		(0.60	)%		9.59	%		5.29	%
Net interest margin					1.40	%		1.83	%		2.02	%		1.68	%		1.57	%		1.89	%		1.68	%
Average FTE					1,785			171			102			2,058			594			712			3,364

The following tables provide additional detail on the results for divisions of our thrift segment for the three months ended June 30, 2006 and 2005:


				Thrift

													Consumer
				Mortgage-			Prime SFR			Home			Construction			Builder
Three Months Ended				Backed			Mortgage			Equity			and Lot			Construction			Warehouse			Discontinued
June 30, 2006				Securities			Loans			Division			Loans			Financing			Lending			Products			Total Thrift

				(Dollars in thousands)
Operating Results
Net interest income				$	9,238		$	18,723		$	9,817		$	12,211		$	15,809		$	728		$	583		$	67,109
Provision for loan losses					—			(975	)		—			(625	)		(250	)		—			(380	)		(2,230	)
Gain (loss) on sale of loans					(122	)		765			5,280			11,093			—			—			(11	)		17,005
Service fee income					—			—			288			—			—			—			—			288
Gain (loss) on securities					72			—			(1,787	)		464			—			—			—			(1,251	)
Other income					11			429			2,262			5,934			376			433			—			9,445

	Net revenues (expense)				9,199			18,942			15,860			29,077			15,935			1,161			192			90,366
	Operating expenses				286			1,056			5,682			18,413			5,993			1,122			94			32,646
	Deferral of expenses under FAS 91				—			—			(327	)		(2,309	)		(1,963	)		—			—			(4,599	)

		Pretax income (loss)			8,913			17,886			10,505			12,973			11,905			39			98			62,319

			Net income (loss)	$	5,392		$	10,821		$	6,356		$	7,849		$	7,203		$	24		$	59		$	37,704

Relevant Financial and Performance Data
Average interest-earning assets				$	3,027,166		$	5,552,768		$	1,959,586		$	2,478,231		$	1,077,306		$	94,938		$	41,558		$	14,231,553
Allocated capital					55,974			223,102			148,496			120,104			105,365			9,331			3,713			666,085
Loans produced					—			—			32,808			774,060			530,995			—			—			1,337,863
Loans sold					—			2,845			615,834			650,818			—			—			—			1,269,497
ROE					39	%		19	%		17	%		26	%		27	%		1	%		6	%		23	%
ROA					0.70	%		0.77	%		1.26	%		1.27	%		2.70	%		0.10	%		0.65	%		1.05	%
Net interest margin					1.22	%		1.35	%		2.01	%		1.98	%		5.89	%		3.08	%		5.63	%		1.89	%
Efficiency ratio					3	%		5	%		34	%		54	%		25	%		97	%		16	%		30	%
Average FTE					6			14			77			426			101			24			—			648


Three Months Ended
June 30, 2005

Operating Results
Net interest income				$	5,688		$	17,778		$	7,087		$	12,696		$	9,752		$	49		$	792		$	53,842
Provision for loan losses					—			(700	)		—			(573	)		(500	)		(84	)		(550	)		(2,407	)
Gain (loss) on sale of loans					—			3,056			646			10,613			—			—			10			14,325
Service fee income					—			278			1,476			—			—			—			—			1,754
Gain (loss) on securities					724			—			397			(116	)		—			—			—			1,005
Other income					(1	)		—			1,788			5,521			138			76			1			7,523

	Net revenues (expense)				6,411			20,412			11,394			28,141			9,390			41			253			76,042
	Operating expenses				274			557			3,672			15,693			4,644			762			504			26,106
	Deferral of expenses under FAS 91				—			—			(581	)		(2,802	)		(1,839	)		—			—			(5,222	)

		Pretax income (loss)			6,137			19,855			8,303			15,250			6,585			(721	)		(251	)		55,158

			Net income (loss)	$	3,713		$	12,012		$	5,023		$	9,226		$	3,984		$	(436	)	$	(152	)	$	33,370

Relevant Financial and Performance Data
Average interest-earning assets				$	2,131,235		$	5,050,001		$	1,559,134		$	2,091,337		$	751,327		$	12,800		$	49,900		$	11,645,734
Allocated capital					39,476			205,707			84,073			100,859			72,508			1,329			4,437			508,389
Loans produced					—			—			55,716			772,804			594,226			—			—			1,422,746
Loans sold					—			111,299			130,497			623,193			—			—			—			864,989
ROE					38	%		23	%		24	%		37	%		22	%		(132	)%		(14	)%		26	%
ROA					0.69	%		0.95	%		1.28	%		1.77	%		2.14	%		(12.09	)%		(1.42	)%		1.15	%
Net interest margin					1.07	%		1.41	%		1.82	%		2.43	%		5.21	%		1.54	%		6.37	%		1.85	%
Efficiency ratio					4	%		3	%		27	%		45	%		28	%		610	%		63	%		27	%
Average FTE					5			11			26			378			90			20			14			544

The following tables provide additional detail on deposits, treasury and eliminations for the three months ended June 30, 2006 and 2005:


										Eliminations

													MSR
Three months ended										Interdivision			Economic
June 30, 2006				Deposits			Treasury			Loan Sales			Value		Other			Total

				(Dollars in thousands)
Operating Results
Net interest income				$	—		$	(859	)	$	7,568		$	—	$	3,374		$	10,083
Provision for loan losses					—			—			—			—		—			—
Gain (loss) on sale of loans					—			—			(12,270	)		—		—			(12,270	)
Service fee income					—			—			(742	)		—		—			(742	)
Gain (loss) on securities					—			—			3,003			—		—			3,003
Other income					883			180			—			—		(1,213	)		(150	)

	Net revenues (expense)				883			(679	)		(2,441	)		—		2,161			(76	)
	Operating expenses				6,261			2,098			—			—		3,646			12,005
	Deferral of expenses under FAS 91				—			—			—			—		(281	)		(281	)

		Pretax income (loss)			(5,378	)		(2,777	)		(2,441	)		—		(1,204	)		(11,800	)

			Net income (loss)	$	(3,254	)	$	(1,680	)	$	(1,477	)	$	—	$	(728	)	$	(7,139	)

Relevant Financial and Performance Data
Average interest-earning assets				$	176		$	830,915		$	(91,090	)	$	—	$	—		$	740,001
Allocated capital				$	2,154		$	44,419		$	—		$	—	$	—		$	46,573
Loans produced				$	—		$	—		$	—		$	—	$	—		$	—
Loans sold					N/A			N/A		$	(2,035,077	)		N/A		N/A		$	(2,035,077	)
ROE					N/A			N/A			N/A			N/A		N/A			N/A
ROA					N/A			N/A			N/A			N/A		N/A			N/A
Net interest margin					N/A			N/A			N/A			N/A		N/A			N/A
Efficiency ratio					N/A			N/A			N/A			N/A		N/A			N/A
Average FTE					268			44			—			—		—			312


Three months ended
June 30, 2005

Operating Results
Net interest income				$	—		$	3,509	$	4,670		$	—	$	3,165		$	11,344
Provision for loan losses					—			—		—			—		—			—
Gain (loss) on sale of loans					—			—		(26,151	)		—		—			(26,151	)
Service fee income					—			—		(905	)		11,099		—			10,194
Gain (loss) on securities					—			—		485			—		—			485
Other income					618			128		—			—		(3,119	)		(2,373	)

	Net revenues (expense)				618			3,637		(21,901	)		11,099		46			(6,501	)
	Operating expenses				3,441			1,525		—			—		3,736			8,702
	Deferral of expenses under FAS 91				—			—		—			—		(2,853	)		(2,853	)

		Pretax income (loss)			(2,823	)		2,112		(21,901	)		11,099		(837	)		(12,350	)

			Net income (loss)	$	(1,708	)	$	1,278	$	(13,250	)	$	6,715	$	(507	)	$	(7,472	)

Relevant Financial and Performance Data
Average interest-earning assets				$	172		$	711,067	$	(58,770	)	$	—	$	—		$	652,469
Allocated capital				$	1,650		$	36,827	$	—		$	—	$	—		$	38,477
Loans produced				$	—		$	—	$	—		$	—	$	—		$	—
Loans sold					N/A			N/A	$	(1,255,279	)		N/A		—		$	(1,255,279	)
ROE					N/A			N/A		N/A			N/A		N/A			N/A
ROA					N/A			N/A		N/A			N/A		N/A			N/A
Net interest margin					N/A			N/A		N/A			N/A		N/A			N/A
Efficiency ratio					N/A			N/A		N/A			N/A		N/A			N/A
Average FTE					200			31		—			—		—			231

Accounting Methodology for Reporting Segment Financial Results

The profitability of each operating channel is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules. The Company uses a fund transfer pricing (“FTP”) system to allocate interest 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 and Corporate Overhead, respectively. Trust preferred is allocated to the operating channels which results in higher interest expense at the operating channel level but reduces their capital charge. This is more reflective of our use of trust preferred as a component of capital.

The mortgage production divisions are credited with gain on sale of loans based on the actual amount realized for loans sold in the period for that division. Loans are occasionally transferred (“sold”) from the production divisions to the thrift divisions at a premium based on the estimated fair value. The premium paid for the loans is recorded as a gain in the production divisions and a premium on the asset in the thrift divisions and eliminated in consolidation. In subsequent periods, this premium is amortized as part of the thrift divisions’ net interest margin and the amortization is reversed in Eliminations.

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”), certain fees and related incremental direct costs associated with originating loans are required to be deferred when incurred. SFAS No. 91 fees and expenses are deferred at production and subsequently recognized at sale. This is reflected as a reclassification reducing operating expenses and loan fees with the net deferral reported as a component of the gain on sale. The deferral of direct origination costs is shown separately as a contra to the gross operating expenses in the detail segment tables on pages 8 to 11 to enable the computation of gross cost per funded loan.

The Company hedges the MSRs to protect their economic value. The results in the business segment tables above reflect the economic fair value of MSRs. Prior to the adoption of SFAS No. 156 on January 1, 2006, the economic fair value may vary from the generally accepted accounting principles (“GAAP”) value due to the lower of cost or market limitations of GAAP. Differences between the economic value and the GAAP value were eliminated in consolidation. Also, the Company has revised its capital allocation on MSRs to conform to updated regulatory capital guidelines. Prior period segment data was revised accordingly.

The Company’s corporate overhead costs such as corporate salaries and related expenses, and non-recurring corporate items are not allocated to the operating channels. Also, for purposes of calculating average interest-earning assets, the allowance for loan losses is excluded.

PRODUCT PROFITABILITY ANALYSIS

As part of our process of measuring results and holding managers responsible for specific targets, we evaluate profitability at the product level in addition to our segment results. 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 investment, and specialty commercial loans held for investment. Please refer to the Company’s 2005 10-K, pages 31 to 37, for further discussion on the products included within each product group.

The following tables summarize the profitability for each of the four product groups and the loan servicing operations for the three months ended June 30, 2006 and 2005:


										Home
				Standard			Specialty			Loans &			Specialty
				Consumer Home			Consumer			Related			Commercial									Total
Three Months Ended June 30, 2006				Loans			Home Loans			Investments			Loans			Treasury			Overhead			Company

				(Dollars in thousands)
Operating Results
Net interest income				$	28,022		$	36,329		$	45,043		$	20,101		$	(859	)	$	1,518		$	130,154
Provision for loan losses					—			(930	)		(975	)		(325	)		—			—			(2,230	)
Gain (loss) on sale of loans					157,203			38,222			6,234			—			—			—			201,659
Service fee income					—			6,238			20,521			—			—			488			27,247
Gain (loss) on securities					—			(4,375	)		12,633			—			—			—			8,258
Other income					—			7,818			1,662			1,553			180			789			12,002

	Net revenue (expense)				185,225			83,302			85,118			21,329			(679	)		2,795			377,090
	Variable expenses				59,169			45,401			1,268			3,577			—			—			109,415
	Deferral of expenses under FAS 91				(43,663	)		(19,391	)		(1,081	)		(2,040	)		—			—			(66,175	)
	Fixed expenses				48,459			23,768			12,822			4,963			2,098			69,121			161,231

		Pretax income (loss)			121,260			33,524			72,109			14,829			(2,777	)		(66,326	)		172,619

			Net income (loss)	$	73,363		$	20,192		$	43,626		$	8,972		$	(1,680	)	$	(39,814	)	$	104,659

Balance Sheet Data
Average interest-earning assets				$	7,763,901		$	5,324,900		$	9,351,463		$	1,423,150		$	830,915		$	(13,752	)	$	24,680,577
Allocated capital				$	389,127		$	358,963		$	616,829		$	134,241		$	44,419		$	198,658		$	1,742,237
Performance Ratios
ROE					76	%		23	%		28	%		27	%		N/A			N/A			24	%
Net interest margin					1.45	%		2.74	%		1.93	%		5.67	%		N/A			N/A			2.12	%
MBR margin					1.20	%		1.36	%		1.42	%		N/A			N/A			N/A			1.23	%
Efficiency ratio					35	%		59	%		15	%		30	%		N/A			N/A			54	%
Operating Data
Loan production				$	14,968,754		$	4,628,706		$	412,416		$	580,706		$	—		$	—		$	20,590,582
Loans sold				$	15,412,389		$	3,562,599		$	440,176		$	—		$	—		$	—		$	19,415,164


Three Months Ended June 30, 2005

Operating Results
Net interest income				$	21,053		$	24,631		$	35,863		$	12,104		$	3,509	$	159		$	97,319
Provision for loan losses					—			(988	)		(700	)		(719	)		—		—			(2,407	)
Gain (loss) on sale of loans					124,344			31,384			3,649			—			—		—			159,377
Service fee income					—			4,511			998			—			—		5,290			10,799
Gain (loss) on securities					—			281			15,570			—			—		—			15,851
Other income					—			7,523			560			657			128		(1,136	)		7,732

	Net revenue (expense)				145,397			67,342			55,940			12,042			3,637		4,313			288,671
	Variable expenses				53,334			30,753			998			4,664			—		—			89,749
	Deferral of expenses under FAS 91				(41,080	)		(13,603	)		(451	)		(2,030	)		—		—			(57,164	)
	Fixed expenses				39,923			13,599			7,976			2,149			1,525		56,376			121,548

		Pretax income (loss)			93,220			36,593			47,417			7,259			2,112		(52,063	)		134,538

			Net income (loss)	$	56,398		$	22,122		$	28,688		$	4,392		$	1,278	$	(31,164	)	$	81,714

Balance Sheet Data
Average interest-earning assets				$	5,423,384		$	3,781,904		$	7,713,653		$	928,628		$	711,067	$	2,145		$	18,560,781
Allocated capital				$	245,311		$	199,188		$	420,745		$	86,855		$	36,827	$	348,684		$	1,337,610
Performance Ratios
ROE					92	%		45	%		27	%		20	%		N/A		N/A			25	%
Net interest margin					1.56	%		2.61	%		1.86	%		5.23	%		N/A		N/A			2.10	%
MBR margin					1.51	%		2.37	%		1.58	%		N/A			N/A		N/A			1.63	%
Efficiency ratio					36	%		45	%		15	%		37	%		N/A		N/A			53	%
Operating Data
Loan production				$	11,343,026		$	2,615,401		$	150,578		$	683,902		$	—	$	—		$	14,792,907
Loans sold				$	9,613,043		$	1,559,039		$	362,018		$	—		$	—	$	—		$	11,534,100

The following tables provide details on the profitability for the standard consumer home loans held for sale for the three months ended June 30, 2006 and 2005:


				Standard Consumer Home Loans Held for Sale

				Agency
				Conforming/
Three Months Ended June 30, 2006				Jumbo			Alt-A			Subprime			Total

				(Dollars in thousands)
Operating Results
Net interest income				$	1,685		$	20,366		$	5,971		$	28,022
Provision for loan losses					—			—			—			—
Gain (loss) on sale of loans					1,221			149,753			6,229			157,203
Service fee income					—			—			—			—
Gain (loss) on securities					—			—			—			—
Other income					—			—			—			—

	Net revenues (expense)				2,906			170,119			12,200			185,225
	Variable expenses				2,672			49,918			6,579			59,169
	Deferral of expenses under FAS 91				(1,974	)		(36,828	)		(4,861	)		(43,663	)
	Fixed expenses				2,312			41,866			4,281			48,459

		Pretax income (loss)			(104	)		115,163			6,201			121,260

			Net income (loss)	$	(63	)	$	69,674		$	3,752		$	73,363

Balance Sheet Data
Average interest-earning assets				$	490,327		$	6,304,512		$	969,062		$	7,763,901
Allocated capital				$	20,619		$	307,649		$	60,859		$	389,127
Performance Ratios
ROE					(1	)%		91	%		25	%		76	%
Net interest margin					1.38	%		1.30	%		2.47	%		1.45	%
MBR margin					0.68	%		1.18	%		2.36	%		1.20	%
Efficiency ratio					104	%		32	%		49	%		35	%
Operating Data
Loan production				$	362,375		$	14,127,829		$	478,550		$	14,968,754
Loans sold				$	429,994		$	14,466,041		$	516,354		$	15,412,389


Three Months Ended June 30, 2005

Operating Results
Net interest income				$	1,785		$	14,622		$	4,646		$	21,053
Provision for loan losses					—			—			—			—
Gain (loss) on sale of loans					3,973			109,288			11,083			124,344
Service fee income					—			—			—			—
Gain (loss) on securities					—			—			—			—
Other income					—			—			—			—

	Net revenues (expense)				5,758			123,910			15,729			145,397
	Variable expenses				2,717			42,437			8,180			53,334
	Deferral of expenses under FAS 91				(2,107	)		(32,629	)		(6,344	)		(41,080	)
	Fixed expenses				2,265			32,824			4,834			39,923

		Pretax income (loss)			2,883			81,278			9,059			93,220

			Net income (loss)	$	1,744		$	49,173		$	5,481		$	56,398

Balance Sheet Data
Average interest-earning assets				$	329,056		$	4,475,567		$	618,761		$	5,423,384
Allocated capital				$	13,619		$	201,008		$	30,684		$	245,311
Performance Ratios
ROE					51	%		98	%		72	%		92	%
Net interest margin					2.18	%		1.31	%		3.01	%		1.56	%
MBR margin					1.03	%		1.49	%		2.16	%		1.51	%
Efficiency ratio					50	%		34	%		42	%		36	%
Operating Data
Loan production				$	522,026		$	10,277,637		$	543,363		$	11,343,026
Loans sold				$	559,081		$	8,326,606		$	727,356		$	9,613,043

The following tables provide details on the profitability for the specialty consumer home loans held for sale and/or investment for the three months ended June 30, 2006 and 2005:


				Specialty Consumer Home Loans Held for Sale and/or Investment

				HELOCs/			Reverse
Three Months Ended June 30, 2006				Seconds			Mortgages			CTP/Lot			Discontinued			Total

				(Dollars in thousands)
Operating Results
Net interest income				$	21,410		$	1,589		$	12,747		$	583		$	36,329
Provision for loan losses					—			—			(550	)		(380	)		(930	)
Gain (loss) on sale of loans					(5,228	)		38,171			5,290			(11	)		38,222
Service fee income					1,588			4,650			—			—			6,238
Gain (loss) on securities					(4,839	)		—			464			—			(4,375	)
Other income					2,262			366			5,190			—			7,818

	Net revenues (expense)				15,193			44,776			23,141			192			83,302
	Variable expenses				14,403			20,948			10,050			—			45,401
	Deferral of expenses under FAS 91				(8,710	)		(8,449	)		(2,232	)		—			(19,391	)
	Fixed expenses				3,020			13,716			6,938			94			23,768

		Pretax income (loss)			6,480			18,561			8,385			98			33,524

			Net income (loss)	$	3,920		$	11,140		$	5,073		$	59		$	20,192

Balance Sheet Data
Average interest-earning assets				$	2,642,792		$	422,961		$	2,217,589		$	41,558		$	5,324,900
Allocated capital				$	229,181		$	26,318		$	99,751		$	3,713		$	358,963
Performance Ratios
ROE					7	%		170	%		20	%		6	%		23	%
Net interest margin					3.25	%		1.51	%		2.31	%		5.63	%		2.74	%
MBR margin					0.20	%		3.31	%		0.81	%		N/A			1.36	%
Efficiency ratio					57	%		59	%		62	%		16	%		59	%
Operating Data
Loan production				$	1,860,406		$	1,336,561		$	1,431,739		$	—		$	4,628,706
Loans sold				$	1,710,940		$	1,200,841		$	650,818		$	—		$	3,562,599


Three Months Ended June 30, 2005

Operating Results
Net interest income				$	10,285		$	502		$	13,052		$	792		$	24,631
Provision for loan losses					—			—			(438	)		(550	)		(988	)
Gain (loss) on sale of loans					2,637			17,228			11,509			10			31,384
Service fee income					1,476			3,035			—			—			4,511
Gain (loss) on securities					397			—			(116	)		—			281
Other income					1,788			656			5,078			1			7,523

	Net revenues (expense)				16,583			21,421			29,085			253			67,342
	Variable expenses				10,965			11,089			8,699			—			30,753
	Deferral of expenses under FAS 91				(6,242	)		(4,750	)		(2,611	)		—			(13,603	)
	Fixed expenses				1,107			6,401			5,587			504			13,599

		Pretax income (loss)			10,753			8,681			17,410			(251	)		36,593

			Net income (loss)	$	6,506		$	5,235		$	10,533		$	(152	)	$	22,122

Balance Sheet Data
Average interest-earning assets				$	1,703,536		$	106,543		$	1,921,925		$	49,900		$	3,781,904
Allocated capital				$	95,696		$	11,705		$	87,350		$	4,437		$	199,188
Performance Ratios
ROE					27	%		179	%		48	%		(14	)%		45	%
Net interest margin					2.42	%		1.89	%		2.72	%		6.37	%		2.61	%
MBR margin					1.51	%		2.89	%		2.30	%		N/A			2.37	%
Efficiency ratio					35	%		59	%		40	%		63	%		45	%
Operating Data
Loan production				$	748,210		$	639,380		$	1,227,811		$	—		$	2,615,401
Loans sold				$	321,410		$	614,436		$	623,193		$	—		$	1,559,039

The following tables provide details on the profitability for the home loans and related investments and the loan servicing operations for the three months ended June 30, 2006 and 2005:


				Home Loans and Related Investments

				Retained Assets						SFR Loans
				and Retention						Held for
				Activities			MBS			Investment			Total

				(Dollars in thousands)
Three Months Ended June 30, 2006

Operating Results
Net interest income				$	15,327		$	9,238		$	20,478		$	45,043
Provision for loan losses					—			—			(975	)		(975	)
Gain (loss) on sale of loans					5,591			(122	)		765			6,234
Service fee income					20,521			—			—			20,521
Gain (loss) on securities					12,561			72			—			12,633
Other income					1,222			11			429			1,662

	Net revenues (expense)				55,222			9,199			20,697			85,118
	Variable expenses				1,268			—			—			1,268
	Deferral of expenses under FAS 91				(1,081	)		—			—			(1,081	)
	Fixed expenses				11,480			286			1,056			12,822

		Pretax income (loss)			43,555			8,913			19,641			72,109

			Net income (loss)	$	26,351		$	5,392		$	11,883		$	43,626

Balance Sheet Data
Average interest-earning assets				$	790,692		$	3,027,166		$	5,533,605		$	9,351,463
Allocated capital				$	338,548		$	55,974		$	222,307		$	616,829
Performance Ratios
ROE					31	%		39	%		21	%		28	%
Net interest margin					7.78	%		1.22	%		1.48	%		1.93	%
MBR margin					1.28	%		N/A			N/A			1.42	%
Efficiency ratio					21	%		3	%		5	%		15	%
Operating Data
Loan production				$	412,416		$	—		$	—		$	412,416
Loans sold				$	437,331		$	—		$	2,845		$	440,176

Three Months Ended June 30, 2005

Operating Results
Net interest income				$	11,372		$	5,688		$	18,803		$	35,863
Provision for loan losses					—			—			(700	)		(700	)
Gain (loss) on sale of loans					761			—			2,888			3,649
Service fee income					720			—			278			998
Gain (loss) on securities					14,846			724			—			15,570
Other income					561			(1	)		—			560

	Net revenues (expense)				28,260			6,411			21,269			55,940
	Variable expenses				998			—			—			998
	Deferral of expenses under FAS 91				(451	)		—			—			(451	)
	Fixed expenses				7,145			274			557			7,976

		Pretax income (loss)			20,568			6,137			20,712			47,417

			Net income (loss)	$	12,444		$	3,713		$	12,531		$	28,688

Balance Sheet Data
Average interest-earning assets				$	555,790		$	2,131,235		$	5,026,628		$	7,713,653
Allocated capital				$	176,731		$	39,476		$	204,538		$	420,745
Performance Ratios
ROE					28	%		38	%		25	%		27	%
Net interest margin					8.21	%		1.07	%		1.50	%		1.86	%
MBR margin					1.13	%		N/A			N/A			1.58	%
Efficiency ratio					27	%		4	%		3	%		15	%
Operating Data
Loan production				$	150,578		$	—		$	—		$	150,578
Loans sold				$	250,719		$	—		$	111,299		$	362,018

The following table provides details on the profitability for the specialty commercial loans held for investment for the three months ended June 30, 2006 and 2005:


				Specialty Commercial Loans Held for Investment

				Single						Warehouse
				Spec			Subdivision			Lending		Total

				(Dollars in thousands)
Three Months Ended June 30, 2006

Operating Results
Net interest income				$	3,564		$	15,809		$	728	$	20,101
Provision for loan losses					(75	)		(250	)		—		(325	)
Gain (loss) on sale of loans					—			—			—		—
Service fee income					—			—			—		—
Gain (loss) on securities					—			—			—		—
Other income					744			376			433		1,553

	Net revenues (expense)				4,233			15,935			1,161		21,329
	Variable expenses				873			2,704			—		3,577
	Deferral of expenses under FAS 91				(77	)		(1,963	)		—		(2,040	)
	Fixed expenses				552			3,289			1,122		4,963

		Pretax income (loss)			2,885			11,905			39		14,829

			Net income (loss)	$	1,745		$	7,203		$	24	$	8,972

Balance Sheet Data
Average interest-earning assets				$	250,906		$	1,077,306		$	94,938	$	1,423,150
Allocated capital				$	19,545		$	105,365		$	9,331	$	134,241
Performance Ratios
ROE					36	%		27	%		N/A		27	%
Net interest margin					5.70	%		5.89	%		N/A		5.67	%
Efficiency ratio					31	%		25	%		N/A		30	%
Operating Data
Loan production				$	49,711		$	530,995		$	—	$	580,706
Loans sold				$	—		$	—		$	—	$	—


Three Months Ended June 30, 2005

Operating Results
Net interest income				$	2,303		$	9,752		$	49		$	12,104
Provision for loan losses					(135	)		(500	)		(84	)		(719	)
Gain (loss) on sale of loans					—			—			—			—
Service fee income					—			—			—			—
Gain (loss) on securities					—			—			—			—
Other income					443			138			76			657

	Net revenues (expense)				2,611			9,390			41			12,042
	Variable expenses				908			3,756			—			4,664
	Deferral of expenses under FAS 91				(191	)		(1,839	)		—			(2,030	)
	Fixed expenses				499			888			762			2,149

		Pretax income (loss)			1,395			6,585			(721	)		7,259

			Net income (loss)	$	844		$	3,984		$	(436	)	$	4,392

Balance Sheet Data
Average interest-earning assets				$	164,501		$	751,327		$	12,800		$	928,628
Allocated capital				$	13,018		$	72,508		$	1,329		$	86,855
Performance Ratios
ROE					26	%		22	%		N/A			20	%
Net interest margin					5.62	%		5.21	%		N/A			5.23	%
Efficiency ratio					44	%		28	%		N/A			37	%
Operating Data
Loan production				$	89,676		$	594,226		$	—		$	683,902
Loans sold				$	—		$	—		$	—		$	—

The following table provides details on the overhead costs for the three months ended June 30, 2006 and 2005:


Three Months Ended June 30, 2006				Servicing OH			MB OH			Deposit OH			Corporate OH			Total Overhead

				(Dollars in thousands)
Operating Results
Net interest income				$	(40	)	$	508		$	3,313		$	(2,263	)	$	1,518
Provision for loan losses					—			—			—			—			—
Gain (loss) on sale of loans					—			—			—			—			—
Service fee income					—			—			—			488			488
Gain (loss) on securities					—			—			—			—			—
Other income					831			(106	)		883			(819	)		789

	Net revenues (expense)				791			402			4,196			(2,594	)		2,795
	Variable expenses				—			—			—			—			—
	Deferral of expenses under FAS 91				—			—			—			—			—
	Fixed expenses				4,745			10,568			9,574			44,234			69,121

		Pretax income (loss)			(3,954	)		(10,166	)		(5,378	)		(46,828	)		(66,326	)

			Net income (loss)	$	(2,392	)	$	(6,150	)	$	(3,254	)	$	(28,018	)	$	(39,814	)

Balance Sheet Data
Average interest-earning assets				$	—		$	3,291		$	176		$	(17,219	)	$	(13,752	)
Allocated capital				$	13		$	10,917		$	2,154		$	185,574		$	198,658
Performance Ratios
ROE					N/A			N/A			N/A			N/A			N/A
Net interest margin					N/A			N/A			N/A			N/A			N/A
Efficiency ratio					N/A			N/A			N/A			N/A			N/A
Operating Data
Loan production				$	—		$	—		$	—		$	—		$	—
Loans sold				$	—		$	—		$	—		$	—		$	—


Three Months Ended June 30, 2005

Operating Results
Net interest income				$	(68	)	$	108		$	3,462		$	(3,343	)	$	159
Provision for loan losses					—			—			—			—			—
Gain (loss) on sale of loans					—			—			—			—			—
Service fee income					—			—			—			5,290			5,290
Gain (loss) on securities					—			—			—			—			—
Other income					520			(8	)		618			(2,266	)		(1,136	)

	Net revenues (expense)				452			100			4,080			(319	)		4,313
	Variable expenses				—			—			—			—			—
	Deferral of expenses under FAS 91				—			—			—			—			—
	Fixed expenses				4,475			8,384			6,903			36,614			56,376

		Pretax income (loss)			(4,023	)		(8,284	)		(2,823	)		(36,933	)		(52,063	)

			Net income (loss)	$	(2,434	)	$	(5,012	)	$	(1,708	)	$	(22,010	)	$	(31,164	)

Balance Sheet Data
Average interest-earning assets				$	—		$	77		$	172		$	1,687		$	2,145
Allocated capital				$	4,350		$	6,080		$	1,650		$	336,604		$	348,684
Performance Ratios
ROE					N/A			N/A			N/A			N/A			N/A
Net interest margin					N/A			N/A			N/A			N/A			N/A
Efficiency ratio					N/A			N/A			N/A			N/A			N/A
Operating Data
Loan production				$	—		$	—		$	—		$	—		$	—
Loans sold				$	—		$	—		$	—		$	—		$	—

LOAN PRODUCTION

The Company’s total mortgage production of $20.1 billion for the second quarter of 2006 is a record high, up 0.4% compared to the first quarter of 2006, and up 41% from the second quarter of 2005. The production growth was accomplished through our continued drive to leverage our mortgage banking platform. During the second quarter of 2006, we opened two new operations centers, expanded a third and began hiring for another to be opened during the third quarter of 2006. Our expansion into new regions, the hiring of new salespeople, and the roll-out of new products are expected to drive overall production higher in the future.

On July 12, 2006, the MBA issued a forecast of the industry volume for 2006 of $2.4 trillion, which represents an 18% decline from 2005. The second quarter of 2006 estimate of $678 billion represents a 24% increase from the first quarter of 2006, and a 14% decline from the second quarter of 2005. Based on this forecast, our market share is 2.96% this quarter, down from 3.65% in the first quarter of 2006, but it was up compared to the market share of 1.81% for the second quarter of 2005.

Total loan production, including subdivision construction, reached $20.6 billion for the second quarter of 2006, a record for the Company.

At June 30, 2006, our total pipeline of loans in process was a record high at $12.5 billion, up 7% from March 31, 2006 and 29% from June 30, 2005. Total pipeline of loans in process included rate lock commitments we have provided on loans that are specifically identified or non-specific bulk packages, and loan applications we have received for which the borrower has not yet locked in the interest rate commitment. Non-specific bulk packages represented pools of loans the Bank has committed to purchase, where the pool characteristics are specified but the actual loans are not.

The following summarizes our loan production and pipeline by purpose, interest rate type, product type, S&P loss estimate, geographic distribution, and channels as of and for the quarters ended June 30, 2006 and 2005 and March 31, 2006:


			As of and For the Three Months Ended

			June 30,			June 30,			Percent			March 31,			Percent
			2006			2005			Change			2006			Change

			(Dollars in millions)
Production and Pipeline by Purpose:
Mortgage loan production:
Purchase transactions			$	8,284		$	6,370			30	%	$	7,778			7	%
Cash-out refinance transactions				9,373			6,336			48	%		9,779			(4	)%
Rate/term refinance transactions				2,403			1,493			61	%		2,420			(1	)%

Total mortgage loan production			$	20,060		$	14,199			41	%	$	19,977			0	%

% purchase and cash-out refinance transactions				88	%		89	%					88	%
Mortgage industry market share				2.96	%		1.81	%		64	%		3.65	%		(19	)%
Mortgage pipeline:
Purchase transactions			$	4,459		$	3,681			21	%	$	4,517			(1	)%
Cash-out refinance transactions				4,062			3,457			18	%		4,558			(11	)%
Rate/term refinance transactions				1,492			1,156			29	%		1,349			11	%

	Total specific rate locks			10,013			8,294			21	%		10,424			(4	)%
	Non-specific rate locks on bulk purchases			2,514			1,388			81	%		1,257			100	%

		Total pipeline at period end	$	12,527		$	9,682			29	%	$	11,681			7	%


		Three Months Ended

		June 30,			June 30,			March 31,
		2006			2005			2006

Production by Amortization Type as a Percent of Mortgage Production:
	Fixed Rate Mortgages		29	%		26	%		30	%
	Hybrid ARMs Interest Only		28	%		23	%		23	%
	ARMs and Hybrid ARMs		22	%		19	%		20	%
	Option ARMs		21	%		32	%		27	%

			100	%		100	%		100	%


			Three Months Ended												Six Months Ended

			June 30,		June 30,		Percent			March 31,		Percent			June 30,		June 30,		Percent
			2006		2005		Change			2006		Change			2006		2005		Change

			(Dollars in millions)
Total Production:
Standard First Mortgage Products:
	Alt-A		$	14,881	$	10,845		37	%	$	15,116		(2	)%	$	29,997	$	19,390		55	%
	Jumbo			209		352		(41	)%		333		(37	)%		542		870		(38	)%
	Agency conforming			244		241		1	%		279		(13	)%		523		528		(1	)%
	Subprime			505		452		12	%		554		(9	)%		1,059		937		13	%

Total standard first mortgage products (S&P evaluated)(1)				15,839		11,890		33	%		16,282		(3	)%		32,121		21,725		48	%
Specialty Consumer Home Mortgage Products:
Home equity line of credit(2) / Seconds				1,860		753		147	%		1,643		13	%		3,503		1,314		167	%
Reverse mortgages				1,337		639		109	%		1,118		20	%		2,455		1,146		114	%
Consumer construction(2)				1,024		917		12	%		934		10	%		1,958		1,616		21	%

		Subtotal mortgage production		20,060		14,199		41	%		19,977		0	%		40,037		25,801		55	%
Builder construction commitments(2)				531		594		(11	)%		363		46	%		894		947		(6	)%

		Total production	$	20,591	$	14,793		39	%	$	20,340		1	%	$	40,931	$	26,748		53	%


(1)	While Indymac production is evaluated using the S&P Levels model, the data are not audited or endorsed by S&P. S&P evaluated production excludes second liens, HELOC, reverse mortgages, and construction loans.

(2)	Amount represents total commitments.

The following summarizes the estimated lifetime losses for mortgage production using the S&P Levels model for the three months ended June 30, 2006 and 2005, and March 31, 2006:


	Three Months Ended

	June 30, 2006						June 30, 2005						March 31, 2006

	Average						Average						Average
	Lifetime			Percent of			Lifetime			Percent of			Lifetime			Percent of
	Loss Rate			Total			Loss Rate			Total			Loss Rate			Total

	(Dollars in millions)
Volume by S&P Lifetime Loss Estimate(1):
Agency conforming equivalent (<45 bps)		0.22	%		61	%		0.22	%		68	%		0.22	%		58	%
Prime Alt-A Equivalent (45-80 bps)		0.59	%		25	%		0.58	%		25	%		0.59	%		28	%
Subprime Equivalent (>80 bps)		1.67	%		14	%		1.80	%		7	%		1.57	%		14	%

Total S&P lifetime loss estimate		0.51	%		100	%		0.42	%		100	%		0.51	%		100	%

Total S&P evaluated production				$	15,839					$	11,890					$	16,282


(1)	While Indymac production is evaluated using the S&P Levels model, the data are not audited or endorsed by S&P. S&P evaluated production excludes second liens, HELOC, reverse mortgages, and construction loans.

The following indicates the geographic distribution of our production for the three months ended June 30, 2006 and 2005 and March 31, 2006:


			June 30,			June 30,			March 31,
			2006			2005			2006

Geographic distribution:
	California			44	%		44	%		44	%
	Florida			9	%		7	%		9	%
	New York			6	%		9	%		6	%
	Virginia			4	%		4	%		5	%
	New Jersey			4	%		4	%		4	%
	Other			33	%		32	%		32	%

		Total		100	%		100	%		100	%


				Three Months Ended												Six Months Ended

				June 30,		June 30,		Percent			March 31,		Percent			June 30,		June 30,		Percent
Volume by Divisions:				2006		2005		Change			2006		Change			2006		2005		Change

				(Dollars in millions)
Mortgage Loan Production:
	Mortgage Professionals
		Wholesale		$	8,825	$	7,192		23	%	$	8,781		1	%	$	17,606	$	13,208		33	%
		Correspondent			2,528		1,420		78	%		2,276		11	%		4,804		2,313		108	%
		Conduit			5,471		3,207		71	%		6,136		(11	)%		11,607		5,812		100	%
	Consumer Direct				552		738		(25	)%		525		5	%		1,077		1,424		(24	)%
	Financial Freedom				1,337		639		109	%		1,118		20	%		2,455		1,146		114	%
	Servicing Retention				540		174		210	%		427		26	%		967		396		144	%
	Home Equity Division				33		56		(41	)%		30		10	%		63		98		(36	)%
	Consumer Construction and Lot				774		773		0	%		684		13	%		1,458		1,404		4	%

		Total Mortgage Loan Production			20,060		14,199		41	%		19,977		0	%		40,037		25,801		55	%
Commercial Loan Production:
	Builder Construction				531		594		(11	)%		363		46	%		894		947		(6	)%

			Total Production	$	20,591	$	14,793		39	%	$	20,340		1	%	$	40,931	$	26,748		53	%

Key production drivers for mortgage professionals’ wholesale and correspondent channels, for the three months ended June 30, 2006 and 2005 and March 31, 2006 follows:


	Three Months Ended

	June 30,		June 30,		Percent			March 31,		Percent
	2006		2005		Change			2006		Change

Key Production Drivers:
Active customers during the quarter(1)		7,472		6,191		21	%		7,174		4	%
Sales personnel		952		678		40	%		811		17	%
Number of regional offices		15		10		50	%		13		15	%


(1)	Active customers are defined as customers who funded at least one loan during the most recent90-day period.

LOAN SALES

The following table summarizes loans sold and the relevant performance ratios on loan sales during the three and six months ended June 30, 2006 and 2005 and the three months ended March 31, 2006:


	Three Months Ended															Six Months Ended

	June 30,			June 30,			Percent			March 31,			Percent			June 30,			June 30,			Percent
	2006			2005			Change			2006			Change			2006			2005			Change

	(Dollars in millions)
Total loans sold	$	19,415		$	11,534			68	%	$	16,708			16	%	$	36,123		$	21,188			70	%
Ratios:
Gross MBR margin before hedging		0.99	%		2.02	%		(51	)%		0.86	%		15	%		0.93	%		1.80	%		(48	)%
Net MBR margin after hedging		1.23	%		1.63	%		(24	)%		1.10	%		12	%		1.17	%		1.72	%		(32	)%

The MBR margin is calculated using mortgage banking revenue divided by total loans sold. The mortgage banking revenue includes total consolidated gain on sale of loans company-wide and the net interest income earned on mortgage loans held for sale by mortgage banking production divisions. While most of the gain on sale of loans results from the loan sale activities in our mortgage banking segment, we do occasionally sell loans held by our thrift segment, primarily lot loans and home equity products. The gain on sale recognized in the thrift segment is included in the MBR margin calculation.

Included in the gain on sale of loans in the second quarter of 2006 were $9.7 million of losses related to the establishment of a reserve for fraud losses on certain lot loans. The Company discovered that 45 lot loans related to two developments in Michigan and Florida were the subject of criminal fraud on the part of the developers, brokers, appraisers and closing agents. We have since performed a full portfolio review and implemented a series of product guideline changes, operational changes and fraud prevention actions to mitigate future occurrences of this kind. At this point, we believe that there are no further incidences of fraud in its existing book of lot loans of similar size or scope.

The following tables summarize MBR margin by channel and product for the three months ended June 30, 2006 and 2005, and March 31, 2006:


		Three Months Ended

		June 30,			June 30,			March 31,
MBR Margin by Channel:		2006			2005			2006

Wholesale			1.31	%		1.92	%		1.27	%
Correspondent			0.76	%		1.69	%		0.66	%
Conduit			0.60	%		0.44	%		0.40	%
Consumer Direct			1.87	%		2.61	%		1.94	%
Financial Freedom			3.31	%		2.89	%		2.83	%
Other			1.34	%		1.98	%		1.26	%
	Total MBR margin		1.23	%		1.63	%		1.10	%


		Three Months Ended

		June 30,			June 30,			March 31,
MBR Margin by Product:		2006			2005			2006

Agency Conforming/ Jumbo			0.68	%		1.03	%		0.58	%
Alt-A			1.18	%		1.49	%		0.94	%
Subprime			2.36	%		2.16	%		2.06	%
HELOC/ Seconds			0.20	%		1.51	%		0.46	%
Reverse Mortgages			3.31	%		2.89	%		2.83	%
CTP/ Lot			0.81	%		2.30	%		1.87	%
Other			1.41	%		1.59	%		1.56	%
	Total MBR margin		1.23	%		1.63	%		1.10	%

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. 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 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.

In addition to mortgage loans held for sale, the hedging activities also include 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 No. 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 to manage this risk. These forward and futures contracts are also accounted for as derivatives and recorded at fair value.

The following shows the various channels through which loans were distributed:


		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2006			2005			2006			2006			2005
		Distribution			Distribution			Distribution			Distribution			Distribution
		Percentages			Percentages			Percentages			Percentages			Percentages

		(Dollars in millions)
Sales of government-sponsored enterprises (“GSEs”) equivalent loans			18	%		12	%		21	%		19	%		15	%
Private-label securitizations			46	%		77	%		38	%		42	%		65	%
Whole loan sales, servicing retained			33	%		5	%		36	%		35	%		12	%
Whole loan sales, servicing released			2	%		3	%		2	%		2	%		3	%

	Subtotal sales		99	%		97	%		97	%		98	%		95	%
Investment portfolio acquisitions			1	%		3	%		3	%		2	%		5	%

	Total loan distribution percentage		100	%		100	%		100	%		100	%		100	%

	Total loan distribution	$	19,631		$	11,844		$	17,319		$	36,951		$	22,415

We maintain multiple channels for loan dispositions to achieve sustainable liquidity and develop a deep and diverse investor base. Also, through multiple channels, Indymac endeavors to consistently sell investment and non-investment grade bonds, AAA-rated and agency interest-only securities, and whole loans for cash.

In conjunction with the sale of mortgage loans, the Company generally retains certain assets. The primary assets retained include MSRs and, to a lesser degree, AAA-rated and agency 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 $201.7 million in gain on sale of loans earned during the three months ended June 30, 2006 included the retention of $268.5 million in MSRs, and $108.9 million of other retained assets. During the three months ended June 30, 2006, assets previously retained generated cash flows of $162.3 million.

More information on the valuation assumptions related to the Company’s retained assets can be found at page 30, under the heading “Valuation of MSRs, Interest-Only, Prepayment Penalty, and Residual Securities.”

MORTGAGE SERVICING AND OTHER RETAINED ASSETS

MORTGAGE SERVICING AND MORTGAGE SERVICING RIGHTS

Indymac’s total loans serviced for others reached $110.0 billion (including reverse mortgages and HELOCs) at June 30, 2006, with a weighted average coupon of 6.70%. In comparison, Indymac serviced $96.5 billion of mortgage loans owned by others at March 31, 2006, with a weighted average coupon of 6.43%. The activity in the servicing portfolios for the quarters ended June 30, 2006 and 2005 and March 31, 2006, follows:


	Three Months Ended									Six Months Ended

	June 30,			June 30,			March 31,			June 30,			June 30,
	2006			2005			2006			2006			2005

	(Dollars in millions)
Unpaid principal balance at beginning of period	$	96,512		$	55,995		$	84,495		$	84,495		$	50,219
Additions		19,422			11,454			16,691			36,113			21,007
Clean-up calls exercised		(31	)		(60	)		—			(31	)		(113	)
Loan payments and prepayments		(5,914	)		(3,713	)		(4,674	)		(10,588	)		(7,437	)

Unpaid principal balance at end of period	$	109,989		$	63,676		$	96,512		$	109,989		$	63,676

The following tables provide additional information related to the servicing portfolio:


			As of

			June 30,			June 30,			March 31,
			2006			2005			2006

By Product Type:
	Fixed Rate Mortgages			35	%		40	%		36	%
	Option ARMs			25	%		22	%		25	%
	Hybrid ARMs			28	%		25	%		27	%
	Reverse Mortgages (all ARMs)			9	%		9	%		9	%
	HELOCs			2	%		2	%		2	%
	Other			1	%		2	%		1	%

		Total		100	%		100	%		100	%

Additional Information, Excluding Reverse Mortgages:
Weighted average FICO				698			697			698
Weighted average original LTV/ CLTV				72	%		73	%		73	%
Average original loan size (in thousands)				225			199			222
Percent of portfolio with prepayment penalty				40	%		32	%		38	%
By Geographic Distribution:
	California			42	%		42	%		42	%
	New York			8	%		10	%		9	%
	Florida			8	%		6	%		8	%
	New Jersey			4	%		5	%		5	%
	Virginia			4	%		3	%		4	%
	Other			34	%		34	%		32	%

		Total		100	%		100	%		100	%

Capitalized MSRs totaled $1.6 billion as of June 30, 2006 and $1.4 billion as of March 31, 2006, an increase of $244.4 million. Activity in MSRs follows:


	Three Months Ended									Six Months Ended

	June 30,			June 30,			March 31,			June 30,			June 30,
	2006			2005			2006			2006			2005

	(Dollars in thousands)
Balance at beginning of period	$	1,354,433		$	734,238		$	1,094,490		$	1,094,490		$	640,794
Cumulative-effect adjustment due to change in accounting for MSRs		—			—			17,561			17,561			—
Additions		268,542			149,616			230,057			498,599			282,516
Transfers to prepayment penalty and/or AAA-rated and agency interest-only securities		—			(3,364	)		—			—			(8,491	)
Clean-up calls exercised		(274	)		(471	)		—			(274	)		(1,867	)
Change in fair value due to run-off		(88,261	)		N/A			(68,158	)		(156,419	)		N/A
Change in fair value due to market changes		76,670			N/A			84,054			160,724			N/A
Change in fair value due to application of external benchmarking policies		(12,289	)		N/A			(3,571	)		(15,860	)		N/A
Amortization		—			(52,083	)		N/A			—			(97,875	)
Valuation/impairment		—			(89,092	)		N/A			—			(76,233	)

Balance at end of period	$	1,598,821		$	738,844		$	1,354,433		$	1,598,821		$	738,844

MSRs fair value as a percentage of unpaid principal balance (in bps)		145			116			140			145			116

The fair value of MSRs is determined using discounted cash flow techniques benchmarked against third party opinions of value. During the second quarter of 2006, we decreased MSR value by $12.3 million, as a result of adjusting the value for certain tranches based on third party benchmarks. Estimates of fair value involve several assumptions, including assumptions about future prepayment rates, market expectations of future interest rates and discount rates. Prepayment rates are projected using a prepayment model developed by a third party vendor and calibrated for the Bank’s collateral. During the second quarter 2006, the Bank introduced a new prepayment model, which it believes will be more effective in predicting future prepayments. 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. Refer to “Valuation of MSRs, Interest-Only, Prepayment Penalty, and Residual Securities” on page 30 for further detail on the valuation assumptions.

On January 1, 2006, we elected to measure MSRs using the fair value method instead of the amortization method. Therefore, change in value due to run-off of the portfolio is recorded as valuation adjustment instead of the amortization for periods in 2006. The components of service fee income (expense) follows:


			Three Months Ended

			June 30,			BPS			June 30,			BPS			March 31,			BPS
			2006			UPB			2005			UPB			2006			UPB

			(Dollars in thousands)
Service fee (expense) income:
	Gross service fee income		$	117,787			45		$	64,358			43		$	98,193			44
	Change in value due to portfolio run offs/ Amortization			(88,261	)		(34	)		(52,083	)		(35	)		(68,158	)		(31	)

	Service fee income, net of change in value due to portfolio run-off/amortization			29,526			11			12,275			8			30,035			13
	Change in value due to application of external benchmarking policies			(12,289	)		(5	)		—			—			(3,571	)		(2	)
	Valuation adjustment due to market changes			76,670			30			(89,092	)		(60	)		84,054			38
	Hedge (loss) gain on MSRs			(66,660	)		(26	)		87,616			59			(79,629	)		(36	)

		Total service fee (expense) income	$	27,247			10		$	10,799			7		$	30,889			13


			Six Months Ended

			June 30,			BPS			June 30,			BPS
			2006			UPB			2005			UPB

			(Dollars in thousands)
Service fee (expense) income:
	Gross service fee income		$	215,980			45		$	119,347			42
	Change in value due to portfolio run offs/ Amortization			(156,419	)		(33	)		(97,875	)		(35	)

	Service income, net of change in value due to portfolio run offs/amortization			59,561			12			21,472			7
	Change in value due to application of external benchmarking policies			(15,860	)		(3	)		—			—
	Valuation adjustment due to market changes			160,724			33			(76,233	)		(27	)
	Hedge (loss) gain on MSRs			(146,289	)		(30	)		69,978			25

		Total service fee (expense) income	$	58,136			12		$	15,217			5

OTHER RETAINED ASSETS

The carrying value of AAA-rated and agency interest-only, principal only, prepayment penalty, residual and non-investment grade securities is evaluated 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. The models used for estimation are periodically tested against historical prepayment speeds and our valuations are benchmarked to external sources, where available. We also may retain certain other investment grade securities from our securitizations and to a lesser extent purchase from third parties to serve as economic hedges for our AAA-rated and agency interest-only securities. During the second quarter of 2006, we purchased $121.3 million principal only securities to serve as hedges for our MSRs and interest-only securities.

A summary of the activity of the retained assets follows:


			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2006			2005			2006			2006			2005

			(Dollars in thousands)
AAA-rated and agency interest-only securities:
	Beginning balance		$	84,816		$	83,080		$	78,731		$	78,731		$	90,658
		Retained investments from securitizations		—			4,106			5,196			5,196			4,106
		Sales		(22,939	)		—			—			(22,939	)		—
		Clean-up calls exercised		(107	)		(171	)		—			(107	)		(171	)
		Cash received, net of accretion		(3,669	)		(5,669	)		(5,606	)		(9,275	)		(11,883	)
		Valuation gains (losses) before hedges		6,272			(18,294	)		6,495			12,767			(19,658	)

	Ending balance		$	64,373		$	63,052		$	84,816		$	64,373		$	63,052

Principal only securities:
	Beginning balance		$	12,820		$	1,113		$	9,483		$	9,483		$	18,598
		Retained investments from securitizations		3,445			—			4,224			7,669			1,419
		Purchases		121,281			—			—			121,281			—
		Sales		—			(1,106	)		—			—			(19,448	)
		Cash received, net of accretion		(1,981	)		(7	)		7			(1,974	)		(473	)
		Valuation losses		(5,614	)		—			(894	)		(6,508	)		(96	)

	Ending balance		$	129,951		$	—		$	12,820		$	129,951		$	—

Prepayment penalty securities:
	Beginning balance		$	66,949		$	45,649		$	75,741		$	75,741		$	33,451
		Retained investments from securitizations		13,466			1,749			8,591			22,057			10,142
		Transfer from MSRs		—			3,364			—			—			8,491
		Cash received, net of accretion		(11,288	)		(4,162	)		(11,131	)		(22,419	)		(6,974	)
		Valuation (losses) gains		10,909			15,683			(6,252	)		4,657			17,173

	Ending balance		$	80,036		$	62,283		$	66,949		$	80,036		$	62,283

Residual securities(1):
	Beginning balance		$	205,128		$	131,374		$	167,771		$	167,771		$	135,386
		Retained investments from securitizations		43,933			18,150			41,876			85,809			18,180
		Impairments		(1,300	)		—			—			(1,300	)		—
		Cash received, net of accretion		(3,255	)		(8,948	)		(6,049	)		(9,304	)		(11,908	)
		Valuation (losses) gains before hedges		(3,984	)		5,218			1,530			(2,454	)		4,136

	Ending balance		$	240,522		$	145,794		$	205,128		$	240,522		$	145,794

Investment-grade securities:
	Beginning balance			145,499			144,032		$	92,120			92,120		$	146,822
		Retained investments from securitizations		25,808			—			14,801			40,609			33,924
		Purchases		23,974			—			41,023			64,997			—
		Impairment		—			(24	)		(183	)		(183	)		(241	)
		Clean-up calls exercised		(1	)		7			—			(1	)		7
		Sales		—			(48,721	)		—			—			(83,629	)
		Cash received, net of accretion		(4,871	)		(788	)		(1,424	)		(6,295	)		(2,495	)
		Valuation losses before hedges		(2,464	)		(160	)		(838	)		(3,302	)		(42	)

	Ending balance		$	187,945		$	94,346		$	145,499		$	187,945		$	94,436

Non-Investment grade securities:
	Beginning balance		$	66,339		$	79,768		$	57,712		$	57,712		$	83,052
		Retained investments from securitizations		22,232			4,225			8,649			30,881			4,225
		Purchases		—			1,523			—			—			1,523
		Impairment		(202	)		(54	)		(252	)		(454	)		(174	)
		Sales		—			(22,982	)		—			—			(26,986	)
		Cash received, net of accretion		(111	)		(1,035	)		207			96			(321	)
		Valuation (losses) gains before hedges		(213	)		(3,495	)		23			(190	)		(3,369	)

	Ending balance		$	88,045		$	57,950		$	66,339		$	88,045		$	57,950


(1)	Included in the residual securities balance at June 30, 2006 were $42.2 million of HELOC residuals retained from two separate guaranteed mortgage securitization transactions. There was no gain on sale of loans recognized in connection with these transactions.

The fair value of other investment grade and non-investment grade securities by credit rating follows:


			June 30, 2006

					Premium							December 31,
			Current		(Discount)							2005
			Face		to Face			Amortized
			Value		Value			Cost		Fair Value		Fair Value

			(Dollars in thousands)
Other investment grade mortgage-backed securities:
	AA		$	88,386	$	(1,123	)	$	87,263	$	85,313	$	21,787
	AA-			14,096		(287	)		13,809		13,641		—
	A			4,482		(194	)		4,288		4,240		239
	BBB			27,286		(1,372	)		25,914		25,956		29,848
	BBB-			65,133		(5,207	)		59,926		58,795		40,246

		Total other investment grade mortgage-backed securities	$	199,383	$	(8,183	)	$	191,200	$	187,945	$	92,120

Non-investment grade mortgage-backed securities:
	BB+		$	5,947	$	(940	)	$	5,007	$	5,007	$	—
	BB			62,352		(8,288	)		54,064		54,462		36,873
	BB-			22,022		(1,160	)		20,862		20,960		13,523
	B			14,804		(9,079	)		5,725		6,771		6,458
	Other			9,905		(9,401	)		504		845		858

		Total other non-investment grade mortgage-backed securities	$	115,030	$	(28,868	)	$	86,162	$	88,045	$	57,712

At June 30, 2006, $236.2 million of other investment grade and non-investment grade mortgage-backed securities were collateralized by prime loans and $39.8 million of securities were collateralized by subprime loans.

The components of the net gain (loss) on mortgage-backed securities are as follows:


			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2006			2005			2006			2006			2005

			(Dollars in thousands)
Net gain (loss) on securities:
	Realized gain on available for sale securities		$	—		$	5,731		$	—		$	—		$	5,381
	Impairment on available for sale securities			(1,501	)		(78	)		(435	)		(1,936	)		(415	)
	Unrealized gain (loss) on prepayment penalty securities			10,909			15,683			(6,252	)		4,657			17,174
	Unrealized gain (loss) on AAA-rated and agency interest-only and residual securities			5,566			(12,826	)		6,284			11,850			(17,094	)
	Net gain (loss) on trading securities and other instruments used to hedge AAA-rated and agency interest-only and residual securities			(6,716	)		7,341			(2,212	)		(8,928	)		6,159

		Total gain (loss) on securities, net	$	8,258		$	15,851		$	(2,615	)	$	5,643		$	11,205

VALUATION OF MSRS, INTEREST-ONLY, PREPAYMENT PENALTY,

AND RESIDUAL SECURITIES

MSRs, AAA-rated and agency interest-only securities, prepayment penalty securities, and residual securities are recorded at fair market value. Prior to January 1, 2006, MSRs were subject to the lower of cost or market limitations. Relevant information and assumptions used to value these securities at June 30, 2006 and 2005 and March 31, 2006 follows:


	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, 2006
MSRs	$	1,598,821	$	109,988,858		6.70	%		0.37	%		18.5	%		3.98		22.1	%		20.5	%		10.2	%		N/A

AAA-rated interest-only securities	$	64,373	$	4,512,539		6.61	%		0.41	%		12.6	%		3.47		13.5	%		16.4	%		15.0	%		N/A

Prepayment penalty securities	$	80,036	$	16,388,466		6.79	%		N/A			22.9	%		N/A		21.1	%		19.3	%		27.9	%		N/A

Lot loan residual securities		58,779	$	2,266,191		8.46	%		2.82	%		34.0	%		0.92		40.0	%		38.2	%		22.7	%		0.37	%
HELOC residual securities		87,434	$	2,299,992		9.02	%		3.01	%		48.9	%		1.26		49.7	%		48.2	%		19.4	%		0.67	%
Subprime residual securities		94,309	$	6,659,194		7.90	%		1.72	%		28.4	%		0.83		37.9	%		31.1	%		24.9	%		3.15	%

Total non-investment grade residual securities	$	240,522

March 31, 2006
MSRs	$	1,354,433	$	96,511,574		6.43	%		0.37	%		17.6	%		3.82		21.0	%		17.5	%		10.3	%		N/A

AAA-rated and agency interest- only securities	$	84,816	$	7,708,837		6.62	%		0.39	%		15.6	%		2.86		20.7	%		18.2	%		10.2	%		N/A

Prepayment penalty securities	$	66,949	$	14,528,867		6.61	%		N/A			17.4	%		N/A		20.9	%		22.1	%		10.5	%		N/A

Prime residual securities	$	3,954	$	1,117,251		6.19	%		N/M			72.1	%		N/M		45.4	%		51.6	%		15.0	%		0.18	%
Lot loan residual securities		50,649	$	1,103,266		8.02	%		2.79	%		29.3	%		1.64		42.7	%		41.4	%		22.1	%		0.37	%
HELOC residual securities		80,819	$	1,929,000		8.64	%		2.70	%		48.1	%		1.55		50.2	%		48.2	%		19.2	%		0.74	%
Subprime residual securities		69,706	$	5,726,600		7.53	%		1.72	%		24.7	%		0.71		37.5	%		30.4	%		24.9	%		3.11	%

Total non-investment grade residual securities	$	205,128

December 31, 2005
MSRs	$	1,094,490	$	84,495,133		6.19	%		0.37	%		21.7	%		3.54		21.4	%		16.2	%		10.7	%		N/A

AAA-rated and agency interest- only securities	$	78,731	$	7,583,643		6.63	%		0.38	%		27.5	%		2.73		20.3	%		22.7	%		8.0	%		N/A

Prepayment penalty securities	$	75,741	$	13,657,946		6.30	%		N/A			22.7	%		N/A		23.7	%		20.3	%		9.0	%		N/A

Prime residual securities	$	2,438	$	1,183,361		5.85	%		0.61	%		60.0	%		0.34		46.3	%		51.4	%		15.0	%		0.18	%
Lot loan residual securities		41,066	$	939,005		7.55	%		2.90	%		33.2	%		1.51		43.1	%		41.4	%		21.6	%		0.36	%
HELOC residual securities		66,041	$	1,430,473		8.26	%		3.18	%		55.8	%		1.45		44.0	%		49.6	%		19.0	%		0.87	%
Subprime residual securities		58,226	$	4,831,675		7.40	%		2.17	%		28.9	%		0.55		37.1	%		29.4	%		24.9	%		2.94	%

Total non-investment grade residual securities	$	167,771


(1)	As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.25% and 0.51% for HELOC and subprime loans, respectively, at June 30, 2006. No loss has been incurred on lot loans as of June 30, 2006.

The lifetime prepayment speeds represent the annual constant prepayment rate (“CPR”) estimated for the remaining life of the collateral supporting the asset. For MSRs and AAA-rated and agency interest-only securities, prepayment rates are projected using a prepayment model developed by a third party vendor and calibrated for the Bank’s collateral. 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. During the second quarter of 2006, the Bank introduced a new prepayment model, which is believed to be more effective in predicting future prepayments.

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

As of June 30, 2006, the weighted-average multiple for MSRs has increased compared to March 31, 2006, primarily due to an approximate increase of 51 basis points in interest rates, which has resulted in higher WAC for the portfolio. The weighted-average multiple for interest-only securities increased as well due to sale of lower multiple agency interest-only securities.

The prepayment penalty securities are used as hedges of MSRs. The value of prepayment penalty securities generally rises in a declining rate environment due to higher prepayment activities, which typically mitigates a decline in MSR value attendant to faster prepayments. As of June 30, 2006, as a percent of the underlying collateral, the value of prepayment penalty securities was 49 basis points, up from 46 basis points at March 31, 2006, adjusted based on results of actual sales to third parties.

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. The MSRs and Other Retained Assets 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 Interest Rate Risk Committee (“IRRC”), Variable Cash Flow Instruments Committee (“VCI”) and Enterprise Risk Management (“ERM”) group, and our Board of Directors-level ERM Committee.

The objective of our hedging strategy is to maintain stable returns in all interest rate environments and not to speculate on interest rates. As such, we manage the comprehensive interest rate risk of our servicing-related assets using financial instruments. Historically, we have hedged servicing-related assets using a variety of derivative instruments and on balance sheet securities. As there are no hedge instruments that would be perfectly correlated with these hedged assets, we use a mix of the instruments designed to correlate well with the hedged servicing assets.

We use a value-at-risk (“VAR”) measure to monitor our interest rate risk on our portfolio of mortgage servicing rights and interest-only securities, and their related hedges. The measure incorporates a range of market factors that can impact the value of these assets, and supplements other risk measures such as Duration Gap and stress testing. VAR estimates the potential loss over a specified period at a specified confidence level. We have chosen a historical approach that uses 500 days of market conditions along with current portfolio data to estimate the potential one-day loss at a 95% confidence level. This means that actual losses are estimated to exceed the VAR measure about 5 times every 100 days.

In modeling of the VAR, we have made a number of assumptions and approximations. Although our VAR method has been reviewed by a third party consultant, as there is no standardized methodology for estimating VAR, different assumptions and approximations could result in materially different VAR estimates.

As of June 30, 2006, the portfolio of MSRs and interest-only securities was valued at $1.7 billion. The average VAR (after the effect of hedging transactions) for the quarter was $2.3 million, or 16 bps of the recorded value, up from 12 bps for the quarter ended March 31, 2006. During the quarter the VAR measure ranged from $1.1 million to $5.0 million.

A key performance measure for the MSRs and Other Retained Assets division is the return on equity of the deployed capital. The segment as a whole reported an ROE of 27% for the quarter ended June 30, 2006. The table below provides a detail by major asset class of the ROE.


	Servicing			AAA IO			Credit Risk
For the Three Months Ended June 30, 2006:	Portfolio			Portfolio			Portfolio			Total

	(Dollars in thousands)
Net earnings	$	18,672			811			5,269			24,752
Average capital deployed	$	241,190			12,578			110,041			363,809
Return on equity		31	%		26	%		19	%		27	%

MORTGAGE-BACKED SECURITIES AND LOANS HELD FOR INVESTMENT

In addition to the securities retained from our securitizations, the Company also invests in non-agency senior securities and loans held for investment to generate core interest income, stabilize company-wide earnings and provide a consistent return on equity. These securities are generally classified as available for sale and fair value adjustments are excluded from earnings and reported as a separate component in shareholders’ equity.

At June 30, 2006, mortgage-backed securities totaled $4.9 billion, of which 88% were AAA-rated securities as detailed in the table below. Our AAA-rated mortgage-backed securities had an expected weighted-average life of 3.04 years.

Details of loans held for investment and AAA-rated non-agency and agency senior securities as of June 30, 2006 and December 31, 2005 follow:


					June 30,		December 31,
					2006		2005

					(Dollars in thousands)
Loans held for investment:
	SFR mortgage				$	5,427,609	$	5,441,521
	Consumer construction					1,860,622		1,656,963
	Builder construction					1,013,279		838,772
	HELOC					29,972		31,882
	Land and other mortgage					320,053		260,615
	Revolving warehouse lines of credit					121,292		48,616

			Total — loans held for investment		$	8,772,827	$	8,278,369

AAA-rated mortgage-backed securities:
		AAA-rated non-agency securities, trading			$	73,434	$	52,633
		AAA-rated non-agency securities, available for sale				3,972,977		3,524,952
		AAA-rated agency securities, available for sale				52,701		43,014

				Total AAA-rated mortgage-backed securities	$	4,099,112	$	3,620,599

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 to grow its thrift portfolio opportunistically depending on external market demand, always seeking the best execution of the mortgage loans produced. During the second quarter of 2006, the Company added $216.4 million of mortgage loans to our held for investment portfolio. However, the portfolio balance has declined from the first quarter of 2006 primarily due to run-offs of the portfolio in the second quarter of 2006.

A composition of the portfolio and the relevant credit quality characteristics as of June 30, 2006, March 31, 2006, and December 31, 2005 follows:


			June 30,			March 31,			December 31,
			2006			2006			2005

			(Dollars in thousands)
SFR mortgage loans held for investment (book value)			$	5,427,609		$	5,663,142		$	5,441,521
Average loan size			$	290		$	292		$	292
Non-performing loans as a percentage of SFR loans				0.86	%		0.69	%		0.62	%
Estimated average life in years(1)				2.3			2.3			2.4
Estimated average net duration in months(2)				(0.7	)		0.8			0.1
Annualized yield				5.74	%		5.61	%		5.06	%
Percent of loans with active prepayment penalty				40	%		40	%		35	%
Fixed-rate mortgages				6	%		6	%		6	%
Option ARMs				24	%		24	%		25	%
Adjustable rate mortgages				3	%		3	%		4	%
Hybrid ARMs				16	%		16	%		16	%
Hybrid ARMs interest only				51	%		51	%		49	%
*Additional Information:*
Average FICO score(3)				713			713			715
Original average loan to value ratio				73	%		73	%		72	%
Current average loan to value ratio(4)				58	%		59	%		58	%
Geographic distribution of top five states:
	Southern California			31	%		31	%		32	%
	Northern California			21	%		21	%		21	%
	Florida			6	%		6	%		5	%
	Michigan			4	%		4	%		4	%
	New York			3	%		4	%		4	%
	Virginia			3	%		3	%		3	%
	Other			32	%		31	%		31	%

		Total		100	%		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 net duration measures the expected change in the value of a financial instrument in response to changes in interest rates, taking into consideration the impact of the related hedges. The negative net duration implies an increase in value as rates rise while the positive net duration implies a decrease in value.

(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.

(4)	Current averageloan-to-value ratio is estimated based on the Office of the Federal Housing Enterprise Oversight House Price Index Metropolitan Statistical Area data on a loan level basis.

Included in our loans held for investment portfolio at June 30, 2006 were $1.3 billion in option ARM loans as compared to $1.4 billion at March 31, 2006 and $1.3 billion at December 31, 2005. As of June 30, 2006, approximately 74% (based on loan count) of our option ARM loans had negatively amortized, resulting in an increase of $15.2 million to their original loan balance. The net increase in unpaid principal balance due to negative amortization was $5.2 million and $9.9 million for the three and six months ended June 30, 2006, respectively, which approximated the deferred interest recognized for the periods. The original weighted average combinedloan-to-value (“CLTV”) on our option ARM loans was 75%, while the estimated current combined LTV is 62%, calculated based on the Office of the Federal Housing Enterprise Oversight House Price Index Metropolitan Statistical Areas data on a loan level basis. The decline in the combinedloan-to-value was due to estimated appreciation of the underlying property value. The original weighted average FICO score on our option ARM loans was 708 at June 30, 2006, similar to the average FICO for the entire SFR mortgage loans held for investment portfolio.

CONSUMER CONSTRUCTION

Indymac’s consumer construction division provides construction financing for individual consumers who want to build a new primary residence or second home. The primary product is aconstruction-to-permanent residential mortgage loan. This product typically provides financing for a construction term from 6 to 12 months and automatically converts to a permanent mortgage loan at the end of construction. The end result is a product that represents a hybrid activity between our portfolio lending activities and mortgage banking activities. The Company earns net interest income on these loans during the construction phase and the loans are generally fixed-rate during this period although a monthly adjusting construction period ARM product was introduced during the second quarter of 2006. When the loan converts to permanent status, the interest rate may be adjusted based on the underlying permanent note. As of June 30, 2006, based on the underlying note agreements, 65% of the construction loans will be converted to adjustable-rate permanent loans, 22% to hybrid adjustable-rate loans, and 13% to fixed-rate loans. New consumer construction commitments grew 10% over the first quarter of 2006 and grew 9% over the fourth quarter of 2005 to $1.0 billion, as we continue to take advantage of the strong “new home” purchase market. About 68% of new commitments are generated through mortgage broker customers of the mortgage bank and the remaining 32% of new commitments are retail originations. Once each 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 our SFR mortgage loan portfolio. The amount of construction loans that were converted to permanent status was $457 million for the second quarter of 2006, an increase of 7% from the first quarter of 2006 and an increase of 18% over the fourth quarter of 2005. Overall, the Company is one of the largest custom residential construction lenders in the nation. Consumer construction loans outstanding at June 30, 2006 increased 12% from December 31, 2005.

Information on our consumer construction portfolio follows:


		As of

		June 30,			March 31,			December 31,
		2006			2006			2005

		(Dollars in thousands)
Construction loans (book value)		$	1,860,622		$	1,726,226		$	1,656,963
Lot, land and other mortgage loans (book value)			79,727			92,687			107,164
Total commitments			3,214,385			3,034,222			2,949,430
Average loan commitment			467			453			442
Non-performing loans			0.67	%		0.70	%		0.51	%
Annualized yield on construction loans			6.59	%		6.14	%		5.67	%
Fixed-rate loans			97	%		96	%		96	%
Adjustable-rate loans			3	%		4	%		4	%
*Additional Information:*
Average loan-to-value ratio(1)			75	%		75	%		75	%
Average FICO score			714			713			713
Geographic distribution of top five states:
	Southern California		28	%		29	%		29	%
	Northern California		16	%		17	%		18	%
	Florida		9	%		9	%		8	%
	Hawaii		4	%		5	%		5	%
	Washington		4	%		3	%		3	%
	Colorado		3	%		3	%		3	%
	Other		36	%		34	%		34	%

	Total Consumer Construction		100	%		100	%		100	%


(1)	The averageloan-to-value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at the date indicated.

HOME EQUITY DIVISION

Indymac’s Home Equity Division specializes in providing HELOC and closed-end second mortgages nationwide through Indymac’s wholesale and retail channels. We also purchase HELOC and closed-end second mortgages through our conduit channel. At June 30, 2006, our total HELOC servicing portfolio amounted to $3.0 billion, an increase of approximately $900 million from the portfolio size at December 31, 2005. We plan to sell or securitize a majority of the loans in our HELOC portfolio and as a result, they are classified as held for sale on our balance sheet.

We produced $1.1 billion of new HELOC commitments through our mortgage banking segment and internal channels during the second quarter of 2006, and sold $585.4 million of HELOC loans, realizing $5.3 million of gain on sale. In addition to the sales of HELOCs, we periodically transfer HELOCs to two guaranteed mortgage HELOC securitization trusts to maintain the required collateral level in the trusts. For the second quarter 2006, HELOCs transferred to the trusts were $95.7 million. These transfers did not result in any gain on sale of loans as the trusts were originally established in on-balance sheet guaranteed mortgage securitization transactions.

All HELOC loans are adjustable rate loans and indexed to the prime rate. 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, 2006, March 31, 2006, and December 31, 2005 follows:


	June 30,			March 31,			December 31,
	2006			2006			2005

	(Dollars in thousands)
Outstanding balance (book value)	$	759,527		$	666,848		$	786,922
Total commitments(1)		1,907,873			1,534,414			1,493,415
Average spread over prime		1.26	%		1.23	%		1.47	%
Average FICO score		734			728			728
Average CLTV ratio(2)		77	%		77	%		78	%

Additional Information as of June 30, 2006


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

		(Dollars in thousands)
96% to 100%		$	100,909	$	120		2.11	%		730		1.50	%
91% to 95%			86,927		104		2.11	%		714		0.23	%
81% to 90%			293,590		91		1.59	%		714		0.68	%
71% to 80%			152,513		158		0.46	%		741		0.56	%
70% or less			125,588		159		0.20	%		751		0.50	%

	Total	$	759,527	$	125		1.26	%		734		0.68	%


(1)	On funded loans.

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

BUILDER CONSTRUCTION

Indymac’s homebuilder division provides land acquisition, development and construction financing to homebuilders for residential construction. Builder construction loans are typically adjustable-rate loans, indexed to the prime interest rate with terms ranging from 12 to 24 months. The Bank earns net interest income on these loans. The homebuilder division has central operations in Pasadena, California with 14 satellite sales offices in California, Florida, Illinois, Arizona, Massachusetts, North Carolina, Texas, Oregon and Colorado. Our typical customer is a mid-size, professional homebuilder who builds between 200 and 2,000 homes per year. We do a limited amount of business with large private and public homebuilders, and have begun a small homebuilder program for homebuilders building 5 to 25 unit projects, and who typically build 5 to 100 homes per year.

During the second quarter of 2006, we entered into new tract construction commitments of $531 million, up 46% or $168 million from the first quarter of 2006 and 17%, or $78 million, from the fourth quarter of 2005, driven by expansion into East Coast markets while maintaining production levels in California and other western states. Builder loans outstanding at June 30, 2006, including tract construction, single-spec, and land and other mortgage loans, totaled $1.3 billion, a $229 million, or 21%, increase compared to December 31, 2005. Our current weighted averageloan-to-value ratio is 71% and 98% of our builder construction loans are secured by corporate or personal guarantees of the builders as well as the underlying real estate.

Information on our builder construction portfolio follows:


		As of

		June 30,			March 31,			December 31,
		2006			2006			2005

		(Dollars in thousands)
Construction loans (book value)		$	1,013,279		$	972,241		$	838,772
Land and other mortgage loans (book value)			307,282			303,745			252,427
Total commitments(1)			2,368,149			2,263,630			2,181,698
Average loan commitments, excluding single-spec portfolio			10,602			10,832			10,824
Average loan commitments, single-spec portfolio			404			396			387
Non-performing loans			0.23	%		0.15	%		0.04	%
Annualized yield on construction loans			10.21	%		9.56	%		10.01	%
*Additional Information:*
Average loan-to-value ratio(2)			71	%		70	%		71	%
Geographic distribution of top five states:
	Southern California		36	%		38	%		40	%
	Northern California		16	%		16	%		17	%
	Florida		12	%		10	%		9	%
	Illinois		10	%		11	%		9	%
	Oregon		5	%		4	%		3	%
	New York		4	%		4	%		4	%
	Other		17	%		17	%		18	%

	Total Builder Construction		100	%		100	%		100	%


(1)	Includes 85% of commitments in construction and land/model loans and 15% of single-spec portfolio at June 30, 2006.

(2)	The averageloan-to-value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at the date indicated.

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 43.

WAREHOUSE LENDING DIVISION

Our warehouse lending division offers short-term lines of credit to approved correspondent sellers nationwide. The group functions as a financial intermediary for lenders, providing them with the financial capacity to fund loans and hold them on balance sheet until they are sold to approved investors. The warehouse lending operation relies mainly on the sale or liquidation of the mortgages as a source of repayment. Receivables under warehouse facilities are presented on our balance sheet as loan receivables. Terms of warehouse lines, including the commitment amount, are determined based upon the financial strength, historical performance and other qualifications of the borrower. Information on our warehouse lending portfolio follows:


	As of

	June 30,		March 31,		December 31,
	2006		2006		2005

	(Dollars in thousands)
Outstanding balance (book value)	$	121,292	$	78,331	$	48,616
Total commitments		468,000		342,000		201,000

NET INTEREST MARGIN

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 follows:


		Three Months Ended

		June 30, 2006							June 30, 2005							March 31, 2006

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

		(Dollars in thousands)
Assets
Securities		$	4,596,115	$	80,998		7.07	%	$	3,563,331	$	47,701		5.37	%	$	4,130,581	$	66,483		6.53	%
Loans held for sale			10,532,302		181,079		6.90	%		6,844,841		87,756		5.14	%		10,626,563		173,561		6.62	%
Mortgage loans held for investment			6,016,878		86,092		5.74	%		5,312,117		62,253		4.70	%		5,945,154		82,179		5.61	%
Builder construction and income property			993,145		25,280		10.21	%		727,731		15,535		8.56	%		902,822		21,284		9.56	%
Consumer construction			1,707,957		28,079		6.59	%		1,398,654		19,372		5.56	%		1,614,253		24,443		6.14	%
Investment in Federal Home Loan Bank stock and other			834,180		10,683		5.14	%		714,107		7,043		3.96	%		814,800		9,896		4.93	%

	Total interest-earning assets		24,680,577		412,211		6.70	%		18,560,781		239,660		5.18	%		24,034,173		377,846		6.38	%

Other			3,089,392							1,458,118							2,482,990

	Total assets	$	27,769,969						$	20,018,899						$	26,517,163


Liabilities and shareholders’ equity
Interest-bearing deposits		$	8,211,312		92,840		4.53	%	$	5,693,146		44,326		3.12	%	$	7,322,611		74,243		4.11	%
Advances from Federal Home Loan Bank			9,775,167		110,468		4.53	%		8,216,382		64,091		3.13	%		9,975,973		103,609		4.21	%
Other borrowings			5,923,472		78,749		5.33	%		3,594,252		33,924		3.79	%		5,951,582		72,784		4.96	%

	Total interest-bearing liabilities		23,909,951		282,057		4.73	%		17,503,780		142,341		3.26	%		23,250,166		250,636		4.37	%

Other			2,117,781							1,177,509							1,668,691

	Total liabilities		26,027,732							18,681,289							24,918,857
	Shareholders’ equity		1,742,237							1,337,610							1,598,306

	Total liabilities and shareholders’ equity	$	27,769,969						$	20,018,899						$	26,517,163

Net interest income				$	130,154						$	97,319						$	127,210

Net interest spread							1.97	%						1.92	%						2.01	%

Net interest margin							2.12	%						2.10	%						2.15	%


		Six Months Ended

		June 30, 2006							June 30, 2005

		Average				Yield			Average				Yield
		Balance		Interest		Rate			Balance		Interest		Rate

		(Dollars in thousands)
Assets
Securities		$	4,363,348	$	147,481		6.82	%	$	3,610,581	$	99,025		5.53	%
Loans held for sale			10,579,433		354,640		6.76	%		6,446,224		167,139		5.23	%
Mortgage loans held for investment			5,981,016		168,271		5.67	%		5,101,192		119,227		4.71	%
Builder construction and income property			947,984		46,564		9.91	%		691,869		28,528		8.31	%
Consumer construction			1,661,105		52,522		6.38	%		1,384,987		38,657		5.63	%
Investment in Federal Home Loan Bank stock and other			824,490		20,579		5.03	%		565,070		11,436		4.08	%

	Total interest-earning assets		24,357,376		790,057		6.54	%		17,799,923		464,012		5.26	%

Other			2,786,190							1,493,623

	Total assets	$	27,143,566						$	19,293,546


Liabilities and shareholders’ equity
Interest-bearing deposits		$	7,766,962		167,083		4.34	%	$	5,475,782		80,218		2.95	%
Advances from Federal Home Loan Bank			9,875,570		214,077		4.37	%		7,758,242		116,804		3.04	%
Other borrowings			5,937,527		151,533		5.15	%		3,614,636		64,497		3.60	%

	Total interest-bearing liabilities		23,580,059		532,693		4.56	%		16,848,660		261,519		3.13	%

Other			1,893,236							1,141,155

	Total liabilities		25,473,295							17,989,815
	Shareholders’ equity		1,670,271							1,303,731

	Total liabilities and shareholders’ equity	$	27,143,566						$	19,293,546

Net interest income				$	257,364						$	202,493

Net interest spread							1.98	%						2.13	%

Net interest margin							2.13	%						2.29	%

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.

The net interest margin during the second quarter of 2006 was 2.12%, comparable to the net interest margin of 2.10% for the second quarter of 2005 and 2.15% for the first quarter of 2006.


		Three Months Ended

		June 30, 2006							June 30, 2005							March 31, 2006

		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		$	14,986	$	75		2.01	%	$	12,315	$	62		2.02	%	$	14,456	$	73		2.06	%
Mortgage banking segment			9,695		55		2.27	%		6,246		35		2.26	%		9,578		54		2.28	%

	Total Company	$	24,681	$	130		2.12	%	$	18,561	$	97		2.10	%	$	24,034	$	127		2.15	%

The net interest margin during the six months ended June 30, 2006 was 2.13%, declined from 2.29% for the six months ended June 30, 2005, primarily due to the reduction of spread between10-year Treasury and Fed fund rates. The impact of this spread reduction was partially offset by the effective interest rate

management in our thrift portfolio. We do not place interest rate hedges on loans held for sale as we hold these loans for a short period of time, generally ranging from 10 to 90 days.


		Six Months Ended

		June 30, 2006							June 30, 2005

		Average		Net		Net			Average		Net		Net
		Earning		Interest		Interest			Earning		Interest		Interest
		Assets		Income		Margin			Assets		Income		Margin

		(Dollars in millions)
By Segment:
Thrift segment and other		$	14,720	$	148		2.04	%	$	11,850	$	128		2.18	%
Mortgage banking segment			9,637		109		2.27	%		5,950		74		2.51	%

	Total Company	$	24,357	$	257		2.13	%	$	17,800	$	202		2.29	%

Interest income and interest expense fluctuations depend 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).


				Increase/(Decrease) Due to

				Volume		Rate			Mix			Total Change

				(Dollars in thousands)
Three Months Ended June 30, 2006 vs. 2005
Interest income:
	Mortgage-backed securities			$	13,825	$	15,096		$	4,376		$	33,297
	Loans held for sale				47,276		29,925			16,122			93,323
	Mortgage loans held for investment				8,259		13,755			1,825			23,839
	Builder construction and income property				5,666		2,989			1,090			9,745
	Consumer construction				4,284		3,622			801			8,707
	Investment in Federal Home Loan Bank stock and other				1,184		2,102			354			3,640

		Total interest income			80,494		67,489			24,568			172,551
Interest expense:
	Interest-bearing deposits				19,606		20,043			8,865			48,514
	Advances from Federal Home Loan Bank				12,159		28,761			5,457			46,377
	Other borrowings				21,984		13,859			8,982			44,825

		Total interest expense			53,749		62,663			23,304			139,716

			Net interest income	$	26,745	$	4,826		$	1,264		$	32,835

Six Months Ended June 30, 2006 vs. 2005
Interest income:
	Mortgage-backed securities			$	20,646	$	23,013		$	4,797		$	48,456
	Loans held for sale				107,167		48,949			31,385			187,501
	Mortgage loans held for investment				20,564		24,291			4,189			49,044
	Builder construction and income property				10,560		5,456			2,020			18,036
	Consumer construction				7,707		5,135			1,023			13,865
	Investment in Federal Home Loan Bank stock and other				5,250		2,668			1,225			9,143

		Total interest income			171,894		109,512			44,639			326,045
Interest expense:
	Interest-bearing deposits				33,565		37,577			15,723			86,865
	Advances from Federal Home Loan Bank				31,877		51,375			14,021			97,273
	Other borrowings				41,448		27,753			17,835			87,036

		Total interest expense			106,890		116,705			47,579			271,174

			Net interest income	$	65,004	$	(7,193	)	$	(2,940	)	$	54,871

INTEREST RATE SENSITIVITY

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 management. Our primary measurement tool used to evaluate interest rate risk over the comprehensive balance sheet is net portfolio value (“NPV”) analysis. The NPV analysis and duration gap estimate the exposure of the fair value of net assets attributable to shareholders’ equity to changes in interest rates.

The following 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, 2006, and December 31, 2005:


		June 30, 2006								December 31, 2005

				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		$	164,917	$	164,917		$	164,917		$	442,059	$	442,059		$	442,059
Trading securities			603,338		633,645			572,810			342,545		348,982			323,577
Available for sale securities			3,322,798		3,400,960			3,228,365			2,680,955		2,727,144			2,613,690
Loans held for sale			6,499,288		6,575,264			6,394,915			6,057,556		6,111,131			5,972,194
Loans held for investment			8,703,193		8,776,417			8,606,936			8,213,754		8,279,424			8,119,628
MSRs			1,598,821		1,352,937			1,754,996			1,114,630		930,932			1,239,189
Other assets			1,616,635		1,724,734			1,630,842			1,372,896		1,436,900			1,391,549

	Total assets	$	22,508,990	$	22,628,874		$	22,353,781		$	20,224,395	$	20,276,572		$	20,101,886

Deposits		$	9,392,297	$	9,436,316		$	9,349,236		$	7,629,227	$	7,665,078		$	7,594,015
Advances from Federal Home Loan Bank			7,061,128		7,086,323			6,987,895			6,966,946		6,993,439			6,940,884
Other borrowings			2,807,709		2,808,951			2,806,469			2,990,570		2,992,630			2,988,513
Other liabilities			591,036		591,514			590,559			433,995		434,287			433,705

	Total liabilities		19,852,170		19,923,104			19,734,159			18,020,738		18,085,434			17,957,117
Shareholders’ equity (NPV)		$	2,656,820	$	2,705,770		$	2,619,622		$	2,203,657	$	2,191,138		$	2,144,769

% Change from base case					1.84	%		(1.40	)%				(0.57	)%		(2.67	)%

Our NPV model has been built to focus on the Bank alone as the $1.0 billion of assets at the Parent Company and its non-bank subsidiaries have very little interest rate risk exposure.

The increase in the net present value of equity from December 31, 2005 to June 30, 2006 is partly due to: (i) an increase in our balance sheet, (ii) an increase in retained earnings of Indymac Bank in the amount of $192.1 million, (iii) a capital contribution of $140.0 million from the Parent Company to Indymac Bank, and (iv) an offset by a dividend payment of $79.5 million to the Parent Company. This analysis is based on instantaneous change in interest rates and does not reflect the impact of changes in hedging activities as interest rates change and changes in volumes and profits from our mortgage banking operations that would be expected to result from the interest rate environment.

In conjunction with the NPV analysis, we also estimate the net sensitivity of the fair value of our financial instruments to movements in interest rates using duration gap. This calculation is performed by estimating the change in dollar value due to an instantaneous parallel change in the interest rate curve. The resulting change in dollar value per one basis point change in interest rates is used to estimate the sensitivity of our portfolio. The dollar values per one basis point change are then aggregated to estimate the portfolio’s net sensitivity. To calculate duration gap, the net sensitivity is divided by the fair value of total interest-earning assets and expressed in months. A duration gap of zero implies that the change in value of assets from an instantaneous

rate move will be accompanied by an equal and offsetting move in the value of debt and derivatives thus leaving the net fair value of equity unchanged.

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 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.

At June 30, 2006, net duration gap for our mortgage banking and thrift segments was positive 2.7 months and negative 0.9 month, respectively, with the overall net duration gap of 0.3 month. Although our duration risk has been maintained at relatively low levels as indicated by our duration gap measures, fair value gains and losses will generally occur as market conditions change. We actively manage duration risk through asset selection by appropriate funding and hedging to within the duration limits approved by senior management and the Board of Directors.

The duration gap measures are estimated on a daily basis for the mortgage servicing rights and on a monthly basis for the assets in our thrift portfolio and pipeline.

CREDIT RISK AND RESERVES

The allowance for loan losses is allocated to various loan products for segment reporting purposes, and represents 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. The entire allowance for loan losses is available to cover losses in any of the loan portfolios. The following summarizes the Company’s allowance for loan losses/credit discounts and non-performing assets as of June 30, 2006:


									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		$	5,417,429	$	22,438	$	—		0.41	%	$	44,310		$	158	$	578
	Land and other mortgage loans			320,053		4,512		—		1.41	%		3,742			—		—
	Builder construction and income property loans			1,013,279		14,316		—		1.41	%		3,003			39		195
	Consumer construction loans			1,860,622		10,422		—		0.56	%		8,817			816		1,044
	Revolving warehouse lines of credit			121,292		188		—		0.15	%		—			—		—

		Total core held for investment loans		8,732,675		51,876		—		0.59	%		59,872			1,013		1,817
	Discontinued product lines(1)			40,152		6,036		—		15.03	%		4,041			626		1,491

		Total held for investment portfolio		8,772,827	$	57,912		—		0.66	%		63,913			1,639		3,308

Held for sale portfolio				6,510,614			$	17,474		0.27	%		40,728			—		—

		Total loans	$	15,283,441									104,641		$	1,639	$	3,308

Foreclosed assets
Core portfolios													11,376		$	1,226	$	1,582
Discontinued product lines													623			6		(3	)

Total foreclosed assets													11,999		$	1,232	$	1,579

Total non-performing assets												$	116,640

Total non-performing assets as a percentage of total assets													0.49	%


(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 following provides additional comparative data on non-performing assets:


				June 30,			June 30,			December 31,
				2006			2005			2005

				(Dollars in thousands)
Loans held for investment:
	Portfolio loans
		SFR mortgage loans		$	44,310		$	22,890		$	28,335
		Land and other mortgage loans			3,742			74			197
		Builder construction and income property loans			3,003			6,552			430
		Consumer construction loans			8,817			8,506			8,819

			Total portfolio non-performing loans		59,872			38,022			37,781
		Discontinued product lines			4,041			4,880			5,623

			Total non-performing loans held for investment	$	63,913		$	42,902		$	43,404

		Allowance for loan losses to non-performing loans held for investment			91	%		126	%		127	%

		Non-performing loans held for sale			40,728			19,865			20,805

			Total non-performing loans		104,641			62,767			64,209
Foreclosed assets					11,999			11,319			8,817

			Total non-performing assets	$	116,640		$	74,086		$	73,026

Total non-performing assets to total assets					0.49	%		0.38	%		0.34	%

The following reflects 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,
		2006			2005			2006			2005

		(Dollars in thousands)
Balance, beginning of period		$	57,321		$	53,493		$	55,168		$	52,891
Provision for loan losses			2,230			2,407			6,052			4,897
Charge-offs net of recoveries:
	SFR mortgage loans		(158	)		(254	)		(578	)		(1,075	)
	Land and other mortgage loans		—			(41	)		—			(41	)
	Builder construction		(39	)		(72	)		(195	)		(72	)
	Consumer construction		(816	)		(375	)		(1,044	)		(870	)
	Discontinued product lines		(626	)		(1,089	)		(1,491	)		(1,661	)

Charge-offs net of recoveries			(1,639	)		(1,831	)		(3,308	)		(3,719	)

Balance, end of period		$	57,912		$	54,069		$	57,912		$	54,069

Annualized charge-offs to average loans held for investment			0.08	%		0.10	%		0.08	%		0.10	%
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 $75.4 million at June 30, 2006, compared to $65.4 million at December 31, 2005. As of June 30, 2006, the allowance for loan losses of $57.9 million for loans held for investment represented 0.66% of total loans held for investment, comparable to 0.67% at December 31, 2005. In the third quarter of 2005, we provided $1.3 million to the allowance for loan losses for potential losses on loans held for investment that were collateralized by properties in the areas affected by the Gulf Coast Hurricanes. At June 30, 2006, the remaining allowance for Gulf Coast Hurricanes amounted to $927,000 and continues to appear adequate.

At June 30, 2006, non-performing assets as a percentage of total assets was 0.49%, increased from 0.34% at December 31, 2005. The non-performing loans increased $20.5 million and $19.9 million in loans held for investment and loans held for sale, respectively. The increase in non-performing loans held for investment is primarily due to the seasoning and the growth of the SFR mortgage loan portfolio. Additionally, the increases in non-performing loans in the land and other mortgage loans reflect the repurchases of lot loans due to fraud and one large loan that migrated to non-performing this quarter. The balance for these repurchased loans has been reduced based on the revised appraisals on the underlying collateral. The increase in non-performing loans held for sale is attributable to our growing conduit business and a substantial amount of these non-performing loans are covered by the early default provision in the sale agreement and subject to repurchase by the seller. Management does not expect material losses on these loans. At June 30, 2006, the allowance for loan losses to non-performing loans held for investment was 91%, down from 127% at December 31, 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.

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 experience. In assessing the adequacy of the allowance for loan losses in its entirety, 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. A component of the overall allowance for loan losses is not specifically allocated to the loan portfolios (“unallocated component”). The unallocated component 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, 2006, the unallocated component of the total allowance for loan losses was $19.3 million, comparable to $18.7 million of unallocated allowance at December 31, 2005.

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 allowance for loan losses is also subject to review by our primary federal regulator, the Office of Thrift Supervision (“OTS”). The OTS may require the 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, pursuant to the applicable accounting rules, we do not provide an allowance for loan losses. 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 $17.5 million at June 30, 2006, up from $11.4 million at March 31, 2006 and $10.2 million at December 31, 2005, primarily due to the lower of cost or market adjustments on the loans repurchased during the second quarter of 2006.

SECONDARY MARKET RESERVE

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 to 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 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, warranty and repurchase risk. The following reflects 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		$	373.5	$	97,995		0.38	%
Securitization trusts			22.8		119,484		0.02	%

	Total	$	396.3	$	217,479		0.18	%

The Company maintains secondary market reserve for losses that arise in connection with loans that we may be required to repurchase from whole loan sales and sales to the GSEs. The reserve has two general components: reserves for repurchases arising from representation and warranty claims and reserves for repurchases arising from early payment defaults. Also included in the reserve was a $1.3 million charge provided in the third quarter of 2005 (reduction of gain on sale of loans) for potential investor claims on loans that we previously sold and which were collateralized by properties in the areas affected by the Gulf Coast Hurricanes. This reserve has been reversed to gain on sale in the second quarter of 2006.

The following reflects the activity in the reserve during the three and six months ended June 30, 2006:


	Three			Six
	Months			Months

	(Dollars in thousands)
Balance, beginning of period	$	30,413		$	27,638
Additions/provisions		10,246			14,773
Actual losses/mark-to-market		(5,258	)		(7,784	)
Recoveries on previous claims		1			775

Balance, June 30, 2006	$	35,402		$	35,402

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 investor claims. While the ultimate amount of repurchases and claims is uncertain, management believes that the reserve is adequate. We will continue to evaluate the adequacy of our reserve and allocate a portion of our gain on sale proceeds to the reserve going forward. The entire balance of our secondary market reserve is included on the consolidated balance sheets as a component of other liabilities.

EXPENSES

GENERAL

A summary of expenses follows:


		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2006			2005			2006			2006			2005

		(Dollars in thousands)
Salaries and related		$	179,280		$	141,178		$	152,558		$	331,838		$	265,445
Premises and equipment			20,113			13,542			16,972			37,085			26,122
Loan purchase and servicing costs			13,149			10,601			12,906			26,055			20,247
Professional services			8,158			6,202			8,108			16,266			13,158
Data processing			15,758			11,404			14,275			30,033			21,349
Office and related			17,602			12,697			15,095			32,697			22,856
Advertising and promotion			12,409			10,608			11,217			23,626			21,758
Operations and sale of foreclosed assets			385			(889	)		542			927			712
Litigation settlement			—			3,000			—			—			9,000
Other			3,005			2,488			3,319			6,324			5,049
Deferral of expenses under FAS 91			(66,175	)		(57,164	)		(63,226	)		(129,401	)		(104,335	)

	Total operating expenses		203,684			153,667			171,766			375,450			301,361
Amortization of other intangible assets			130			150			134			264			307

	Total expenses	$	203,814		$	153,817		$	171,900		$	375,714		$	301,668

Our operating expenses increased 33% from $153.7 million for the three months ended June 30, 2005 to $203.7 million for the three months ended June 30, 2006, which is consistent with our net revenue growth of 31% during the corresponding period. The increase is attributable to the Company’s operational growth and geographic expansions in pursuit of market share and expansion of the Company’s retail banking branch network. Since the second quarter of 2005, we opened 5 new regional operations centers and a number of sales offices for the mortgage banking group and increased our consumer bank network to 26 branches, resulting in higher premises, data processing and office related expenses. The Company’s average full-time equivalent (“FTE”) employees increased 30% from 6,038 for the three months ended June 30, 2005 to 7,861 for the three months ended June 30, 2006, including 553 FTE off-shore as part of our Global Resources program. We utilize the off-shore workforce predominantly in non-customer-facing back office functions to enhance service levels and improve efficiencies.

Our operating expenses increased 19% compared to the first quarter of 2006, primarily due to increases in salaries and related expenses and premises and equipment. The increases were driven by additional full-time equivalent staff, higher bonus accruals due to strong earnings performance and the full impact of premises costs associated with the newly opened regional operations centers and sales offices.

As a result of the adoption and retrospective application of SFAS No. 123(R), total stock option expenses of $2.4 million and $3.1 million, for the quarters ended June 30, 2006 and 2005, respectively, have been recognized and included in the salaries and related expenses. For the six months ended June 30, 2006 and 2005, the stock option expenses were $5.0 million and $6.3 million, respectively.

Operating expenses of $375.5 million for the six months ended June 30, 2006 reflected an increase of 25% from the six months ended June 30, 2005, consistent with the growth in our revenues and operations.

SHARE REPURCHASE ACTIVITIES

The following summarizes share repurchase activities during the three months ended June 30, 2006:


								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 Plans or		Purchased Under the
Calendar Month:		Purchased(1)		Paid Per Share		Programs		Plans or Programs(2)

April 2006			418	$	41.31		—	$	63.6
May 2006			279		38.77		—		63.6
June 2006			15		47.33		—	$	63.6

	Total		712	$	40.44		—


(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 in $100 million increments to a total of $500 million in April, August and October 2000, May 2001 and July 2002.

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. Based on our confidence in our employees, hybrid thrift/mortgage banking business model, capital strength and ability to gain market share, Indymac aims to be among the top six lenders in the nation, while maintaining annualized earnings per share growth of at least 15%. Our annualized total return under current management for the period 1992 through June 30, 2006 was 24%. This performance exceeds the annualized returns of 12% for the Dow Jones Industrial Average and 10% for the S&P 500 Index over the same period.

With that said, the past few years have been extraordinary years for the mortgage industry as a result of historically low interest rates. However, the industry volume for 2006 is expected to decline by 18% from 2005 based on the forecasts published by the MBA.

In light of our continuing strong performance this quarter, we are reiterating our previously issued forecast of earnings of $5.00 to $5.40 per share for 2006, although we feel more confident that we will finish the year above the mid-point of this range. This EPS forecast is considered our best estimation in light of current market expectations for interest rates and industry volumes in 2006. However, the economy, interest rates and our industry remain volatile and as a result, our actual results could vary significantly from this forecast.

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, 2006, we had average total liquidity of $1.5 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, 2006, we sold $19.4 billion of mortgage loans, which represents approximately 97% of our funded mortgage loans during the period, to third party investors through three channels: (1) GSEs; (2) private label securitizations; and (3) whole loan sales. Our prime SFR mortgage loans division also elected to retain $216.4 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.

Our liquidity could be negatively impacted if any of our sales channels were disrupted. Disruptions in our whole loan sales and mortgage securitization transactions could 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. On March 15, 2006, the Federal Housing Finance Board published a proposed rule aimed at bolstering capital for the Federal Home Loan Banks (FHLBs). Among other things, this proposal would result in the respective FHLB reducing dividends paid to its members until such time as the respective FHLB capital reaches a specified level. In response to this proposal, the FHLB San Francisco had planned to cut dividends paid to be based on approximately 80% of its net income from previous 95% of net income until the retained earnings target was reached. During the second quarter of 2006, the implementation of this proposal was deferred indefinitely to allow more time for the FHLB to evaluate other alternatives.

Currently, Indymac Bank is approved for collateralized advances of up to $11.6 billion, of which $7.1 billion were outstanding at June 30, 2006. 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 26 branches in Southern California, 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 sets forth the balance of deposits as of the following period ends:


		June 30, 2006					June 30, 2005					December 31, 2005

Deposit Category		Amount		Rate			Amount		Rate			Amount		Rate

		(Dollars in thousands)
Non-interest-bearing checking		$	68,988		0.0	%	$	63,848		0.0	%	$	63,308		0.0	%
Interest-bearing checking			53,113		1.2	%		51,566		1.2	%		55,479		1.3	%
Savings			1,606,540		4.5	%		1,276,499		2.9	%		1,194,963		3.6	%
Custodial accounts			617,773		0.0	%		636,469		0.0	%		493,936		0.0	%

	Total core deposits		2,346,414		3.1	%		2,028,382		1.8	%		1,807,686		2.4	%
Certificates of deposit			7,005,457		4.7	%		4,556,150		3.3	%		5,864,238		4.0	%

	Total deposits	$	9,351,871		4.3	%	$	6,584,532		2.8	%	$	7,671,924		3.6	%


				% of					% of					% of
				Total					Total					Total
Deposit Channel		Amount		Deposits			Amount		Deposits			Amount		Deposits

		(Dollars in thousands)
Branch		$	4,206,638		45	%	$	2,868,298		44	%	$	3,322,752		43	%
Internet			1,004,474		11	%		664,079		10	%		798,518		10	%
Telebanking			1,171,650		13	%		760,710		12	%		934,572		12	%
Money desk			2,351,336		25	%		1,654,976		25	%		2,122,146		28	%
Custodial			617,773		6	%		636,469		9	%		493,936		7	%

	Total deposits	$	9,351,871		100	%	$	6,584,532		100	%	$	7,671,924		100	%

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 48). Also, we issued 3,500,000 warrants, each convertible into 1.5972 shares of Indymac Bancorp’s common stock as part of the WIRES offering. During the first six months of 2006, a total of 1,035,500 warrants were exercised at an average exercise price of $35.04 per share to purchase 1,653,898 shares of Indymac Bancorp’s common stock. To date, total warrants of 1,122,400 have been exercised and converted into a total of 1,792,692 shares of Indymac Bancorp’s common stock. Subordinated debentures redeemed in conjunction with the warrant exercises totaled $5,000 as of June 30, 2006 and an additional $30 million were redeemed on July 3, 2006.

In June 2006, we issued an additional $90 million in pooled trust preferred securities. To date, we have issued $270 million trust preferred securities (without warrants attached) as summarized below:


	Amount		Interest Rate

	(Dollars in thousands)
June 2006	$	90,000		7.35	%
December 2005		90,000		6.31	%
December 2004		30,000		5.83	%
December 2003		30,000		6.30	%
July 2003		30,000		6.05	%

Interest rates on these securities are fixed for a five year term, after which the rates reset quarterly indexed to3-month LIBOR. The securities can be called at the option of Indymac Bancorp five years after issuance. In each of these transactions, Indymac Bancorp issued subordinated debentures to, and purchased common securities from, each of the trusts. The rates on the subordinated debentures and the common securities in each of these transactions matches the rates 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 $401.8 million and $308.7 million at June 30, 2006, and December 31, 2005, 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, notes payable and asset-backed commercial paper. Total other borrowings decreased to $3.8 billion at June 30, 2006, from $4.1 billion at December 31, 2005. The net decrease of $0.3 billion represents the reductions in repo borrowings offset by the issuance of $670 million asset-backed commercial paper during the second quarter of 2006.

In April 2006 we established the Northlake Capital Funding Program, a single seller asset-backed commercial paper facility, which allows us to issue directly, secured liquidity notes backed by mortgage loans. Both the collateral pledged and secured liquidity notes are recorded on our balance sheet as assets and liabilities, respectively. The secured liquidity notes have been rated F-1+ by Fitch Ratings, P-1 by Moody’s Investors Service and A-1+ by Standard & Poor’s, and are supported by credit enhancements, such as overcollateralization, excess spread, and market value swaps provided by highly rated counterparties. We are authorized to issue up to $2.5 billion in short-term notes, with expected maturities not to exceed 180 days after issuance and final maturities of 60 days following the expected maturities. As of June 30, 2006, we had $670 million in secured liquidity notes outstanding.

At June 30, 2006, we had $6.9 billion in committed financing facilities ($6.5 billion whole loan facilities, $300 million bond facilities and $100 million in unsecured revolving line of credit). Of these committed financing facilities, $1.9 billion was utilized and $1.6 billion 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 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, 2006, we believe we were in compliance with all representations, warranties, and financial covenants under our borrowing facilities.

Direct Stock Purchase Plan

Our direct stock purchase plan offers investors the ability to purchase shares of our common stock directly over the Internet. During the first six months of 2006, we raised $73.4 million of capital by issuing 1,747,675 shares of common stock through this plan.

PRINCIPAL USES OF CASH

In addition to the financing sources discussed above, our cash needs 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 $2.3 billion during the six months ended June 30, 2006 and $2.9 billion during the six months ended June 30, 2005. 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 $121.7 million and $134.5 million for the six months ended June 30, 2006 and 2005, respectively.

REGULATORY CAPITAL REQUIREMENTS

Indymac Bank is subject to regulatory capital regulations administered by the federal banking agencies. As of June 30, 2006, Indymac Bank met all of the requirements of a “well-capitalized” institution under the general regulatory capital regulations.

The Company’s business is primarily centered on single-family lending and the related production and sale of loans. As such, the accumulation of MSRs is a large component of our strategy. As of June 30, 2006, the capitalized value of MSRs was $1.6 billion. OTS regulations generally impose higher capital requirements on MSRs that exceed total Tier 1 capital. These higher capital requirements could result in lowered returns on our retained assets and could limit our ability to retain servicing assets. We have flexibility to sell or retain MSRs and the ability to increase our capital base through retention of earnings and other capital raising activities. While management believes that compliance with the capital limits on MSRs will not materially impact future results, no assurance can be given that our plans and strategies will be successful.

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 $145.5 million at June 30, 2006.

The impact of the additional risk-weighting criteria related to subprime loans had the effect of reducing Indymac’s total risk-based capital by 9 basis points. The following presents Indymac Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” at June 30, 2006:


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

Capital Ratios:
Tier 1 core		8.24	%		8.24	%		5.00	%
Tier 1 risk-based		11.66	%		11.57	%		6.00	%
Total risk-based		12.06	%		11.97	%		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 $53.6 billion in loans owned by off-balance sheet trusts as of June 30, 2006. 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. For information on the sales proceeds and cash flows from our securitizations for 2006 see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Principal Sources of Cash — Loan Sales and Securitizations.”

We often retain certain interests, which may include subordinated classes of securities, MSRs, AAA-rated and agency 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 and agency interest-only securities, principal-only securities, prepayment penalty securities, non-investment grade securities and residual securities were $1.6 billion, $64.4 million, $130.0 million, $80.0 million, $88.0 million and $240.5 million, respectively, at June 30, 2006.

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.

AGGREGATE CONTRACTUAL OBLIGATIONS

Our material contractual obligations were summarized and included in our 2005 10-K. There have been no material changes outside the ordinary course of our business in the contractual obligations as specified in the 2005 10-K during the six months ended June 30, 2006.

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 and 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*

Please refer to “Interest Rate Sensitivity” on page 41 as well as Item 1A included on page 68 for quantitative and qualitative disclosure about market risk.


ITEM 1.	*FINANCIAL STATEMENTS*

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


				June 30,			December 31,
				2006			2005

				(Unaudited)
				(Dollars in thousands)
Assets
Cash and cash equivalents				$	165,178		$	442,525
Securities classified as trading ($229.3 million and $96.8 million pledged as collateral for borrowings at June 30, 2006 and December 31, 2005, respectively)					608,495			348,962
Securities classified as available for sale, amortized cost of $4.4 billion and $3.8 billion at June 30, 2006 and December 31, 2005, respectively ($3.1 billion and $2.7 billion pledged as collateral for borrowings at June 30, 2006 and December 31, 2005, respectively)					4,281,489			3,753,195
Loans receivable:
	Loans held for sale
		SFR mortgage			5,696,629			5,170,168
		HELOC			729,555			755,040
		Consumer lot loans			66,956			98,976

			Total loans held for sale		6,493,140			6,024,184

	Loans held for investment
		SFR mortgage			5,427,609			5,441,521
		Consumer construction			1,860,622			1,656,963
		Builder construction			1,013,279			838,772
		HELOC			29,972			31,882
		Land and other mortgage			320,053			260,615
		Revolving warehouse lines of credit			121,292			48,616
	Allowance for loan losses				(57,912	)		(55,168	)

			Total loans held for investment		8,714,915			8,223,201

		Total loans receivable ($11.1 billion and $10.2 billion pledged as collateral for borrowings at June 30, 2006 and December 31, 2005, respectively)			15,208,055			14,247,385
Mortgage servicing rights					1,598,821			1,094,490
Investment in Federal Home Loan Bank stock					578,737			556,262
Interest receivable					157,809			131,644
Goodwill and other intangible assets					80,583			80,847
Foreclosed assets					11,999			8,817
Other assets					1,065,276			788,172

		Total assets		$	23,756,442		$	21,452,299


Liabilities and Shareholders’ Equity
Deposits				$	9,351,871		$	7,671,924
Advances from Federal Home Loan Bank					7,069,800			6,953,000
Other borrowings					4,164,540			4,367,270
Other liabilities					1,366,050			916,664

		Total liabilities			21,952,261			19,908,858

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 97,860,464 shares (68,620,208 outstanding) at June 30, 2006, and issued 93,436,622 shares (64,246,767 outstanding) at December 31, 2005				979			934
	Additional paid-in-capital				1,455,909			1,318,751
	Accumulated other comprehensive loss				(24,841	)		(15,157	)
	Retained earnings				894,557			759,330
	Treasury stock, 29,240,256 shares and 29,189,855 shares at June 30, 2006 and December 31, 2005, respectively				(522,423	)		(520,417	)

		Total shareholders’ equity			1,804,181			1,543,441

		Total liabilities and shareholders’ equity		$	23,756,442		$	21,452,299

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS


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

					2006		2005		2006		2005

					(Unaudited)
					(Dollars in thousands,
					except per share data)
Interest income
Mortgage-backed and other securities					$	80,998	$	47,701	$	147,481	$	99,025
Loans held for sale
	SFR mortgage					159,645		78,878		313,042		150,672
	HELOC					18,915		6,002		36,660		12,354
	Consumer lot loans					2,519		2,876		4,938		4,113

			Total loans held for sale			181,079		87,756		354,640		167,139
Loans held for investment
	SFR mortgage					75,853		57,850		149,648		110,602
	Consumer construction					28,079		19,372		52,522		38,657
	Builder construction					25,280		15,535		46,564		28,528
	Land and other mortgage					7,944		3,694		14,792		7,331
	HELOC					627		541		1,241		1,124
	Revolving warehouse lines of credit					1,668		168		2,590		170

			Total loans held for investment			139,451		97,160		267,357		186,412
Other						10,683		7,043		20,579		11,436

			Total interest income			412,211		239,660		790,057		464,012
Interest expense
	Deposits					92,840		44,326		167,083		80,218
	Advances from Federal Home Loan Bank					110,468		64,091		214,077		116,804
	Other borrowings					78,749		33,924		151,533		64,497

			Total interest expense			282,057		142,341		532,693		261,519

				Net interest income		130,154		97,319		257,364		202,493
Provision for loan losses						2,230		2,407		6,052		4,897

				Net interest income after provision for loan losses		127,924		94,912		251,312		197,596
Other income
	Gain on sale of loans					201,659		159,377		342,858		303,699
	Service fee income					27,247		10,799		58,136		15,217
	Gain on mortgage-backed securities, net					8,258		15,851		5,643		11,205
	Fee and other income					12,002		7,732		23,676		14,303

			Total other income			249,166		193,759		430,313		344,424

				Net revenues		377,090		288,671		681,625		542,020
Other expense
	Operating expenses					203,684		153,667		375,450		301,361
	Amortization of other intangible assets					130		150		264		307

			Total other expense			203,814		153,817		375,714		301,668

	Earnings before provision for income taxes and minority interests					173,276		134,854		305,911		240,352
		Provision for income taxes				67,960		52,824		120,279		94,597

				Net earnings before minority interests		105,316		82,030		185,632		145,755
	Minority interests					657		316		1,124		591

				Net earnings	$	104,659	$	81,714	$	184,508	$	145,164

Earnings per share:
	Basic				$	1.57	$	1.31	$	2.82	$	2.34
	Diluted				$	1.49	$	1.24	$	2.68	$	2.22
Weighted-average shares outstanding:
	Basic					66,483		62,304		65,402		62,052
	Diluted					70,213		65,793		68,870		65,312
Dividends declared per share					$	0.46	$	0.38	$	0.90	$	0.74

The accompanying notes are an integral part of these statements.

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, 2004		61,995,480		$	912	$	1,186,682	$	(20,304	)	$	616,516		$	—		$	(519,835	)	$	1,263,971
Cumulative-effect adjustment due to change in accounting for common stock options		—			—		68,111		—			(51,811	)		—			—			16,300

Balance at December 31, 2004, retrospectively adjusted (see Note 2)		61,995,480			912		1,254,793		(20,304	)		564,705			—			(519,835	)		1,280,271
Exercises of common stock options		1,265,135			12		28,591		—			—			—			—			28,603
Compensation expenses for common stock options		—			—		6,282		—			—			—			—			6,282
Net officers’ notes receivable payments		—			—		16		—			—			—			—			16
Deferred compensation, restricted stock, net of forfeitures and amortization		267,204			3		2,543		—			—			—			—			2,546
Net unrealized loss 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, retrospectively adjusted (see Note 2)		—			—		—		—			145,164			145,164			—			145,164

Total comprehensive income		—			—		—		—			—		$	150,435			—			—

Balance at June 30, 2005, retrospectively adjusted		63,511,959		$	927	$	1,292,225	$	(15,033	)	$	663,630					$	(520,393	)	$	1,421,356

Balance at December 31, 2005		64,246,767		$	934	$	1,242,500	$	(15,157	)	$	818,241		$	—		$	(520,417	)	$	1,526,101
Cumulative-effect adjustment due to change in accounting for common stock options		—			—		76,251		—			(58,911	)		—			—			17,340

Balance at December 31, 2005, retrospectively adjusted		64,246,767			934		1,318,751		(15,157	)		759,330			—			(520,417	)		1,543,441
Cumulative-effect adjustment due to change in accounting for MSRs		—			—		—		—			10,624			—			—			10,624
Issuance of common stock		1,747,675			18		73,408		—			—			—			—			73,426
Exercises of common stock options		641,310			6		17,789		—			—			—			—			17,795
Exercises of warrants		1,653,898			17		36,269		—			—			—			—			36,286
Compensation expenses for common stock options		—			—		4,963		—			—			—			—			4,963
Net officers’ notes receivable payments		—			—		82		—			—			—			—			82
Deferred compensation, restricted stock, net of forfeitures and amortization		380,959			4		4,647		—			—			—			—			4,651
Net unrealized loss on mortgage-backed securities available for sale		—			—		—		(25,168	)		—			(25,168	)		—			(25,168	)
Net unrealized gain on derivatives used in cash flow hedges		—			—		—		15,484			—			15,484			—			15,484
Purchases of common stock		(50,401	)		—		—		—			—			—			(2,006	)		(2,006	)
Cash dividends		—			—		—		—			(59,905	)		—			—			(59,905	)
Net earnings		—			—		—		—			184,508			184,508			—			184,508

Total comprehensive income		—			—		—		—			—		$	174,824			—			—

Balance at June 30, 2006		68,620,208		$	979	$	1,455,909	$	(24,841	)	$	894,557					$	(522,423	)	$	1,804,181

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


				For the Six Months Ended
				June 30,

				2006			2005

				(Unaudited)
				(Dollars in thousands)
Cash flows from operating activities:
	Net earnings			$	184,508		$	145,164
	Adjustments to reconcile net earnings to net cash used in operating activities:
		Gain on sale of loans			(342,858	)		(303,699	)
		Compensation expenses related to stock options and restricted stocks			9,614			8,827
		Other amortization and depreciation			31,058			26,001
		Change in valuation of mortgage servicing rights, including amortization			11,554			174,108
		Gain on mortgage-backed securities, net			(5,643	)		(11,205	)
		Provision for loan losses			6,052			4,897
		Net increase in deferred tax liability			158,111			26,409
		Net decrease in other assets and liabilities			69,275			64,025

	Net cash provided by operating activities before activity for trading securities and loans held for sale				121,671			134,527
	Net sales of trading securities				32,242			57,051
	Net purchases and originations of loans held for sale				(2,333,293	)		(2,957,793	)

			Net cash used in operating activities		(2,179,380	)		(2,766,215	)

Cash flows from investing activities:
	Net sales of and payments from loans held for investment				319,827			511,523
	Purchases of mortgage-backed securities available for sale				(377,157	)		(314,494	)
	Proceeds from sales of and principal payments from mortgage-backed securities available for sale				384,915			465,054
	Net increase in investment in Federal Home Loan Bank stock, at cost				(22,475	)		(93,853	)
	Net decrease (increase) in real estate investment				702			(25,435	)
	Net purchases of property, plant and equipment				(47,654	)		(38,552	)

			Net cash provided by investing activities		258,158			504,243

Cash flows from financing activities:
	Net increase in deposits				1,678,082			840,042
	Net increase in advances from Federal Home Loan Bank				116,800			1,436,000
	Net (decrease) increase in borrowings				(306,685	)		1,925
	Net proceeds from issuance of common stock				73,426			—
	Net proceeds from issuance of trust preferred securities				90,000			—
	Net proceeds from stock options, warrants and notes receivable				54,163			28,619
	Cash dividends paid				(59,905	)		(46,239	)
	Purchases of common stock				(2,006	)		(558	)

			Net cash provided by financing activities		1,643,875			2,259,789

Net decrease in cash and cash equivalents					(277,347	)		(2,183	)
Cash and cash equivalents at beginning of period					442,525			356,157

Cash and cash equivalents at end of period				$	165,178		$	353,974

Supplemental cash flow information:
	Cash paid for interest			$	517,197		$	247,516

	Cash (received) paid for income taxes			$	(48,905	)	$	35,596

Supplemental disclosure of non-cash investing and financing activities:
	Net transfer of loans held for sale to loans held for investment			$	840,902		$	1,278,265

	Net transfer of mortgage servicing rights to trading securities			$	—		$	8,491

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

(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 U.S. generally accepted accounting principles (“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, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and footnotes thereto included in Indymac’s 2005 10-K.

NOTE 2 — NEWLY ADOPTED AND 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. The Company adopted SFAS No. 123(R) on January 1, 2006 using the modified-retrospective method. The following table summarizes net earnings as well as dilutive earnings per share for all quarters in 2005. See Note 5 — Stock-Based Compensation for further details on the stock compensation expenses for the three and six months ended June 30, 2006 and 2005.


	Q1 2005		Q2 2005		Q3 2005		Q4 2005		YTD 2005

	(In thousands, except per share data)
Reported net earnings	$	65,476	$	83,146	$	79,275	$	72,329	$	300,226
Retrospective application of SFAS No. 123(R)		2,026		1,432		1,749		1,891		7,098

Adjusted net earnings	$	63,450	$	81,714	$	77,526	$	70,438	$	293,128
Adjusted average dilutive shares		64,830		65,793		67,100		66,737		66,115
Reported dilutive earnings per share	$	1.01	$	1.26	$	1.18	$	1.09	$	4.54
Adjusted dilutive earnings per share	$	0.98	$	1.24	$	1.16	$	1.06	$	4.43

In February 2006, the FASB issued Statement No. 155,“Accounting for Certain Hybrid Financial Instruments”(“SFAS No. 155”), which amends FASB Statements No. 133 and 140. This Statement permits fair value remeasurement for any hybrid financial instrument containing an embedded derivative that would otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”) permitted holdings to include passive derivative financial instruments that pertain to other derivative financial instruments. This Statement is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year beginning after

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 15, 2006. Management plans to adopt this Statement on January 1, 2007 and is in the process of assessing the impact, if any, of the adoption of this Statement on our financial results.

In April 2006, the FASB issued FASB Staff Position FIN 46(R)-6,“Determining the Variability to be Considered When Applying FASB Interpretation No. 46(R).” The FSP addresses the approach and necessity to determine the variability when applying FIN 46(R). The variability that is considered in applying Interpretation 46(R) may affect (a) the determination as to whether the entity is a variable interest entity (VIE), (b) the determination of which interests are variable interests in the entity, (c) if necessary, the calculation of expected losses and residual returns of the entity, and (d) the determination of which party is the primary beneficiary of the VIE. The FSP shall be applied prospectively to all companies (including newly created companies) with which that company first becomes involved and to all entities previously required to be analyzed under FIN 46(R) when a reconsideration event has occurred beginning the first day of the first reporting period beginning after June 15, 2006. Early application is permitted for periods for which financial statements have not yet been issued. Retrospective application to the date of the initial application of FIN 46(R) is permitted but not required. Retrospective application, if elected, must be completed no later than the end of the first annual reporting period ending after July 15, 2006. Management plans to adopt this FSP prospectively on December 31, 2006 and is in the process of assessing the impact, if any, of the adoption of this FSP on our financial results.

In June 2006, the EITF reached final conclusions on Issue 06-2,“Accounting for Sabbatical Leave and Other Similar Benefits,” pursuant to FASB Statement No. 43,“Accounting for Compensated Absences.” This Statement requires that an employee’s right to a compensated absence under a sabbatical or similar benefit arrangement does accumulate pursuant to Statement 43 and, therefore, a liability for the benefit should be accrued over the period required for the employee to earn the right to the time off under the arrangement. This Statement is effective for fiscal years beginning after December 15, 2006. Consistent with Statement No. 154,“Accounting Changes and Error Corrections,” the effect of adoption should be recognized as either a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or b) a change in accounting principle through retrospective application to all prior periods. Management plans to adopt this Statement on January 1, 2007, and is in the process of assessing the impact of the adoption of this Statement on our financial statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 — MORTGAGE-BACKED SECURITIES AND AGENCY NOTES

As of June 30, 2006 and December 31, 2005, our MBS and agency notes were comprised of the following:


			June 30,		December 31,
			2006		2005

			(Dollars in thousands)
Mortgage-backed securities — Trading
	AAA-rated non-agency securities		$	73,434	$	52,633
	AAA-rated and agency interest-only securities			64,373		78,731
	AAA-rated principal-only securities			129,951		9,483
	Prepayment penalty securities			80,036		75,741
	Other investment grade securities			27,060		8,830
	Other non-investment grade securities			35,349		4,480
	Non-investment grade residual securities			198,292		119,064

		Total mortgage-backed securities — Trading	$	608,495	$	348,962

Mortgage-backed securities and agency notes — Available for sale
	AAA-rated non-agency securities		$	3,972,977	$	3,524,952
	AAA-rated agency securities			52,701		43,014
	Other investment grade securities			160,885		83,290
	Other non-investment grade securities			52,696		53,232
	Non-investment grade residual securities			42,230		48,707

		Total mortgage-backed securities and agency notes — Available for sale	$	4,281,489	$	3,753,195

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, 2006

			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		$	(968	)	$	48,493	$	(6	)	$	185	$	(974	)	$	48,678
	AAA-rated non-agency securities			(17,649	)		1,411,677		(61,712	)		1,455,125		(79,361	)		2,866,802
	Other investment grade securities			(3,748	)		130,354		—			—		(3,748	)		130,354
	Residuals			(501	)		19,488		—			—		(501	)		19,488

		Total Securities — Available for Sale	$	(22,866	)	$	1,610,012	$	(61,718	)	$	1,455,310	$	(84,584	)	$	3,065,322

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 entirely attributable to changes in interest rates and individually were 7% or less of their respective amortized cost basis.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — SEGMENT REPORTING

The Company operates through two primary segments: mortgage banking and thrift. For more information regarding each segment as well as the accounting methodology used for reporting segment financial results refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Detail Channel Segment Results” beginning on page 8. The “Other” column in the tables below includes items such as deposits, treasury, eliminations and overhead.

Segment information for the three and six months ended June 30, 2006 and 2005 was as follows:


		Mortgage Banking

		Production			MSRs and									Total
		Divisions			Retained Assets			Thrift			Other			Company

		(Dollars in thousands)
Three months ended June 30, 2006
	Net interest income	$	37,650		$	16,799		$	67,109		$	8,596		$	130,154
	Net revenues (expense)		234,117			53,169			90,366			(562	)		377,090
	Net earnings (loss)		85,149			24,752			37,704			(42,946	)		104,659
Allocated average capital			521,875			363,809			666,085			190,468			1,742,237
Assets as of June 30, 2006		$	5,418,369		$	2,838,080		$	14,319,453		$	1,180,540		$	23,756,442
Return on equity			65	%		27	%		23	%		N/A			24	%
Three months ended June 30, 2005
	Net interest income	$	23,785		$	11,372		$	53,842		$	8,320		$	97,319
	Net revenues (expense)		197,489			23,364			76,042			(8,224	)		288,671
	Net earnings (loss)		76,868			9,254			33,370			(37,778	)		81,714
Allocated average capital			318,640			176,731			508,389			333,850			1,337,610
Assets as of June 30, 2005		$	5,326,759		$	1,415,839		$	11,618,839		$	1,054,450		$	19,415,887
Return on equity			97	%		21	%		26	%		N/A			25	%
Six months ended June 30, 2006
	Net interest income	$	80,901		$	27,310		$	134,967		$	14,186		$	257,364
	Net revenues (expense)		416,627			92,723			178,690			(6,415	)		681,625
	Net earnings (loss)		149,334			42,246			76,931			(84,003	)		184,508
Allocated average capital			516,384			324,242			653,354			176,291			1,670,271
Assets as of June 30, 2006		$	5,418,369		$	2,838,080		$	14,319,453		$	1,180,540		$	23,756,442
Return on equity			58	%		26	%		24	%		N/A			22	%
Six months ended June 30, 2005
	Net interest income	$	49,115		$	25,020		$	111,924		$	16,434		$	202,493
	Net revenues (expense)		374,431			41,151			148,580			(22,142	)		542,020
	Net earnings (loss)		143,153			15,740			66,522			(80,251	)		145,164
Allocated average capital			298,201			179,817			484,330			341,383			1,303,731
Assets as of June 30, 2005		$	5,326,759		$	1,415,839		$	11,618,839		$	1,054,450		$	19,415,887
Return on equity			97	%		18	%		28	%		N/A			22	%

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 — STOCK-BASED COMPENSATION

The Company has two stock incentive plans, the 2002 Incentive Plan, as amended and restated, and the 2000 Stock Incentive Plan (collectively, the “Plans”), which provide for the granting of non-qualified and incentive stock options, restricted and performance stock awards, and other awards to employees (including officers) and directors. On April 25, 2006, the 2002 Incentive Plan, as amended and restated, was approved by shareholders to increase the total number of shares of common stock reserved and available for issuance from 6,000,000 to 11,200,000. Each share issued pursuant to a full value award (such as restricted stock) will reduce the number of shares of common stock available for future grants by 3.5 shares. The term of options granted under the 2002 Incentive Plan (the “Plan”) was reduced from ten years to seven years, and the Company is no longer able to grant stock appreciation rights, bonus stock, stock units, performance shares or performance units under the Plan.

Options granted under the Plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant, and generally vest based on one, three or five years of continuous service. Grants issued after April 25, 2006 will expire in seven years from the grant date, while grants issued prior to April 25, 2006 continue to have a ten-year term. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plans).

Prior to January 1, 2006, the Company accounted for the Plans under the recognition and measurement provisions of APB Opinion No. 25 and related Interpretations, as permitted by SFAS No. 123. No stock option compensation cost was recognized in the Statement of Earnings as all options granted had an exercise price equal to the market value of the underlying common stock on the grant date.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R),Share-Based Payment, using the modified-retrospective-transition method. Under this method, compensation cost recognized for the period includes compensation cost for all options granted prior to, but not yet vested as of January 1, 2006, and all options granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of Statements No. 123 and 123(R), respectively.

The Company’s income before income taxes and net income for the three months ended June 30, 2006 included stock option compensation cost of $2.4 million and $1.3 million, respectively, which represented $0.02 impact on both basic and dilutive earnings per share. For the six months ended June 30, 2006, the stock option compensation cost (pre-tax) was $5.0 million, or $0.07 impact on dilutive earnings per share. The Company’s net income for the three and six months ended June 30, 2005 have been retrospectively adjusted to reflect pre-tax stock option compensation cost of $3.1 million and $6.3 million, respectively. The retrospectively adjusted dilutive earnings per share for the three and six months were $1.24 and $2.22, respectively.

The fair value of each option award is estimated on the date of grant. For grants issued on and after January 1, 2006, the fair value is determined using an enhanced binomial lattice model. For options granted prior to January 1, 2006, the fair value of these awards was based on the fair value calculated for purposes of the SFAS No. 123 pro-forma disclosures which used the Black Scholes option pricing model. The assumptions used in the valuations for options granted during the six months ended June 30, 2006 and 2005 are summarized as follows:


	2006			2005

Expected volatility		28.11- 28.44	%		28.77- 29.42	%
Expected dividends		4.00-4.60	%		3.72-4.07	%
Weighted average expected term (in years)		6.89-7.34			5.00
Risk-free rate		4.54-4.73	%		4.16-4.54	%

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Expected volatilities are based on the historical volatility of the Company’s common stock and other factors. For the Black Scholes valuation model, the expected term of the options is estimated based on historical option exercise activity. For the enhanced binomial valuation model, the Company uses historical data to estimate assumptions for expected option exercise and expected employee termination rates. The expected term of options granted is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. The range given above results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Option activity under the Plans as of June 30, 2006, and activity for the three and six months ended June 30, 2006 follows:


						Weighted
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Fair Value
Options:	Shares			Price		Term		(In thousands)

Options outstanding at March 31, 2006		8,454,894		$	26.20
Options granted		—			—
Options exercised		(460,230	)		22.59
Options canceled, forfeited and expired		(25,392	)		36.62

Options outstanding at June 30, 2006		7,969,272		$	26.37		6.26	$	60,455

Options exercisable at June 30, 2006		5,807,703		$	23.65		5.46	$	42,995


						Weighted
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Fair Value
Options:	Shares			Price		Term		(In thousands)

Options outstanding at December 31, 2005		7,851,820		$	24.82
Options granted		788,140			39.11
Options exercised		(640,144	)		22.55
Options canceled, forfeited and expired		(30,544	)		36.31

Options outstanding at June 30, 2006		7,969,272		$	26.37		6.26	$	60,455

Options exercisable at June 30, 2006		5,807,703		$	23.65		5.46	$	42,995

No stock options were granted during the three months ended June 30, 2006. The weighted average grant-date fair value of options granted during the three months ended June 30, 2005 was $8.28. The total fair value of options exercised during the three months ended June 30, 2006 and 2005, was $3.0 million and $6.2 million, respectively. For the six months ended June 30, 2006 and 2005, the total fair value of options exercised was $4.2 million and $7.5 million, respectively.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The status of the Company’s nonvested shares as of June 30, 2006, and changes during the six months ended June 30, 2006, follows:


				Weighted-
				Average
				Grant-Date
				Fair Value
Nonvested Options:	Shares			Per Share

Nonvested at December 31, 2005		2,660,324		$	7.54
Granted		788,140			9.13
Vested		(1,258,408	)		7.60
Canceled, forfeited and expired		(28,487	)		8.26

Nonvested at June 30, 2006		2,161,569		$	8.08

As of June 30, 2006, there was $13.2 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested options under the Plans. That cost is expected to be recognized in less than three years. The total fair value of shares vested during the three months ended June 30, 2006 and 2005, was $605,000 and $2.6 million, respectively. The total fair value of shares vested during the six months ended June 30, 2006 and 2005, was $9.6 million and $11.5 million, respectively.

Cash received from option exercise under the Plans for the six months ended June 30, 2006 and 2005, was $14.4 million and $20.9 million, respectively. The actual tax benefit for the tax deductions from option exercises totaled $5.5 million and $10.2 million, respectively, for the six months ended June 30, 2006 and 2005. To the extent the tax deductions exceed the amount previously expensed for financial accounting purposes, the related tax benefit on the excess is credited to equity, but only if that benefit can be realized currently.

The Company recorded compensation cost of $2.7 million and $1.5 million related to the restricted stock granted under the Plans for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, the compensation cost related to the restricted stock was $4.6 million, and $2.6 million, respectively.

Restricted stock activity under the Plans as of June 30, 2006, and changes during the three and six months ended June 30, 2006 follows:


				Weighted-
				Average
				Grant-Date
				Fair Value
Restricted Stock:	Shares			Per Share

Nonvested at March 31, 2006		789,365		$	37.50
Granted		41,193			48.06
Vested		(6,487	)		36.70
Canceled and forfeited		(24,210	)		37.53

Nonvested at June 30, 2006		799,861		$	38.05

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


				Weighted-
				Average
				Grant-Date
				Fair Value
Restricted Stock:	Shares			Per Share

Nonvested at December 31, 2005		582,401		$	32.59
Granted		417,049			40.08
Vested		(164,922	)		24.19
Canceled and forfeited		(34,667	)		37.47

Nonvested at June 30, 2006		799,861		$	38.05

NOTE 6 — DEFINED BENEFIT PENSION PLAN NET PERIODIC COST

Through December 31, 2002, we provided a defined benefit pension plan (the “DBP Plan”) to substantially all of our employees. Employees hired prior to January 1, 2003, with one or more years of service, are entitled to annual pension benefits beginning at normal retirement age (65 years of age) equal to a formula approximating 0.9% of final average compensation multiplied by credited service (not in excess of 35 years), subject to a vesting requirement of five years of service. Our policy is to contribute the amount actuarially determined to be necessary to pay the benefits under the DBP Plan, and in no event to pay less than the amount necessary to meet the minimum funding standards of Employee Retirement Income Security Act of 1974 (“ERISA”). Employees hired after December 31, 2002 are not eligible for the DBP Plan.

The components of net periodic expense for the DBP Plan are as follows:


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

	2006			2005			2006			2005

	(Dollars in thousands)
Service cost	$	1,575		$	1,486		$	3,150		$	2,972
Interest cost		568			453			1,136			906
Expected return on assets		(582	)		(440	)		(1,164	)		(880	)
Recognized actuarial loss		81			85			162			170
Amortization of prior service cost		14			14			28			28

Net periodic expense	$	1,656		$	1,598		$	3,312		$	3,196

The weighted-average assumptions used in computing the net periodic expense at June 30, 2006 and 2005 were as follows:


	Three Months
	Ended
	June 30,

	2006			2005

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 is expected to make a lump sum contribution payment of $7.0 million (as previously disclosed in its financial statements for the year ended December 31, 2005) to the DBP Plan in the second half of 2006 for the 2005 plan year.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7 — LEGAL MATTERS

In the ordinary course of business, the Company and its subsidiaries are defendants in or parties to a number of 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 sales, 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 SFAS 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 trial or resolving the matter through alternative dispute resolution. Due to the difficulty of predicting the outcome of such actions, the Company can give no assurance that it will prevail on all claims made against it; however, 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 likely final outcome thereof, will not have a material adverse effect on the Company and its subsidiaries’ financial position, but may have a material impact on the results of operations of particular periods.

NOTE 8 — SUBSEQUENT EVENTS

On July 3, 2006, the Company increased its ownership stake in Financial Freedom Senior Funding Corporation (“Financial Freedom”) from 93.75% to 100%. The Company purchased from James Mahoney, CEO of Financial Freedom, a 6.25% interest in Financial Freedom for $40 million.

Based on Indymac’s strong operating performance and financial position — including earnings, capital and liquidity — and its commitment to shareholder value, Indymac’s Board of Directors increased the cash dividend to $0.48 per share. This represents an increase of 20 percent from the dividend declared and paid in the third quarter of 2005. The cash dividend is payable September 7, 2006 to shareholders of record on August 10, 2006.


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 and15d-15 of Securities Exchange Act of 1934. As of June 30, 2006, 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, 2006 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 changes in the Company’s internal control over financial reporting or in other factors that are reasonably likely to affect the Company’s disclosure of controls and procedures subsequent to June 30, 2006.

PART II. OTHER INFORMATION


ITEM 1.	*LEGAL PROCEEDINGS*


ITEM 1A.	*RISK FACTORS*

There have been no material changes to the risk factors previously disclosed on pages 70 to 78 in our quarterly report on Form 10-Q for the quarter ended March 31, 2006.


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

See “Share Repurchase Activities” on page 48 for a discussion of share repurchases conducted by Indymac during the second quarter of 2006.


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

At the annual meeting of IndyMac Bancorp, Inc.’s stockholders held on April 25, 2006, 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		58,588,047		1,456,186
Louis E. Caldera		59,209,796		834,437
Lyle E. Gramley		59,343,518		700,715
Hugh M. Grant		59,357,876		686,357
Patrick C. Haden		59,394,884		649,349
Terrance G. Hodel		59,393,067		651,166
Robert L. Hunt II		59,393,180		651,053
Senator John Seymour (ret.)		59,155,913		888,320
Bruce G. Willison		59,381,764		662,469

In addition, the stockholders voted to approve the IndyMac Bancorp, Inc. 2002 Incentive Plan, as amended and restated. The votes cast in this regard were as follows:


	Number of
	Votes Cast

For		38,795,271
Against		8,008,833
Abstain (including broker non-votes)		13,240,129

Finally, the stockholders also voted to ratify the appointment of Ernst & Young LLP as Indymac Bancorp’s independent auditors for the year ending December 31, 2006. The votes cast in this regard were as follows:


	Number of
	Votes Cast

For		59,356,284
Against		624,514
Abstain		63,435


ITEM 5.	*OTHER INFORMATION*

None to report.


ITEM 6.	*EXHIBITS*


10.1		IndyMac Bancorp, Inc. and IndyMac Bank, F.S.B. Board Compensation Policy and Stock Ownership Requirements, revised April 25, 2006.
10.2		IndyMac Bancorp, Inc. Amended Director Emeritus Plan effective as of May 24, 2006.
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.

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 27, 2006.


	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

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IndyMac Bancorp (IDMCQ) Inactive 10-Q2006 Q2 Quarterly report

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