INDYMAC BANCORP INC - 10-Q 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, 2004

or


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

		For the transition period from to

Commission file number 1-8972

IndyMac Bancorp, Inc.

(Exact name of registrant as specified in its charter)


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

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

Registrant’s telephone number, including area code:

(800) 669-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes þ No o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock outstanding as of July 26, 2004: 61,246,075 shares

FORM 10-Q QUARTERLY REPORT

For the Period Ended June 30, 2004

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION
	Forward-Looking Statements		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2
	Highlights for the Three and Six Months Ended June 30, 2004		2
	Overall Results		5
	Business Acquisition		5
	Our Business		5
	Mortgage Banking Activities		20
	Loan Production		20
	Mortgage Production by Division and Channel		21
	Loan Sales		26
	Investing and HELOC Activities		31
	Investing Activities		32
	Construction Lending		41
	HELOC Portfolio		43
	Net Interest Income		44
	Overall Interest Rate Risk Management		46
	Credit Risk and Reserves		48
	General		48
	Secondary Market Reserve		51
	Operating Expenses		52
	Dividend Policy		52
	Future Outlook		53
	Liquidity and Capital Resources		53
	Overview		53
	Principal Sources of Cash		54
	Principal Uses of Cash		56
	Accumulated Other Comprehensive Loss		56
	Regulatory Capital Requirements		56
	Issuance of Common Stock		57
	Share Repurchases		57
	Off-Balance Sheet Arrangements		58
	Aggregate Contractual Obligations		59
	Key Operating Risks		60
	Interest Rate Risk		60
	Valuation Risk		60
	Credit Risk		60
	Liquidity Risk/ Access to Capital Markets		61
	Government Regulation and Monetary Policy		61
	Competition		61
	Other Risks		62
	Critical Accounting Policies		62
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		62
Item 1.	Financial Statements (Unaudited)		63
	Consolidated Balance Sheets		63
	Consolidated Statements of Earnings		64
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income		65
	Consolidated Statements of Cash Flows		66
	Notes to Consolidated Financial Statements		67
Item 4.	Controls and Procedures		72
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		72
Item 4.	Submission of Matters to a Vote of Security Holders		72
Item 6.	Exhibits and Reports on Form 8-K		73
EXHIBIT 4.1
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains statements that may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements regarding our projected financial condition and results of operations, plans, objectives, future performance and business. Forward-looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” “goal,” “target” and other similar expressions. These statements reflect our current views with respect to future events and financial performance. They are subject to risks and uncertainties that could cause future results to differ materially from historical results or from the results anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates or as of the date hereof if no other date is identified. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For further information on our key operating risks, refer to IndyMac’s annual report on Form 10-K for the year ended December 31, 2003.

References to “IndyMac Bancorp” or “the Parent Company” refer to the parent company alone while references to “IndyMac,” the “Company,” or “we” refer to IndyMac Bancorp, Inc. and its consolidated subsidiaries. References to “IndyMac Bank” or the “Bank” refer to our subsidiary IndyMac Bank, F.S.B. and its consolidated subsidiaries. The following discussion addresses the Company’s financial condition and results of operations for the three and six months ended June 30, 2004.


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

HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004

On March 9, 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB No. 105”). In SAB No. 105, the SEC determined that an interest rate lock commitment should generally be valued at zero at inception. Profits inherent in the rate lock will be recognized at the time of the sale of the underlying loan. The Company adopted this standard effective April 1, 2004, which affected the second quarter 2004 gain on sale of loans with a one-time negative impact of $52.2 million before-tax, or $31.6 million after-tax.

In the table below, in addition to the financial information presented in accordance with generally accepted accounting principles (“GAAP”), we have presented certain pro forma non-GAAP financial measures that are marked with footnote (1). These pro forma non-GAAP financial measures are calculated based on the GAAP gain on sale of loans but adjusted to exclude the effect of the SAB No. 105 change in accounting principle related to rate lock commitments described above. We believe these pro forma non-GAAP financial measures provide useful information to investors in evaluating and comparing our financial condition and results of operations on a consistent basis from period to period, and it is on this basis that our management internally assesses our performance. Further, while the calculation of segment measures for internal performance evaluation remains unchanged, the effect of the change in rate lock accounting has been reflected in two separate columns of the segment table in the “Our Business” section at page 5.

Although we believe these pro forma non-GAAP financial measures are useful to the investors, they should not be considered a substitute for, or superior to, GAAP results.



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2004			2003			2004			2004			2003


			(Dollars in millions, except per share data)
Income Statement
	Net interest income after provision for loan losses		$	104		$	61		$	92		$	196		$	121
	Gain on sale of loans			66			102			84			150			186
	Other (loss) income			(11	)		11			9			(2	)		24
	Net revenues			159			173			185			344			330
	Operating expenses			121			105			115			236			200
	Net earnings			23			41			42			65			78
	Basic earnings per share			0.39			0.75			0.74			1.13			1.43
	Diluted earnings per share		$	0.38		$	0.73		$	0.70		$	1.08		$	1.39
Pro Forma Income Statement Items Excluding the Effect of the Change in Accounting Principle in the Current Period
	Gain on sale of loans(1)		$	118		$	102		$	84		$	202		$	186
	Net revenues(1)			211			173			185			396			330
	Net earnings(1)			55			41			42			96			78
	Basic earnings per share(1)			0.94			0.75			0.74			1.68			1.43
	Diluted earnings per share(1)		$	0.90		$	0.73		$	0.70		$	1.60		$	1.39
Other Per Share Data
	Dividends paid per share			0.30			0.10			0.25			0.55			0.20
	Book value per share at end of quarter			19.35			16.48			18.26			19.35			16.48
	Closing price per share		$	31.60		$	25.42		$	36.29		$	31.60		$	25.42
	Average Common Shares (in thousands)
		Basic		58,137			55,015			56,997			57,548			54,922
		Diluted		60,588			56,711			59,791			60,180			56,345
Performance Ratios
	Return on average equity (annualized)(1)			19.46	%		18.34	%		16.16	%		17.88	%		17.79	%
	Return on average assets (annualized)(1)			1.29	%		1.52	%		1.16	%		1.23	%		1.51	%
	Dividend payout ratio(1,2)			33.33	%		13.70	%		35.71	%		34.38	%		14.39	%
	Net interest income to pretax income(1)			118.65	%		98.74	%		135.53	%		125.99	%		100.88	%
	Average cost of funds			2.29	%		2.94	%		2.32	%		2.30	%		3.07	%
	Net interest margin			2.75	%		2.73	%		2.83	%		2.78	%		2.76	%
	Efficiency ratio(1,3)			56	%		58	%		62	%		59	%		59	%
	Capital to net revenue ratio(1,4)			131	%		125	%		140	%		135	%		130	%
	Capital adjusted efficiency ratio(1,5)			74	%		73	%		87	%		80	%		77	%
	Operating expenses to loan production			1.24	%		1.28	%		1.61	%		1.40	%		1.36	%



		Three Months Ended									Six Months Ended

		June 30,			June 30,			March 31,			June 30,			June 30,
		2004			2003			2004			2004			2003


		(Dollars in millions, except per share data)
Balance Sheet and Asset Quality Ratios
	Average interest-earning assets	$	15,669		$	9,909		$	13,370		$	14,519		$	9,525
	Average equity	$	1,127		$	905		$	1,043		$	1,085		$	887
	Debt to equity ratio(6)		12.1:1			10.7:1			12.7:1			12.1:1			10.7:1
	Core capital ratio(7)		7.65	%		8.53	%		7.50	%		7.65	%		8.53	%
	Risk-based capital ratio(7)		13.10	%		14.46	%		13.25	%		13.10	%		14.46	%
	Non-performing assets to total assets		0.73	%		0.88	%		0.75	%		0.73	%		0.88	%
	Allowance for loan losses to total loans held for investment		0.76	%		1.09	%		0.78	%		0.76	%		1.09	%
	Allowance for loan losses and other reserves to non-performing loans		78	%		97	%		80	%		78	%		97	%
	Allowance for loan losses to annualized net charge-offs		522	%		176	%		645	%		580	%		233	%
	Provision for loan losses to net charge-offs		127	%		97	%		74	%		103	%		93	%
	Provision to net charge-offs (core loan portfolio)(8)		117	%		120	%		40	%		86	%		119	%
Other Selected Items
	Loans serviced for others(9)	$	34,618		$	29,858		$	32,122		$	34,618		$	29,858
	Loan production(10)		9,727			8,193			7,146			16,873			14,778
	Pipeline of mortgage loans in process		5,179			6,929			5,949			5,179			6,929
	Loans sold	$	7,638		$	6,336		$	4,907		$	12,524		$	11,860
	Net margin on sale of loans(1)		1.55	%		1.61	%		1.71	%		1.61	%		1.57	%

(1) For the three and six months ended June 30, 2004, the data is presented on a pro forma basis excluding the effect of a one-time deferral of gain on sale of loans revenue of $52.2 million before-tax or $31.6 million after-tax pursuant to the change in accounting principle for rate lock commitments under SAB No. 105. A full reconciliation between the pro forma and GAAP amounts, with the relevant performance ratios, is included in the segment table on page 6.

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

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

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

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

(6) Debt includes deposits.

(7) IndyMac Bank, F.S.B. (excludes unencumbered cash at the Parent Company available for investment in IndyMac Bank). Risk-based capital ratio is based on the regulatory standard risk weighting. With IndyMac Bank’s additional subprime risk weightings, the ratios are 12.47%, 13.22% and 12.61% for the quarters ended June 30, 2004, June 30, 2003 and March 31, 2004, respectively.

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

(9) Represents the unpaid principal balance on loans sold with servicing retained by IndyMac.

(10) Includes newly originated commitments on construction loans.

OVERALL RESULTS

IndyMac continued to demonstrate strong execution on its strategies focused on single-family residential mortgage lending during the second quarter of 2004. The Company achieved record mortgage production and pro forma earnings during the quarter while the overall mortgage industry, according to the July Mortgage Finance Forecast published by the Mortgage Bankers Association (“MBA”) was 29% below its mid-year 2003 peak level. Based on the MBA’s Mortgage Finance Forecast dated July 14, 2004, IndyMac’s mortgage market share was up 66% over the second quarter of 2003. IndyMac’s pro forma earnings per share of $0.90 were up 23% over the second quarter of 2003. Comparing second quarter 2004 to second quarter 2003, pro forma net revenues increased 22% and operating expenses increased 16%, resulting in pro forma net earnings of $54 million, up 32% over the prior year. In addition, the Company continued to deploy capital to facilitate balance sheet growth and achieved record total assets of $15.5 billion as of June 30, 2004.

The second quarter 2004 pro forma revenues, earnings, and earnings per share (“EPS”) referred to above excludes the impact to earnings and EPS for the change in accounting for rate locks pursuant to SAB No. 105. On a GAAP basis, net earnings and EPS for the second quarter 2004 were $23 million and $0.38, respectively.

For the six months ended June 30, 2004, IndyMac earned $96 million, or $1.60 per share on a pro forma basis excluding the change in accounting for rate locks in the second quarter, compared to $78 million, or $1.39 per share during the six months ended June 30, 2003. On a GAAP basis, the Company earned $65 million, or $1.08 per share, during the six months ended June 30, 2004.

BUSINESS ACQUISITION

On July 16, 2004, we completed the acquisition of 93.75% of the outstanding shares of common stock of Financial Freedom Holdings Inc. (“Financial Freedom”), the leading provider of reverse mortgages in the United States, and the related assets from Lehman Brothers Bank, F.S.B. and its affiliates for an aggregate purchase price of approximately $83 million. The remaining shares (6.25%) of the common stock of Financial Freedom are held by its Chief Executive Officer and will be accounted for as a minority interest. The acquisition will result in approximately $45 million in goodwill.

OUR BUSINESS

IndyMac is structured to achieve synergies among its operations and enhance customer service. Operating through its four main segments, IndyMac Mortgage Bank, IndyMac Consumer Bank, the Home Equity Division and the Investment Portfolio Group, the common denominator of the Company’s business is providing consumers with single-family residential mortgages through relationships with each segment’s core customers via the channel in which each operates. IndyMac Mortgage Bank provides consumers with mortgage products through relationships with the Company’s business customers — mortgage brokers, mortgage bankers, community financial institutions, real estate professionals and homebuilders. IndyMac Consumer Bank provides the platform for the mortgage and deposit services that IndyMac offers directly to consumers. The Home Equity Division is a product-focused division that supports the production of home equity lines of credit (HELOCs) and other home equity products through all of IndyMac’s relationship and consumer direct production channels. The Investment Portfolio Group serves as the main link to customers whose mortgages we service. Through its investments in single-family residential (“SFR”) mortgages, mortgage-backed securities (“MBS”) and mortgage servicing rights (“MSRs”), the Investment Portfolio Group generates core spread and fee income and provides critical support to IndyMac’s mortgage lending operations.

While our segments are structured to achieve synergies with our varying customer base and marketing strategies, our operating activities primarily consist of three broad categories: mortgage banking activities, investing activities and HELOC activities. All of these activities are performed to varying degrees by each of our main segments as shown in the tables that follow. Mortgage banking activities are characterized by high asset turnover (the production and sale of mortgage loans) and efficient utilization of capital but can be cyclical in nature depending on interest rates. Revenues generated by mortgage banking activities include gain on sale of mortgage loans, fee income and net spread (interest) income during the period loans are held

pending sale. Investing and HELOC activities tend to provide a source of revenues which is generally counter-cyclical to mortgage banking revenues, comprised primarily of net interest income and servicing fees. IndyMac is strategically focused on increasing the relative size of its portfolios of mortgage loans and mortgage servicing and investments in HELOC-related assets to achieve greater balance between its mortgage banking activities and its core investing activities. We believe that our investing activities will increasingly act to stabilize IndyMac’s core income. In addition to its revenue contribution, the Investment Portfolio Group performs the mortgage servicing function, which includes payment processing, customer service, default management and reporting to investors in our securitizations. The mortgage servicing function creates added opportunities to retain customers when the interest rate environment makes it attractive for them to refinance, and to cross-market customers with other Company products. Default management, which includes the processes of collections, loss mitigation, foreclosures, bankruptcies, and foreclosed assets management, enables IndyMac to proactively manage credit risk for the Company and its investors in its securities.

The following tables summarize the Company’s financial results for the three months ended June 30, 2004, illustrating the revenues earned in its mortgage banking activities, investing and HELOC activities by each of its divisions. The profitability of each operating segment is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules. Operating segments that originate mortgage loans are credited with gain on sale at funding based on the estimated fair value. Any difference between the actual gain on sale realized and the estimate is credited or charged to the operating segment in the period the loan is sold or transferred to the held for investment portfolio. Differences between the gain on sale credited to the operating segments and the consolidated gain on sale due to timing of loan sales or transfers to the held for investment portfolio are eliminated in consolidation. The Company uses a funds transfer pricing (“FTP”) system to allocate interest income and expense to the operating segments. Each operating segment is allocated funding with maturities and interest rates matched with the expected lives and repricing frequencies of the segment’s assets. The Retail Bank division within the Consumer Banking Group receives a funding credit for deposits using a similar methodology. The difference between these allocations and the Company’s actual net interest income and capital levels resulting from centralized management of funding costs is reported in the Treasury unit. Corporate overhead costs related to managing the Company as a whole are not allocated to the operating segments.

The following table summarizes the segment financial highlights for the three months ended June 30, 2004:


								Home		Investment						Total			SAB			Total
			Mortgage			Consumer		Equity		Portfolio						Company			No. 105			Company
			Bank			Bank		Division		Group			Other			Pro Forma			Adjustment			GAAP


			(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income			$	37,739		$	5,040	$	—	$	8,030		$	—		$	50,809		$	—		$	50,809
Gain (loss) on sale of loans				89,678			17,341		—		20,632			(9,344	)		118,307			(52,223	)		66,084
Other income				11,117			3,427		—		—			242			14,786			—			14,786

	Net revenues (expense)			138,534			25,808		—		28,662			(9,102	)		183,902			(52,223	)		131,679
	Operating expenses			47,302			20,392		—		1,155			—			68,849			—			68,849

		Pretax income (loss)		91,232			5,416		—		27,507			(9,102	)		115,053			(52,223	)		62,830

Investing Activities
Net interest income				18,227			—		—		34,040			2,720			54,987			—			54,987
Provision for loan losses				(1,300	)		—		—		(1,800	)		—			(3,100	)		—			(3,100	)
Service fee (expense) income				—			—		—		(31,538	)		3,371			(28,167	)		—			(28,167	)
(Loss) gain on sale of securities				—			—		—		(4,500	)		1,086			(3,414	)		—			(3,414	)
Other income				1,704			—		—		1,615			847			4,166						4,166

	Net revenues (expense)			18,631			—		—		(2,183	)		8,024			24,472						24,472
	Operating expenses			10,214			—		—		11,854			—			22,068			—			22,068

		Pretax income (loss)		8,417			—		—		(14,037	)		8,024			2,404						2,404


											Home			Investment						Total			SAB			Total
					Mortgage			Consumer			Equity			Portfolio						Company			No. 105			Company
					Bank			Bank			Division			Group			Other			Pro Forma			Adjustment			GAAP


					(Dollars in thousands)
HELOC Activities
Net interest income					$	3,698		$	1,482		$	1,025		$	—		$	—		$	6,205		$	—		$	6,205
Provision for loan losses						(24	)		(68	)		(8	)		—			—			(100	)		—			(100	)
Service fee income						—			—			360			—			—			360			—			360
Other income						507			383			282			—			—			1,172			—			1,172

	Net revenues					4,181			1,797			1,659			—			—			7,637			—			7,637
	Operating expenses					393			268			1,343			—			—			2,004			—			2,004

		Pretax income				3,788			1,529			316			—			—			5,633			—			5,633

Financing and Other Activities
Net interest income (loss)						—			7,672			—			—			(12,695	)		(5,023	)		—			(5,023	)
Other income						—			537			—			—			113			650			—			650

	Net revenues (expense)					—			8,209			—			—			(12,582	)		(4,373	)		—			(4,373	)
	Operating expenses					—			5,027			—			—			23,525			28,552			—			28,552

		Pretax income (loss)				—			3,182			—			—			(36,107	)		(32,925	)		—			(32,925	)

			Total pretax income (loss)			103,437			10,127			316			13,470			(37,185	)		90,165			(52,223	)		37,942

				Net income (loss)	$	62,580		$	6,127		$	191		$	8,149		$	(22,497	)	$	54,550		$	(31,595	)	$	22,955

Ratios
Percentage of average total assets						39	%		5	%		1	%		50	%		5	%		100	%
Percentage of total revenue						76	%		17	%		1	%		12	%		(6	)%		100	%
Percentage of pretax income						115	%		11	%		0	%		15	%		(41	)%		100	%
Balance Sheet Data
Average interest-earning assets(1)					$	6,551,261		$	821,759		$	136,456		$	7,851,383		$	308,016		$	15,668,875					$	15,668,875
Average total assets					$	6,647,762		$	859,409		$	148,333		$	8,503,788		$	827,190		$	16,986,482					$	16,986,482
Allocated capital					$	432,191		$	56,243		$	9,997		$	490,376		$	138,481		$	1,127,288					$	1,127,288
Capital allocated to mortgage banking activities					$	249,977		$	35,396		$	—		$	31,607		$	—		$	316,980					$	316,980
Capital allocated to investing activities					$	152,544		$	—		$	—		$	458,769		$	—		$	611,313					$	611,313
Capital allocated to HELOC activities					$	29,670		$	18,784		$	9,997		$	—		$	—		$	58,451					$	58,451
Capital allocated to financing and other activities					$	—		$	2,063		$	—		$	—		$	138,481		$	140,544					$	140,544
Allocated capital/ average total assets						6.50	%		6.54	%		6.74	%		5.77	%		16.74	%		6.64	%					6.64	%
Loans Produced					$	8,189,309		$	1,076,157		$	43,894		$	417,669		$	—		$	9,727,029					$	9,727,029
Purchase mortgages						47	%		12	%		N/A			1	%					41	%					41	%
Cash-out refinance mortgages						34	%		55	%		N/A			1	%					35	%					35	%
Rate and term refinance mortgages						19	%		33	%		N/A			98	%					24	%					24	%
Performance Ratios
Return on equity (ROE)						58	%		44	%		8	%		7	%					19	%					8	%
ROE — mortgage banking activities						89	%		37	%		—			212	%					88	%					48	%
ROE — investing activities						13	%		—			—			(7	)%					1	%					1	%
ROE — HELOC activities						31	%		20	%		8	%		—						23	%					23	%
ROE — financing and other activities						—			375	%		—			—						(57	)%					(57	)%
Return on assets (ROA)						3.79	%		2.87	%		0.52	%		0.39	%					1.29	%					0.54	%
Net interest margin						3.66	%		6.95	%		3.02	%		2.16	%					2.75	%					2.75	%
Efficiency ratio						36	%		72	%		81	%		46	%					56	%					75	%
Capital adjusted efficiency ratio						24	%		28	%		121	%		199	%					74	%					129	%
Average Full-Time Equivalent Employees (“FTE”)						2,090			876			16			445			634			4,061						4,061

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

The following table provides additional detail on the segment results for the Mortgage Bank for the three months ended June 30, 2004:



					Relationship Businesses — IndyMac Mortgage Bank

					B2B			B2R			HCL			HBD			Total


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	30,913		$	626		$	4,942		$	1,258		$	37,739
Gain on sale of loans						71,643			1,667			14,250			2,118			89,678
Other income						8,054			323			2,390			350			11,117

	Net revenues					110,610			2,616			21,582			3,726			138,534
	Operating expenses					40,306			3,519			1,163			2,314			47,302

		Pretax income (loss)				70,304			(903	)		20,419			1,412			91,232

Investing Activities
Net interest income						—			—			10,862			7,365			18,227
Provision for loan losses						—			—			(1,030	)		(270	)		(1,300	)
Service fee income						—			—			—			—			—
Gain (loss) on sale of securities						—			—			—			—			—
Other income						—			—			1,640			64			1,704

	Net revenues					—			—			11,472			7,159			18,631
	Operating expenses					—			—			8,285			1,929			10,214

		Pretax income				—			—			3,187			5,230			8,417

HELOC Activities
Net interest income						3,392			152			38			116			3,698
Provision for loan losses						(125	)		109			(6	)		(2	)		(24	)
Service fee income						—			—			—			—			—
Other income						455			33			10			9			507

	Net revenues					3,722			294			42			123			4,181
	Operating expenses					352			24			5			12			393

		Pretax income				3,370			270			37			111			3,788

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

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

		Pretax income				—			—			—			—			—

			Total pretax income (loss)			73,674			(633	)		23,643			6,753			103,437

				Net income (loss)	$	44,573		$	(383	)	$	14,304		$	4,086		$	62,580

Ratios
Percentage of assets						24	%		1	%		10	%		4	%		39	%
Percentage of total revenue						54	%		1	%		16	%		5	%		76	%
Percentage of pretax income						82	%		(1	)%		26	%		8	%		115	%



	Relationship Businesses — IndyMac Mortgage Bank

	B2B			B2R			HCL			HBD			Total


	(Dollars in thousands)
Balance Sheet Data
Average interest-earning assets	$	4,003,605		$	93,562		$	1,673,034		$	781,060		$	6,551,261
Average total assets	$	4,089,252		$	95,259		$	1,678,708		$	784,543		$	6,647,762
Allocated capital	$	255,474		$	5,267		$	93,911		$	77,539		$	432,191
Capital allocated to mortgage banking activities	$	228,395		$	3,767		$	10,493		$	7,322		$	249,977
Capital allocated to investing activities	$	—		$	—		$	83,170		$	69,374		$	152,544
Capital allocated to HELOC activities	$	27,079		$	1,500		$	248		$	843		$	29,670
Capital allocated to financing and other activities	$	—		$	—		$	—		$	—		$	—
Allocated capital/total average assets		6.25	%		5.53	%		5.59	%		9.88	%		6.50	%
Loans Produced	$	6,380,571		$	152,723		$	1,070,114		$	585,901		$	8,189,309
Purchase mortgages		38	%		45	%		98	%		85	%		47	%
Cash out refinance mortgages		40	%		32	%		0	%		10	%		34	%
Rate and term refinance mortgages		22	%		23	%		2	%		5	%		19	%
Performance Ratios
Return on equity (ROE)		70	%		(29	)%		61	%		21	%		58	%
ROE — mortgage banking activities		75	%		(58	)%		474	%		47	%		89	%
ROE — investing activities		—			—			9	%		18	%		13	%
ROE — HELOC activities		30	%		44	%		36	%		32	%		31	%
ROE — financing and other activities		—			—			—			—			—
Return on assets (ROA)		4.38	%		(1.62	)%		3.43	%		2.09	%		3.79	%
Net interest margin		3.45	%		3.34	%		3.81	%		4.50	%		3.66	%
Efficiency ratio		36	%		126	%		28	%		38	%		36	%
Capital adjusted efficiency ratio		20	%		59	%		19	%		65	%		24	%
Average FTE		1,502			125			285			178			2,090

IndyMac Mortgage Bank Divisions


B2B		Business-to-Business division, its major lending channels are via relationships with mortgage professionals: mortgage brokers, mortgage bankers and financial institutions

B2R		Business-to-Realtor division, provides mortgage loan services through relationships with Realtors

HCL		Home Construction Lending division, provides construction-to-permanent mortgages and lot loans to individuals who are in the process of building their own homes, through IndyMac’s B2B relationships and directly with consumers

HBD		Homebuilder division, provides financing to subdivision developers and generates mortgage loans through its relationships with these entities

The following table provides additional details on the segment results for the Consumer Bank and the Home Equity Division for the three months ended June 30, 2004:



					Consumer Direct Businesses —
					IndyMac Consumer Bank
														Home Equity
					B2C			Retail Bank			Total			Division


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	4,494		$	546		$	5,040		$	—
Gain on sale of loans						16,165			1,176			17,341			—
Other income						3,075			352			3,427			—

	Net revenues					23,734			2,074			25,808			—
	Operating expenses					17,789			2,603			20,392			—

		Pretax income (loss)				5,945			(529	)		5,416			—

Investing Activities
Net interest income						—			—			—			—
Provision for loan losses						—			—			—			—
Service fee income						—			—			—			—
Gain (loss) on sale of securities						—			—			—			—
Other income						—			—			—			—

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

		Pretax income				—			—			—			—

HELOC Activities
Net interest income						1,289			193			1,482			1,025
Provision for loan losses						(59	)		(9	)		(68	)		(8	)
Service fee income						—			—			—			360
Other income						352			31			383			282

	Net revenues					1,582			215			1,797			1,659
	Operating expenses					227			41			268			1,343

		Pretax income				1,355			174			1,529			316

Financing and Other Activities
Net interest income						—			7,672			7,672			—
Other income						—			537			537			—

	Net revenues					—			8,209			8,209			—
	Operating expenses					—			5,027			5,027			—

		Pretax income				—			3,182			3,182			—

			Total pretax income			7,300			2,827			10,127			316

				Net income	$	4,417		$	1,710		$	6,127		$	191

Ratios
Percentage of assets						4	%		1	%		5	%		1	%
Percentage of total revenue						12	%		5	%		17	%		1	%
Percentage of pretax income						8	%		3	%		11	%		0	%



	Consumer Direct Businesses —
	IndyMac Consumer Bank
										Home Equity
	B2C			Retail Bank			Total			Division


	(Dollars in thousands)
Balance Sheet Data
Average interest-earning assets	$	720,364		$	101,395		$	821,759		$	136,456
Average total assets	$	737,274		$	122,135		$	859,409		$	148,333
Allocated capital	$	48,469		$	7,774		$	56,243		$	9,997
Capital allocated to mortgage banking activities	$	32,572		$	2,824		$	35,396		$	—
Capital allocated to investing activities	$	—		$	—		$	—		$	—
Capital allocated to HELOC activities	$	15,897		$	2,887		$	18,784		$	9,997
Capital allocated to financing and other activities	$	—		$	2,063		$	2,063		$	—
Allocated capital/total average assets		6.57	%		6.37	%		6.54	%		6.74	%
Loans Produced	$	936,471		$	139,686		$	1,076,157		$	43,894
Purchase mortgages		10	%		24	%		12	%		N/A
Cash out refinance mortgages		56	%		51	%		55	%		N/A
Rate and term refinance mortgages		34	%		25	%		33	%		N/A
Performance Ratios
Return on equity (ROE)		37	%		88	%		44	%		8	%
ROE — mortgage banking activities		44	%		(46	)%		37	%		—
ROE — investing activities		—			—			—			—
ROE — HELOC activities		21	%		15	%		20	%		8	%
ROE — financing and other activities		—			375	%		375	%		—
Return on assets (ROA)		2.41	%		N/A			2.87	%		0.52	%
Net interest margin		3.23	%		N/A			6.95	%		3.02	%
Efficiency ratio		71	%		73	%		72	%		81	%
Capital adjusted efficiency ratio		34	%		14	%		28	%		121	%
Average FTE		606			270			876			16

IndyMac Consumer Bank and Home Equity Divisions


B2C		Business-to-Consumer division, offers SFR mortgage loans directly to consumers via the Internet and centralized call center

Retail Bank		Retail Bank division, offers direct lending and deposit products to our depositors through our retail branch network, on-line contact center and institutional money desk

Home Equity Division		The Home Equity Division is a product-focused division that supports the production of home equity lines of credit (HELOCs) and other home equity products through all of our relationship and consumer direct production channels

The following table provides additional details on the segment results for the Investment Portfolio Group for the three months ended June 30, 2004:



					Investment Portfolio Group

					Mortgage
					Servicing-Related			SFR Mortgage						Discontinued
					Assets(1)			Loans(2)			MBS(3)			Products(4)			Total


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	8,030		$	—		$	—		$	—		$	8,030
Gain on sale of loans						9,169			11,463			—			—			20,632
Other income						—			—			—			—			—

	Net revenues					17,199			11,463			—			—			28,662
	Operating expenses					1,155			—			—			—			1,155

		Pretax income				16,044			11,463			—			—			27,507

Investing Activities
Net interest income						8,882			15,446			8,609			1,103			34,040
Provision for loan losses						—			(301	)		—			(1,499	)		(1,800	)
Service fee expense						(31,538	)		—			—			—			(31,538	)
Gain (loss) on sale of securities						(5,000	)		—			500			—			(4,500	)
Other income						588			1,027			—			—			1,615

	Net (expense) revenues					(27,068	)		16,172			9,109			(396	)		(2,183	)
	Operating expenses					10,123			685			300			746			11,854

		Pretax (loss) income				(37,191	)		15,487			8,809			(1,142	)		(14,037	)

HELOC Activities
Net interest income						—			—			—			—			—
Provision for loan losses						—			—			—			—			—
Service fee income						—			—			—			—			—
Other income						—			—			—			—			—

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

		Pretax income				—			—			—			—			—

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

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

		Pretax income				—			—			—			—			—

			Total pretax (loss) income			(21,147	)		26,950			8,809			(1,142	)		13,470

				Net (loss) income	$	(12,794	)	$	16,305		$	5,329		$	(691	)	$	8,149

Ratios
Percentage of assets						10	%		28	%		12	%		0	%		50	%
Percentage of total revenue						(5	)%		13	%		4	%		0	%		12	%
Percentage of pretax income						(24	)%		30	%		10	%		(1	)%		15	%
Balance Sheet Data
Average interest-earning assets					$	1,016,929		$	4,820,823		$	1,950,173		$	63,458		$	7,851,383
Average total assets					$	1,617,352		$	4,835,011		$	1,995,009		$	56,416		$	8,503,788
Allocated capital					$	205,192		$	236,595		$	43,036		$	5,553		$	490,376



	Investment Portfolio Group

	Mortgage
	Servicing-Related			SFR Mortgage						Discontinued
	Assets(1)			Loans(2)			MBS(3)			Products(4)			Total


	(Dollars in thousands)
Capital allocated to mortgage banking activities	$	31,607		$	—		$	—		$	—		$	31,607
Capital allocated to investing activities	$	173,585		$	236,595		$	43,036		$	5,553		$	458,769
Capital allocated to HELOC activities	$	—		$	—		$	—		$	—		$	—
Capital allocated to financing and other activities	$	—		$	—		$	—		$	—		$	—
Allocated capital/ total average assets		12.69	%		4.89	%		2.16	%		9.84	%		5.77	%
Loans Produced	$	417,669		$	—		$	—		$	—		$	417,669
Performance Ratios
Return on equity (ROE)		(25	)%		28	%		50	%		(50	)%		7	%
ROE — mortgage banking activities		124	%		—			—			—			212	%
ROE — investing activities		(52	)%		16	%		50	%		(50	)%		(7	)%
ROE — HELOC activities		—			—			—			—			—
ROE — financing and other activities		—			—			—			—			—
Return on assets (ROA)		(3.18	)%		1.36	%		1.07	%		(4.93	)%		0.39	%
Net interest margin		6.69	%		1.29	%		1.78	%		6.99	%		2.16	%
Efficiency ratio		(114	)%		2	%		3	%		68	%		46	%
Capital adjusted efficiency ratio		594	%		5	%		4	%		85	%		199	%
Average FTE		407			9			4			25			445

The Investment Portfolio Group


(1)	Mortgage servicing-related assets include the following: (i) MSRs, interest-only strips and residual securities, (ii) securities held as hedges of such assets, including principal-only securities, agency debentures and U.S. Treasury bonds, (iii) loans acquired through clean-up calls or through the Investment Portfolio Group’s customer retention programs and (iv) investment and non-investment grade securities.

(2)	Assets include all single-family residential loans held for investment other than discontinued products.

(3)	Assets include AAA-rated agency and private label MBS.

(4)	Discontinued products are home improvement and manufactured housing loans.

The following table provides additional details on the segment results for all others for the three months ended June 30, 2004:


								Total
								Company
								Before Corp.									Total						Total
					Treasury			Overhead and			Corporate						Company			SAB No. 105			Company
					Group(1)			Eliminations			Overhead			Eliminations			Pro Forma			Adjustment			GAAP


					(Dollars in thousands)
Operating Results
Mortgage Banking Activities
Net interest income					$	—		$	50,809		$	—		$	—		$	50,809		$	—		$	50,809
Gain (loss) on sale of loans(2)						—			127,651			—			(9,344	)		118,307			(52,223	)		66,084
Other income						—			14,544			—			242			14,786			—			14,786

	Net revenues (expense)					—			193,004			—			(9,102	)		183,902			(52,223	)		131,679
	Operating expenses					—			68,849			—			—			68,849			—			68,849

		Pretax income (loss)				—			124,155			—			(9,102	)		115,053			(52,223	)		62,830

Investing Activities
Net interest income						—			52,267			—			2,720			54,987			—			54,987
Provision for loan losses						—			(3,100	)		—			—			(3,100	)		—			(3,100	)
Service fee (expense) income						—			(31,538	)		—			3,371			(28,167	)		—			(28,167	)
Gain (loss) on sale of securities						—			(4,500	)		—			1,086			(3,414	)		—			(3,414	)
Other income						—			3,319			847			—			4,166			—			4,166

	Net revenues					—			16,448			847			7,177			24,472			—			24,472
	Operating expenses					—			22,068			—			—			22,068			—			22,068

		Pretax (loss) income				—			(5,620	)		847			7,177			2,404			—			2,404

HELOC Activities
Net interest income						—			6,205			—			—			6,205			—			6,205
Provision for loan losses						—			(100	)		—			—			(100	)		—			(100	)
Service fee income						—			360			—			—			360			—			360
Other income						—			1,172			—			—			1,172			—			1,172

	Net revenues					—			7,637			—			—			7,637			—			7,637
	Operating expenses					—			2,004			—			—			2,004			—			2,004

		Pretax income				—			5,633			—			—			5,633			—			5,633

Financing and Other Activities
Net interest loss						(11,250	)		(3,578	)		(1,445	)		—			(5,023	)		—			(5,023	)
Other income						113			650			—			—			650			—			650

	Net expense					(11,137	)		(2,928	)		(1,445	)		—			(4,373	)		—			(4,373	)
	Operating expenses					744			5,771			22,781			—			28,552			—			28,552

		Pretax loss				(11,881	)		(8,699	)		(24,226	)		—			(32,925	)		—			(32,925	)

			Total pretax (loss) income			(11,881	)		115,469			(23,379	)		(1,925	)		90,165			(52,223	)		37,942

				Net (loss) income	$	(7,188	)	$	69,859		$	(14,144	)	$	(1,165	)	$	54,550		$	(31,595	)	$	22,955

Ratios
Percentage of assets						3	%		98	%		2	%		0	%		100	%
Percentage of total revenue						(5	)%		101	%		0	%		(1	)%		100	%
Percentage of pretax income						(13	)%		128	%		(26	)%		(2	)%		100	%


				Total
				Company
				Before Corp.								Total				Total
	Treasury			Overhead and			Corporate					Company Pro			SAB No. 105	Company
	Group(1)			Eliminations			Overhead			Eliminations		Forma			Adjustment	GAAP


	(Dollars in thousands)
Balance Sheet Data
Average interest-earning assets	$	326,046		$	15,686,905		$	(18,030	)	$	—	$	15,668,875			$	15,668,875
Average total assets	$	554,841		$	16,714,133		$	272,349		$	—	$	16,986,482			$	16,986,482
Allocated capital	$	27,742		$	1,016,549		$	110,739		$	—	$	1,127,288			$	1,127,288
Capital allocated to mortgage banking activities	$	—		$	316,980		$	—		$	—	$	316,980			$	316,980
Capital allocated to investing activities	$	—		$	611,313		$	—		$	—	$	611,313			$	611,313
Capital allocated to HELOC activities	$	—		$	58,451		$	—		$	—	$	58,451			$	58,451
Capital allocated to financing and other activities	$	27,742		$	29,805		$	110,739		$	—	$	140,544			$	140,544
Allocated capital/total average assets		5.00	%		6.08	%		40.66	%		—		6.64	%			6.64	%
Loans Produced	$	—		$	9,727,029		$	—		$	—	$	9,727,029			$	9,727,029
Purchase mortgages					N/A								41	%			41	%
Cash out refinance mortgages					N/A								35	%			35	%
Rate and term refinance mortgages					N/A								24	%			24	%
Performance Ratios
Return on equity (ROE)					28	%							19	%			8	%
ROE — mortgage banking					95	%							88	%			48	%
ROE — investing activities					(2	)%							1	%			1	%
ROE — HELOC activities					23	%							23	%			23	%
ROE — financing and other activities					(71	)%							(57	)%			(57	)%
Return on assets (ROA)					1.68	%							1.29	%			0.54	%
Net interest margin					2.71	%							2.75	%			2.75	%
Efficiency ratio					45	%							56	%			75	%
Capital adjusted efficiency ratio					53	%							74	%			129	%
Average FTE		24			3,451			610					4,061				4,061

(1) During the three months ended June 30, 2004, the Treasury Group reported net interest expense of $11.3 million. This amount includes interest expense related to the trust preferred debentures issued by the Company in 2003 and 2001 which is not allocated to the business units. The Treasury Group also credits the Retail Bank and Investment Portfolio Group amounts in addition to their normal FTP credit to reward their raising of core deposits. Additionally, the net expense in Treasury reflects the cost of maintaining adequate corporate liquidity, as well as certain fixed rate deposits with longer maturities raised in prior years, the higher cost of which is not allocated to the business units.

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



	Relationship Businesses — IndyMac Mortgage Bank

	B2B			B2R			HCL			HBD			Total


	(Dollars in thousands)
Mortgage Banking Activities
Q2 04 — Pretax income (loss)	$	70,304		$	(903	)	$	20,419		$	1,412		$	91,232
Q1 04 — Pretax income (loss)		45,561			(1,122	)		8,728			667			53,834
Annualized Percent Change		217	%		78	%		536	%		447	%		278	%
Q2 03 — Pretax income		59,741			1,000			8,003			1,227			69,971
Percent Change		18	%		(190	)%		155	%		15	%		30	%
Investing Activities
Q2 04 — Pretax income		—			—			3,187			5,230			8,417
Q1 04 — Pretax income		—			—			3,470			4,803			8,273
Annualized Percent Change		—			—			(33	)%		36	%		7	%
Q2 03 — Pretax income		—			—			3,622			6,245			9,867
Percent Change		—			—			(12	)%		(16	)%		(15	)%
HELOC Activities
Q2 04 — Pretax income		3,370			270			37			111			3,788
Q1 04 — Pretax income		2,546			114			41			70			2,771
Annualized Percent Change		129	%		547	%		(39	)%		234	%		147	%
Q2 03 — Pretax income (loss)		1,032			31			(59	)		27			1,031
Percent Change		227	%		771	%		163	%		311	%		267	%
Financing and Other Activities
Q2 04 — Pretax income		—			—			—			—			—
Q1 04 — Pretax income		—			—			—			—			—
Q2 03 — Pretax income		—			—			—			—			—
Net Income
Q2 04 — Net income (loss)		44,573			(383	)		14,304			4,086			62,580
Q1 04 — Net income (loss)		29,105			(610	)		7,405			3,351			39,251
Annualized Percent Change		213	%		149	%		373	%		88	%		238	%
Q2 03 — Net income		36,768			624			6,997			4,537			48,926
Percent Change		21	%		(161	)%		104	%		(10	)%		28	%
Performance Ratios
Q2 04
ROE		70	%		(29	)%		61	%		21	%		58	%
ROA		4.38	%		(1.62	)%		3.43	%		2.09	%		3.79	%
NIM		3.45	%		3.34	%		3.81	%		4.50	%		3.66	%
Efficiency ratio		36	%		126	%		28	%		38	%		36	%
Capital adjusted efficiency ratio		20	%		59	%		19	%		65	%		24	%
Average FTE		1,502			125			285			178			2,090
Q1 04
ROE		69	%		(48	)%		37	%		19	%		49	%
ROA		4.52	%		(3.13	)%		1.95	%		1.94	%		3.23	%
NIM		4.33	%		3.52	%		3.76	%		4.53	%		4.16	%
Efficiency ratio		43	%		139	%		41	%		42	%		45	%
Capital adjusted efficiency ratio		22	%		68	%		39	%		76	%		31	%
Average FTE		1,378			134			278			157			1,947
Q2 03
ROE		88	%		35	%		44	%		26	%		64	%
ROA		5.71	%		2.17	%		2.43	%		2.71	%		4.33	%
NIM		4.31	%		4.01	%		4.29	%		4.91	%		4.39	%
Efficiency ratio		35	%		79	%		37	%		22	%		36	%
Capital adjusted efficiency ratio		15	%		27	%		31	%		38	%		22	%
Average FTE		1,231			158			204			101			1,694

The Mortgage Bank segment’s net income increased by 59%, or $23.3 million compared to first quarter 2004, and 28% or $13.7 million from the second quarter of 2003. The increase was primarily due to an increase in mortgage production and higher loan sales. Our operating expenses continued to increase as we expanded our sales force to support continued growth in mortgage production and our pursuit of increased market share.

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



	Consumer Direct Businesses —
	IndyMac Consumer Bank
										Home Equity
	B2C			Retail Bank			Total			Division


	(Dollars in thousands)
Mortgage Banking Activities
Q2 04 — Pretax income (loss)	$	5,945		$	(529	)	$	5,416		$	—
Q1 04 — Pretax income		7,647			664			8,311			—
Annualized Percent Change		(89	)%		(719	)%		(139	)%		—
Q2 03 — Pretax income		22,645			1,348			23,993			—
Percent Change		(74	)%		(139	)%		(77	)%		—
Investing Activities
Q2 04 — Pretax income		—			—			—			—
Q1 04 — Pretax income		—			—			—			—
Annualized Percent Change		—			—				%		—
Q2 03 — Pretax income		—			—			—			—
Percent Change		—			—				%		—
HELOC Activities
Q2 04 — Pretax income		1,355			174			1,529			316
Q1 04 — Pretax income		1,115			118			1,233			177
Annualized Percent Change		86	%		190	%		96	%		314	%
Q2 03 — Pretax income (loss)		650			31			681			(403	)
Percent Change		108	%		461	%		125	%		178	%
Financing and Other Activities
Q2 04 — Pretax income		—			3,182			3,182			—
Q1 04 — Pretax income		—			164			164			—
Q2 03 — Pretax loss		—			(3,608	)		(3,608	)		—
Net Income
Q2 04 — Net income		4,417			1,710			6,127			191
Q1 04 — Net income		5,301			572			5,873			107
Annualized Percent Change		(67	)%		796	%		17	%		314	%
Q2 03 — Net income (loss)		14,093			(1,348	)		12,745			(244	)
Percent Change		(69	)%		227	%		(52	)%		178	%
Performance Ratios
Q2 04
ROE		37	%		88	%		44	%		8	%
ROA		2.41	%		—			2.87	%		0.52	%
NIM		3.23	%		—			6.95	%		3.02	%
Efficiency ratio		71	%		73	%		72	%		81	%
Capital adjusted efficiency ratio		34	%		14	%		28	%		121	%
Average FTE		606			270			876			16
Q1 04
ROE		47	%		44	%		47	%		4	%
ROA		3.40	%		—			3.33	%		0.38	%
NIM		3.54	%		—			6.32	%		2.88	%
Efficiency ratio		68	%		87	%		72	%		83	%
Capital adjusted efficiency ratio		28	%		15	%		26	%		192	%
Average FTE		599			258			857			15
Q2 03
ROE		114	%		(59	)%		87	%		(30	)%
ROA		7.44	%		NM			6.02	%		(2.92	)%
NIM		3.77	%		NM			4.27	%		1.07	%
Efficiency ratio		43	%		158	%		53	%		(412	)%
Capital adjusted efficiency ratio		13	%		95	%		17	%		4,530	%
Average FTE		622			219			841			11

The Consumer Bank segment’s net income is comparable to first quarter 2004, and decreased by 52% or $6.6 million compared to second quarter 2003. The decrease from the second quarter 2003 was primarily due to a 36% decrease in mortgage production, partially offset by the increase in the FTP credit earned by the Retail Bank.

The Home Equity Division generated net income of $191 thousand during the second quarter 2004 as compared to a net income of $107 thousand in the first quarter of 2004, and a net loss of $244 thousand in the second quarter 2003. The increase in net income from both quarters was driven by the increase in net interest income, resulting from an increase in average interest-earning assets as the Home Equity Division continues to grow.

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



	Investment Portfolio Group

	Mortgage
	Servicing-			SFR
	Related			Mortgage						Discontinued
	Assets			Loans			MBS			Products			Total


	(Dollars in thousands)
Mortgage Banking Activities
Q2 04 — Pretax income	$	16,044		$	11,463		$	—		$	—		$	27,507
Q1 04 — Pretax income		20,505			296			—			—			20,801
Annualized Percent Change		(87	)%		15,091	%		—			—			129	%
Q2 03 — Pretax income		15,901			2,732			—			—			18,633
Percent Change		1	%		320	%		—			—			48	%
Investing Activities
Q2 04 — Pretax (loss) income		(37,191	)		15,487			8,809			(1,142	)		(14,037	)
Q1 04 — Pretax (loss) income		(13,740	)		18,074			8,639			(1,051	)		11,922
Annualized Percent Change		(683	)%		(57	)%		8	%		(35	)%		(871	)%
Q2 03 — Pretax (loss) income		(14,246	)		2,328			(1,427	)		(1,221	)		(14,566	)
Percent Change		(161	)%		565	%		717	%		6	%		4	%
HELOC Activities
Q2 04 — Pretax income		—			—			—			—			—
Q1 04 — Pretax income		—			—			—			—			—
Annualized Percent Change		—			—			—			—			—
Q2 03 — Pretax income		—			—			—			—			—
Percent Change		—			—			—			—			—
Financing and Other Activities
Q2 04 — Pretax income		—			—			—			—			—
Q1 04 — Pretax income		—			—			—			—			—
Q2 03 — Pretax income		—			—			—			—			—
Net Income
Q2 04 — Net (loss) income		(12,794	)		16,305			5,329			(691	)		8,149
Q1 04 — Net income (loss)		4,093			11,114			5,227			(636	)		19,798
Annualized Percent Change		(1,650	)%		187	%		8	%		(35	)%		(235	)%
Q2 03 — Net income (loss)		1,001			3,061			(863	)		(739	)		2,460
Percent Change		(1,378	)%		433	%		717	%		6	%		231	%
Performance Ratios
Q2 04
ROE		(25	)%		28	%		50	%		(50	)%		7	%
ROA		(3.18	)%		1.36	%		1.07	%		(4.93	)%		0.39	%
NIM		6.69	%		1.29	%		1.78	%		6.99	%		2.16	%
Efficiency ratio		(114	)%		2	%		3	%		68	%		46	%
Capital adjusted efficiency ratio		594	%		5	%		4	%		85	%		199	%
Average FTE		407			9			4			25			445
Q1 04
ROE		8	%		19	%		57	%		(43	)%		17	%
ROA		1.02	%		0.92	%		1.30	%		(4.23	)%		0.98	%
NIM		6.05	%		1.52	%		2.03	%		6.56	%		2.28	%
Efficiency ratio		59	%		5	%		3	%		96	%		26	%
Capital adjusted efficiency ratio		179	%		14	%		4	%		128	%		69	%
Average FTE		437			11			4			29			481
Q2 03
ROE		2	%		11	%		(9	)%		(39	)%		3	%
ROA		0.32	%		0.50	%		(0.26	)%		(3.75	)%		0.19	%
NIM		7.13	%		0.94	%		(1.01	)%		7.05	%		1.57	%
Efficiency ratio		85	%		8	%		(15	)%		56	%		55	%
Capital adjusted efficiency ratio		382	%		24	%		121	%		69	%		243	%
Average FTE		382			8			6			34			430

The Investment Portfolio Group segment’s net income decreased by 59%, or $11.6 million compared to first quarter 2004, and increased by 231% or $5.7 million compared to second quarter 2003. The decrease from the first quarter 2004 was primarily due to larger losses in servicing due to increased amortization as a result of accelerated prepayment activity during the quarter and losses from hedge instruments exceeding servicing income and positive valuation adjustments in the second quarter 2004. The increase over the second quarter 2003 was primarily due to an increase in net interest income as the average earning assets of the Investment Portfolio Group grew by 77% or $3.4 billion.

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


				Total
				Company
				before Corp.									Total						Total
	Treasury			Overhead and			Corporate						Company			SAB 105			Company
	Group			Eliminations			Overhead			Eliminations			Pro Forma			Adjustment			GAAP


	(Dollars in thousands)
Mortgage Banking Activities
Q2 04 — Pretax income (loss)	$	—		$	124,155		$	—		$	(9,102	)	$	115,053		$	(52,223	)	$	62,830
Q1 04 — Pretax income (loss)		—			82,946			—			(8,125	)		74,821			—			74,821
Annualized Percent Change		—			199	%		—			(48	)%		215	%		—			(64	)%
Q2 03 — Pretax income (loss)		—			112,597			—			(9,753	)		102,844			—			102,844
Percent Change		—			10	%		—			7	%		12	%		—			(39	)%
Investing Activities
Q2 04 — Pretax (loss) income		—			(5,620	)		847			7,177			2,404			—			2,404
Q1 04 — Pretax income		—			20,195			708			4,984			25,887			—			25,887
Annualized Percent Change		—			(511	)%		79	%		176	%		(363	)%		—			(363	)%
Q2 03 — Pretax (loss) income		—			(4,699	)		105			2,653			(1,941	)		—			(1,941	)
Percent Change		—			(20	)%		707	%		171	%		224	%		—			224	%
HELOC Activities
Q2 04 — Pretax income		—			5,633			—			—			5,633			—			5,633
Q1 04 — Pretax income		—			4,181			—			—			4,181			—			4,181
Annualized Percent Change		—			139	%		—			—			139	%		—			139	%
Q2 03 — Pretax income		—			1,309			—			—			1,309			—			1,309
Percent Change		—			330	%		—			—			330	%		—			330	%
Financing and Other Activities
Q2 04 — Pretax loss		(11,881	)		(8,699	)		(24,226	)		—			(32,925	)		—			(32,925	)
Q1 04 — Pretax (loss) income		(11,441	)		(11,277	)		(24,309	)		3			(35,583	)		—			(35,583	)
Q2 03 — Pretax (loss) income		(8,776	)		(12,384	)		(21,457	)		7			(33,834	)		—			(33,834	)
Net Income
Q2 04 — Net (loss) income		(7,188	)		69,859			(14,144	)		(1,165	)		54,550			(31,595	)		22,955
Q1 04 — Net (loss) income		(6,922	)		58,107			(14,279	)		(1,898	)		41,930			—			41,930
Annualized Percent Change		(15	)%		81	%		4	%		154	%		120	%		—			(181	)%
Q2 03 — Net (loss) income		(5,309	)		58,578			(12,918	)		(4,291	)		41,369			—			41,369
Percent Change		(35	)%		19	%		(9	)%		73	%		32	%		—			(45	)%
Performance Ratios
Q2 04
ROE		—			28	%		—			—			19	%					8	%
ROA		—			1.68	%		—			—			1.29	%					0.54	%
NIM		—			2.71	%		—			—			2.75	%					2.75	%
Efficiency ratio		—			45	%		—			—			56	%					75	%
Capital adjusted efficiency ratio		—			53	%		—			—			74	%					129	%
Average FTE		24			3,451			610			—			4,061						4,061
Q1 04
ROE		—			26	%		—			—			16	%					16	%
ROA		—			1.63	%		—			—			1.16	%					1.16	%
NIM		—			2.79	%		—			—			2.82	%					2.82	%
Efficiency ratio		—			48	%		—			—			62	%					62	%
Capital adjusted efficiency ratio		—			57	%		—			—			87	%					87	%
Average FTE		25			3,325			596			—			3,921						3,921
Q2 03
ROE		—			32	%		—			—			18	%					18	%
ROA		—			2.18	%		—			—			1.52	%					1.52	%
NIM		—			2.67	%		—			—			2.73	%					2.73	%
Efficiency ratio		—			45	%		—			—			58	%					58	%
Capital adjusted efficiency ratio		—			44	%		—			—			73	%					73	%
Average FTE		23			2,999			506			—			3,505						3,505

MORTGAGE BANKING ACTIVITIES

Loan Production

During the second quarter of 2004, the Company’s loan production was a record $9.7 billion, a 36% increase over the $7.1 billion of loans produced during the first quarter of 2004 and a 19% increase over the $8.2 billion loans produced in the second quarter of 2003. Our focus on less cyclical products, such as Alt-A, subprime, HELOCs and consumer construction, resulted in continued growth in each of these products in the second quarter 2004 compared to the first quarter of 2004 and second quarter 2003. This increase more than offset the decrease in our agency conforming and jumbo products which are more cyclical in nature, closely tracking changes in the overall mortgage market. Additionally, we continued to further penetrate the purchase market, increasing our purchase transactions 61% year over year and successfully adapted our production mix to the demand for adjustable rate mortgages (ARMs) with 61% of our mortgage production now consisting of ARMs compared with only 29% a year ago. Further, our Investment Portfolio Group’s customer retention program continues to show strong production, originating $418 million in loans, a 48% increase over the first quarter 2004 volume.

Total production by loan type was as follows:



			Three Months Ended

			June 30,		June 30,		Percent			March 31,		Percent
			2004		2003		Change			2004		Change


			(Dollars in millions)
Volume by product
Prime(1)
	Alt-A		$	6,447	$	4,081		58	%	$	4,584		41	%
	Agency conforming			511		1,471		(65	)%		608		(16	)%
	Jumbo			730		1,192		(39	)%		407		79	%
Subprime(1)				567		465		22	%		458		24	%
Home equity line of credit(2)				408		229		78	%		244		67	%
Consumer construction(2)				760		518		47	%		603		26	%

		Subtotal mortgage production		9,423		7,956		18	%		6,904		36	%
Subdivision construction commitments				304		237		28	%		242		26	%

		Total production volume	$	9,727	$	8,193		19	%	$	7,146		36	%

Mortgage — Web-based production			$	5,973	$	5,994		0	%	$	4,319		38	%
Mortgage pipeline at period end(3)			$	5,179	$	6,929		(25	)%	$	5,949		(13	)%

(1) Fundings.

(2) New commitments.

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

The table below provides the mix of production for the quarters ended June 30, 2004 and 2003, and March 31, 2004, based on the interest rate characteristics and amortization type of the loan:



	Three Months Ended

	June 30,			June 30,			March 31,
	2004			2003			2004

Fixed Rate Mortgages		39	%		71	%		44	%
Hybrid ARMs		36	%		16	%		44	%
ARMs		25	%		13	%		12	%

The following table details the mix of our production and pipeline between purchase, cash-out refinance and rate/term refinance transactions as of and for the quarters ended June 30, 2004, June 30, 2003, and

March 31, 2004. As refinance volumes industry-wide have declined, IndyMac has increased its penetration of the market with respect to purchase transactions, mitigating the decline in refinance related mortgage transactions.



	As of and for the Quarters Ended Months Ended

	June 30,			June 30,			Percent			March 31,			Percent
	2004			2003			Change			2004			Change


	(Dollars in millions)
Mortgage loan production:
Purchase transactions	$	3,882		$	2,408			61	%	$	2,669			45	%
Cash-out refinance transactions		3,301			3,213			3	%		2,562			29	%
Rate/term refinance transactions		2,240			2,335			(4	)%		1,673			34	%

Total mortgage loan production	$	9,423		$	7,956			18	%	$	6,904			36	%

% purchase transactions		41	%		30	%					39	%
Mortgage pipeline:
Purchase transactions	$	2,542		$	1,714			48	%	$	2,249			13	%
Cash-out refinance transactions		1,737			2,560			(32	)%		1,900			(9	)%
Rate/term refinance transactions		900			2,655			(66	)%		1,800			(50	)%

Mortgage pipeline at period end	$	5,179		$	6,929			(25	)%	$	5,949			(13	)%

% purchase transactions		49	%		25	%					38	%

During the six months ended June 30, 2004, the Company produced $16.9 billion of loans, which was a 14% increase over the $14.8 billion of loans produced during the six months ended June 30, 2003. Total production by loan type was as follows:



			Six Months Ended

			June 30,		June 30,		Percent
			2004		2003		Change


			(Dollars in millions)
Volume by product
Prime(1)
	Alt-A		$	11,031	$	7,098		55	%
	Agency conforming			1,119		2,892		(61	)%
	Jumbo			1,137		2,205		(48	)%
Subprime(1)				1,025		849		21	%
Home equity line of credit(2)				652		409		59	%
Consumer construction(2)				1,363		958		42	%

		Subtotal mortgage production		16,327		14,411		13	%
Subdivision construction commitments				546		367		49	%

		Total production volume	$	16,873	$	14,778		14	%

Mortgage — Web-based production			$	10,292	$	10,914		(6	)%

(1) Fundings.

(2) New commitments.

Mortgage Production by Division and Channel

IndyMac generates its mortgage production through multiple channels on a nationwide basis with a concentration in those regions of the country in which we have regional offices or in which there are higher home prices, including California, Florida, New Jersey and New York. Our highest concentration of mortgage

loans relates to properties in California. Mortgages secured by California properties accounted for 41% of the mortgage loans we produced in the second quarter of 2004 based on dollar value, and 33% based on number of loans. This is a decrease from the level of concentration during the first quarter of 2004, which totaled 45% and 37%, respectively. We expect this trend to continue in the future as we execute on our plan to double the number of regional offices outside of California over the next five years.

IndyMac Mortgage Bank produces mortgages through its Business-to-Business (“B2B”), Business-to-Realtor (“B2R”), Consumer Construction (“Home Construction Lending” or “HCL”) and Homebuilder (“HBD”) divisions. IndyMac Consumer Bank produces mortgages through its Business-to-Consumer (“B2C”) and Retail Bank divisions. The Home Equity Division supports the production of HELOCs through all of IndyMac channels of production and markets directly to consumers through targeted marketing and cross selling activities. The Investment Portfolio Group generates loan production through its customer retention program in connection with its servicing portfolio.

The following table shows production and key performance indicators of the various relationship businesses of IndyMac Mortgage Bank during the three and six months ended June 30, 2004.



			Relationship Businesses — IndyMac Mortgage Bank

Three Months Ended June 30, 2004			B2B			B2R			HCL			HBD			Total


			(Dollars in millions)
Volume by Channel and Customer Source
	Wholesale		$	3,669		$	—		$	560		$	—		$	4,229
	Correspondent/ Mortgage bankers			864			—			310			—			1,174
	Correspondent/ Financial institutions			55			—			—			—			55
	Conduit			1,792			—			—			—			1,792
	Realtors			—			153			—			—			153
	Builder/Builder affiliates			—			—			52			282			334
	Consumer direct marketing by HCL			—			—			148			—			148

		Subtotal mortgage production		6,380			153			1,070			282			7,885
	Builder and subdivision construction commitments			—			—			—			304			304

		Total relationship businesses production volume	$	6,380		$	153		$	1,070		$	586		$	8,189

Percentage of total production				65.6	%		1.6	%		11.0	%		6.0	%		84.2	%
		Total production second quarter 2003	$	5,072		$	279		$	748		$	358		$	6,457
		Total production first quarter 2004	$	4,472		$	109		$	872		$	409		$	5,862
Composition of mortgage production
		Purchase transactions		38	%		45	%		98	%		85	%		47	%
		Cash-out refinance transactions		40	%		32	%		0	%		10	%		34	%
		Rate/term refinance transactions		22	%		23	%		2	%		5	%		19	%
Key Performance Indicators for the Three Months Ended June 30, 2004
Active Customers:(1)
	Average monthly active customers			2,527			138			453			57			3,175
	Active customers during the quarter			4,273			262			1,079			88			5,702
	Net new customers during the quarter(2)			874			162			N/A			29			1,065
Sales personnel				476			57			119			56			708
Cost per funded mortgage loan (bps)				62			269			82			120			N/A



		Relationship Businesses — IndyMac Mortgage Bank

Three Months Ended June 30, 2004		B2B			B2R			HCL			HBD			Total


		(Dollars in millions)
Percentage Change for the Three Months Ended June 30, 2004 vs. June 30, 2003
Active Customers:(1)
	Average monthly active customers		14	%		(45	)%		80	%		90	%		16	%
	Active customers during the quarter		25	%		(48	)%		77	%		80	%		25	%
Sales personnel			47	%		(4	)%		83	%		157	%		47	%
Cost per funded mortgage loan (bps)			(15	)%		42	%		2	%		16	%		N/A

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

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



				Relationship Businesses — IndyMac Mortgage Bank

Six Months Ended June 30, 2004				B2B			B2R			HCL			HBD			Total


				(Dollars in millions)
Volume by Channel and Customer Source
	Wholesale			$	6,320		$	—		$	993		$	—		$	7,313
	Correspondent/ Mortgage bankers				1,475			—			578			—			2,053
	Correspondent/ Financial institutions				95			—			—			—			95
	Conduit				2,962			—			—			—			2,962
	Realtors				—			262			—			—			262
	Builder/Builder affiliates				—			—			90			449			539
	Consumer direct marketing by HCL				—			—			281			—			281

		Subtotal mortgage production			10,852			262			1,942			449			13,505
	Builder and subdivision construction commitments				—			—			—			546			546

		Total relationship businesses production volume		$	10,852		$	262		$	1,942		$	995		$	14,051

Percentage of total production					64.3	%		1.6	%		11.5	%		5.9	%		83.3	%
			Total production for the six months ended June 30, 2003	$	9,075		$	526		$	1,428		$	580		$	11,609
Composition of mortgage production
		Purchase transactions			36	%		48	%		98	%		85	%		47	%
		Cash-out refinance transactions			41	%		32	%		0	%		10	%		34	%
		Rate/term refinance transactions			23	%		20	%		2	%		5	%		19	%
Key Performance Indicators for the Six Months Ended June 30, 2004
Active Customers:(1)
	Average monthly active customers				2,294			131			389			46			2,860
	Active customers during the period				5,321			391			1,560			102			7,374
	Net new customers during the period(2)				1,605			417			N/A			61			2,083
Cost per funded mortgage loan (bps)					68			311			89			136			N/A



		Relationship Businesses — IndyMac Mortgage Bank

Six Months Ended June 30, 2004		B2B			B2R			HCL			HBD			Total


		(Dollars in millions)
Percentage Change for the Six Months Ended June 30, 2004 vs. June 30, 2003
Active Customers:(1)
	Average monthly active customers		9	%		(45	)%		72	%		59	%		10	%
	Active customers during the period		28	%		(45	)%		73	%		55	%		27	%
Cost per funded mortgage loan (bps)			(9	)%		(57	)%		13	%		29	%		N/A

IndyMac Mortgage Bank’s production increased 40% from the three months ended March 31, 2004 to the three months ended June 30, 2004, due to strong execution on IndyMac’s strategies to increase market share in the mortgage industry. Active customers during the quarter in our largest channel — B2B — grew 25% compared to the second quarter of 2003. This growth is the direct result of IndyMac’s focus on increasing the size of its sales force nationwide and the newer sales people demonstrating increasing effectiveness as they gain experience with IndyMac’s products and technology. We have been successful in attracting experienced, quality salespeople because of our less interest-rate sensitive products combined with our technology advantage. In addition, we have improved our production of subprime mortgages and purchase mortgages through a specific focus on sales people with experience in these areas to generate relationships with purchase-oriented and subprime-oriented originators.

Our construction lending divisions continued to take advantage of the strong purchase market as new home construction starts remained near seasonally adjusted record levels. Our consumer construction division, Home Construction Lending (HCL) produced new consumer construction loan commitments of $760 million, 26% higher than the first quarter of 2004. Similarly, our Home Builder Division (HBD) produced new construction financing commitments of $304 million, up 26% from the first quarter of 2004, and permanent home mortgages of $282 million reflecting an increase of 69% relative to the first quarter of this year.

Our Realtor channel — B2R — continued its efforts to refocus on its core purpose, which is to capture purchase volume and build long-term relationships with Realtors. Steps taken during the first quarter of this year to improve execution resulted in a 40% increase in loan volume from our Realtor customers. We continue to expect this business to show improvement with Realtors as the year progresses.

The following table shows production and other key performance indicators of the various consumer direct businesses of IndyMac Consumer Bank and Home Equity Division during the three and six months ended June 30, 2004. In addition, during the second quarter and six months ended June 30, 2004, as shown

below, our Investment Portfolio Group generated $418 million and $700 million of loans, respectively, through its customer retention program in connection with its servicing portfolio.



			Consumer Direct Businesses


			IndyMac Consumer Bank
												Home			Investment
						Retail						Equity			Portfolio
Three Months Ended June 30, 2004			B2C			Bank			Total			Division(1)			Group


			(Dollars in millions)
Volume by Channel and Source
Web-based Production:
	Direct at www.indymacmortgage.com		$	125		$	—		$	125		$	—		$	—
	Indirect Web-based leads			122			—			122			—			—
Cross-marketing and portfolio refinancing				517			55			572			—			418
Direct telemarketing and affinity relationships				172			—			172			44			—
Retail banking branches				—			85			85			—			—

		Total consumer direct production volume	$	936		$	140		$	1,076		$	44		$	418

Percentage of total production				9.6	%		1.5	%		11.1	%		0.5	%		4.2	%
		Total production second quarter 2003	$	1,571		$	119		$	1,690		$	46			N/A
		Total production first quarter 2004	$	878		$	89		$	967		$	35		$	282
Composition of mortgage production:
	Purchase transactions			10	%		24	%		12	%		N/A			1	%
	Cash-out refinance transactions			56	%		51	%		55	%		N/A			1	%
	Rate/term refinance transactions			34	%		25	%		33	%		N/A			98	%



			Consumer Direct Businesses


			IndyMac Consumer Bank
												Home			Investment
						Retail						Equity			Portfolio
Six Months Ended June 30, 2004			B2C			Bank			Total			Division(1)			Group


			(Dollars in millions)
Volume by Channel and Source
Web-based Production:
	Direct at www.indymacmortgage.com		$	234		$	—		$	234		$	—		$	—
	Indirect Web-based leads			261			—			261			—			—
Cross-marketing and portfolio refinancing				964			89			1,053			—			700
Direct telemarketing and affinity relationships				355			—			355			79			—
Retail banking branches				—			140			140			—			—

		Total consumer direct production volume	$	1,814		$	229		$	2,043		$	79		$	700

Percentage of total production				10.8	%		1.3	%		12.1	%		0.5	%		4.1	%
		Total production for the six months ended June 30, 2003	$	2,885		$	197		$	3,082		$	87			N/A
Composition of mortgage production:
	Purchase transactions			9	%		25	%		11	%		N/A			0	%
	Cash-out refinance transactions			57	%		51	%		56	%		N/A			1	%
	Rate/term refinance transactions			34	%		24	%		33	%		N/A			99	%

(1) The amount represents the loans produced only by the Home Equity Division. HELOC loans produced by other business divisions totaled $364 million and $573 million during the three and six months ended June 30, 2004, respectively. HELOC loans produced by business divisions other than the Home Equity Division are included in the production volume of the respective originating business division.

B2C’s production volume declined 40% for the three months ended June 30, 2004, compared to the three months ended June 30, 2003. The B2C division is currently our most established consumer-direct business, generating 61% of the total consumer-direct business. This business is generally skewed to the refinance environment with its web-centralized call center approach and as such, is expected to be more cyclical in response to changes in interest rates. The Home Equity Division was established during 2002 to facilitate targeted marketing of our HELOC product directly to consumers in addition to the production of HELOCs within our other production channels. Through a streamlined application process and competitive pricing, this division provides homeowners the ability to easily access the excess equity in their homes for a variety of uses. The HELOC product tends to be somewhat counter-cyclical to the mortgage industry. As interest rates rise, consumers who want to access the equity in their home are more inclined to utilize a HELOC product rather than a cash-out refinance of their existing low-rate mortgage loan. As a result, we expect the Home Equity Division’s production to increase as the market transitions to a higher interest rate environment.

Loan Sales

The Company sold $7.6 billion and $6.3 billion of loans during the three months ended June 30, 2004 and 2003, respectively, and $12.5 billion and $11.9 billion for the six months ended June 30, 2004 and 2003, respectively. The Company’s gain on sale of loans of $66.1 million in the second quarter of 2004 reflected a one-time deferral of $52.2 million of revenue on the adoption of SAB No. 105. Had the accounting principle been applied consistently with prior periods, the gain on sale of loans would have been $118.3 million for the second quarter of 2004 compared to $102.1 million for the same quarter of 2003, reflecting a 16% increase. The increase in gain on sale of loans was primarily due to the 21% increase in the amount of loans sold year over year.

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

Generally, prudent mortgage bankers will choose a strategy that falls within the boundaries of the above extremes. IndyMac tends to utilize instruments such as forward sale agreements whose change in value as interest rates change is expected to offset the change in value of its underlying mortgage pipeline based on expected closing ratios. Utilizing this strategy we focus 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 we committed a rate to the borrower (“rate lock commitments”), the Company seeks to quantify the optional component of each rate lock, and in turn, the aggregate rate lock pipeline. By accurately evaluating these factors, the Company has been able to minimize the purchase of options and also stabilize gain on sale margins over different rate environments. Companies with lower coverage ratios may tend to follow the market increasing their hedge costs and reducing their profit margins as interest rates rise. In comparing financial results, investors should be aware of the varying results that can be achieved under different hedge strategies.

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



	Three Months Ended

	June 30,			June 30,			Percent			March 31,			Percent
	2004			2003			Change			2004			Change


	(Dollars in millions)
Gross gain on mortgage loan sales(1)	$	54		$	163			(67	)%	$	126			(57	)%
Gross margin before hedging		0.71	%		2.57	%		(72	)%		2.58	%		(72	)%
Hedging gains (losses)	$	64		$	(61	)		(205	)%	$	(42	)		(252	)%
Net gains on sale(1)	$	118		$	102			16	%	$	84			40	%
Net margin after hedging(1)		1.55	%		1.61	%		(4	)%		1.71	%		(9	)%

(1) The gain on mortgage loan sales for the three months ended June 30, 2004 in the tables excludes the $52 million before-tax revenue deferral as a result of adoption of SAB No. 105 in the second quarter of 2004. The GAAP gain on mortgage loan sales reported was $66 million for the three months ended June 30, 2004. The GAAP net margin after hedging was 0.87% for the three months ended June 30, 2004.



	Six Months Ended

	June 30,			June 30,			Percent
	2004			2003			Change


	(Dollars in millions)
Gross gain on mortgage loan sales(1)	$	181		$	281			(36	)%
Gross margin before hedging		1.44	%		2.37	%		(39	)%
Hedging gains (losses)	$	21		$	(95	)		(122	)%
Net gains on sale(1)	$	202		$	186			9	%
Net margin after hedging(1)		1.61	%		1.57	%		3	%

(1) The gain on mortgage loan sales for the six months ended June 30, 2004 in the tables excludes the $52 million before-tax revenue deferral as a result of adoption of SAB No. 105 in the second quarter of 2004. The GAAP gain on mortgage loan sales reported was $150 million for the six months ended June 30, 2004. The GAAP net margin after hedging was 1.20% for the six months ended June 30, 2004.

During the quarter ended June 30, 2004 the Company’s pipeline hedging activities resulted in hedging gains of $64 million compared to hedging losses of $61 million for the quarter ended June 30, 2003. The hedging gains in the second quarter of 2004 were consistent with the increasing interest rate environment. The yield on the 10-year Treasury increased by 76 basis points from March 31, 2004 to June 30, 2004.

The gain on sale margin was 1.55% in the quarter ended June 30, 2004 compared to 1.61% in the quarter ended June 30, 2003 and 1.71% in the quarter ended March 31, 2004. The lower gain on sale margin during the second quarter of 2004 is primarily due to a higher percentage of loans originated through the conduit and correspondent channels, which operate with smaller profit margins.

In addition to mortgage loans held for sale, the pipeline also includes rate lock commitments. Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) and, therefore, were recorded at fair value prior to April 1, 2004. On April 1, 2004, the Company adopted SAB No. 105, and in accordance with this standard, for rate lock commitments entered into after April 1, 2004, only the change in the fair value is recorded by the Company.

The Company hedges the risk of changes in fair value of rate lock commitments by selling forward contracts on securities of Fannie Mae or Freddie Mac, Euro Dollar futures and other hedge instruments as the Company deems appropriate to prudently manage this risk. These forward contracts are also accounted for as derivatives and recorded at fair value. As of June 30, 2004, the fair value of the rate lock commitments, net of related hedges, was $1.3 million, significantly decreased from $30.8 million at March 31, 2004 due to the adoption of SAB No. 105.

The following two tables present the gain on sale margins by product type for the quarters ended June 30, 2004 and 2003, and March 31, 2004 and for the six months ended June 30, 2004 and 2003:



	Three Months Ended


	June 30, 2004							June 30, 2003							March 31, 2004

Gain on Sale Margins by	Amount		Gain on					Amount		Gain on					Amount		Gain on
Product Type(1)	Sold		Sale		Margin			Sold		Sale		Margin			Sold		Sale		Margin


	(Dollars in millions)
Alt-A and Jumbo	$	5,938	$	88.0		1.48	%	$	4,326	$	69.9		1.62	%	$	3,463	$	53.9		1.56	%
Agency conforming		924		6.4		0.69	%		1,589		18.4		1.16	%		725		6.5		0.89	%
Subprime		476		13.2		2.77	%		264		6.6		2.50	%		426		14.9		3.50	%
Consumer Lot Loans		192		8.2		4.27	%		—		—		—			—		—		—
Loans acquired through clean-up calls		108		2.5		2.31	%		157		7.2		4.59	%		293		8.4		2.86	%

Total gain on sale of loans(1)	$	7,638	$	118.3		1.55	%	$	6,336	$	102.1		1.61	%	$	4,907	$	83.7		1.71	%

(1) The gain on mortgage loan sales for the three months ended June 30, 2004 has been adjusted to exclude the $52 million before-tax negative impact as a result of adoption of SAB No. 105 in the second quarter of 2004. The gain on mortgage loan sales reported on the statements of earnings was $66 million for the three months ended June 30, 2004.



	Six Months Ended June 30,							Six Months Ended June 30,
	2004							2003

Gain on Sale Margins by	Amount		Gain on					Amount		Gain on
Product Type(1)	Sold		Sale		Margin			Sold		Sale		Margin


	(Dollars in millions)
Alt-A and Jumbo	$	9,401	$	141.9		1.51	%	$	8,128	$	129.1		1.59	%
Agency conforming		1,649		12.9		0.78	%		3,131		35.3		1.13	%
Subprime		903		28.1		3.11	%		264		6.6		2.50	%
Consumer Lot Loans		192		8.2		4.27	%		—		—		—
Loans acquired through clean-up calls		400		10.9		2.71	%		337		14.9		4.43	%

Total gain on sale of loans(1)	$	12,545	$	202.0		1.61	%	$	11,860	$	185.9		1.57	%

(1) The gain on mortgage loan sales for the six months ended June 30, 2004 has been adjusted to exclude the $52 million before-tax negative impact as a result of adoption of SAB No. 105 in the second quarter of 2004. The gain on mortgage loan sales reported on the statements of earnings was $150 million for the six months ended June 30, 2004.

The gain on sale margins declined on the Alt-A and agency conforming products during the second quarter 2004. The decline in Alt-A and Jumbo margins was caused by origination channel mix, including an increase in loans funded through the conduit and correspondent channels, and a shift to adjustable rate products. In the second quarter of 2004, 61% of loans originated were adjustable rate compared to 56% in the first quarter of 2004. In addition, 60% of the sales in the quarter ended June 30, 2004 were ARM loans, compared to 45% in the quarter ended March 31, 2004. The demand for the ARM market is somewhat less than the demand for the fixed rate agency and non-agency markets.

In addition to the gain on sale, IndyMac earns spread and fee income on its mortgage loans held for sale. It is important to look at the entire mortgage banking revenue stream in evaluating performance, as these components may vary in differing interest rate environments and sale strategies. The following table depicts

the total revenue margin on mortgage loans sold, which is calculated by dividing the sum of gain on sale of loans, net interest income, and fee income by the amount of loans sold:



	Three Months Ended

	June 30,		% of loans			June 30,		% of loans			March 31,		% of loans
	2004		sold			2003		sold			2004		sold


	(Dollars in thousands)
Gain on sale of loans(1)	$	118,307		1.55	%	$	102,146		1.61	%	$	83,668		1.70	%
Net interest income		50,809		0.67	%		40,592		0.64	%		41,800		0.85	%
Fee income		14,786		0.19	%		18,007		0.29	%		12,107		0.25	%

Total mortgage banking revenue	$	183,902		2.41	%	$	160,745		2.54	%	$	137,575		2.80	%

Loans sold	$	7,638,446				$	6,335,907				$	4,906,724



	Six Months Ended

			% of loans					% of loans
	June 30, 2004		sold			June 30, 2003		sold


	(Dollars in thousands)
Gain on sale of loans(1)	$	201,975		1.61	%	$	185,929		1.57	%
Net interest income		92,609		0.74	%		77,033		0.65	%
Fee income		26,893		0.21	%		32,798		0.28	%

Total mortgage banking revenue	$	321,477		2.56	%	$	295,760		2.50	%

Loans sold	$	12,545,170				$	11,859,608

(1) The gain on mortgage loan sales for the three and six months ended June 30, 2004 is the pro forma amount which has been adjusted to exclude the $52 million before-tax negative impact as a result of adoption of SAB No. 105 in the second quarter of 2004. The gain on mortgage loan sales reported on the statements of earnings was $66 million and $150 million for the three and six months ended June 30, 2004, respectively.

Total mortgage banking revenue for the six months ended June 30, 2004 was $321.5 million compared to $295.8 million for the six months ended June 30, 2003. The increase in revenue was driven by the additional loan sales of $685.6 million in the first half of 2004. Mortgage banking revenue increased to $183.9 million in the quarter ended June 30, 2004 compared to $160.7 million in the quarter ended June 30, 2003. However, as a percentage of loans sold, the total revenue declined to 2.41% from 2.54% due to the higher percentage of conduit and correspondent loan production in the second quarter of 2004.

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



		Three Months Ended

		June 30,		Distribution			June 30,		Distribution			March 31,		Distribution
		2004		Percentages			2003		Percentages			2004		Percentages


		(Dollars in millions)
Sales to the GSEs(1)		$	2,249		25	%	$	3,459		48	%	$	2,304		45	%
Private-label securitizations			3,845		43	%		1,617		23	%		1,085		21	%
Whole loan sales			1,544		17	%		1,260		18	%		1,518		30	%

	Subtotal sales		7,638		86	%		6,336		89	%		4,907		96	%
Investment portfolio acquisitions(2)			1,236		14	%		798		11	%		195		4	%

	Total loan distribution	$	8,874		100	%	$	7,134		100	%	$	5,102		100	%



		Six Months Ended

		June 30,		Distribution			June 30,		Distribution
		2004		Percentages			2003		Percentages


		(Dollars in millions)
Sales to the GSEs(1)		$	4,553		33	%	$	6,923		53	%
Private-label securitizations			4,930		35	%		3,088		24	%
Whole loan sales			3,062		22	%		1,849		14	%

	Subtotal sales		12,545		90	%		11,860		91	%
Investment portfolio acquisitions(2)			1,431		10	%		1,200		9	%

	Total loan distribution	$	13,976		100	%	$	13,060		100	%

(1) Government-sponsored enterprises.

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

Loan sales to GSE’s dropped to 25% of total sales for the quarter ended June 30, 2004 compared to 48% for the same period a year ago and 45% for the previous quarter ended March 31, 2004. The increase in the amount of adjustable rate mortgages sold resulted in a higher percentage of loans being sold in private-label securitizations.

In conjunction with the sale of mortgage loans in private-label securitizations and government-sponsored enterprises (“GSEs”) transactions, the Company generally retains certain assets. The primary assets retained include MSRs and, to a lesser degree, AAA-rated and agency interest-only strips, investment-grade securities, non-investment grade securities and residual securities. The allocated cost of the retained assets at the time of sale is recorded as an asset with an offsetting increase to the gain on sale of loans (or a reduction in the cost basis of the loans sold). The calculation of the $118 million in gain on sale of loans, excluding the $52 million SAB No. 105 adjustment, earned during the three months ended June 30, 2004, included the retention of $122 million of servicing-related assets, $62 million of other investment-grade and $21 million of non-investment grade securities. During the three months ended June 30, 2004, assets previously retained generated cash flows of $90.6 million. More information on the valuation assumptions related to IndyMac’s retained assets can be found under the heading, “Valuation of Servicing-Related Assets” below.

INVESTING AND HELOC ACTIVITIES

The following table details the assets associated with our investing and HELOC activities as of June 30, 2004, and December 31, 2003:


							December 31,
					June 30, 2004		2003


					(Dollars in thousands)
SFR mortgage loans held for investment					$	4,639,993	$	4,945,439
Consumer construction						1,301,688		1,145,526
Builder construction						561,538		484,397
HELOC						217,368		711,494
Income property						7,432		36,285
Mortgage-backed securities, U.S. Treasury securities and agency notes:
	Trading securities:
		AAA-rated and agency interest-only strips				166,799		148,275
		AAA-rated principal-only securities				83,964		8,518
		Other investment grade securities				9,093		8,922
		Other non-investment grade securities				478		1,760
		Non-investment grade residual securities				49,535		56,157

			Subtotal — trading securities			309,869		223,632

	Available for sale securities:
		U.S. Treasury securities and agency notes				47,703		143,689
		AAA-rated non-agency securities				2,450,258		1,407,984
		AAA-rated agency securities				18,519		25,193
		AAA-rated principal-only securities				20,102		—
		Other investment grade securities				82,139		26,926
		Other non-investment grade securities				29,304		10,182
		Non-investment grade HELOC residual securities				23,097		—

			Subtotal — available for sale securities			2,671,122		1,613,974

				Total mortgage-backed securities, U.S. Treasury securities and agency notes		2,980,991		1,837,606

Mortgage servicing rights						493,876		443,688
Other assets						277,876		280,467

				Total	$	10,480,762	$	9,884,902

Percentage of securities portfolio rated investment grade						97%		96%
Percentage of securities portfolio rated AAA						94%		94%

Our HELOC loans held for investment decreased by $494 million from December 31, 2003, to June 30, 2004, primarily due to the recharacterization of $500 million of HELOCs into mortgage-backed securities via an on-balance sheet securitization in March 2004 and the reclassification of $342 million of HELOCs from the held for investment classification to the held for sale classification in June 2004 to reflect the Company’s intent to securitize these loans. Similarly, our AAA-rated non-agency securities increased from $1.4 billion at December 31, 2003, to $2.5 billion at June 30, 2004, resulting from the recharacterization of the $500 million of HELOCs from loans to securities as previously noted and the reclassification of $516 million of SFR mortgage loans that were securitized with retention of $353 million as mortgage-backed securities available for

sale during the first quarter 2004. Please refer to the “Investing Activities” and the “HELOC Portfolio” sections below for further discussions on SFR mortgage and HELOC securitizations.

AAA-rated and agency interest-only strips, and non-investment grade residual securities and securities used to hedge these securities, are classified as trading securities. Changes in the fair value of these securities are recorded in earnings. All other mortgage-backed securities and HELOC residuals are classified as available for sale, and changes in fair value of these assets are recorded in equity.

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



	Three Months Ended

	June 30,			June 30,			March 31,
	2004			2003			2004


	(Dollars in thousands)
Net interest income after provision for loan losses	$	57,992		$	26,743		$	57,278
Service fee loss		(27,807	)		(1,401	)		(3,144	)
Loss on mortgage-backed securities, net		(3,414	)		(9,258	)		(4,987	)
Other income		5,338			2,718			4,004
Average balance of interest-earning assets and MSRs	$	10,493,236		$	6,518,704		$	9,792,163
Investing activities’ return on interest-earning assets and MSRs (annualized)		1.23	%		1.16	%		2.18	%



	Six Months Ended

	June 30,			June 30,
	2004			2003


	(Dollars in thousands)
Net interest income after provision for loan losses	$	115,270		$	58,067
Service fee (loss) income		(30,951	)		982
Loss on mortgage-backed securities, net		(8,401	)		(16,168	)
Other income		9,342			5,211
Average balance of interest-earning assets and MSRs	$	10,142,700		$	6,462,416
Investing activities’ return on interest-earning assets and MSRs (annualized)		1.69	%		1.50	%

INVESTING ACTIVITIES

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

The Investment Portfolio Group’s investment in prime SFR loans, mortgage-backed securities and mortgage loan servicing-related assets helps to provide stable earnings in periods when mortgage banking revenues decline. Should loan production decline due to factors such as increasing interest rates, the value and fee income of the Investment Portfolio Group’s MSRs generally rises, as there is less incentive for borrowers to refinance at a higher interest rate. Similarly, when loan production increases, the value of the MSRs and the

associated income streams generally decrease. We believe this serves to stabilize the Company’s revenue stream through increased interest and servicing fee income when production slows.

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

SFR Mortgage Loans Held for Investment

The Company’s portfolio of mortgage loans held for investment is comprised primarily of SFR mortgage loans, with a concentration in adjustable-rate and hybrid adjustable-rate mortgage loans to mitigate interest rate risk. The Company plans on increasing its portfolio of mortgage loans held for investment to achieve better balance in its investing activities relative to its mortgage banking activities, which tend to be more cyclical. The Company added $1.4 billion of mortgage loans in accordance with this strategy during the six months ended June 30, 2004; however, the portfolio actually declined relative to December 31, 2003. The decline was the result of the Company’s decision to sell approximately $600 million of loans in the second quarter and recharacterized approximately $516 million of loans as securities in line with overall balance sheet management objectives. The Company plans to continue to securitize portions of its SFR mortgage loans held for investment periodically, with the intent to retain most of the securities, to optimize return on equity, reduce hedging costs and enhance the liquidity of the loan portfolio. The following table shows the composition of the portfolio as of June 30, 2004, and December 31, 2003, and relevant credit quality characteristics at June 30, 2004 and December 31, 2003.


	June 30,			December 31,
	2004			2003


	(Dollars in thousands)
SFR mortgage loans held for investment	$	4,639,993		$	4,945,439
Average loan size	$	289		$	286
Non-performing loans as a percentage of SFR loans		0.40	%		0.38	%
Estimated average life in years(1)		2.3			3.1
Estimated average duration in years(2)		1.7			1.4
Yield		4.21	%		4.43	%
Fixed-rate mortgages		9	%		6	%
Adjustable-rate mortgages		28	%		39	%
Hybrid adjustable-rate mortgages		63	%		55	%


			June 30,			December 31,
			2004			2003
Additional Information as of June 30, 2004 and December 31, 2003
Average FICO score(3)				713			707
Average loan to value ratio				71	%		73	%
Geographic distribution:
	Southern California			35	%		39	%
	Northern California			21	%		22	%
	Michigan			5	%		3	%
	New York			4	%		4	%
	Florida			4	%		3	%
	New Jersey			2	%		2	%
	Georgia			2	%		2	%
	Colorado			2	%		2	%
	Washington			2	%		2	%
	Other (each individually less than 2%)			23	%		21	%

		Total		100	%		100	%

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

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

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

Mortgage-Backed Securities, U.S. Treasury Securities and Agency Notes

The Company’s portfolio of mortgage-backed securities, U.S. Treasury securities and agency notes totaled $3.0 billion and $1.8 billion at June 30, 2004, and December 31, 2003, respectively. These securities are recorded at fair value. The Company invests in high quality mortgage-backed securities to provide net interest income. At June 30, 2004, 94% of the portfolio was rated AAA with an expected weighted-average life of 3.3 years. U.S. Treasury securities are purchased to hedge the interest rate risk associated with servicing-related assets, among other types of investments. AAA-rated principal-only securities are retained from securitizations or purchased in the secondary market to hedge servicing related assets.

The fair value of other investment grade and non-investment grade securities by credit rating as of June 30, 2004, and December 31, 2003, follows:



			June 30, 2004									December 31, 2003

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


			(In thousands)
Investment grade mortgage-backed securities:
	AAA		$	—	$	—		$	—	$	—	$	8,001
	AA			31,255		(43	)		31,212		31,321		—
	A			301		(21	)		280		285		—
	BBB			44,577		(2,545	)		42,032		43,424		24,198
	BBB-			17,050		(1,430	)		15,620		16,202		3,649

		Total other investment grade mortgage-backed securities	$	93,183	$	(4,039	)	$	89,144	$	91,232	$	35,848

Non-investment grade mortgage-backed securities:
	BB		$	27,137	$	(4,461	)	$	22,676	$	23,444	$	7,896
	B			14,617		(10,147	)		4,470		4,599		186
	CCC			—		—			—		—		1,165
	C			2,277		(1,799	)		478		478		1,934
	D			1,728		(1,417	)		311		311		676
	NR			10,364		(9,514	)		850		950		85

		Total other non-investment grade mortgage-backed securities	$	56,123	$	(27,338	)	$	28,785	$	29,782	$	11,942

At June 30, 2004, of the total other investment grade and non-investment grade mortgage-backed securities, $90.0 million was collateralized by prime loans, $30.5 million by subprime loans and $0.5 million by manufactured housing loans.

Mortgage Servicing and Mortgage Servicing Rights

In addition to its own loans, IndyMac serviced $34.6 billion of mortgage loans owned by others at June 30, 2004, with a weighted average coupon of 6.15%. In comparison, IndyMac serviced $30.8 billion of mortgage loans owned by others at December 31, 2003, with a weighted average coupon of 6.53%. The table below shows the activity in the servicing portfolios during the quarter and six months ended June 30, 2004.



	Servicing Portfolio

	Three Months			Six Months
	Ended			Ended
	June 30, 2004			June 30, 2004


	(Dollars in millions)
Unpaid principal balance at beginning of period	$	32,122		$	30,774
Additions		7,086			11,762
Clean-up calls exercised		(672	)		(991	)
Loan payments and prepayments		(3,918	)		(6,927	)

Unpaid principal balance at June 30, 2004	$	34,618		$	34,618

The capitalized value of MSRs totaled $493.9 million as of June 30, 2004, and $443.7 million as of December 31, 2003, reflecting an increase of $50.2 million. The table below shows the activity in MSRs.



	Three Months Ended									Six Months Ended

	June 30,			June 30,			March 31,			June 30,			June 30,
	2004			2003			2004			2004			2003


	(Dollars in thousands)
Balance at beginning of period	$	414,358		$	343,544		$	443,688		$	443,688		$	300,539
Additions		92,190			73,732			50,753			142,943			141,474
Transfers to AAA-rated agency interest-only securities		(14,293	)		(17,812	)		—			(14,293	)		(17,812	)
Clean-up calls exercised		(8,226	)		(1,481	)		(3,790	)		(12,016	)		(3,956	)
Scheduled amortization		(38,747	)		(21,832	)		(22,860	)		(61,607	)		(42,982	)
Valuation/impairment		48,594			(40,424	)		(53,433	)		(4,839	)		(41,536	)

Balance at end of period	$	493,876		$	335,727		$	414,358		$	493,876		$	335,727

Although we have been hedging our MSRs using interest rate swaps on an economic basis, we elected not to designate fair value hedge accounting on MSRs prior to January 1, 2004, and they were carried at the lower of the initial carrying value, adjusted for amortization, or fair value. On January 1, 2004, we started to designate fair value hedges on certain selected tranches of MSRs. The changes in the fair value of the designated MSRs, and the fair value of the designated interest rate swaps, are recorded through income, if the hedging relationships are proven to be effective under the provisions of SFAS No. 133.

Each quarter, we evaluate the MSRs for impairment in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” We first stratify our MSRs based on predominant risk characteristics, underlying loan type, interest rate type, and interest rate band. Then, for each stratum, we determine the fair value of MSRs using our valuation models, which are validated quarterly by third party opinions of value. If the carrying value exceeds the fair value by individual stratum, a valuation allowance is recorded as a charge to service fee income in current earnings; however, if such impairment is determined to be other-than-temporary and the recoverability of the value is remote, we recognize a direct write-down. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the MSR asset and the related valuation allowance. During the quarter ended June 30, 2004, we recorded a positive valuation adjustment of $48.6 million due to reduced expected prepayments on our servicing portfolio. As of June 30, 2004, the valuation allowance on MSRs totaled $70.5 million.


	*AAA-Rated and Agency Interest-Only Strips and Residuals*

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

A summary of the activity in the AAA-rated and agency interest-only strips and residual securities portfolios for the three and six months ended June 30, 2004 and 2003, and for the three months ended March 31, 2004, follows:



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2004			2003			2004			2004			2003


			(Dollars in thousands)
AAA-rated and agency interest-only securities
	Beginning balance		$	153,460		$	157,775		$	148,275		$	148,275		$	188,043
	Retained investments from securitizations			13,180			12,327			35,777			48,957			26,347
	Transfer from MSRs			14,293			17,812			—			14,293			17,812
	Sales(1)			(15,171	)		—			—			(15,171	)		—
	Clean-up calls exercised			(1,655	)		(7,077	)		(1,151	)		(2,806	)		(19,125	)
	Cash received, net of accretion			(12,240	)		(13,705	)		(12,200	)		(24,440	)		(27,834	)
	Valuation gains (losses) before hedges			14,932			(29,932	)		(17,241	)		(2,309	)		(48,043	)

		Ending balance	$	166,799		$	137,200		$	153,460		$	166,799		$	137,200

Residual securities
	Beginning balance		$	61,324		$	76,435		$	56,157		$	56,157		$	77,757
	Retained investments from securitizations			11,827			(198	)		16,507			28,334			13,824
	Sales			—			—			—			—			(10,525	)
	Clean-up calls exercised			—			—			159			159			—
	Cash received, net of accretion			(3,706	)		(6,113	)		(11,249	)		(14,955	)		(12,920	)
	Valuation gains (losses) before hedges			3,187			(6,029	)		(250	)		2,937			(4,041	)

		Ending balance	$	72,632		$	64,095		$	61,324		$	72,632		$	64,095

(1) Represents the AAA-rated interest-only security that was created during the first quarter in connection with a private-label securitization transaction and subsequently sold in the second quarter.

Valuation of Servicing-Related Assets

MSRs, AAA-rated and agency interest-only strips and residual securities are recorded at fair market value. MSRs, except for certain tranches for which we have applied hedge accounting, are further subject to the lower of cost or market limitations. Relevant information and assumptions used to value the Company’s

servicing related assets and residual securities at June 30, 2004, March 31, 2004, and December 31, 2003 are shown below.



	Actual															Valuation Assumptions

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


	(Dollars in thousands)
June 30, 2004
AAA-rated/agency interest- only strips	$	166,799	$	16,280,985		6.55	%		0.38	%		43.0	%		2.70		16.7	%		23.3	%		10.8	%		N/A

Prime residual securities	$	20,059	$	2,320,207		6.88	%		2.31	%		63.5	%		0.37		32.2	%		37.3	%		16.9	%		0.5	%
Subprime and HELOC residual securities(2)		52,574	$	1,843,879		7.43	%		4.35	%		40.6	%		0.66		35.8	%		32.2	%		21.7	%		2.3	%

Total non-investment grade residual securities	$	72,633

MSRs	$	493,876	$	34,618,427		6.15	%		0.32	%		35.6	%		4.46		16.2	%		15.9	%		11.4	%		N/A

March 31, 2004
AAA-rated/agency interest- only strips	$	153,146	$	15,253,063		6.68	%		0.43	%		33.7	%		2.34		20.1	%		35.9	%		9.1	%		N/A

Prime residual securities	$	18,875	$	2,210,176		6.94	%		1.89	%		55.6	%		0.45		27.5	%		37.6	%		15.9	%		0.5	%
Subprime and HELOC residual securities(2)		42,448	$	1,545,047		7.69	%		4.21	%		35.4	%		0.65		38.2	%		38.7	%		21.5	%		2.3	%

Total non-investment grade residual securities	$	61,323

MSRs	$	414,358	$	32,121,562		6.36	%		0.32	%		29.2	%		4.03		18.9	%		32.1	%		9.0	%		N/A

December 31, 2003
AAA-rated/agency interest- only strips	$	148,275	$	14,740,915		6.90	%		0.38	%		34.0	%		2.65		17.2	%		35.5	%		9.8	%		N/A

Prime residual securities	$	23,518	$	2,406,030		7.00	%		1.48	%		60.0	%		0.66		26.3	%		36.0	%		15.8	%		0.5	%
Subprime residual securities		32,639	$	1,286,694		8.65	%		4.34	%		38.4	%		0.58		33.4	%		32.9	%		23.6	%		2.3	%

Total non-investment grade residual securities	$	56,157

MSRs	$	443,688	$	30,773,545		6.53	%		0.32	%		31.0	%		4.51		16.8	%		31.5	%		10.0	%		N/A

(1) As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.09% and 1.41% for prime and subprime residuals, respectively, at June 30, 2004.

(2) As of June 30, 2004, subprime and HELOC residual securities include residuals from the securitization of home equity loans in the amount of $23 million. Although our HELOC loans are made to high credit quality, prime borrowers, the assumptions on HELOC-related residuals are similar to subprime as they are second trust deed loans.

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

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

The lifetime prepayment speed assumptions incorporate expectations of future rates implied by the market forward LIBOR/swap curve. In contrast, the refinance incentive reflected in short term prepayment speeds incorporates recent actual mortgage current coupon information and generally will be higher than lifetime speeds due to aging and burnout effects of the portfolio; however, three-month projected prepayment speeds for the MSRs dropped considerably compared to the first quarter in response to an increase in 10-year swap rates of approximately 80 basis points from the first quarter. Substantial new MSR capitalization further contributed to the overall decrease in expected short term speeds.

Similar to the decrease in three-month prepayment speeds, the lifetime prepayment speed assumptions for subprime and HELOC residual securities and MSRs have dropped compared to March 31, 2004, due to an increase in 10-year swap rates from the first quarter. However, the lifetime prepayment speed assumptions for prime residual securities have increased from that of the first quarter 2004 as they are predominantly collateralized by ARM loans that tend to have higher prepayment speeds. The discount rate assumptions increased reflecting the increase in benchmark rates and the extension of the expected life of the underlying loans.


	*Hedging Interest Rate Risk on Servicing-Related Assets*

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

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

We recorded a positive $48.6 million valuation adjustment to increase our mortgage servicing asset during the second quarter of 2004 as a result of increasing long-term interest rates; however, this increase was more than offset by losses of $67.5 million on our related hedging instruments. Several factors contributed to the net valuation loss in this quarter. Prepayment speeds experienced in the portfolio during the second quarter were faster than projected as the lower rates during the first quarter of this year resulted in significantly higher levels of prepayments in the second quarter than anticipated. In addition, our hedges were negatively impacted by market volatility rates reaching multi-year lows during the quarter, and a flattening of the yield curve.

Our portfolio retention activities contributed to the increased prepayments during the quarter. The positive benefits of these activities are reflected in our segment results and in the table on page 32, as these benefits are realized in higher net interest income and gain on sale results. In line with our expectations, we have observed a slowing of prepayment speeds more recently, and as a result, we currently expect improved performance in our servicing segment in the second half of 2004.

The following table breaks out the components of service fee expense and the net loss on mortgage-backed securities.



			Three Months Ended									Six Months Ended

			June 30,			June 30,			March 31,			June 30,			June 30,
			2004			2003			2004			2004			2003


			(Dollars in thousands)
Service fee (expense) income:
	Gross service fee income		$	29,879		$	25,510		$	28,080		$	57,959		$	49,567
	Amortization			(38,747	)		(21,832	)		(22,860	)		(61,607	)		(42,982	)

	Service fee (expense) income, net of amortization			(8,868	)		3,678			5,220			(3,648	)		6,585
	Valuation adjustments on MSRs			48,594			(40,424	)		(53,433	)		(4,839	)		(41,536	)
	Hedge (loss) gain on MSRs			(67,533	)		35,345			45,069			(22,464	)		35,933

		Total service fee (expense) income	$	(27,807	)	$	(1,401	)	$	(3,144	)	$	(30,951	)	$	982

Net loss on securities:
	Realized gain on available for sale securities		$	631		$	2,022		$	900		$	1,531		$	2,022
	Impairment on available for sale securities			(565	)		(808	)		(101	)		(666	)		(1,388	)
	Unrealized gain (loss) on AAA-rated and agency interest-only and residual securities			18,119			(35,962	)		(17,492	)		627			(52,085	)
	Net (loss) gain on trading securities and other instruments used to hedge AAA-rated and agency interest-only and residual securities			(21,599	)		25,490			11,706			(9,893	)		35,283

		Total loss on mortgage-backed securities, net	$	(3,414	)	$	(9,258	)	$	(4,987	)	$	(8,401	)	$	(16,168	)

Total Clean-Up Call and Retention Program Income			$	17,199		$	16,087		$	21,192		$	38,391		$	26,987

The income from the clean-up call and retention programs is recognized as a component of gain on sale and net interest income in the Investment Portfolio Group’s mortgage banking activities. As shown in our segment results on page 12, the effect of the clean-up call and retention program activities allowed the mortgage servicing business to generate positive returns during the historical refinance boom periods, with the exception of the current quarter.

The income from the clean-up call and retention programs totaled $17.2 million during the second quarter of 2004, a decrease of $4.0 million compared to the quarter ended March 31, 2004. The reduction is primarily due to the decrease in net interest income as the remaining clean-up call loans and loans acquired through retention programs had lower weighted average coupon rates.

As master servicer for our various securitizations, we maintain the right to call selected transactions when the outstanding loan balances in the securitization trust decline to a specified level, typically 10% of the original collateral balance. During the quarter ended June 30, 2004, we sold approximately $104.0 million of called loans with a pretax gain of $2.5 million, and $450.2 million of loans acquired through retention programs for a pretax gain of $11.1 million. We expect to exercise our option to call additional loans of approximately $221 million during the remainder of 2004, the exact timing and amount of which is dependent upon the future interest rate environment and borrower prepayment behavior.

Mortgage loan servicing provides a key advantage to mortgage originators in a declining interest rate environment, as there is an existing base of customers that could potentially be in the market for a refinance mortgage. The gains from providing a new mortgage to an existing customer, serve to mitigate the decline in value of the mortgage servicing asset for the early prepayment of the original loan. Prior to the third quarter of 2003, servicing referrals and direct marketing to IndyMac’s servicing customers was performed by the consumer direct (B2C) segment. IndyMac began to transition this customer retention activity to the mortgage servicing segment beginning in the third quarter of last year and completed this transition in the second quarter of this year. In order to evaluate the overall profitability of the servicing segment, we believe it is important to view the profitability including all of the retention activities performed at the Company, both by the consumer direct segment and the mortgage servicing segment.

When looked at as a whole, the retention activities significantly enhance the servicing returns. The second quarter of 2004 is the first quarter in which IndyMac has suffered a loss in its servicing activities net of the retention profits. The table below shows the total return on servicing and retained assets including an estimate of the consumer direct retention profits.



			Three Months Ended

			June 30,			June 30,			Percent			March 31,			Percent
			2004			2003			Change			2004			Change


			(Dollars in thousands)
Net revenues:
	Servicing-related assets segment		$	(9,869	)	$	10,835			(191	)%	$	16,655			(159	)%
	B2C servicing retention revenue			10,018			16,958			(41	)%		11,182			(10	)%

		Total net revenues		149			27,793			(99	)%		27,837			(99	)%
Operating expenses:
	Servicing-related assets segment			11,278			9,180			23	%		9,890			14	%
	B2C servicing retention revenue			4,838			7,857			(38	)%		4,651			4	%

		Total operating expenses		16,116			17,037			(5	)%		14,541			11	%
Earnings before tax				(15,967	)		10,756			(248	)%		13,296			(220	)%

Net earnings			$	(9,660	)	$	6,507			(248	)%	$	8,044			(220	)%

Average capital allocated:
	Servicing-related assets segment		$	205,192		$	195,570			5	%	$	200,874			2	%
	B2C servicing retention revenue			6,719			10,912			(38	)%		6,460			4	%

		Total average capital	$	211,911		$	206,482			3	%	$	207,334			2	%

ROE				(18	)%		13	%		(238	)%		16	%		(213	)%

Construction Lending

IndyMac provides construction financing for individual consumers who are in the process of building their own home (consumer construction) and for residential subdivision developers (builder construction). With respect to consumer construction, the primary product is a construction-to-permanent residential mortgage loan. This product provides financing for the 9 to 12 month term of construction and automatically converts to a permanent mortgage loan at the end of construction. As a result, this product represents a hybrid activity between our portfolio lending activities and mortgage banking activities. The Company earns net interest income during the construction phase. These loans are typically fixed-rate loans. When the loan converts to permanent status the loan is transferred into the Company’s pipeline of mortgage loans held for sale. Consumer construction loan originations grew 26% from the first quarter of 2004 and 47% over the same quarter of 2003, as we continue to take advantage of the strong “new home” purchase market. Overall, HCL is ranked as the second largest custom residential lender in the nation and the largest in California. Consumer construction loans outstanding at June 30, 2004, were $1.3 billion, up 14% compared to the amount at December 31, 2003.

With respect to builder construction loans, our activities have been increasingly focused on those homebuilders that provide our mortgage loans to their customers when they sell the completed residence. Builder construction loans are typically based on prime rates. During the second quarter 2004, we entered into new tract construction commitments of $304 million, up 28%, or $67 million, from the second quarter 2003. Builder loans outstanding at June 30, 2004, including construction and land and other mortgage loans, totaled $738.9 million, a $133.7 million, or 22% increase compared to December 31, 2003. A substantial portion of our builder construction loans is secured by corporate or personal guarantees of the builders as well as the underlying real estate.

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



	As of


	June 30, 2004						December 31, 2003

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


				(Dollars in thousands)
Construction loans	$	1,301,688		$	561,538		$	1,145,526		$	484,397
Land and other mortgage loans	$	73,063		$	177,337		$	87,045		$	120,751
Outstanding commitments	$	2,335,273		$	1,329,717		$	2,091,853		$	1,120,893
Average construction loan commitment	$	389		$	2,467		$	391		$	3,046
Non-performing loans		0.74	%		1.24	%		0.78	%		1.60	%
Yield		5.66	%		6.44	%		5.81	%		6.63	%
Fixed-rate loans		95	%		0	%		94	%		1	%
Adjustable-rate loans		5	%		98	%		6	%		97	%
Hybrid adjustable-rate loans		0	%		2	%		0	%		2	%

Additional Information as of June 30, 2004


		Consumer				Builder
		Construction				Construction
		Loans				Loans

Average loan-to-value ratio(1)			74	%			73	%
Average FICO score(2)			706				N/A
Geographic distribution
	Southern California		30	%	Southern California		45	%
	Northern California		18	%	Northern California		22	%
	New York		5	%	Illinois		12	%
	Hawaii		5	%	Florida		7	%
	Florida		4	%	Massachusetts		4	%
	Colorado		3	%
	Connecticut		3	%
	Washington		2	%
	New Jersey		2	%
	Nevada		2	%
	Other (each individually less than 2%)		26	%	Other (each individually less than 2%)		10	%

	Total Consumer Construction		100	%	Total Builder Construction		100	%

(1) The average loan-to-value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at June 30, 2004.

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

For information related to the Company’s balance of non-performing assets and related credit reserves, see discussion in the “Credit Risk and Reserves” section at page 48.

HELOC Portfolio

Our managed HELOC portfolio reached the $1 billion level during the second quarter 2004. The portfolio grew 50% during the first half of the year from $711.5 million at December 31, 2003, to $1.1 billion at June 30, 2004, including the HELOC securitized servicing portfolio. The majority of the HELOC production was driven by our internal channels and produced concurrently with a first mortgage.

During the first quarter 2004, the Company financed $500 million in HELOC loans through a securitization trust. The trust issued AAA-rated asset-backed certificates that are guaranteed by a third party insurer. The Company pledged the certificates to secure $500 million of nonrecourse debt. As a result of this transaction, the Company recharacterized the net book value of the HELOCs as securities available for sale and servicing rights. The nonrecourse notes are reflected in other borrowings. The Company recognized no gain or loss on this secured financing transaction. The primary objectives of these transactions were to (1) lower our cost of funds, (2) improve our liquidity profile, and (3) improve our risk profile through the use of mortgage insurance.

On June 30, 2004, we reclassified $342 million of HELOC loans, representing the planned amount of loans to be securitized in the third quarter 2004, from held for investment to held for sale on the consolidated balance sheet. This reclassification did not result in any basis adjustment to the loans and had no impact on second quarter earnings.

The following table presents information on the combined HELOCs held for sale and held for investment as of and for the three months ended June 30, 2004, March 31, 2004, and December 31, 2003. All HELOC loans are adjustable rate loans and indexed to the prime rate.


	June 30,			March 31,			December 31,
	2004			2004			2003


	(Dollars in thousands)
Outstanding balance	$	559,406		$	322,351		$	711,494
Outstanding commitments(1)	$	1,095,532		$	638,210		$	1,189,213
Average spread over prime		1.99	%		2.07	%		1.92	%
Average FICO score		716			711			710
Average CLTV ratio(2)		75	%		76	%		77	%


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


		(Dollars in thousands)
>= 96% &< = 100%		$	25,492	$	64		3.06	%		722		1.47	%
>= 91% &< = 95%			65,322		61		3.08	%		715		0.76	%
>= 81% &< = 90%			188,316		63		2.52	%		699		1.40	%
>= 71% &< = 80%			154,098		98		1.31	%		715		0.95	%
<= 70%			126,178		99		1.23	%		733		0.53	%

	Total	$	559,406	$	80		1.99	%		716		1.00	%

(1) On funded loans.

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

NET INTEREST INCOME

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



		Three Months Ended


		June 30, 2004							June 30, 2003							March 31, 2004

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


		(Dollars in thousands)
Securities		$	2,877,174	$	34,365		4.80	%	$	1,553,656	$	16,111		4.16	%	$	2,105,468	$	26,855		5.13	%
Loans held for sale			5,282,806		69,395		5.28	%		3,467,140		52,460		6.07	%		3,688,650		54,746		5.97	%
Mortgage loans held for investment			5,424,545		56,827		4.21	%		3,173,541		37,201		4.70	%		5,608,258		58,042		4.16	%
Builder construction and income property			546,597		8,820		6.49	%		570,944		9,768		6.86	%		506,668		8,039		6.38	%
Consumer construction			1,208,522		17,003		5.66	%		899,204		14,639		6.53	%		1,140,371		15,995		5.64	%
Investment in Federal Home Loan Bank stock and other			329,231		3,898		4.76	%		244,552		2,298		3.77	%		320,321		2,882		3.62	%

	Total interest-earning assets		15,668,875		190,308		4.88	%		9,909,037		132,477		5.36	%		13,369,736		166,559		5.01	%

Other			1,317,607							972,687							1,178,636

	Total assets	$	16,986,482						$	10,881,724						$	14,548,372

Interest-bearing deposits		$	4,076,509		23,697		2.34	%	$	2,996,427		21,950		2.94	%	$	3,838,511		22,482		2.36	%
Advances from Federal Home Loan Bank			5,775,468		33,919		2.36	%		3,588,032		28,308		3.16	%		5,207,135		30,920		2.39	%
Other borrowings			4,800,920		25,714		2.15	%		2,276,959		14,704		2.59	%		3,532,004		19,224		2.19	%

	Total interest-bearing liabilities		14,652,897		83,330		2.29	%		8,861,418		64,962		2.94	%		12,577,650		72,626		2.32	%

Other			1,206,297							1,115,755							927,400

	Total liabilities		15,859,194							9,977,173							13,505,050
	Stockholders’ equity		1,127,288							904,551							1,043,322

	Total liabilities and stockholders’ equity	$	16,986,482						$	10,881,724						$	14,548,372

Net interest income				$	106,978						$	67,515						$	93,933

Net interest spread							2.59	%						2.42	%						2.69	%

Net interest margin							2.75	%						2.73	%						2.83	%



		Six Months Ended


		June 30, 2004							June 30, 2003

		Average				Yield			Average				Yield
		Balance		Interest		Rate			Balance		Interest		Rate


		(Dollars in thousands)
Securities		$	2,491,321	$	61,220		4.94	%	$	1,737,151	$	37,072		4.30	%
Loans held for sale			4,485,728		124,141		5.57	%		3,167,344		97,661		6.22	%
Mortgage loans held for investment			5,516,402		114,868		4.19	%		2,966,721		73,164		4.97	%
Builder construction and income property			526,633		16,860		6.44	%		570,915		19,488		6.88	%
Consumer construction			1,174,446		32,998		5.65	%		869,488		29,035		6.73	%
Investment in Federal Home Loan Bank stock and other			324,776		6,780		4.20	%		212,910		4,254		4.03	%

	Total interest-earning assets		14,519,306		356,867		4.94	%		9,524,529		260,674		5.52	%

Other			1,248,121							933,665

	Total assets	$	15,767,427						$	10,458,194

Interest-bearing deposits		$	3,957,510		46,179		2.35	%	$	2,866,625		43,638		3.07	%
Advances from Federal Home Loan Bank			5,491,302		64,839		2.37	%		3,148,520		53,866		3.45	%
Other borrowings			4,166,462		44,938		2.17	%		2,544,684		32,630		2.59	%

	Total interest-bearing liabilities		13,615,274		155,956		2.30	%		8,559,829		130,134		3.07	%

Other			1,066,848							1,010,978

	Total liabilities		14,682,122							9,570,807
	Stockholders’ equity		1,085,305							887,387

	Total liabilities and stockholders’ equity	$	15,767,427						$	10,458,194

Net interest income				$	200,911						$	130,540

Net interest spread							2.64	%						2.45	%

Net interest margin							2.78	%						2.76	%

The net interest margin during the second quarter 2004 was 2.75%, a decline from 2.83% for the first quarter 2004. The decrease is primarily due to a 13 basis point decline in yield on interest-earning assets. The lower yield on interest-earning assets was the result of an increase in the mix of monthly adjustable 12-MAT loans held for sale that carry a lower yield in the initial period, generally the first month.

The dollar amounts of interest income and interest expense fluctuate depending upon changes in the average balances and interest rates of interest-earning assets and interest-bearing liabilities. The following table details changes attributable to (i) changes in volume (changes in average outstanding balances multiplied by the prior period’s rate), (ii) changes in the rate (changes in the average interest rate multiplied

by the prior period’s volume), and (iii) changes in rate/volume (“mix”) (changes in rates times the changes in volume).



			Three Months Ended June 30, 2004 vs. 2003


			Increase/(Decrease) Due to

			Volume			Rate			Mix			Total Change


			(Dollars in thousands)
Interest income
	Mortgage-backed securities		$	13,643		$	2,497		$	2,114		$	18,254
	Loans held for sale			27,254			(6,791	)		(3,528	)		16,935
	Mortgage loans held for investment			26,213			(3,864	)		(2,723	)		19,626
	Builder construction and income property			(442	)		(530	)		24			(948	)
	Consumer construction			4,983			(1,953	)		(665	)		2,365
	Investment in Federal Home Loan Bank stock and other			787			605			207			1,599

		Total interest income		72,438			(10,036	)		(4,571	)		57,831
Interest expense
	Interest-bearing deposits			7,831			(4,484	)		(1,600	)		1,747
	Advances from Federal Home Loan Bank			17,133			(7,178	)		(4,344	)		5,611
	Other borrowings			16,214			(2,475	)		(2,729	)		11,010

		Total interest expense		41,178			(14,137	)		(8,673	)		18,368

		Net interest income	$	31,260		$	4,101		$	4,102		$	39,463



			Six Months Ended June 30, 2004 vs. 2003


			Increase/(Decrease) Due to

			Volume			Rate			Mix			Total Change


			(Dollars in thousands)
Interest income
	Mortgage-backed securities		$	16,242		$	5,497		$	2,409		$	24,148
	Loans held for sale			41,035			(10,249	)		(4,306	)		26,480
	Mortgage loans held for investment			63,257			(11,559	)		(9,993	)		41,705
	Builder construction and income property			(1,462	)		(1,262	)		95			(2,629	)
	Consumer construction			10,292			(4,673	)		(1,656	)		3,963
	Investment in Federal Home Loan Bank stock and other			2,253			178			94			2,525

		Total interest income		131,617			(22,068	)		(13,357	)		96,192
Interest expense
	Interest-bearing deposits			16,774			(10,281	)		(3,952	)		2,541
	Advances from Federal Home Loan Bank			40,342			(16,793	)		(12,577	)		10,972
	Other borrowings			20,944			(5,260	)		(3,376	)		12,308

		Total interest expense		78,060			(32,334	)		(19,905	)		25,821

		Net interest income	$	53,557		$	10,266		$	6,548		$	70,371

OVERALL INTEREST RATE RISK MANAGEMENT

In addition to our hedging activities to mitigate the interest rate risk in our pipeline of mortgage loans held for sale and our investment in servicing-related assets, we perform extensive overall interest rate risk analyses. The primary measurement tool used to evaluate interest rate risk over the comprehensive balance

sheet is a net portfolio value (“NPV”) analysis that simulates the effects changes in interest rates have on the fair value of stockholders’ equity.

The following table sets forth the NPV and change in NPV that we estimate might result from a 100 basis point change in interest rates as of June 30, 2004, and December 31, 2003. Our NPV model has been built to focus on the Bank alone as the $256 million of assets at the holding company have very little interest rate risk exposure.



		June 30, 2004								December 31, 2003


				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		$	329,377	$	329,377		$	329,377		$	111,203	$	111,203		$	111,203
Trading securities			302,950		286,052			301,068			206,484		180,197			228,880
Available for sale securities			2,046,266		2,094,812			1,988,411			1,611,958		1,662,715			1,553,103
Loans held for sale			3,985,286		4,006,073			3,909,136			2,573,248		2,606,028			2,519,059
Loans held for investment			6,978,583		7,044,745			6,877,960			7,396,475		7,448,389			7,304,464
MSRs			495,086		393,432			548,086			443,688		311,777			534,672
Other assets			708,404		695,147			718,896			683,213		697,356			669,062
Derivatives			92,317		(33,952	)		224,760			106,119		91,598			169,246

	Total assets	$	14,938,269	$	14,815,686		$	14,897,694		$	13,132,388	$	13,109,263		$	13,089,689

Deposits		$	4,745,202	$	4,789,176		$	4,704,339		$	4,367,400	$	4,404,900		$	4,335,433
Advances from Federal Home Loan Bank			5,567,651		5,602,862			5,533,274			4,949,477		4,979,962			4,919,147
Other borrowings			2,885,675		2,886,937			2,884,415			2,438,695		2,440,538			2,436,665
Other liabilities			371,885		338,708			400,730			156,711		156,800			156,599

	Total liabilities		13,570,413		13,617,683			13,522,758			11,912,283		11,982,200			11,847,844

Stockholders’ equity (NPV)		$	1,367,856	$	1,198,003		$	1,374,936		$	1,220,105	$	1,127,063		$	1,241,845

% Change from base case					(12.42	)%		0.52	%				(7.63	)%		1.78%

The increase in the net present value of equity from December 31, 2003, to June 30, 2004, is primarily due to the net income of $70 million for the first six months of 2004, and the $80 million capital contributed by the holding company to the Bank from the equity offering in June. See “Issuance of Common Stock” at page 57 for further information regarding the offering. The June 30, 2004 results indicate that the Bank is better positioned for rising rates in an up 100 basis point scenario. It should be noted that this analysis does not reflect changes in volumes and profits from our mortgage banking operations that would be expected to result from the simulated change in interest rate environment.

The assumptions inherent in our interest rate shock models include expected valuation changes in an instantaneous and parallel interest rate shock and assumptions as to the degree of correlation between the hedges and hedged assets and liabilities. These assumptions may not adequately reflect factors such as the spread-widening or spread-tightening risk among the changes in rates on Treasury, LIBOR/swap curve and mortgages. In addition, the sensitivity analysis described in the prior paragraph is limited by the fact that it is performed at a particular point in time and does not incorporate other factors that would impact our financial performance in these scenarios, 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.

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

CREDIT RISK AND RESERVES

GENERAL

The following table summarizes the Company’s allowance for loan losses/credit discounts and non-performing assets as of June 30, 2004.


											Total
											Reserves as a						QTD Net			YTD Net
							Allowance		Credit		Percentage			Non-			Charge			Charge
							For Loan		Discounts		of Book			Performing			Offs/Net			Offs/Net
Type of Loan					Book Value		Losses		(2)		Value			Assets			REO (Gains)			REO (Gains)


					(Dollars in thousands)
Held for investment portfolio
SFR mortgage loans and HELOCs					$	4,796,027	$	18,596	$	—		0.39	%	$	12,625		$	1,120		$	2,046
Land and other mortgage						182,352		3,170		—		1.74	%		—			—			—
Builder construction and income property						568,970		13,058		—		2.30	%		9,162			10			10
Consumer construction						1,301,688		10,464		—		0.80	%		10,203			329			404

	Total core held for investment loans					6,849,037		45,288		—		0.66	%		31,990			1,459			2,460
		Discontinued product lines(1)				61,334		7,508		—		12.24	%		6,024			1,071			2,089

			Total held for investment portfolio			6,910,371	$	52,796		—		0.76	%		38,014			2,530			4,549

Held for sale portfolio						4,026,779			$	14,572		0.36	%		47,823			—			—

				Total loans	$	10,937,150									85,837		$	2,530		$	4,549

Foreclosed assets
Core portfolios															26,533		$	(139	)	$	(599	)
Discontinued product lines															783			(57	)		160

Total foreclosed assets															27,316		$	(196	)	$	(439	)

Total non-performing assets														$	113,153

Total non-performing assets as a percentage of total assets															0.73	%

(1) Discontinued product lines include manufactured home loans and home improvement loans.

(2) The amount represents the lower of cost or market adjustments on non-performing loans in the held for sale portfolio.

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


				June 30,			June 30,			December 31,
				2004			2003			2003


				(Dollars in thousands)
Loans held for investment
	Portfolio loans
		SFR mortgage loans		$	12,625		$	11,059		$	12,414
		Land and other mortgage loans			—			2,214			71
		Builder construction			9,162			1,605			9,704
		Consumer construction			10,203			10,654			8,954

			Total portfolio non-performing loans		31,990			25,532			31,143
	Discontinued product lines				6,024			7,126			6,449

Total non-performing loans held for investment					38,014			32,658			37,592
Non-performing loans held for sale					47,823			30,054			38,855

	Total non-performing loans				85,837			62,712			76,447
Foreclosed assets					27,316			31,028			23,677

	Total non-performing assets			$	113,153		$	93,740		$	100,124

Total non-performing assets to total assets					0.73	%		0.88	%		0.76	%

Allowance for loan losses to non-performing loans held for investment					139	%		153	%		140	%

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



			Three Months Ended						Six Months Ended

			June 30,			June 30,			June 30,			June 30,
			2004			2003			2004			2003


			(Dollars in thousands)
Core portfolio loans
Balance, beginning of period			$	45,043		$	41,524		$	45,644		$	41,314
Provision for loan losses				1,701			5,000			2,101			6,525
Charge-offs net of recoveries
		SFR mortgage loans		(1,120	)		(691	)		(2,046	)		(1,857	)
		Builder construction		(10	)		(3,066	)		(10	)		(3,066	)
		Consumer construction		(329	)		(421	)		(404	)		(570	)

	Charge-offs net of recoveries			(1,459	)		(4,178	)		(2,460	)		(5,493	)
Balance, end of period				45,285			42,346			45,285			42,346



			Three Months Ended						Six Months Ended

			June 30,			June 30,			June 30,			June 30,
			2004			2003			2004			2003


			(Dollars in thousands)
Discontinued product lines
Balance, beginning of period				7,083			8,722			7,001			9,447
Provision for loan losses				1,499			1,900			2,599			3,475
	Charge-offs net of recoveries			(1,071	)		(2,926	)		(2,089	)		(5,226	)

Balance, end of period				7,511			7,696			7,511			7,696

		Total allowance for loan losses	$	52,796		$	50,042		$	52,796		$	50,042

Annualized charge-offs to average loans				0.14	%		0.61	%		0.13	%		0.49	%
Annualized charge-offs to quarterly production				0.10	%		0.36	%		0.05	%		0.28	%
Core portfolio loans only:
Net charge-offs to average loans				0.08	%		0.37	%		0.07	%		0.24	%
Net charge-offs to quarterly production				0.06	%		0.20	%		0.03	%		0.16	%

Total credit-related reserves, including the allowance for loan losses and the market valuation reserves, amounted to $67.4 million at June 30, 2004, compared to $66.6 million at December 31, 2003. As of June 30, 2004, the allowance for loan losses of $52.8 million for loans held for investment, represented 0.76% of total loans held for investment. This compares to an allowance for loan losses of $52.7 million, or 0.71% of total loans held for investment, at December 31, 2003. Charge-offs improved significantly during the second quarter 2004, both in our core portfolio loans and discontinued product lines. Total second quarter net charge-offs of $2.5 million decreased 64% relative to the second quarter 2003. In relation to annualized charge-offs, our coverage improved year-over-year with the allowance representing 5.2 times of the annualized charge-offs for the second quarter 2004 compared with 1.8 times of the annualized charge-offs for the second quarter 2003.

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 recorded the balance of our assets acquired in foreclosure or by deed in lieu of foreclosure at estimated net realizable value. The ratio of non-performing assets to total assets also improved from 0.76% at December 31, 2003 to 0.73% at June 30, 2004. Total non-performing assets amounted to $113.2 million at June 30, 2004 as compared to $100.1 million at December 31, 2003. The increase in non-performing loans was driven by a $9.0 million increase in mortgage loans held for sale primarily due to the loans acquired through clean-up calls exercised during the first half of 2004. The exercises of the clean-up call options have also driven the increase in foreclosed assets.

With respect to the portfolio of loans held for investment in IndyMac’s core businesses, the allowance for loan losses at June 30, 2004 was $45.2 million, or 0.66% of the loan balance, compared to the 0.62% of total loan balance at December 31, 2003.

With respect to IndyMac’s non-core liquidating portfolios, consisting primarily of manufactured housing and home improvement loans, net charge-offs totaled $1.1 million during the second quarter of 2004, down from the $2.9 million of net charge-offs on these portfolios during the second quarter of 2003. After provision for loan losses of $1.5 million, the allocated allowance for loan losses was $7.5 million, or 12.24% of the remaining principal balance of such liquidating portfolios, compared to the 10.07% reserve coverage at December 31, 2003.

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

products is representative of our judgments and assumptions at a specific point in time and may be reallocated in the future based on changes in performance and other circumstances.

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

With respect to mortgage loans held for sale, IndyMac does not provide an allowance for loan losses, pursuant to the applicable accounting rules. Instead, a component for credit risk related to loans held for sale is embedded in the market valuation for these loans. Market valuation adjustments on loans held for sale totaled $14.6 million at June 30, 2004.

SECONDARY MARKET RESERVE

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


			Amount				Percentage
			Repurchased		Total Sold		Repurchased


			(Dollars in millions)
Loans Sold:
	GSEs and whole loans		$	127.1	$	49,043		0.26	%
	Securitization trusts			9.3		61,525		0.02	%

		Total Loans Sold	$	136.4	$	110,568		0.12	%

The Company maintains secondary market reserves for losses that arise in connection with loans that we are required to repurchase from whole loan sales or securitization transactions. These reserves, which totaled $37.3 million at June 30, 2004, have two general components: reserves for repurchases arising from representation and warranty claims, and reserves for disputes with investors and vendors with respect to contractual obligations pertaining to mortgage operations. The table below shows the activity in the reserves during the three and six months ended June 30, 2004.


	Three			Six
	Months			Months


	(Dollars in thousands)
Balance, beginning of period	$	34,000		$	34,000
Additions/provisions		7,493			15,979
Claims reimbursement and estimated discounts on loans held for sale/charge-offs		(5,223	)		(14,319	)
Recoveries on previous claims		980			1,590

Balance, June 30, 2004	$	37,250		$	37,250

Reserve levels are a function of expected losses based on actual pending claims and repurchase requests, historical experience, loan volume and loan sales distribution channels and the assessment of probable vendor or investor claims. While the ultimate amount of repurchases and claims is uncertain, management believes that the reserves are adequate. We will continue to evaluate the adequacy of our reserves and may continue to allocate a portion of our gain on sale proceeds to these reserves going forward. The entire balances of our secondary market reserves are included on the consolidated balance sheets as a component of other liabilities.

OPERATING EXPENSES

A summary of operating expenses follows:



	Three Months Ended						Six Months Ended

	June 30,		June 30,		March 31,		June 30,		June 30,
	2004		2003		2004		2004		2003


	(Dollars in thousands)
Salaries and related	$	64,231	$	57,030	$	63,038	$	127,269	$	110,125
Premises and equipment		9,938		8,138		9,593		19,531		16,444
Loan purchase costs		10,244		7,810		7,307		17,551		14,868
Professional services		5,844		5,086		5,073		10,917		9,696
Data processing		8,580		8,131		8,591		17,171		14,895
Office		5,758		5,860		5,979		11,737		11,120
Advertising and promotion		9,167		6,580		8,856		18,023		12,644
Operations and sale of foreclosed assets		1,419		794		2,135		3,554		1,750
Other		6,113		5,329		4,626		10,739		8,874

	$	121,294	$	104,758	$	115,198	$	236,492	$	200,416

General and administrative expenses, including salaries, increased during the quarter ended June 30, 2004, to $121.3 million, compared to $104.8 million during the same period in 2003. The increase was largely driven by increases in salaries, loan purchase costs, advertising and promotion, and infrastructure and technology related expenses as a result of the Company’s increased mortgage loan production and operational expansions. Total loan production increased 19% year over year, from $8.2 billion for the quarter ended June 30, 2003, to $9.7 billion for the quarter ended June 30, 2004. In a continuing effort to penetrate the market and gain market share, the Company also incurred costs to expand its sales force infrastructure with dedicated resources focused on new customer activation, customer training and support, and improving its conversion of loan submissions to fundings. As a result of the increased production volume and investments made in sales and customer service, the Company’s average full-time equivalent employees increased during the year by 16%, from 3,505 during the quarter ended June 30, 2003, to 4,061 during the quarter ended June 30, 2004. Additionally, the Company continues to increase its investment in direct marketing costs to further promote its new product offerings, subprime and HELOC products. Furthermore, the Company made investments in data processing costs to (1) enhance its quality controls and compliance structure to ensure continued improvement in asset quality and support the growth of higher margin products; (2) strengthen its technology platform; and (3) enhance its customer service response performance. In spite of the increase in total operating expense for the second quarter 2004, our efficiency ratio has improved from 58% for the second quarter 2003 to 56% for the second quarter 2004.

DIVIDEND POLICY

IndyMac’s Board of Directors declared a cash dividend of $0.32 per share for the third quarter of 2004, up 6.7% from the dividend declared and paid in the second quarter of this year. The cash dividend is payable September 9, 2004 to stockholders of record on August 12, 2004. The current dividend represents an annualized increase of 27% relative to the dividend declared on April 28, 2004, and IndyMac’s fifth consecutive quarterly dividend increase. Over this period of time, IndyMac has successfully increased its

dividend payout ratio to be more in line with other financial institution payout ratios, which range from 30% to 50%. Looking forward, IndyMac expects to continue to increase its dividend in accordance with its potential growth in earnings per share. As a result, IndyMac expects to increase future dividends within a targeted range between IndyMac’s long-term earnings per share growth goal of 15% and its historic earnings per share growth rate of 27% since 1992 under current management.

FUTURE OUTLOOK

On average, U.S. mortgage debt outstanding has grown approximately 7% to 8% per year over the last two decades and is projected, based on economic demographics, to continue this level of approximate growth. At this rate, mortgage debt outstanding roughly doubles every decade. We believe, based on our confidence in our employees, hybrid thrift/mortgage banking business model, capital strength and ability to gain market share, that we are positioned to grow earnings per share at a compounded growth rate of approximately 15% over the long run, or approximately double the rate of the industry. In fact, IndyMac’s historical track record has exceeded this target over the last eleven years with compounded annual growth of 27% under its current management team.

With that said, the past three years have been extraordinary years for the mortgage industry. Industry mortgage production has achieved historic highs as a result of historically low interest rates, which led to record refinancing of mortgages. The industry is in the midst of a major transition from these historic highs back to more normalized levels. The MBA is projecting that industry production will decline 33% in 2004. Given the significant industry transition, IndyMac expects that its earnings per share in 2004 could lag its long-term growth rate as we make this transition.

However, given IndyMac’s performance in the first half of 2004, our acquisition of Financial Freedom, our strong rate lock volume during the second quarter and continued strong pipeline of mortgage loans in process, solid customer growth, market share gains and balance sheet strength, we now expect that earnings per share will range from $3.35 to $3.55 in 2004, an increase of 11% to 18% over 2003 and an improvement from our prior range of $3.10 to $3.30 provided three months earlier.

The 2004 earnings projection above represents a pro forma number that excludes the $31.5 million, or $0.52 per share, impact to earnings and EPS for the change in industry accounting for rate locks pursuant to SAB 105 discussed earlier. Including the SAB 105 adjustment in the second quarter of 2004 the range for the full year 2004 is $2.83 to $3.03 per share.

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, mortgage-backed securities and MSRs. Our primary sources of funds used to meet these financing needs are loan sales and securitizations, deposits, advances from the Federal Home Loan Bank, borrowings 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, 2004, we had average total liquidity of $1,043 million, which is represented by unpledged liquid assets on hand plus amounts that may be immediately raised through the pledging of other available assets as collateral pursuant to committed financing facilities. On June 8, 2004, we issued 3.2 million shares of common stock, generating net cash proceeds of $96.52 million, a portion of which was utilized to finance the acquisition of Financial Freedom Holdings Inc. We anticipate using the remaining net proceeds for general corporate purposes, including, but not limited to,

continued asset growth for IndyMac Bank. 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, 2004, we sold 86% of our funded mortgage loans through three channels: (1) GSEs; (2) private label securitizations; and (3) whole loan sales. The remainder we retained in our investment portfolio. If any of our sales channels were disrupted, our liquidity could be negatively impacted. Disruptions in our whole loan sales and mortgage securitization transactions can occur as a result of the performance of our existing securitizations, as well as economic events or other factors beyond our control.

Deposits/ Retail Bank

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

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

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



		June 30, 2004					June 30, 2003					December 31, 2003

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


		(Dollars in thousands)
Non-interest-bearing checking		$	49,299		1	%	$	40,483		1	%	$	44,353		1	%
Interest-bearing checking			42,030		1	%		37,256		1	%		39,761		1	%
Savings			1,757,560		37	%		1,225,707		32	%		1,515,771		35	%
Custodial accounts			616,470		13	%		716,578		18	%		528,724		12	%

	Total core deposits		2,465,359		52	%		2,020,024		52	%		2,128,609		49	%
Certificates of deposit			2,293,196		48	%		1,883,461		48	%		2,222,164		51	%

	Total deposits	$	4,758,555		100	%	$	3,903,485		100	%	$	4,350,773		100	%

The increase in our savings deposits from $1,515.8 million at December 31, 2003 to $1,757.6 million at June 30, 2004, is mainly due to our competitive money market products.

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



		June 30, 2004					June 30, 2003					December 31, 2003

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


		(Dollars in thousands)
Branch		$	1,903,211		40	%	$	1,526,351		39	%	$	1,717,314		39	%
Telebanking			520,536		11	%		488,575		13	%		463,755		11	%
Internet			486,926		10	%		476,645		12	%		555,029		13	%
Money desk			1,231,412		26	%		695,336		18	%		1,085,951		25	%
Custodial			616,470		13	%		716,578		18	%		528,724		12	%

	Total deposits	$	4,758,555		100	%	$	3,903,485		100	%	$	4,350,773		100	%

Included in deposits at June 30, 2004, and December 31, 2003, were non-interest-bearing custodial accounts, primarily related to our GSE servicing portfolio, totaling $616.5 million and $528.7 million, respectively.

Advances from Federal Home Loan Bank

The Federal Home Loan Bank (“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 mortgage-backed securities are the principal collateral that may be used to secure these borrowings, although certain other types of loans and other assets may also be accepted pursuant to FHLB policies and statutory requirements. Currently, the Bank is approved for collateralized advances of up to $6.9 billion, of which $5.6 billion were outstanding at June 30, 2004. The FHLB offers several credit programs, each with its own fixed or floating interest rate, and a range of maturities.

Trust Preferred Securities and Warrants

On November 14, 2001, we completed an offering of Warrants and Income Redeemable Equity Securities (“WIRES”) to investors. Gross proceeds of the transaction were $175 million. The securities were offered as units consisting of a trust preferred security, issued by a trust formed by us, and a warrant to purchase IndyMac Bancorp’s common stock. In both the months of July and December 2003, we issued an additional $30 million of trust preferred securities, yielding 6.05% and 6.30%, respectively. The proceeds of these securities will also be used in operations. These securities did not contain any warrants on IndyMac Bancorp common stock.

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. Trust preferred debentures, representing the liabilities due from IndyMac Bancorp to IndyMac Capital Trusts, amounted to $184.0 million and $183.6 million at June 30, 2004, and December 31, 2003, respectively. These debentures are included in Other Borrowings on the consolidated balance sheets.

Other Borrowings, Excluding Trust Preferred Debentures

Other borrowings, excluding trust preferred debentures, consist of loans and securities sold under committed financing facilities and uncommitted agreements to repurchase, CMO collateral and notes payable. Total other borrowings increased to $3,479.9 million at June 30, 2004, from $2,438.5 million at December 31, 2003. The increase of $1,041.4 million was primarily the result of additional draws on our credit facilities to fund mortgage loan originations, the issuance of $500 million non-recourse AAA-rated HELOC-backed notes

during the first quarter 2004, and reductions of other borrowings that previously financed HELOC loans. Additionally, we continued to use borrowed funds to fund our asset growth during the first half of the year.

At June 30, 2004, we had $4.4 billion in committed financing facilities, of which $2.2 billion was utilized. For the second quarter 2004, we had an average of $763.8 million in operating liquidity 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, 2004, we were in compliance with all representations, warranties and financial covenants under our borrowing facilities.

PRINCIPAL USES OF CASH

In addition to the financing sources discussed above, cash uses are funded by net cash flows from operations, sales of mortgage-backed securities and principal and interest payments on loans and securities. The amounts of net acquisitions of loans held for sale and trading securities included as components of net cash used in operating activities totaled $3.1 billion during the six months ended June 30, 2004 and $1.3 billion during the six months ended June 30, 2003. 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 $211.3 million and $154.1 million for the six months ended June 30, 2004 and 2003, respectively. During the third quarter 2003, the Company started to purchase swaptions and more caps and floors to hedge certain liabilities and servicing-related assets. The net decrease in premiums for these derivative instruments totaled $30.1 million and none for the six months ended June 30, 2004 and 2003, respectively. The net cash provided by the Company’s operating activities before the activities for trading securities, loans held for sale and purchase of derivative instruments amounted to $181.2 million and $154.1 million for the six months ended June 30, 2004 and 2003, respectively.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss was $(15.1) million at June 30, 2004, compared to $(26.5) million at December 31, 2003. This change was a result of the increase in the fair value of the swaps and swaptions designated as cash flow hedges of floating rate borrowings, partially offset by the decline in fair value of securities classified as available for sale. It should be noted that accumulated other comprehensive loss does not include the increases in the fair value of loans held for investment that are funded by borrowings that are hedged by a portion of these interest rate swaps and swaptions. Accumulated other comprehensive loss is not a component of the determination of regulatory capital.

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to regulatory capital regulations administered by the federal banking agencies. In addition, as a condition to its approval of our acquisition of SGV Bancorp, Inc. in July 2000, the OTS required that the Bank hold Tier 1 (core) capital of at least 8% of adjusted total assets for three years following the consummation of the transaction and maintain a total risk-based capital position of at least 10% of total risk-weighted assets. This particular condition expired on July 1, 2003. As of June 30, 2004, the Bank met all of the requirements of a “well-capitalized” institution under the general regulatory capital regulations.

During 2001, the OTS issued guidance for subprime lending programs, which requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. The Company generally classifies all loans in a first lien position with a FICO score less than 620 and all loans in a second lien position with a FICO score less than 660 as subprime. Loans meeting this definition are supported by capital two times that of similar prime loans. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we

file with the OTS. As of June 30, 2004, subprime loans totaled $601.1 million as calculated for regulatory reporting purposes, of which $433.8 million were loans held for sale.

The following table presents the Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” at June 30, 2004. The impact of the additional risk-weighting criteria related to subprime loans had the effect of reducing IndyMac’s total risk-based capital by 63 basis points as noted in the table below.


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

Capital Ratios:
	Tangible		7.65	%		7.65	%		2.00	%
	Tier 1 core		7.65	%		7.65	%		5.00	%
	Tier 1 risk-based		12.54	%		11.94	%		6.00	%
	Total risk-based		13.10	%		12.47	%		10.00	%

We believe that, under current regulations, the Bank will continue to meet its “well-capitalized” minimum capital requirements in the foreseeable future. The Bank’s regulatory capital compliance could be impacted, however, by a number of factors, such as changes to applicable regulations, adverse action by our regulators, changes in the 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 the Bank to meet its future minimum capital requirements.

ISSUANCE OF COMMON STOCK

On June 8, 2004, we issued 3,200,000 shares of common stock at a market price of $31.75 through a public offering. On July 12, 2004, we issued an additional 130,000 shares of common stock at a market price of $31.75 upon the exercise of the underwriters’ over-allotment options. The cash proceeds from the initial closing, net of expenses, of $96.25 million were recorded as equity during the second quarter of 2004. The cash proceeds from the exercise of the over-allotment option will be similarly applied during the third quarter of 2004. Certain of the proceeds were used to finance the acquisition of Financial Freedom Holdings Inc. and the remaining proceeds are expected to be used for general corporate purposes, including, but not limited to, continued asset growth for IndyMac Bank.

SHARE REPURCHASES

In June 1999, our Board of Directors approved a $100 million share repurchase program, which has since been amended to increase to $500 million and include a special repurchase of 3,640,860 shares from Countrywide Credit Industries, Inc. (“Countrywide”). From the share repurchase program’s inception through December 31, 2002, we repurchased 28 million shares in open market transactions and from Countrywide at an average price of approximately $18.02 per share, for an aggregate investment of $504.4 million. At June 30, 2004, we had $63.6 million of remaining capacity to repurchase under the current authorization from the Board of Directors. No share repurchases under this program were made since December 31, 2002.

From time to time, we also repurchase shares from certain employees and officers at the then-current market price under the Company’s internal benefit programs. The following table summarizes the share repurchase activities from our employees and officers during the first half of 2004:


				Weighted Average
Months		Number of Shares		Price Per Share

January			15,275	$	29.84
February			—		—
March			2,177		35.23

	First Quarter Total		17,452		30.51

	Second Quarter Total		—		—
Six Months Total			17,452	$	30.51

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.

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 entity 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 $23.7 billion in loans owned by off-balance sheet trusts as of June 30, 2004. The trusts have issued bonds secured by these loans. We have no obligation to provide funding support to either the third party investors or the off-balance sheet trusts. The third party investors or the trusts generally have no recourse to our assets or us and have no ability to require us to repurchase their 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 whole loan sales or securitization transactions.

We often retain certain interests, which may include subordinated classes of securities, MSRs, AAA-rated and agency interest-only strips 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.

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

The following table summarizes our material contractual obligations as of June 30, 2004. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. There have been no material changes outside the ordinary course of our business in any specified contractual obligations during the second quarter 2004.



	Payment Due

	July 1, 2004		January 1,		January 1,
	through		2005 through		2008 through		After
	December 31,		December 31,		December 31,		December 31,
	2004		2007		2009		2009		Total


	(In thousands)
Deposits without a stated maturity	$	2,465,359	$	—	$	—	$	—	$	2,465,359
Custodial Accounts and Certificates of Deposits		1,231,123		1,048,316		13,757		—		2,293,196
FHLB Advances		4,283,936		1,075,000		200,000		—		5,558,936
Repurchase Agreements		2,981,598		—		—		—		2,981,598
HELOC Notes		—		—		—		498,137		498,137
CMOs		—		—		—		198		198
Trust Preferred		—		—		—		183,955		183,955
Accrued Interest Payable		28,448		—		—		—		28,448
Deferred Compensation(1)		—		—		—		18,448		18,448
Operating Leases(2)		6,676		40,213		20,531		7,684		75,104
Employment Agreements(1)		4,877		18,067		—		—		22,944
Purchase Obligations		3,861		13,883		—		—		17,744

Total	$	11,005,878	$	2,195,479	$	234,288	$	708,422	$	14,144,067

(1) The amount excludes $6.5 million of deferred compensation that is included in obligations under employment agreements.

(2) The lease commitments had a net increase of $4.2 million from first quarter 2004, largely due to a new lease entered into in May 2004, which has a total commitment of $10.7 million.

A schedule of significant commitments at June 30, 2004, follows:


		Payment Due

		(Dollars in thousands)
Investment portfolio commitments to:
	Purchase loans pursuant to exercising clean-up calls	$	9,845
Undisbursed loan commitments:
	Builder construction		574,963
	Consumer construction		1,032,396
	HELOCs		707,156
Letters of credit			6,816

Additionally, in connection with standard representations and warranties on loan sales and securitizations, we are occasionally required to repurchase loans or make certain payments to settle breaches of these representations and warranties. From inception of our active mortgage banking operations on January 1, 1993, through June 30, 2004, we sold $110.6 billion in loans, and repurchased $136.4 million in loans, or 0.12% of total loans sold. To provide for probable future losses related to loans sold, we have established a reserve based on estimated losses on actual pending claims and repurchase requests, historical experience, loan sales volume

and loan sale distribution channels, which is included in other liabilities in the consolidated balance sheets. The balance in this reserve totaled $37 million at June 30, 2004. See the caption “Secondary Market Reserve” above for further information.

KEY OPERATING RISKS

Like all businesses, we assume a certain amount of risk in order to earn returns on our capital. The following is a summary discussion of key operating risks. For further information on these and other key operating risks, refer to IndyMac’s annual report on Form 10-K for the year ended December 31, 2003.

INTEREST RATE RISK

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

VALUATION RISK

In connection with the loan sale process, we retain certain assets for which the market is limited and illiquid. As a result, valuations are derived using complex modeling and significant assumptions and judgments, in the absence of active market quotations or sale information to value such assets. The assets include AAA-rated and agency interest-only securities, MSRs, non-investment grade securities and residuals. In addition, from time to time, we may acquire these types of securities from third party issuers. These assets represented 5% of total assets and 65% of total equity at June 30, 2004. The fair value of these assets could vary significantly as market conditions change. We periodically obtain appraisals from mortgage servicing brokers and consider these appraisals in the estimation of fair value.

CREDIT RISK

A significant portion of our Investment Portfolio consists of prime residential SFR loans held for investment, and non-investment grade securities and residuals collateralized by mortgage loans. We also provide construction lending to consumers and developers to build residential properties. The credit risk profile on consumer loans is very similar to that of our permanent mortgage loans, while builder construction loans tend to have higher credit risk profile than permanent mortgage loans. While the majority of our loans are to prime quality borrowers and secured by residential property, there is no guarantee that, in the event of borrower default, we will be able to recoup the full principal amount and interest due on a loan. We have adopted underwriting and loan quality monitoring systems, procedures and credit policies, including the establishment and review of the allowance for loan losses, that management believes are prudent and appropriate to minimize this risk by tracking loan performance, assessing the likelihood of nonperformance and diversifying our loan portfolio. Such policies and procedures, however, may not prevent unexpected losses that could adversely affect our results. In addition, while we have discontinued our home improvement and manufactured housing lending programs, we continue to liquidate portfolios of these loans, which have greater credit risk than that of our core mortgage loan portfolios. At June 30, 2004, the book value of these non-core portfolios was $53.8 million, net of reserves.

We also sell loans to GSEs, to outside investors, and to securitization trusts. In these instances, we are subject to repurchase risk in the event of breaches of representations or warranties we make in connection with the loan sales. While we have established what we believe to be adequate secondary marketing reserves, there

can be no guarantee that the amount reserved is sufficient to cover all potential losses resulting from such repurchases.

LIQUIDITY RISK/ACCESS TO CAPITAL MARKETS

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

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

GOVERNMENT REGULATION AND MONETARY POLICY

The banking industry in general is extensively regulated at the federal and state levels. Insured depository institutions and their holding companies are subject to comprehensive regulation and supervision by financial regulatory authorities covering all aspects of their organization, management and operations. The OTS and the FDIC are primarily responsible for the federal regulation and supervision of the Bank and its affiliated entities. In addition to their regulatory powers, these two agencies also have significant enforcement authority that they can use to address unsafe and unsound banking practices, violations of laws, and capital and operational deficiencies. Enforcement powers can be exercised in a number of ways, through either formal or informal actions. Informal enforcement actions customarily remain confidential between the regulator and the financial institution, while more formal enforcement actions are customarily publicly disclosed. Further, the Bank’s operations are subject to regulation at the state level, including a variety of consumer protection provisions. Banking institutions also are affected by the various monetary and fiscal policies of the U.S. government, including those of the Federal Reserve Board, and these policies can influence financial regulatory actions. Accordingly, the actions of those governmental authorities responsible for regulatory, fiscal and monetary affairs can have a significant impact on the activities of financial services firms such as ours.

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

COMPETITION

We face significant competition in acquiring and selling loans. In our mortgage banking operations, we compete with other mortgage bankers, GSEs, established third party lending programs, investment banking firms, banks, savings and loan associations, and other lenders and entities purchasing mortgage assets. With regard to mortgage-backed securities issued through our mortgage banking operations, we face competition from other investment opportunities available to prospective investors. We estimate our market share of the U.S. mortgage market to be approximately 1%. A number of our competitors have significantly larger market share and financial resources. We seek to compete with financial institutions and mortgage companies through an emphasis on quality of service, diversified products and maximum use of technology.

The GSEs have made and we believe will continue to make significant technological and economic advances to broaden their customer bases. When the GSEs contract or expand, there are both positive and negative impacts on our mortgage banking lending operations. As GSEs expand, additional liquidity is brought to the market, and loan products can be resold more quickly. Conversely, expanding GSEs increase

competition for loans, which may reduce profit margins on loan sales. We seek to address these competitive pressures by making a strong effort to maximize our use of technology, by diversifying into other residential mortgage products that are less affected by GSEs, and by operating in a more cost-effective manner than our competitors.

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

OTHER RISKS

We are subject to various other risks, including changes in the demand for mortgage loans, which historically tends to decrease as interest rates increase. Also, a majority of our loan acquisitions are geographically concentrated in certain states, including California, New York, Florida and New Jersey. Any adverse economic conditions in these markets could cause the number of loans acquired to decrease and delinquencies to increase, causing a corresponding decline in revenues. Further, there are no guarantees as to our degree of success in managing loan portfolio concentrations, anticipating and taking advantage of technological advances, or executing upon our growth plans for our mortgage banking operations. Lastly, political conditions could impact the Company’s earnings. Acts or threats of war or terrorism, as well as actions taken by the U.S. or other governments in response to such acts or threats, could impact business and economic conditions in which the Company operates.

CRITICAL ACCOUNTING POLICIES

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified six policies, that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements. These policies relate to (a) the valuation of AAA-rated and agency interest-only strips; (b) the valuation of MSRs; (c) the valuation of non-investment grade securities and residuals; (d) derivatives and other hedging instruments; (e) the methodology for determining our allowance for loan losses; and (f) the valuation of 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. For further information on the Company’s critical accounting policies and the impact of SAB No. 105 on our accounting policy for rate lock loan commitments, refer to IndyMac’s annual report on Form 10-K for the year ended December 31, 2003 and Note 2 — Newly Adopted Accounting Guidance, accompanying the consolidated financial statements on page 67.


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

See “Overall Interest Rate Risk Management” beginning on page 46 for quantitative and qualitative disclosure about market risk.


ITEM 1.	*FINANCIAL STATEMENTS (UNAUDITED)*

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


					June 30,			December 31,
					2004			2003

					(Unaudited)

					(Dollars in thousands)
ASSETS
Cash and cash equivalents					$	329,763		$	115,485
Securities classified as trading ($143.4 million and $70.9 million pledged as collateral for borrowings at June 30, 2004 and December 31, 2003, respectively)						309,869			223,632
Securities classified as available for sale, amortized cost of $2.7 billion and $1.6 billion at June 30, 2004 and December 31, 2003, respectively ($2.0 billion and $1.5 billion pledged as collateral for borrowings at June 30, 2004 and December 31, 2003, respectively)						2,671,122			1,613,974
Loans receivable:
	Loans held for sale
		Prime				3,239,737			2,196,488
		Subprime				361,250			295,008
		HELOC				342,038			—
		Consumer lot loans				68,048			81,752

			Total loans held for sale			4,011,073			2,573,248

	Loans held for investment
		SFR mortgage				4,639,993			4,945,439
		Consumer construction				1,301,688			1,145,526
		Builder construction				561,538			484,397
		HELOC				217,368			711,494
		Land and other mortgage				182,352			126,044
		Income property				7,432			36,285
	Allowance for loan losses					(52,796	)		(52,645	)

			Total loans held for investment			6,857,575			7,396,540

				Total loans receivable ($8.5 billion and $7.6 billion pledged as collateral for borrowings at June 30, 2004 and December 31, 2003, respectively)		10,868,648			9,969,788

Mortgage servicing rights						493,876			443,688
Investment in Federal Home Loan Bank stock, at cost						345,781			313,284
Interest receivable						58,477			51,758
Goodwill and other intangible assets						33,330			33,697
Foreclosed assets						27,316			23,677
Other assets						400,334			451,408

				Total assets	$	15,538,516		$	13,240,391


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits					$	4,758,555		$	4,350,773
Advances from Federal Home Loan Bank						5,558,936			4,934,911
Other borrowings						3,663,887			2,622,094
Other liabilities						374,834			315,182

		Total liabilities				14,356,212			12,222,960

Stockholders’ 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 90,270,718 shares (61,099,027 outstanding) at June 30, 2004, and issued 85,914,552 shares (56,760,313 outstanding) at December 31, 2003					903			859
	Additional paid-in-capital					1,164,622			1,043,856
	Accumulated other comprehensive loss					(15,080	)		(26,454	)
	Retained earnings					551,630			518,408
	Treasury stock, 29,171,691 shares and 29,154,239 shares at June 30, 2004, and December 31, 2003, respectively					(519,771	)		(519,238	)

		Total stockholders’ equity				1,182,304			1,017,431

		Total liabilities and stockholders’ equity			$	15,538,516		$	13,240,391

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,

			2004			2003			2004			2003


			(Unaudited)

			(Dollars in thousands, except per share data)
Interest income
Mortgage-backed and other securities			$	34,365		$	16,111		$	61,220		$	37,072
Loans held for sale
	Prime			58,842			43,344			103,173			80,768
	Subprime			7,681			7,142			16,189			13,386
	Consumer lot loans			2,872			1,974			4,779			3,507

		Total loans held for sale		69,395			52,460			124,141			97,661
Loans held for investment
	SFR mortgage			49,744			30,458			98,962			59,973
	Consumer construction			17,003			14,639			32,998			29,035
	Builder construction			8,621			8,682			16,147			17,283
	HELOC			4,325			4,951			10,684			9,098
	Land and other mortgage			2,758			1,792			5,222			4,093
	Income property			199			1,086			713			2,205

		Total loans held for investment		82,650			61,608			164,726			121,687
Other				3,898			2,298			6,780			4,254

		Total interest income		190,308			132,477			356,867			260,674
Interest expense
Deposits				23,697			21,950			46,179			43,638
Advances from Federal Home Loan Bank				33,919			28,308			64,839			53,866
Trust preferred securities				3,823			2,765			7,638			5,528
Other borrowings				21,891			11,939			37,300			27,102

		Total interest expense		83,330			64,962			155,956			130,134

		Net interest income		106,978			67,515			200,911			130,540
Provision for loan losses				3,200			6,900			4,700			10,000

		Net interest income after provision for loan losses		103,778			60,615			196,211			120,540
Other income
	Gain on sale of loans			66,084			102,146			149,752			185,929
	Service fee (loss) income			(27,807	)		(1,401	)		(30,951	)		982
	Losses on mortgage-backed securities, net			(3,414	)		(9,258	)		(8,401	)		(16,168	)
	Fee and other income			20,774			21,251			37,496			38,979

		Total other income		55,637			112,738			147,896			209,722

		Net revenues		159,415			173,353			344,107			330,262
Other expense
	Operating expenses			121,294			104,758			236,492			200,416
	Amortization of other intangible assets			179			217			367			448

		Total other expense		121,473			104,975			236,859			200,864

Earnings before provision for income taxes				37,942			68,378			107,248			129,398
	Provision for income taxes			14,987			27,009			42,363			51,112

		Net earnings	$	22,955		$	41,369		$	64,885		$	78,286

Earnings per share
	Basic		$	0.39		$	0.75		$	1.13		$	1.43
	Diluted		$	0.38		$	0.73		$	1.08		$	1.39
Weighted average shares outstanding
	Basic			58,137			55,015			57,548			54,922
	Diluted			60,588			56,711			60,180			56,345
Dividends declared per share			$	0.32		$	0.10		$	0.62		$	0.20

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


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


	(Unaudited)

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

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

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

Balance at December 31, 2003		56,760,313		$	859	$	1,043,856	$	(26,454	)	$	518,408					$	(519,238	)	$	1,017,431
Common stock issued		3,200,000			32		96,218		—			—			—			—			96,250
Common stock options exercised		1,049,051			10		23,290		—			—			—			—			23,300
Directors’ and officers’ notes receivable		—			—		33		—			—			—			—			33
Deferred compensation, restricted stock		107,115			2		1,225		—			—			—			—			1,227
Net loss on mortgage- backed securities available for sale, net of tax		—			—		—		(15,515	)		—			(15,515	)		—			(15,515	)
Net unrealized gain on derivatives used in cash flow hedges, net of tax		—			—		—		26,889			—			26,889			—			26,889
Purchases of common stock		(17,452	)		—		—		—			—			—			(533	)		(533	)
Cash dividends		—			—		—		—			(31,663	)		—			—			(31,663	)
Net earnings		—			—		—		—			64,885			64,885			—			64,885

Total comprehensive income		—			—		—		—			—		$	76,259			—			—

Balance at June 30, 2004		61,099,027		$	903	$	1,164,622	$	(15,080	)	$	551,630					$	(519,771	)	$	1,182,304

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,

				2004			2003


				(Unaudited)
				(Dollars in thousands)
Cash flows from operating activities:
	Net earnings			$	64,885		$	78,286
	Adjustments to reconcile net earnings to net cash used in operating activities:
		Total amortization and depreciation			104,391			99,159
		Provision for valuation adjustment of mortgage servicing rights			4,839			41,536
		Gain on sale of loans			(149,752	)		(185,929	)
		Loss on mortgage-backed securities, net			8,401			16,168
		Provision for loan losses			4,700			10,000
		Net decrease in other assets and liabilities			143,706			94,860

			Net cash provided by operating activities before activity for trading securities, premiums paid for derivative instruments, and loans held for sale		181,170			154,080
		Net (purchases) sales of trading securities			(31,501	)		520,647
		Net decrease on premiums paid for derivative instruments			30,102			—
		Net purchases of loans held for sale			(3,053,980	)		(1,843,049	)

			Net cash used in operating activities		(2,874,209	)		(1,168,322	)

Cash flows from investing activities:
	Net sales of and payments from loans held for investment				1,089,165			272,790
	Net (purchases of) payments from securities available for sale				(111,018	)		400,890
	Net increase in investment in Federal Home Loan Bank stock, at cost				(32,497	)		(76,902	)
	Net purchases of property, plant and equipment				(17,790	)		(16,240	)

			Net cash provided by investing activities		927,860			580,538

Cash flows from financing activities:
	Net increase in deposits				407,782			762,983
	Net increase in advances from Federal Home Loan Bank				624,001			730,914
	Net increase (decrease) in borrowings				1,041,457			(688,879	)
	Net proceeds from issuance of common stock				96,250			—
	Net proceeds from stock options and notes receivable				23,333			6,333
	Cash dividends paid				(31,663	)		(11,018	)
	Purchases of common stock				(533	)		(448	)

			Net cash provided by financing activities		2,160,627			799,885

Net increase in cash and cash equivalents					214,278			212,101
Cash and cash equivalents at beginning of period					115,485			196,720

Cash and cash equivalents at end of period				$	329,763		$	408,821

Supplemental cash flow information:
	Cash paid for interest			$	147,122		$	132,804

	Cash paid for income taxes			$	31,330		$	6,208

Supplemental disclosure of noncash investing and financing activities:
	Net transfer of loans held for sale to loans held for investment			$	1,089,351		$	925,550

	Transfer of loans held for investment to mortgage-backed securities available for sale			$	500,012		$	—

The accompanying notes are an integral part of these statements.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

(Unaudited)


Note 1 —	Basis of Presentation

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

The consolidated financial statements include the accounts of IndyMac Bancorp and its subsidiaries, including IndyMac Bank®, F.S.B. (“IndyMac Bank”). All significant intercompany balances and transactions with IndyMac’s consolidated subsidiaries have been eliminated in consolidation. The consolidated financial statements of IndyMac are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods have been included. Operating results for the three and six months ended June 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in IndyMac’s annual report on Form 10-K for the year ended December 31, 2003.


Note 2 —	Newly Adopted Accounting Guidance

On March 9, 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments,” which provides guidance regarding loan commitments that are accounted for as derivative instruments. In this Bulletin, the SEC determined that an interest rate lock commitment should generally be valued at zero at inception. The rate locks will continue to be adjusted for changes in value resulting from changes in market interest rates. The Company adopted this new standard prospectively effective April 1, 2004. Under the new accounting guidance, the Company no longer recognizes any revenue at the inception of the rate lock. Profits inherent in the rate lock are recognized at the time of the sale of the underlying loans. The implementation of the standard had a one-time negative impact on gain on sale totaling $52.2 million before-tax, or $31.6 million after-tax.


Note 3 —	Securities

The following table details our securities classified as trading and securities available for sale as of June 30, 2004, and December 31, 2003:


			June 30,		December 31,
			2004		2003


			(Dollars in thousands)
Securities Classified as Trading:
	AAA-rated and agency interest-only strips		$	166,799	$	148,275
	AAA-rated principal-only securities			83,964		8,518
	Other investment grade securities			9,093		8,922
	Other non-investment grade securities			478		1,760
	Non-investment grade residual securities			49,535		56,157

		Total securities classified as trading	$	309,869	$	223,632

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


			June 30,		December 31,
			2004		2003


			(Dollars in thousands)
Securities Classified as Available for Sale:
	U.S. Treasury and agency notes		$	47,703	$	143,689
	AAA-rated principal-only mortgage-backed securities			20,102		—
	AAA-rated agency mortgage-backed securities			18,519		25,193
	AAA-rated non-agency mortgage-backed securities			2,450,258		1,407,984
	Other investment grade mortgage-backed securities			82,139		26,926
	Other non-investment grade mortgage-backed securities			29,304		10,182
	Non-investment grade HELOC residual securities			23,097		—

		Total securities classified as available for sale	$	2,671,122	$	1,613,974

The significant increase in AAA-rated non-agency mortgage-backed securities from $1.4 billion at December 31, 2003, to $2.5 billion at June 30, 2004 was primarily due to the reclassification of approximately $500 million HELOC loans to securities and the retention of a $346 million senior note from our SFR mortgage loans held for investment securitization during the first quarter 2004.


Note 4 —	Segment Reporting

IndyMac operates through its four main segments: IndyMac Mortgage Bank, IndyMac Consumer Bank, Home Equity Division, and Investment Portfolio Group. IndyMac Mortgage Bank is centered on providing consumers with mortgage products through relationships with the Company’s business customers — mortgage brokers, mortgage bankers, financial institutions, real estate professionals and homebuilders. The Home Equity Division is a product-focused division that supports the production of home equity lines of credit (HELOCs) and other home equity products through all of IndyMac’s relationship and consumer direct production channels. IndyMac Consumer Bank provides the platform for the mortgage and deposit services that IndyMac offers directly to consumers. Loans produced by IndyMac Mortgage Bank, IndyMac Consumer Bank and the Home Equity Division are then securitized through the issuance of mortgage-backed securities, sold to GSEs, resold in bulk whole loan sales to investors, or transferred to and retained by our Investment Portfolio Group. The Investment Portfolio Group serves as the main link to customers whose mortgages we service. Through its investments in single-family residential mortgages, mortgage-backed securities and mortgage servicing rights, it serves a critical support function for IndyMac’s mortgage lending operations.

The profitability of each operating segment is measured on a fully-leveraged basis after allocating capital based on regulatory capital rules. Operating segments that originate mortgage loans are credited with gain on sale at funding based on the estimated fair value. Any difference between the actual gain on sale realized and the estimate is credited or charged to the operating segment in the period the loan is sold or transferred to the held for investment portfolio. Differences between the gain on sale credited to the operating segments and the consolidated gain on sale due to timing of loan sales or transfers to the held for investment portfolio are eliminated in consolidation. The Company uses a fund transfer pricing system to allocate net interest income to the operating segments. Each operating segment is allocated funding with maturities and interest rates matched with the expected lives and repricing frequencies of the segment’s assets. Deposits receive a funding credit using a similar methodology. The difference between these allocations and the Company’s actual net interest income and capital levels resulting from centralized management of funding costs is reported in the line item titled “Other.” Also included in the line item titled “Other” are unallocated corporate costs such as corporate salaries and related expenses, excess capital, and non-recurring corporate items.

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segment information for the three and six months ended June 30, 2004 and 2003, was as follows:


		IndyMac		IndyMac		Investment		Home								SAB
		Mortgage		Consumer		Portfolio		Equity						Pro Forma		No. 105			GAAP
		Bank		Bank		Group		Division			Other			Consolidated		Adjustment			Consolidated


		(Dollars in thousands)
Three months ended June 30, 2004
	Net interest income (expense)	$	59,664	$	14,194	$	42,070	$	1,025		$	(9,975	)	$	106,978	$	—		$	106,978
	Net revenues (expense)		161,346		35,814		26,479		1,659			(13,660	)		211,638		(52,223	)		159,415
	Net earnings (loss)		62,580		6,127		8,149		191			(22,497	)		54,550		(31,595	)		22,955
Assets as of June 30, 2004		$	5,730,641	$	636,776	$	8,219,882	$	245,156		$	706,061		$	15,538,516	$	—		$	15,538,516
Three months ended June 30, 2003
	Net interest income (expense)	$	48,288	$	8,387	$	17,362	$	70		$	(6,592	)	$	67,515	$	—		$	67,515
	Net revenues (expense)		128,201		45,093		14,975		(98	)		(14,818	)		173,353		—			173,353
	Net earnings (loss)		48,926		12,745		2,460		(244	)		(22,518	)		41,369		—			41,369
Assets as of June 30, 2003		$	4,265,091	$	749,644	$	4,880,072	$	61,952		$	704,636		$	10,661,395	$	—		$	10,661,395

Six months ended June 30, 2004
	Net interest income (expense)	$	109,369	$	24,675	$	84,463	$	1,771		$	(19,367	)	$	200,911	$	—		$	200,911
	Net revenues (expense)		278,858		70,684		71,367		2,747			(27,326	)		396,330		(52,223	)		344,107
	Net earnings (loss)		101,831		12,000		27,947		298			(45,596	)		96,480		(31,595	)		64,885
Assets as of June 30, 2004		$	5,730,641	$	636,776	$	8,219,882	$	245,156		$	706,061		$	15,538,516	$	—		$	15,538,516
Six months ended June 30, 2003
	Net interest income (expense)	$	94,081	$	16,039	$	35,705	$	(138	)	$	(15,147	)	$	130,540	$	—		$	130,540
	Net revenues (expense)		246,282		79,939		34,525		252			(30,736	)		330,262		—			330,262
	Net earnings (loss)		94,087		21,293		8,420		(583	)		(44,931	)		78,286		—			78,286
Assets as of June 30, 2003		$	4,265,091	$	749,644	$	4,880,072	$	61,952		$	704,636		$	10,661,395	$	—		$	10,661,395


Note 5 —	Stock-Based Compensation

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

As permitted by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), we continue to measure and recognize compensation expense using the intrinsic value method specified in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). As required

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

under the provisions of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” the following table discloses the pro forma net income and pro forma basic and diluted earnings per share had the fair value method been applied to all stock awards for the three and six months ended June 30, 2004 and 2003:



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

			2004			2003			2004			2003


			(Dollars in thousands,						(Dollars in thousands,
			except per share data)						except per share data)
Net Earnings
	As reported		$	22,955		$	41,369		$	64,885		$	78,286
		Stock-based compensation expense		(2,859	)		(4,575	)		(5,687	)		(9,110	)
		Tax effect		1,129			1,807			2,246			3,598

	Pro forma		$	21,225		$	38,601		$	61,444		$	72,774

Basic Earnings Per Share
	As reported		$	0.39		$	0.75		$	1.13		$	1.43
	Pro forma		$	0.37		$	0.70		$	1.07		$	1.33
Diluted Earnings Per Share
	As reported		$	0.38		$	0.73		$	1.08		$	1.39
	Pro forma		$	0.35		$	0.68		$	1.02		$	1.29

In addition, during the three months ended June 30, 2004 and 2003, we recognized compensation expense of $721,000 ($436,000, net of taxes) and $561,000 ($339,000, net of taxes), respectively, related to restricted stock awards. These expenses were included in net earnings as reported.


Note 6 —	Defined Benefit Pension Plan Net Periodic Cost

We provided a defined benefit pension plan (the “DBP Plan”) to substantially all of our employees hired prior to January 1, 2003. The net periodic benefit cost of the DBP Plan, which is based on actuarial assumptions, is presented in the following table for the three and six months ended June 30, 2004 and 2003:



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

	2004			2003			2004			2003


	(Dollars in thousands)
Service cost	$	1,209		$	932		$	2,418		$	1,864
Interest cost		323			222			646			444
Expected return on assets		(294	)		(165	)		(588	)		(330	)
Amortization of net loss		73			47			146			94
Amortization of prior service cost		14			14			28			28

Net periodic benefit costs	$	1,325		$	1,050		$	2,650		$	2,100

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The actuarial assumptions used in accounting for the net periodic cost at June 30, 2004 and 2003, were as follows:



	Three Months
	Ended June 30,

	2004			2003

Assumed discount rate		6.00	%		6.75	%
Rate of compensation increase		4.00	%		4.00	%
Expected return on assets		7.50	%		7.50	%

The Company is expected to contribute $6 million to the DBP Plan in 2004, which will be made as a one lump sum payment later in the year. No contribution was made during the quarter and six months ended June 30, 2004.

Note 7 — Legal Matters

On February 3, 2004, Washington Mutual Mortgage Securities Corporation filed a lawsuit against IndyMac in the Superior Court of the State of California. The lawsuit involves a contractual dispute about standard representations and warranties on single-family mortgage loans that were sold to PNC Mortgage Corporation during the period 1997 to 2000, prior to Washington Mutual’s acquisition of PNC Mortgage Corporation in 2001. Washington Mutual alleges damages of approximately $50 million, the bulk of which includes the principal balance of the loans in question, with the remainder of the amount consisting of interest and alleged losses. The loans in question represent less than 1% of the nearly $6 billion in loans that were sold to PNC between 1997 and 2000. IndyMac maintains a reserve for potential losses related to its standard representations and warranties on loans sold and discusses such reserve in its financial statements filed with the SEC. Management believes that the resolution of this dispute will not have a material impact on the financial condition of IndyMac.

We are involved in other litigation including class actions lawsuits arising from normal operations. Management has accrued for those that are both probable and reasonably estimable. In the opinion of management in consultation with counsel, none of these matters are likely to have a material adverse effect on our financial condition.

Note 8 — Subsequent Event

On July 16, 2004, the Company completed the acquisition of 93.75% of the outstanding shares of common stock of Financial Freedom Holdings Inc. (“Financial Freedom”), the leading provider of reverse mortgages in the United States, and the related assets from Lehman Brothers Bank, F.S.B. and its affiliates for an aggregate purchase price of approximately $83 million. The remaining shares (6.25%) of the common stock of Financial Freedom are held by its Chief Executive Officer and will be accounted for as minority interest. The acquisition will result in approximately $45 million in goodwill.


ITEM 4.	*CONTROLS AND PROCEDURES*

As of June 30, 2004, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2004. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to June 30, 2004.

PART II. OTHER INFORMATION


ITEM 1.	*LEGAL PROCEEDINGS*


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

At the annual meeting of IndyMac Bancorp’s stockholders held on April 28, 2004, the stockholders voted to elect IndyMac Bancorp’s directors. The votes cast in this regard were as follows:


	Shares For		Shares Withheld

Michael W. Perry		51,733,211		2,148,222
Louis E. Caldera		51,713,490		2,167,943
Lyle E. Gramley		51,696,044		2,185,389
Hugh M. Grant		52,211,099		1,670,334
Patrick C. Haden		31,460,969		22,420,464
Terrance G. Hodel		53,131,746		749,687
Robert L. Hunt II		51,350,590		2,530,843
James R. Ukropina, Esq.		51,354,772		2,526,661

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		33,397,958
Against		10,374,149
Abstain (including broker non-votes)		270,385

Finally, the stockholders voted to ratify the appointment of Ernst & Young LLP as IndyMac Bancorp’s independent public accountants for the year ending December 31, 2004. The votes cast in this regard were as follows:


	Number of Votes Cast

For		49,872,166
Against		3,927,068
Abstain (including broker non-votes)		82,199


ITEM 6.	*EXHIBITS AND REPORTS ON FORM 8-K*

(a) Exhibits


	4.1			IndyMac Bancorp, Inc. 2002 Incentive Plan, as Amended and Restated.
	10.1			IndyMac Bancorp, Inc. Amended Director Emeritus Plan effective as of April 27, 2004.
	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.

(b) Reports on Form 8-K

The Company furnished a report on Form 8-K on April 28, 2004. Items included: Item 12. Disclosure of Results of Operations and Financial Condition — Press Release announcing results of operations and financial condition for the quarter ended March 31, 2004 and related webcast presentation.

The Company filed a report on Form 8-K on May 5, 2004. Items included: Item 5. Other Events — Press Release announcing the signing of a definitive agreement by IndyMac Bank to acquire 93.75% of the outstanding shares of common stock of Financial Freedom Holdings, Inc.

The Company furnished a report on Form 8-K on May 6, 2004. Items included: Item 9. Regulation FD Disclosure — Webcast presentation on Financial Freedom acquisition.

The Company filed a report on Form 8-K on June 10, 2004. Items included: Item 5. Other Events — Announcement of offering price for 3.2 million shares of common stock, and Item 7. Financial Statements and Exhibits — Underwriting Agreement for the offering of 3.2 million shares of common stock.

SIGNATURES

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 thereunto duly authorized, in the City of Pasadena, State of California, on July 29, 2004.

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


	(1)	For the three and six months ended June 30, 2004, the data is presented on a pro forma basis excluding the effect of a one-time deferral of gain on sale of loans revenue of $52.2 million before-tax or $31.6 million after-tax pursuant to the change in accounting principle for rate lock commitments under SAB No. 105. A full reconciliation between the pro forma and GAAP amounts, with the relevant performance ratios, is included in the segment table on page 6.

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

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

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

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

	(6)	Debt includes deposits.

	(7)	IndyMac Bank, F.S.B. (excludes unencumbered cash at the Parent Company available for investment in IndyMac Bank). Risk-based capital ratio is based on the regulatory standard risk weighting. With IndyMac Bank’s additional subprime risk weightings, the ratios are 12.47%, 13.22% and 12.61% for the quarters ended June 30, 2004, June 30, 2003 and March 31, 2004, respectively.

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

	(9)	Represents the unpaid principal balance on loans sold with servicing retained by IndyMac.


(10)	Includes newly originated commitments on construction loans.


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


(1)	Fundings.

(2)	New commitments.

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


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

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


(1)	The amount represents the loans produced only by the Home Equity Division. HELOC loans produced by other business divisions totaled $364 million and $573 million during the three and six months ended June 30, 2004, respectively. HELOC loans produced by business divisions other than the Home Equity Division are included in the production volume of the respective originating business division.


(1)	The gain on mortgage loan sales for the three months ended June 30, 2004 in the tables excludes the $52 million before-tax revenue deferral as a result of adoption of SAB No. 105 in the second quarter of 2004. The GAAP gain on mortgage loan sales reported was $66 million for the three months ended June 30, 2004. The GAAP net margin after hedging was 0.87% for the three months ended June 30, 2004.


(1)	Government-sponsored enterprises.

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


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

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

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


(1)	Represents the AAA-rated interest-only security that was created during the first quarter in connection with a private-label securitization transaction and subsequently sold in the second quarter.


(1)	As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.09% and 1.41% for prime and subprime residuals, respectively, at June 30, 2004.

(2)	As of June 30, 2004, subprime and HELOC residual securities include residuals from the securitization of home equity loans in the amount of $23 million. Although our HELOC loans are made to high credit quality, prime borrowers, the assumptions on HELOC-related residuals are similar to subprime as they are second trust deed loans.


(1)	The average loan-to-value ratio is based on the estimated appraised value of the completed project compared to the commitment amount at June 30, 2004.

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


(1)	On funded loans.

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


(1)	Discontinued product lines include manufactured home loans and home improvement loans.

(2)	The amount represents the lower of cost or market adjustments on non-performing loans in the held for sale portfolio.


(1)	The amount excludes $6.5 million of deferred compensation that is included in obligations under employment agreements.

(2)	The lease commitments had a net increase of $4.2 million from first quarter 2004, largely due to a new lease entered into in May 2004, which has a total commitment of $10.7 million.



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



	Scott Keys
	Executive Vice President
	and Chief Financial Officer