Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)       þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002

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.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

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

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K     þ.

      Based on the closing price for shares of Common Stock as of June 30, 2002, the aggregate market value of Common Stock held by non-affiliates of the registrant was approximately $1,332,092,474. For the purposes of the foregoing calculation only, in addition to affiliated companies, all directors and executive officers of the registrant have been deemed affiliates.

      As of February 14, 2003, 54,892,357 shares of IndyMac Bancorp, Inc. Common Stock, $.01 par value were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

INDYMAC BANCORP, INC.

2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

1

Table of Contents

INDYMAC BANCORP, INC.

2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

2

Table of Contents

3

Table of Contents

4

Table of Contents

PART I

FORWARD-LOOKING STATEMENTS

      Certain statements contained in this Form 10-K may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements regarding our financial condition, results of operations, plans, objectives and future performance and business. Forward-looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions. These statements reflect our current views with respect to future events and financial performance. They are subject to risks and uncertainties, including, among others, those identified in the “Key Operating Risks and Risk Factors That May Affect Future Results” discussions below, which could cause future results to differ materially from historical results or from the results anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates or as of the date hereof if no other date is identified. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1.     BUSINESS

      We are the holding company for a Federal Deposit Insurance Corporation (“FDIC”) insured savings and loan association. Deposits and advances from the Federal Home Loan Bank (“FHLB”) of San Francisco are two of our key funding sources. Our business model, however, differs significantly from that of most traditional savings and loan institutions. Our primary business is mortgage banking, while most traditional savings and loan associations focus on providing mortgage loans to homeowners in their immediate market areas, retaining more of the loans they originate in their portfolio and deriving most of their income from net interest earned on their mortgage loans. A mortgage banking company, in contrast, generally originates mortgage loans for sale to investors, and generally services such loans on an on-going basis for the investors. As such, a mortgage banking company has a higher asset turnover rate than a traditional savings and loan, and generates a higher portion of its income from gains on the sale of loans and servicing fees, and a lower portion from net interest income. Mortgage banking is a huge industry, with annual origination volume well in excess of two trillion dollars in 2002. The purpose of the discussion of our business model below is to summarize our business strategy, the key factors that drive our profitability and the key operating risks to our future profitability and liquidity.

      Countrywide Financial Corporation founded IndyMac (then known as Countrywide Mortgage Investments, Inc.) as a passive mortgage real estate investment trust (“REIT”) in 1985. In response to the global liquidity crisis in the fourth quarter of 1998 in which many non-regulated financial institutions, mortgage lenders and mortgage REITs were adversely impacted or did not survive, we determined that it would be advantageous to become a depository institution. The depository structure provides significant advantages in the form of diversified financing sources, the retention of capital to support growth and a strong platform for the origination of mortgages. Accordingly, on January 1, 2000 we terminated our status as a REIT and converted to a fully taxable entity and on July 1, 2000 we acquired SGV Bancorp, Inc. (“SGVB”), which then was the parent of First Federal Savings and Loan Association of San Gabriel Valley, a federal savings association. We contributed substantially all of our assets and operations to the subsidiary savings association, which we renamed IndyMac Bank, F.S.B. (“Bank”). Our affiliation with Countrywide was terminated in March 2000.

      References to “IndyMac Bancorp” or the “Parent Company” refer to the parent company alone, while references to “IndyMac,” or the “Company” refer to the parent company and its consolidated subsidiaries. Prior to July 2000, IndyMac Bancorp was named IndyMac Mortgage Holdings, Inc.

BUSINESS MODEL

      Our strategy is to be a leading provider and servicer of home mortgage loans. We offer many types of home mortgage products using a technology-based approach, leveraged across multiple products, channels and

5

Table of Contents

      We leverage our core mortgage banking expertise by investing in prime mortgage loans, mortgage-backed securities, and servicing-related assets through our Investment Portfolio operations. While these investments support our mortgage banking franchise, they also generate core interest income to diversify and stabilize our earnings base.

      We also offer retail banking products and services through our Web site at www.IndyMacbank.com, our telebanking operation and our Southern California branch offices. Our core strategy for our consumer bank has been focused primarily on building consumer relationships while marketing certificates of deposit and money market savings accounts.

      Mortgage banking is our core business. Our mortgage banking operations include the acquisition (purchase and origination), sale and securitization of mortgage loans secured by one-to-four unit single-family (“single-family”) residences. We acquire loans through business relationship customers as well as directly from consumers. Our business relationship customers include customers in the following channels: business-to-business (“B2B”), business-to-realtor (“B2R”), consumer construction (Home Construction Lending, or “HCL”) and our homebuilder division (“HBD”). Our direct to consumer channels include business-to-consumer (“B2C”) and the home equity line of credit (“HELOC”) division.

      Through December 31, 2002, all mortgage banking channels were combined from an operational standpoint as the Mortgage Banking group. As part of our five-year strategic plan for the years 2003-2007, we have realigned our consumer business units and our consumer banking operations to be managed as a combined consumer-direct division, which we refer to as the “Consumer Bank” beginning in 2003. The Consumer Bank will include the B2C and HELOC operations described below under “Mortgage Banking,” as well as the retail bank.

MORTGAGE BANKING

      We offer single-family residential mortgage products in all 50 states using a technology-based approach. Our ability to leverage our technology investment over multiple channels, products and customers creates an efficient, low-cost operating platform. Our Internet-based, e-MITS®¹ (Electronic Mortgage Information and Transaction System) is an automated loan submission, underwriting, and risk-based pricing system that allows any of our mortgage loan customers, whether business or consumer, to conduct business with us electronically through our mortgage loan Internet sites. During 2002, 75% of the loan balance of mortgage loans we acquired was processed through e-MITS.

      We provide our Mortgage Banking customers with a range of choices designed to meet their financial needs. Our broad product line includes adjustable-rate mortgages (“ARMs”) offering borrowers multiple payment options, and fixed-rate mortgages, both conforming and non-conforming (a conforming loan is one that meets the minimum loan size and other criteria for inclusion in the guarantee programs of Fannie Mae (“FNMA”) or the Federal Home Loan Mortgage Corporation (Freddie Mac or “FHLMC”)). We also offer subprime loans, construction financing for single-family residences provided directly to individual consumers, builder construction financing facilities for larger residential subdivision loans and home equity lines of credit (“HELOCs”).

6

Table of Contents

      When we have accumulated a sufficient volume of loans with similar characteristics, generally $100 million to $500 million in principal amount, we resell the loans in the secondary market. The length of time between when we purchase a mortgage loan and when we sell or securitize the mortgage loan generally ranges from ten to 90 days, depending on factors such as loan volume by product type and market fluctuations in the prices of mortgage-backed securities. One of our strategies is to reduce the period of time we hold loans before they are sold. On average during 2002, we sold loans within 44 days of purchase or origination, compared to 60 days during 2001. The faster loan turnover rate provides for a more efficient use of our capital, which results in a higher return on average equity.

      Our mortgage banking revenue consists primarily of gain on the sale of loans, net interest income, and fee income associated with the loans held for sale. We sell our loans through three distribution channels to the secondary market: government sponsored enterprises (“GSEs”), principally FNMA and FHLMC; whole loan sales; and private-label securitizations. Additionally, we transfer a small amount of our loans to our Investment Portfolio, which currently consists primarily of ARM loans.

Business-to-Business (“B2B”)

      Our B2B channel was responsible for 78% of our total production during 2002. B2B acquires mortgage loans primarily from mortgage brokers and, to a lesser degree, small mortgage bankers and community financial institutions. When acquiring mortgage loans, we generally purchase the rights to “service” the mortgage loans (as described below). When we sell the loans, we may either retain the related servicing rights and service the loans through our Home Loan Servicing division or sell those rights. See “Loan Servicing Operations” below. B2B’s production volume includes both purchases and originations. Originations are defined as loans that are generated by the mortgage broker, but closed in our name (also referred to as “table funded” loans).

      B2B has a centralized group that targets customers based on their loan production volume, product mix and projected revenue to us. This sales force is responsible for maintaining and increasing loan production from these customers by marketing B2B’s strengths, which include a “one stop shop” for all products, competitive pricing and response time efficiencies in the loan purchase process through our e-MITS underwriting process and high customer service standards.

      During 2002, to continue our emphasis on increasing production capacity and geographic penetration to build market share, the B2B division opened a new regional center in Kansas City, Missouri. With this new center, along with the Pasadena and Sacramento California centers and the centers in New Jersey and Georgia, the B2B division currently has five regional centers. Looking ahead, we plan to open additional centers as a way of increasing geographic penetration to gain market share in target markets, improving customer service, and improving operational efficiencies.

Business-to-Realtor (“B2R”)

      Through our LoanWorks® brand, we serve real estate professionals who are interested in cross-selling mortgage loans as an additional service to their home purchase clients. We have focused this relatively new channel on three states as we build the model and metrics for this business, which is targeted on the home purchase loan market. LoanWorks.com allows real estate agents to utilize our Web-based e-MITS technology as their in-house mortgage processing center and their online origination management system.

      B2R’s marketing focus on real estate agents includes participation in local real estate forums, trade shows, seminars and continuing education courses aimed at individual real estate agents, and advertising in national and regional trade publications. Although B2R is currently small in comparison to the B2B and B2C divisions, we believe the B2R channel provides a strong growth opportunity as it leverages our existing technology and infrastructure and recognizes the important role that realtors play in the home purchase mortgage process.

7

Table of Contents

Home Construction Lending (“HCL”)

      Our Home Construction Lending division offers a variety of residential construction programs through brokers and directly to consumers. Through our streamlined e-MITS online application process, HCL offers a single-close construction-to-permanent loan that provides borrowers with the funds to build a primary residence or vacation home. HCL customers have convenient online access to construction funds and loan information at any time. When the home is completed, the loan automatically converts to a permanent 30- or 15- year loan, which we typically sell, without any additional costs or closing documents required. The product represents a hybrid activity between our portfolio lending and our mortgage banking activities.

Homebuilder Division (“HBD”)

      During 2001, we decided to substantially restructure and refocus our business of lending to subdivision lenders. The primary focus of our homebuilder division is to generate single-family residential mortgage loans. Our strategy includes developing relationships with homebuilders through direct customer contact and program presentations, as well as drawing upon existing construction lending builder relationships and industry contacts. Similar to our B2R strategy, the generation of mortgage loans through homebuilders provides a strong growth opportunity in the home purchase loan market.

      We also provide construction financing for residential subdivision developers through this division, with a focus on those homebuilders that have committed to utilizing our e-MITS technology to provide permanent mortgage loans to their customers when they sell the completed residence. We have limited this activity to eight states (California, Illinois, Nevada, Utah, Arizona, Colorado, Washington, and Oregon), where we have historically realized strong returns and have long standing relationships with the builders. A substantial portion of our builder construction loans also carry the guarantee of the builder. Builder construction loans are typically based on prime interest rates.

Business-to-Consumer (“B2C”)

      The B2C channel originates mortgage loans on a centralized basis using multiple marketing channels, including direct originations through our Web site, which is supported by our e-MITS technology, indirect Internet leads provided by various multi-lender or Internet-based marketing firms, customer referral and portfolio refinance leads, direct mail and telemarketing, affinity relationships, and community lending through our ten consumer bank branches.

      Our highly rated B2C Web site offers a wide range of home loan products directly to consumers nationwide. This site enables consumers to apply for a mortgage loan, obtain loan approvals, lock in an interest rate and receive a printable approval letter, all online, and all within minutes. The Web site also features online loan status information, daily rate comparisons to major competitors, and a quick mortgage rate pricing tool. Through B2C’s telemarketing operations and sales force and our Southern California retail banking branch network, loan consultants counsel consumers with respect to the loan application process, process loan applications utilizing our e-MITS technology and make lending decisions, providing a streamlined loan application process.

HELOC Division

      During 2002, we established a business unit to focus on the production of prime quality home equity lines of credit, or HELOCs. Our HELOC product offers consumers access to their credit line through both equity checks and a Visa® credit card. The HELOC product was incorporated into our e-MITS platform late in 2001. In addition to marketing through IndyMac’s B2B and B2C customer base, the HELOC division cross-

8

Table of Contents

Loan Sales and Securitizations

      We sell the majority of the mortgage loans that we originate or purchase. The loans are sold on a non-recourse basis, but we make certain representations and warranties concerning the loans. We generally retain the servicing rights with respect to loans sold to the GSEs (primarily Fannie Mae and Freddie Mac). The credit losses on these loans are absorbed by the GSEs. We pay guarantee fees to the GSEs to compensate them for their assumption of credit risk. We have recently begun selling loans to the FHLB of San Francisco, for which we retain the servicing rights. Loans sold to the FHLB typically contain a risk-sharing arrangement in which we benefit from the performance of the loans sold. This benefit is typically less than 10 basis points of the loan amount sold and is recorded as a residual security classified as trading. We also sell loans on a whole-loan basis to institutional investors who typically acquire the related loan servicing rights.

      We also sell loans through private-label securitizations. Loans sold through private-label securitizations include principally prime non-conforming loans and subprime loans. The securitization process involves the sale of the loans to one of our wholly owned bankruptcy remote special purpose entities which then sells the loans to a separate, transaction-specific securitization trust in exchange for cash and certain trust interests that we retain. The securitization trust issues and sells undivided interests to third party investors that entitle the investors to specified cash flows generated from the securitized loans. These undivided interests are usually represented by certificates with varying interest rates and are secured by the payments on the loans acquired by the trust, and commonly include senior and subordinated classes. The senior class securities are usually rated “AAA” by at least two of the major independent rating agencies and have priority over the subordinated classes in the receipt of payments. We have no obligation to provide funding support to either the third party investors or securitization trusts. The third party investors or the securitization trusts have no recourse to our assets or us and have no ability to require us to repurchase their securities. We do make certain representations and warranties concerning the loans, such as lien status or mortgage insurance coverage, and if we are found to have breached a representation or warranty we could be required to repurchase the loan from the securitization trust. We do not guarantee any securities issued by the securitization trusts. The securitization trusts represent “qualified special purpose entities,” which meet the legal isolation criteria of Statement of Financial Accounting Standards No. 140 “Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”), and are therefore not consolidated for financial reporting purposes.

      In addition to the cash the securitization trust pays for the loans, we often retain certain interests in the securitization trust as payment for the loans. These retained interests may include mortgage servicing rights (“MSRs”), AAA-rated interest-only securities, subordinated classes of securities, residual securities, cash reserve funds, or an overcollateralization account. Other than AAA-rated interest-only securities and MSRs, these retained interests are subordinated and serve as credit enhancement for the more senior securities issued by the securitization trust. We are entitled to receive full payment on most of these retained interests only after the third party investors are repaid their investment plus interest; but, we may receive current payments if there is excess cash in the securitization trust. Our ability to obtain repayment of our residual interests depends solely on the performance of the underlying mortgage loans. Material adverse changes in performance of the loans, including actual credit losses and prepayment speeds, may have a significant adverse effect on the value of these retained interests.

      We usually retain the servicing function for the securitized mortgage loans. See description of servicing operations below under the caption “Loan Servicing Operations.” As a servicer, we are entitled to receive a servicing fee equal to a specified percentage of the outstanding principal balance of the loans. This servicing fee is calculated and payable on a monthly basis. We may also be entitled to receive additional servicing compensation, such as late payment fees or prepayment penalties. Our servicing fees have priority in payment over the senior classes of securities issued by the securitization trusts.

9

Table of Contents

      In our servicer capacity, we usually retain an option to purchase the remaining loans if the amount of outstanding loans falls to a level, commonly 10% of the original balance, at which the cost of servicing becomes burdensome in relation to the benefits we receive as servicer. These options are commonly referred to as “clean-up calls.” We typically do not exercise our right to call unless the fair value of the outstanding loans we would acquire would exceed the cost to acquire such loans.

      In addition to securitization trusts, we use Net Interest Margin (“NIM”) trusts, from time to time, to securitize our interest in residual securities from prior or recently completed securitization transactions. NIM trusts issue bonds to outside investors secured by the residual securities we contribute to the trusts. The cash proceeds from the sale of the NIM bonds to investors are paid to us by the NIM trusts as payment for the residual securities. The NIM bonds are obligations of the NIM trusts and are collateralized only by the residual securities. We are not obligated to make any payments on the bonds. These entities represent qualified special purpose entities and are therefore not consolidated for financial reporting purposes in accordance with SFAS 140. At inception, the outside investors have the majority interest in the fair value of the residual securities. We receive cash flows from our retained interests in the NIM trusts once the bonds issued to the investors are fully paid off. At December 31, 2002, these NIM trusts held assets valued at $66.9 million and our retained interests in these NIM trusts are valued at $24.5 million. The bonds issued on one of the NIM trusts were fully paid off in January 2003 and our retained interest in this NIM trust was valued at $12.3 million at December 31, 2002. Our retained interests in the NIM trusts are included as a component of securities classified as trading securities on our consolidated balance sheets.

INVESTMENT PORTFOLIO

Investments

      To generate continuing earnings that are more stable and complement the Mortgage Banking Group, we invest in residential mortgage loans, mortgage securities, U.S. Treasury securities and MSRs either retained in connection with our mortgage banking activities or purchased in the secondary mortgage market. The strategy of our Investment Portfolio is to: 1) provide support for our mortgage banking divisions through its ability to invest in whole loans and retain assets from loan sales and securitizations, 2) acquire loans, servicing and securities in the secondary market, and 3) hedge the interest rate and prepayment risks attendant with servicing-related assets. At December 31, 2002, total assets of our Investment Portfolio were $4.7 billion, of which 43% were residential mortgage loans, 34% were mortgage securities available for sale (“AFS securities”), 16% were trading securities, and 7% were MSRs. Our policy is that all of our Investment Portfolio assets, including assets acquired from the Mortgage Banking Group, must meet or exceed minimum targeted return requirements.

      Mortgage loans held for investment are originated or acquired through our mortgage banking activities and transferred to the Investment Portfolio for long-term investment. Such loans are typically prime loans as the majority of the subprime loans originated by Mortgage Banking are securitized in private transactions or sold to GSEs. Investment Portfolio invests in loans for which it can earn an acceptable return on equity, currently investing primarily in ARMs in order to minimize interest rate risk, and loan products which we believe the market does not properly price. We may also retain all or a portion of the loans acquired through our exercise of clean-up calls as these loans are generally high quality, seasoned loans that generate an above market yield.

      A substantial portion of the servicing related assets retained by the Investment Portfolio are generated in connection with issuances of private-label securities and agency loan sales by our Mortgage Bank. Retained assets typically include MSRs and, to a lesser degree, AAA-rated and agency interest-only securities, non-investment grade securities and residuals. In addition to retaining assets from our private-label securitizations and agency loan sales, the Investment Portfolio also purchases mortgage-backed securities issued by other lenders in the secondary mortgage market. At December 31, 2002, 94% of the investment securities portfolio was comprised of AAA-rated securities, 2% of other investment grade securities and 4% of non-investment grade securities and residuals. Our investment grade securities include AAA-rated and agency interest-only securities, agency mortgage-backed securities and debentures, and other mortgage-backed securities. In

10

Table of Contents

      The primary sources of revenue for the Investment Portfolio are net interest income on loans and securities and service fee income from MSRs. Valuation changes related to MSRs (subject to lower of amortized cost or fair value limitations), AAA-rated and agency interest-only securities and their related hedges are also recognized through earnings. Periodically, trading gains or losses may also be recognized through earnings, although trading is not a core Investment Portfolio activity.

Loan Servicing Operations

      At December 31, 2002, through our Home Loan Servicing operation in Kalamazoo, Michigan, we serviced $29.1 billion of mortgage loans, of which $3.3 billon were owned by us. The servicing portfolio includes servicing for prime and subprime loans, home equity lines of credit, manufactured housing loans and home improvement loans.

      Servicing of mortgage loans includes: collecting loan payments; responding to customers’ inquiries; accounting for principal and interest; holding custodial (impound) funds for payment of property taxes and insurance; making physical inspections of the mortgaged property, as necessary; counseling delinquent mortgagors; modifying loans; supervising foreclosures and liquidation of foreclosed property; performing required tax reporting; and other loan administration functions necessary to protect investors’ interests and comply with applicable laws and regulations. Servicing operations also include remitting loan payments, less servicing fees, to trustees and, in some cases, advancing delinquent borrower payments to investors, subject to a right of reimbursement.

      Master servicing includes collecting loan payments from servicers of loans (including third parties) and remitting loan payments, less master servicing fees, to trustees for the related securitizations. As master servicer, we monitor the primary servicer’s compliance with our servicing agreements and we are required to perform, or to contract with a third party to perform, all obligations not adequately performed by any servicer. The master servicer may permit or require the servicer to contract with approved subservicers to perform some or all of the servicer’s duties, but the servicer retains its servicing obligations.

      As of December 31, 2002, we were the master servicer for $4.9 billion of prime and subprime mortgage loans, of which $2.3 billion was serviced on a primary basis by third party servicers.

RETAIL BANKING

      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. Consumers can also conduct transactions through our telebanking operation or in one of our Southern California branches. Our deposit products include regular savings accounts, demand deposit accounts, money market accounts, certificate of deposit accounts and individual retirement accounts.

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, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

11

Table of Contents

INTEREST RATE RISK

      Due to the characteristics of our financial assets and liabilities and the nature of our business activities, our financial position and results of operations may be materially affected by changes in interest rates in various ways. While we have devised and implemented a comprehensive asset/liability management strategy that seeks, on an economic and an accounting basis, to mitigate significant fluctuations in our financial position and results of operations likely to be caused by market interest rate changes, there can be no assurance that this strategy (including assumptions concerning the correlation thought to exist between 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, rather than third party market quotations or sale information to value such assets. The assets include AAA-rated and agency interest-only securities, MSRs, non-investment grade securities and residuals. In addition, from time to time, we may acquire these types of securities from third party issuers. These assets represented 6% of total assets and 67% of total equity at December 31, 2002. The fair value of these assets could vary significantly as market conditions change.

CREDIT RISK

      Our Investment Portfolio consists primarily of loans 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 which have a higher risk profile than permanent mortgage loans. While the majority of our loans are 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 earned 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 mortgage loan portfolios. At December 31, 2002, the book value of these portfolios was $88.2 million, net of reserves.

      We also sell loans to GSEs and to outside investors. 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 FDIC and through borrowings from the FHLB of San Francisco. We also obtain financing from investment 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.

12

Table of Contents

GOVERNMENTAL REGULATION AND MONETARY POLICY

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

COMPETITION

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

      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 mortgage products that are less affected by GSEs, and by operating in a more cost-effective manner than our competitors. There can be no assurance that these efforts will be successful.

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

OTHER RISKS

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

REGULATION AND SUPERVISION

GENERAL

      As a savings and loan holding company, IndyMac Bancorp is subject to regulation by the OTS under the savings association holding company provisions of the federal Home Owners’ Loan Act (“HOLA”). As a federally chartered and insured savings association, we are subject to regulation, supervision and periodic

13

Table of Contents

REGULATION OF INDYMAC BANK

General

      We are required to file periodic reports with the OTS concerning our activities and financial condition. The OTS has substantial enforcement authority with respect to savings associations, including authority to bring enforcement actions against a savings association and any of its “institution-affiliated parties,” which term includes directors, officers, employees, controlling shareholders, agents and other persons who participate in the conduct of the affairs of the institution. The FDIC has “backup” enforcement authority over us and has the power to terminate a savings association’s FDIC deposit insurance. In addition, we are subject to regulations of the Federal Reserve Board relating to equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings, and availability of funds for deposit customers.

Qualified Thrift Lender Test

      Like all savings associations, we are required to meet a qualified thrift lender (“QTL”) test to avoid certain restrictions on our operations, including the activities restrictions applicable to multiple savings and loan holding companies, restrictions on our ability to branch interstate and IndyMac Bancorp’s mandatory registration as a bank holding company under the Bank Holding Company Act of 1956. A savings association satisfies the QTL test if: (i) on a monthly average basis in at least nine months out of each twelve month period, at least 65% of a specified asset base of the savings association consists of loans to small businesses, credit card loans, educational loans, or certain assets related to domestic residential real estate, including residential mortgage loans and mortgage securities; or (ii) at least 60% of the savings association’s total assets consist of cash, U.S. government or government agency debt or equity securities, fixed assets, or loans secured by deposits, real property used for residential, educational, church, welfare, or health purposes, or real property in certain urban renewal areas. We are currently and expect to remain in compliance with QTL standards.

Regulatory Capital Requirements

      OTS capital regulations require savings associations to satisfy three capital ratio requirements: tangible capital, Tier 1 core (leverage) capital, and risk-based capital. In general, an association’s tangible capital, which must be at least 1.5% of adjusted total assets, is the sum of common shareholders’ equity adjusted for the effects of other comprehensive income (“OCI”), less goodwill and other disallowed assets. An association’s ratio of Tier 1 core capital to adjusted total assets (the “core capital” or “leverage” ratio) must be at least 3% for the most highly rated associations and 4% for others. Higher capital ratios may be required if warranted by the particular circumstances or risk profile of a given association. Under the risk-based capital requirement, a savings association must have total capital (core capital plus supplementary capital) equal to at least 8% of risk-weighted assets. Tier 1 capital must represent at least 50% of total capital and consists of core capital elements, which include common shareholders’ equity qualifying noncumulative nonredeemable perpetual preferred stock, and minority interests in the equity accounts of consolidated subsidiaries, but exclude goodwill and certain other intangible assets. Supplementary capital mainly consists of qualifying subordinated debt and portions of allowance for loan losses.

      The above capital requirements are viewed as minimum standards by the OTS. The OTS regulations also specify minimum requirements for a savings association to be considered a “well-capitalized institution” as defined in the “prompt corrective action” regulation described below. A “well-capitalized” savings association must have a total risk-based capital ratio of 10% or greater, and a leverage ratio of 5% or greater. Additionally, to qualify as a “well-capitalized institution,” a savings association’s Tier 1 risk-based capital, defined as core

14

Table of Contents

      The OTS regulations contain prompt corrective action provisions that require certain mandatory remedial actions and authorize certain other discretionary actions to be taken by the OTS against a savings association that falls within specified categories of capital deficiency. The relevant regulations establish five categories of capital classification for this purpose, ranging from “well-capitalized” or “adequately capitalized” through “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” In general, the prompt corrective action regulations prohibit an OTS-regulated institution from declaring any dividends, making any other capital distributions, or paying a management fee to a controlling person, such as its parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories.

Insurance of Deposit Accounts

      Deposits of the Bank are presently insured by the Savings Association Insurance Fund (“SAIF”), which is administered by the FDIC, up to $100,000 per depositor. The FDIC has established a risk-based system for setting deposit insurance assessments. Under the risk-based assessment system, a savings association’s insurance assessments vary according to the level of capital the institution holds and the degree to which it is the subject of supervisory concern. Insurance of deposits may be terminated by the FDIC upon a finding that the savings association has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS.

Capital Distribution Regulations

      OTS regulations limit “capital distributions” by savings association, which include, among other things, dividends and payments for stock repurchases. A savings association that is a subsidiary of a savings and loan holding company must notify the OTS of an association capital distribution at least 30 days prior to the proposed declaration of dividend or the approval by the association’s board of directors of the proposed capital distribution. The 30-day period provides the OTS an opportunity to object to the proposed distribution if it believes that the distribution would not be advisable.

      An application to the OTS for specific approval to pay a dividend, rather than the notice procedure described above, is required if: (a) the total of all capital distributions made during a calendar year (including the proposed distribution) exceeds the sum of the institution’s year-to-date net income and its retained income for the preceding two years, (b) the institution is not eligible under OTS regulations for “expedited treatment” (which is generally available to institutions the OTS regards as well run and adequately capitalized), (c) the institution would not be at least “adequately capitalized” following the proposed capital distribution, or (d) the distribution would violate an applicable statute, regulation, agreement, or condition imposed on the institution by the OTS.

Community Reinvestment Act and the Fair Lending Laws

      Savings associations are examined under the Community Reinvestment Act (“CRA”) and related regulations of the OTS on the extent of their efforts to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act, together known as the “Fair Lending Laws,” prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. Enforcement of these regulations has been an important focus of federal regulatory authorities and of community groups in recent years. A failure by us to comply with the provisions of the CRA could, at a minimum, result in adverse action on

15

Table of Contents

Privacy Protection

      The OTS has adopted privacy protection regulations which require each savings association to adopt procedures to protect consumers’ and customers’ “nonpublic personal information.” It is our policy not to share customers’ information with any unaffiliated third parties, except as expressly permitted by law, or to allow third party companies to provide marketing services on our behalf, or under joint marketing agreements between us and other unaffiliated financial institutions. In addition to federal laws and regulations, we are required to comply with any privacy requirements prescribed by California and other states in which we do business that afford consumers with protections greater than those provided under federal law.

FEDERAL INCOME TAX CONSIDERATIONS

      We report our income on a calendar year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with certain exceptions. Through December 31, 1999, IndyMac Bancorp elected to be taxed as a REIT under the Internal Revenue Code. As a result of this election, IndyMac Bancorp was not, with certain limited exceptions, taxed at the corporate level on the net income distributed to its shareholders. IndyMac Bancorp converted from a REIT to a fully taxable entity, effective January of 2000.

EMPLOYEES

      As of December 31, 2002, we had 3,223 full-time equivalent employees, including 482 temporary employees. We believe that we have generally good relations with our employees. Our turnover rate was 27% during 2002, which is comparable to our industry as a whole according to the Mortgage Bankers Association of America.

WEB SITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION FILINGS

      All reports filed electronically by us with the Securities and Exchange Commission (“SEC”), including Annual Reports on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost on our Web site at www.indymacbank.com. These filings are also accessible on the SEC’s Web site at www.sec.gov.

16

Table of Contents

ITEM 2.     PROPERTIES

      Our significant leased properties are as follows:

      In addition to the above leased office space, we own five buildings, containing an aggregate of approximately 60,000 square feet in Southern California that are used as banking offices. We also own a building in La Mirada, California with 16,500 square feet, which houses our information technology data center.

ITEM 3.     LEGAL PROCEEDINGS

      We are involved in litigation resulting from activities arising from normal operations. In the opinion of management, none of these matters are likely to have a materially adverse effect on our results of operations or financial condition.

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

      No matters were submitted to a vote of shareholders during the quarter ended December 31, 2002.

PART II

ITEM 5.     MARKET FOR INDYMAC BANCORP, INC.’S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS

STOCK INFORMATION

      IndyMac Bancorp Inc.’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “NDE.”

      The following table sets forth the high and low sales prices (as reported by Bloomberg Financial Service) for shares of IndyMac Bancorp Inc.’s common stock for the years ended December 31, 2002 and 2001.

17

Table of Contents

      During the years ended December 31, 2002 and 2001, we repurchased 6.2 million and 3.4 million shares, respectively.

      As of February 14, 2003, 54,892,357 shares of IndyMac Bancorp Inc.’s common stock were held by 1,978 shareholders of record.

DIVIDEND POLICY

      In January of 2003, our Board of Directors reestablished a policy of declaring cash dividends. We intend to pay an annual dividend of $0.40 per share in 2003 in quarterly increments of $0.10 per share, subject to the Board’s continuing review of our results of operations, financial condition, capital requirements, market conditions and other relevant factors in future periods. IndyMac’s Board of Directors declared the first cash dividend of $0.10 per share under the reestablished policy, payable March 13, 2003 to shareholders of record on February 13, 2003. This represents a yield to shareholders of approximately 2% based on the market price for our stock as of December 31, 2002.

      Our principal source of funds for the payment of dividends is dividends we receive from the Bank. The payment of dividends by the Bank is subject to regulatory requirements and review. See the caption “Capital Distribution Regulations” above for further information.

EQUITY COMPENSATION PLANS INFORMATION

ITEM 6. SELECTED FINANCIAL DATA (1)

18

Table of Contents

19

Table of Contents

(1)	For the years ended December 31, 2001 and 2000, the consolidated financial statements include the accounts of IndyMac Bancorp and its wholly owned subsidiary, IndyMac Bank. Prior to January of 2000, one of IndyMac’s subsidiaries, IndyMac, Inc. was not consolidated with IndyMac Bancorp for financial reporting or tax purposes, but was accounted for under the equity method. Effective January of 2000, IndyMac Bancorp purchased all of IndyMac, Inc.’s outstanding common stock. Beginning January of 2000, IndyMac, Inc. was consolidated into the financial statements of IndyMac Bancorp as a wholly owned subsidiary.
(2)	The provision for income taxes in 2000 was reduced by a one-time tax benefit totaling $36.1 million due to the termination of our REIT status.
(3)	In accordance with Securities and Exchange Commission Staff Accounting Bulletin 55 (“SAB 55”), historical net income for 1999 has been adjusted for the pro forma provision for income taxes calculated

20

Table of Contents

	assuming we were fully taxable. Pro forma earnings per share are similarly presented for the year ended December 31, 1999, reflecting the pro forma effect of the change in our tax status to a fully taxable entity effective in January of 2000. In accordance with SAB 55, historical net income per share is not presented, as it is not meaningful based upon our conversion from a REIT to a fully taxable entity effective January of 2000.
(4)	Defined as non-interest expenses, excluding amortization of goodwill and other intangible assets, divided by net interest income and other income.
(5)	Debt includes deposits.
(6)	Average equity divided by net interest income and other income.
(7)	Efficiency ratio multiplied by the capital required to generate a dollar of net revenue.
(8)	IndyMac Bank, F.S.B. (excludes cash at holding company available for investment in IndyMac Bank).
(9)	Includes newly originated commitments on construction loans.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

      We are a leading mortgage banking company. Our broad customer base includes consumers, mortgage brokers, mortgage bankers, community financial institutions, homebuilders and real estate professionals. We offer a wide range of home mortgage products using a technology-based approach. Mortgage banking operations 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 operations include gain on sale of mortgage loans, fee income and net interest income during the period loans are held pending sale. Investment portfolio activities consist primarily of investments in single-family residential mortgage loans, also referred to as SFRs, mortgage securities and MSRs. We also provide loans to consumers and to subdivision developers to construct single-family residences. The portfolio activities tend to provide a more stable source of revenues, comprised primarily of net interest income and servicing fees. See “Item 1. Business” for further descriptions of our operating segments.

      The following discussion and analysis should be read in conjunction with our consolidated financial statements, and the notes thereto and the other information incorporated by reference herein.

OPERATIONS

LOAN PRODUCTION AND SALES

      During the year ended December 31, 2002, we produced $20.9 billion of loans, which was a 19% increase over the $17.5 billion of loans produced during the year ended December 31, 2001. Total production by product type and channel was as follows:

21

Table of Contents