##### Table of Contents









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 period ended June 30,
    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.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                           
|------------------------------------------------------------------ |  | ------------------------------------------
|Delaware                                                           |  | 95-3983415                                
|(State or other jurisdiction of
    incorporation or organization) |  | (I. R. S. Employer
    Identification No.)
|                                                                  
|155 North Lake Avenue, Pasadena,
    California                    |  | 91101-7211                                
|(Address of principal executive
    offices)                       |  | (Zip Code)                                

Registrants telephone number, including
area code (800) 669-2300

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such requirements for the past
90 days.     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 31,
2002: 57,256,337 shares



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TABLE OF CONTENTS



|             |                                                                                               |                                                                          |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ |  |  |  |  |  | 
|             |                                                                                               | CONSOLIDATED BALANCE SHEETS                                             
|             |                                                                                               | CONSOLIDATED STATEMENTS OF EARNINGS                                     
|             |                                                                                               | CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
|             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                                   
|             |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              
|             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|PART II     
|             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES  
|EXHIBIT 4.1 
|EXHIBIT 10.1
|EXHIBIT 10.2
|EXHIBIT 99.1



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##### Table of Contents



INDYMAC BANCORP, INC.

FORM 10-Q QUARTERLY REPORT

For the Period Ended June 30, 2002


TABLE OF CONTENTS

|                                   |  |                                                                                           |  |      |    | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |  |                                                                                           |  | Page
|                                   |  |                                                                                           |  |     
|PART I.  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements (Unaudited)                                                          |  |      |    | 
|                                   |  | Consolidated Balance Sheets                                                               |  |      | 2  | 
|                                   |  | Consolidated Statements of Earnings                                                       |  |      | 3  | 
|                                   |  | Consolidated Statements of Shareholders
    Equity and Comprehensive Income              |  |      | 4  | 
|                                   |  | Consolidated Statements of Cash Flows                                                     |  |      | 5  | 
|                                   |  | Notes to Consolidated Financial Statements                                                |  |      | 6  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 9  | 
|Item 3.                            |  | Quantitative and Qualitative Disclosure about
    Market Risk                             |  |      | 29 | 
|PART II.  OTHER
    INFORMATION   
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 31 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                          |  |      | 31 | 

1



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |          |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | --------- | --------- | --------- | -------- | --------- | --------- | 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | June 30,                                                                                                                                                                |                                            | December 31,
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | 2002                                                                                                                                                                    |                                            | 2001        
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |             
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | (Unaudited)                                                                                                                                                             |                                            |             
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                        
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | (Dollars in thousands,                                                                                                                                                 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | except per share data)                                                                                                                                                 
|ASSETS                                                                                                                                                                                                                                                              
|Cash and cash equivalents                                                                                                                                                                                                                                            |                                                                                                                                                                                                                             | $                                                                                                                                                                       | 108,879                                    |              |           | $         | 153,295   |         
|Securities classified as trading
    ($544.9 million and $182.5 million pledged as
    collateral for repurchase agreements at June 30, 2002 and
    December 31, 2001, respectively)                                                                                |                                                                                                                                                                                                                             |                                                                                                                                                                         | 631,601                                    |              |           |           | 215,200   |         
|Mortgage-backed securities available for sale,
    amortized cost of $1.3 billion and $1.4 billion,
    respectively ($438.6 million and $81.6 million pledged
    as collateral for repurchase agreements at June 30, 2002
    and December 31, 2001, respectively) |                                                                                                                                                                                                                             |                                                                                                                                                                         | 1,363,879                                  |              |           |           | 1,349,159 |         
|Loans receivable:                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     | Loans held for sale                                                                                                                                                                                                         |                                                                                                                                                                         |                                            |              |           |           |           |          |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Prime                                                                                                                                                                   |                                            |              | 1,301,878 |           |           |          | 1,940,213 |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Subprime                                                                                                                                                                |                                            |              | 124,865   |           |           |          | 140,550   |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | HELOC                                                                                                                                                                   |                                            |              | 172,606   |           |           |          |          |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Consumer lot loans                                                                                                                                                      |                                            |              | 143,014   |           |           |          |          |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | Total loans held for sale                  |              |           | 1,742,363 |           |          |           | 2,080,763 | 
|                                                                                                                                                                                                                                                                     | Loans held for investment                                                                                                                                                                                                   |                                                                                                                                                                         |                                            |              |           |           |           |          |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Mortgage                                                                                                                                                                |                                            |              | 1,490,895 |           |           |          | 1,531,757 |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Builder construction                                                                                                                                                    |                                            |              | 528,540   |           |           |          | 596,273   |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Consumer construction                                                                                                                                                   |                                            |              | 744,641   |           |           |          | 725,200   |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Income property                                                                                                                                                         |                                            |              | 74,320    |           |           |          | 58,616    |          
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | HELOC                                                                                                                                                                   |                                            |              |          |           |           |          | 84,511    |          
|                                                                                                                                                                                                                                                                     | Allowance for loan losses                                                                                                                                                                                                   |                                                                                                                                                                         |                                            | (52,978      | )         |           |           | (57,700  | )        
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | Total loans held for investment            |              |           | 2,785,418 |           |          |           | 2,938,657 | 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Total loans receivable ($0.9 billion and
    $2.0 billion pledged as collateral for repurchase
    agreements at June 30, 2002 and December 31, 2001,
    respectively) |                                            |              | 4,527,781 |           |           |          | 5,019,420 |          
|Mortgage servicing rights                                                                                                                                                                                                                                            |                                                                                                                                                                                                                             |                                                                                                                                                                         | 316,779                                    |              |           |           | 321,316   |         
|Investment in Federal Home Loan Bank stock, at
    cost                                                                                                                                                                                                              |                                                                                                                                                                                                                             |                                                                                                                                                                         | 107,120                                    |              |           |           | 99,996    |         
|Interest receivable                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                             |                                                                                                                                                                         | 41,658                                     |              |           |           | 52,172    |         
|Goodwill and other intangible assets                                                                                                                                                                                                                                 |                                                                                                                                                                                                                             |                                                                                                                                                                         | 35,057                                     |              |           |           | 35,637    |         
|Foreclosed assets                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                             |                                                                                                                                                                         | 21,569                                     |              |           |           | 19,372    |         
|Other assets                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                             |                                                                                                                                                                         | 280,511                                    |              |           |           | 231,744   |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | Total assets                               |              | $         | 7,434,834 |           |          | $         | 7,497,311 | 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                                                                                                            
|Deposits                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                             | $                                                                                                                                                                       | 2,806,135                                  |              |           | $         | 3,238,864 |         
|Advances from Federal Home Loan Bank                                                                                                                                                                                                                                 |                                                                                                                                                                                                                             |                                                                                                                                                                         | 1,986,726                                  |              |           |           | 1,999,378 |         
|Other borrowings                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | 1,344,535                                  |              |           |           | 1,053,670 |         
|Trust preferred securities                                                                                                                                                                                                                                           |                                                                                                                                                                                                                             |                                                                                                                                                                         | 116,550                                    |              |           |           | 116,287   |         
|Other liabilities                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                             |                                                                                                                                                                         | 288,560                                    |              |           |           | 243,974   |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             | Total liabilities                                                                                                                                                       |                                            |              | 6,542,506 |           |           |          | 6,652,173 |          
|Shareholders Equity                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     | Preferred Stock  authorized,
    10,000,000 shares of $0.01 par value; none issued                                                                                                                                         |                                                                                                                                                                         |                                            |             |           |           |           |         |          
|                                                                                                                                                                                                                                                                     | Common stock  authorized, 200,000,000
    shares of $0.01 par value; issued 83,742,071 shares (59,250,632
    outstanding) at June 30, 2002 and issued 83,312,516 shares
    (60,366,266 outstanding) at December 31, 2001 |                                                                                                                                                                         |                                            | 837          |           |           |           | 833      |          
|                                                                                                                                                                                                                                                                     | Additional paid-in-capital                                                                                                                                                                                                  |                                                                                                                                                                         |                                            | 1,005,129    |           |           |           | 996,649  |          
|                                                                                                                                                                                                                                                                     | Accumulated other comprehensive income                                                                                                                                                                                      |                                                                                                                                                                         |                                            | 5,372        |           |           |           | 570      |          
|                                                                                                                                                                                                                                                                     | Retained earnings                                                                                                                                                                                                           |                                                                                                                                                                         |                                            | 304,907      |           |           |           | 234,314  |          
|                                                                                                                                                                                                                                                                     | Treasury stock, 24,491,439 shares and 22,946,250
    shares at June 30, 2002 and December 31, 2001,
    respectively                                                                                                        |                                                                                                                                                                         |                                            | (423,917     | )         |           |           | (387,228 | )        
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | Total shareholders equity                 |              |           | 892,328   |           |          |           | 845,138   | 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         | Total liabilities and shareholders equity |              | $         | 7,434,834 |           |          | $         | 7,497,311 | 
|                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                             |                                                                                                                                                                         |                                            |              |           |           |           |         

The accompanying notes are an integral part of
these statements.

2



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF EARNINGS


|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |         |         | 
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------------------------- | ------ | ------------------ | ------- | ---- | ------ | ------ | ------- | - | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                         |                                                           |                                                                           |        |                   
|                                                                                                         |                                                           | For the Three Months                                                      |        | For the Six Months
|                                                                                                         |                                                           | Ended June 30,                                                            |        | Ended June 30,    
|                                                                                                         |                                                           |                                                                           |        |                   
|                                                                                                         |                                                           | 2002                                                                      |        | 2001               |         | 2002 |        | 2001  
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |       
|                                                                                                         |                                                           |                                                                          
|                                                                                                         |                                                           | (Unaudited)                                                              
|                                                                                                         |                                                           | (Dollars in thousands, except per share data)                            
|Interest income                                                                                          |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|Mortgage-backed and other securities                                                                     |                                                           | $                                                                         | 27,933 |                    |         | $    | 30,467 |        |         | $ | 56,815  |         |         | $ | 62,026 |        
|Loans held for sale                                                                                      |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Prime                                                     |                                                                           |        | 26,102             |         |      |        | 44,540 |         |   |         | 59,429  |         |   |        | 76,514  |        
|                                                                                                         | Subprime                                                  |                                                                           |        | 2,271              |         |      |        | 4,519  |         |   |         | 5,687   |         |   |        | 9,935   |        
|                                                                                                         | HELOC                                                     |                                                                           |        |                   |         |      |        | 612    |         |   |         |        |         |   |        | 1,150   |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Total loans held for sale                                                 |        |                    | 28,373  |      |        |        | 49,671  |   |         |         | 65,116  |   |        |         | 87,599  | 
|Loans held for investment                                                                                |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Mortgage                                                  |                                                                           |        | 28,976             |         |      |        | 35,169 |         |   |         | 58,570  |         |   |        | 71,039  |        
|                                                                                                         | Builder construction                                      |                                                                           |        | 9,438              |         |      |        | 14,111 |         |   |         | 19,731  |         |   |        | 29,123  |        
|                                                                                                         | Consumer construction                                     |                                                                           |        | 13,949             |         |      |        | 9,764  |         |   |         | 27,926  |         |   |        | 18,477  |        
|                                                                                                         | Income property                                           |                                                                           |        | 1,487              |         |      |        | 1,261  |         |   |         | 2,593   |         |   |        | 2,587   |        
|                                                                                                         | HELOC                                                     |                                                                           |        | 1,819              |         |      |        |       |         |   |         | 3,124   |         |   |        |        |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Total loans held for investment                                           |        |                    | 55,669  |      |        |        | 60,305  |   |         |         | 111,944 |   |        |         | 121,226 | 
|Other                                                                                                    |                                                           |                                                                           | 1,585  |                    |         |      | 1,560  |        |         |   | 3,367   |         |         |   | 3,112  |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Total interest income                                                     |        |                    | 113,560 |      |        |        | 142,003 |   |         |         | 237,242 |   |        |         | 273,963 | 
|Interest expense                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|Deposits                                                                                                 |                                                           |                                                                           | 26,828 |                    |         |      | 20,302 |        |         |   | 58,136  |         |         |   | 34,776 |        
|Advances from Federal Home Loan Bank                                                                     |                                                           |                                                                           | 25,004 |                    |         |      | 23,742 |        |         |   | 49,393  |         |         |   | 46,158 |        
|Borrowings                                                                                               |                                                           |                                                                           | 9,768  |                    |         |      | 45,720 |        |         |   | 21,243  |         |         |   | 97,733 |        
|Trust preferred securities                                                                               |                                                           |                                                                           | 2,757  |                    |         |      |       |        |         |   | 5,513   |         |         |   |       |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Total interest expense                                    |                                                                           |        | 64,357             |         |      |        | 89,764 |         |   |         | 134,285 |         |   |        | 178,667 |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Net interest income                                       |                                                                           |        | 49,203             |         |      |        | 52,239 |         |   |         | 102,957 |         |   |        | 95,296  |        
|Provision for loan losses                                                                                |                                                           |                                                                           | 3,568  |                    |         |      | 3,026  |        |         |   | 7,754   |         |         |   | 12,026 |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Net interest income after provision for loan
    losses   |                                                                           |        | 45,635             |         |      |        | 49,213 |         |   |         | 95,203  |         |   |        | 83,270  |        
|Other income                                                                                             |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Gain on sale of loans                                     |                                                                           |        | 71,280             |         |      |        | 52,714 |         |   |         | 148,746 |         |   |        | 101,913 |        
|                                                                                                         | Service fee income                                        |                                                                           |        | 6,405              |         |      |        | 2,906  |         |   |         | 14,227  |         |   |        | 14,368  |        
|                                                                                                         | Gain (loss) on mortgage-backed securities,
    net        |                                                                           |        | 2,701              |         |      |        | 1,572  |         |   |         | (4,287  | )       |   |        | (915    | )      
|                                                                                                         | Fee and other income                                      |                                                                           |        | 12,680             |         |      |        | 13,413 |         |   |         | 26,289  |         |   |        | 24,360  |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Total other income                                                        |        |                    | 93,066  |      |        |        | 70,605  |   |         |         | 184,975 |   |        |         | 139,726 | 
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Net revenues                                                              |        |                    | 138,701 |      |        |        | 119,818 |   |         |         | 280,178 |   |        |         | 222,996 | 
|Other expense                                                                                            |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Operating expenses                                        |                                                                           |        | 80,702             |         |      |        | 66,870 |         |   |         | 160,256 |         |   |        | 125,935 |        
|                                                                                                         | Amortization of goodwill and other intangible
    assets  |                                                                           |        | 280                |         |      |        | 935    |         |   |         | 579     |         |   |        | 1,895   |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Total other expense                                                       |        |                    | 80,982  |      |        |        | 67,805  |   |         |         | 160,835 |   |        |         | 127,830 | 
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|Earnings before provision for income taxes and
    cumulative effect of a change in accounting principle |                                                           |                                                                           | 57,719 |                    |         |      | 52,013 |        |         |   | 119,343 |         |         |   | 95,166 |        
|                                                                                                         | Provision for income taxes                                |                                                                           |        | 23,145             |         |      |        | 21,611 |         |   |         | 48,750  |         |   |        | 39,541  |        
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Earnings before cumulative effect of a change in
    accounting principle |        |                    | 34,574  |      |        |        | 30,402  |   |         |         | 70,593  |   |        |         | 55,625  | 
|                                                                                                         | Cumulative effect of a change in accounting
    principle |                                                                           |        |                   |         |      |        |       |         |   |         |        |         |   |        | (10,185 | )      
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         |                                                           | Net earnings                                                              |        | $                  | 34,574  |      |        | $      | 30,402  |   |         | $       | 70,593  |   |        | $       | 45,440  | 
|                                                                                                         |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|Earnings per share before cumulative effect of
    a change in accounting principle                      |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Basic                                                     |                                                                           | $      | 0.58               |         |      | $      | 0.50   |         |   | $       | 1.17    |         |   | $      | 0.90    |        
|                                                                                                         | Diluted                                                   |                                                                           | $      | 0.56               |         |      | $      | 0.48   |         |   | $       | 1.14    |         |   | $      | 0.87    |        
|Earnings per share from cumulative effect of a
    change in accounting principle                        |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Basic                                                     |                                                                           | $      |                   |         |      | $      |       |         |   | $       |        |         |   | $      | (0.16   | )      
|                                                                                                         | Diluted                                                   |                                                                           | $      |                   |         |      | $      |       |         |   | $       |        |         |   | $      | (0.16   | )      
|Earnings per share                                                                                       |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Basic                                                     |                                                                           | $      | 0.58               |         |      | $      | 0.50   |         |   | $       | 1.17    |         |   | $      | 0.74    |        
|                                                                                                         | Diluted                                                   |                                                                           | $      | 0.56               |         |      | $      | 0.48   |         |   | $       | 1.14    |         |   | $      | 0.71    |        
|Weighted average shares outstanding                                                                      |                                                           |                                                                           |        |                    |         |      |        |        |         |   |         |         |         |   |        |        
|                                                                                                         | Basic                                                     |                                                                           |        | 60,050             |         |      |        | 60,860 |         |   |         | 60,139  |         |   |        | 61,523  |        
|                                                                                                         | Diluted                                                   |                                                                           |        | 61,763             |         |      |        | 63,217 |         |   |         | 61,903  |         |   |        | 63,916  |        

The accompanying notes are an integral part of
these statements.

3



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND


COMPREHENSIVE INCOME


|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|--------------------------------------------------------------- |  | ---------------------- | ---------- | ------ |  | ---------- | --- | ------------- |  | ---------- | --------- | ------------- |  | -------- | ------ | ------------- |  | - | ------- |  |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                |  |                        |            |        |  |            |     | Accumulated   |  |            |           |               |  |          |        |              
|                                                                |  |                        |            |        |  |            |     | Other         |  |            |           |               |  |          |        |              
|                                                                |  |                        |            |        |  | Additional |     | Comprehensive |  |            |           | Total         |  |          |        | Total        
|                                                                |  | Shares                 |            | Common |  | Paid-in    |     | Income        |  | Cumulative |           | Comprehensive |  | Treasury |        | Shareholders
|                                                                |  | Outstanding            |            | Stock  |  | Capital    |     | (Loss)        |  | Earnings   |           | Income        |  | Stock    |        | Equity       
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |              
|                                                                |  |                       
|                                                                |  | (Unaudited)           
|                                                                |  | (Dollars in thousands)
|Balance at December 31, 2000                                    |  |                        | 62,176,316 |        |  | $          | 818 |               |  | $          | 920,205   |               |  | $        | (2,603 | )             |  | $ | 117,926 |  |  |   |        |   |  | $ | (308,453 | ) |  | $ | 727,893 |  
|Common stock options exercised                                  |  |                        | 1,021,952  |        |  |            | 10  |               |  |            | 15,181    |               |  |          |       |               |  |   |        |  |  | $ |       |   |  |   |         |   |  |   | 15,191  |  
|Directors and officers notes
    receivable                   |  |                        |           |        |  |            |    |               |  |            | (669      | )             |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | (669    | )
|Deferred compensation, restricted stock                         |  |                        | 12,304     |        |  |            |    |               |  |            | 1,020     |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | 1,020   |  
|401(k) contribution                                             |  |                        | 38,215     |        |  |            |    |               |  |            | 996       |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | 996     |  
|Net gain on mortgage securities available for sale              |  |                        |           |        |  |            |    |               |  |            |          |               |  |          | 6,149  |               |  |   |        |  |  |   | 6,149  |   |  |   |         |   |  |   | 6,149   |  
|Dividend reinvestment plan                                      |  |                        | 1,045      |        |  |            |    |               |  |            | 27        |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | 27      |  
|Purchases of common stock                                       |  |                        | (2,801,916 | )      |  |            |    |               |  |            |          |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   | (66,333  | ) |  |   | (66,333 | )
|Net earnings                                                    |  |                        |           |        |  |            |    |               |  |            |          |               |  |          |       |               |  |   | 45,440  |  |  |   | 45,440 |   |  |   |         |   |  |   | 45,440  |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|Net change                                                      |  |                        | (1,728,400 | )      |  |            | 10  |               |  |            | 16,555    |               |  |          | 6,149  |               |  |   | 45,440  |  |  | $ | 51,589 |   |  |   | (66,333  | ) |  |   | 1,821   |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|Balance at June 30, 2001                                        |  |                        | 60,447,916 |        |  | $          | 828 |               |  | $          | 936,760   |               |  | $        | 3,546  |               |  | $ | 163,366 |  |  |   |        |   |  | $ | (374,786 | ) |  | $ | 729,714 |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2001                                    |  |                        | 60,366,266 |        |  | $          | 833 |               |  | $          | 996,649   |               |  | $        | 570    |               |  | $ | 234,314 |  |  |   |        |   |  | $ | (387,228 | ) |  | $ | 845,138 |  
|Common stock options exercised                                  |  |                        | 411,174    |        |  |            | 4   |               |  |            | 7,969     |               |  |          |       |               |  |   |        |  |  | $ |       |   |  |   |         |   |  |   | 7,973   |  
|Directors and officers notes
    receivable                   |  |                        |           |        |  |            |    |               |  |            | (379      | )             |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | (379    | )
|Deferred compensation, restricted stock                         |  |                        | 17,040     |        |  |            |    |               |  |            | 857       |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | 857     |  
|Net gain on mortgage securities available for sale              |  |                        |           |        |  |            |    |               |  |            |          |               |  |          | 8,772  |               |  |   |        |  |  |   | 8,772  |   |  |   |         |   |  |   | 8,772   |  
|Net unrealized loss on derivatives used in cash
    flow hedges |  |                        |           |        |  |            |    |               |  |            |          |               |  |          | (3,970 | )             |  |   |        |  |  |   | (3,970 | ) |  |   |         |   |  |   | (3,970  | )
|Dividend reinvestment plan                                      |  |                        | 1,341      |        |  |            |    |               |  |            | 33        |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   |         |   |  |   | 33      |  
|Purchases of common stock                                       |  |                        | (1,545,189 | )      |  |            |    |               |  |            |          |               |  |          |       |               |  |   |        |  |  |   |       |   |  |   | (36,689  | ) |  |   | (36,689 | )
|Net earnings                                                    |  |                        |           |        |  |            |    |               |  |            |          |               |  |          |       |               |  |   | 70,593  |  |  |   | 70,593 |   |  |   |         |   |  |   | 70,593  |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|Net change                                                      |  |                        | (1,115,634 | )      |  |            | 4   |               |  |            | 8,480     |               |  |          | 4,802  |               |  |   | 70,593  |  |  | $ | 75,395 |   |  |   | (36,689  | ) |  |   | 47,190  |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  
|Balance at June 30, 2002                                        |  |                        | 59,250,632 |        |  | $          | 837 |               |  | $          | 1,005,129 |               |  | $        | 5,372  |               |  | $ | 304,907 |  |  |   |        |   |  | $ | (423,917 | ) |  | $ | 892,328 |  
|                                                                |  |                        |            |        |  |            |     |               |  |            |           |               |  |          |        |               |  |   |         |  |  |   |        |   |  |   |          |   |  |   |         |  

The accompanying notes are an integral part of
these statements.

4



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |          |            |            |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------- | ---------- | -------- | ------- | -------- | ---------- | ---------- | -
|                                                 |                                                                                                   |                                                               
|                                                 |                                                                                                   | For the Six Months                                            
|                                                 |                                                                                                   | Ended June 30,                                                
|                                                 |                                                                                                   |                                                               
|                                                 |                                                                                                   | 2002                                                           |                                                                                                              | 2001    
|                                                 |                                                                                                   |                                                                |                                                                                                              |         
|                                                 |                                                                                                   |                                                               
|                                                 |                                                                                                   | (Unaudited)                                                   
|                                                 |                                                                                                   |                                                               
|                                                 |                                                                                                   | (Dollars in thousands)                                        
|Cash flows from operating
    activities:        |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 | Net earnings                                                                                      |                                                                | $                                                                                                            | 70,593   |            |          | $       | 45,440   |           
|                                                 | Adjustments to reconcile net earnings to net cash
    provided by (used in) operating activities: |                                                                |                                                                                                              |          |            |          |         |          |           
|                                                 |                                                                                                   | Amortization of securities and mortgage servicing
    rights   |                                                                                                              |          | 79,874     |          |         |          | 56,475     |           
|                                                 |                                                                                                   | Other depreciation and amortization                            |                                                                                                              |          | 9,581      |          |         |          | 8,138      |           
|                                                 |                                                                                                   | Gain on sale of loans                                          |                                                                                                              |          | (148,746   | )        |         |          | (101,913   | )         
|                                                 |                                                                                                   | Loss on mortgage-backed securities, net                        |                                                                                                              |          | 4,287      |          |         |          | 915        |           
|                                                 |                                                                                                   | Provision for loan losses                                      |                                                                                                              |          | 7,754      |          |         |          | 12,026     |           
|                                                 |                                                                                                   | Non-cash compensation expense                                  |                                                                                                              |          | 857        |          |         |          | 1,481      |           
|                                                 |                                                                                                   | Cumulative effect of a change in accounting
    principle      |                                                                                                              |          |           |          |         |          | 10,185     |           
|                                                 |                                                                                                   | Net decrease (increase) in other assets and
    liabilities    |                                                                                                              |          | 3,833      |          |         |          | (16,052    | )         
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Net cash provided by operating activities before
    activity for trading securities and held for sale loans |          |            | 28,033   |         |          |            | 16,695     |  
|                                                 |                                                                                                   | Purchases of trading securities                                |                                                                                                              |          | (453,073   | )        |         |          |           |           
|                                                 |                                                                                                   | Sales of and payments from trading securities                  |                                                                                                              |          | 76,194     |          |         |          | 442        |           
|                                                 |                                                                                                   | Purchases and originations of mortgage loans held
    for sale |                                                                                                              |          | (7,230,718 | )        |         |          | (7,102,533 | )         
|                                                 |                                                                                                   | Sales of and payments from mortgage loans held
    for sale    |                                                                                                              |          | 7,967,728  |          |         |          | 5,557,401  |           
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Net cash provided by (used in) operating
    activities                                                      |          |            | 388,164  |         |          |            | (1,527,995 | )
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|Cash flows from investing
    activities:        |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 | Purchases of mortgage loans held for investment                                                   |                                                                |                                                                                                              | (789,602 | )          |          |         | (79,425  | )         
|                                                 | Sales of and payments from mortgage loans held
    for investment                                 |                                                                |                                                                                                              | 476,399  |            |          |         | 384,522  |           
|                                                 | Net decrease (increase) in construction
    loans receivable                                      |                                                                |                                                                                                              | 43,452   |            |          |         | (172,681 | )         
|                                                 | Purchases of mortgage securities available for
    sale                                           |                                                                |                                                                                                              | (560,905 | )          |          |         | (553,111 | )         
|                                                 | Sales of and payments from mortgage securities
    available for sale                             |                                                                |                                                                                                              | 590,577  |            |          |         | 356,682  |           
|                                                 | Net purchases of mortgage servicing rights                                                        |                                                                |                                                                                                              | (853     | )          |          |         | (1,982   | )         
|                                                 | Net increase in investment in Federal Home Loan
    Bank stock, at cost                           |                                                                |                                                                                                              | (7,124   | )          |          |         | (23,496  | )         
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Net cash used in investing activities                                                                        |          |            | (248,056 | )       |          |            | (89,491    | )
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|Cash flows from financing
    activities:        |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 | Net (decrease) increase in deposits                                                               |                                                                |                                                                                                              | (432,735 | )          |          |         | 996,063  |           
|                                                 | Net (decrease) increase in advances from
    Federal Home Loan Bank                               |                                                                |                                                                                                              | (12,767  | )          |          |         | 449,927  |           
|                                                 | Net increase in borrowings                                                                        |                                                                |                                                                                                              | 289,960  |            |          |         | 196,490  |           
|                                                 | Net proceeds from issuance of common stock and
    exercise of stock options                      |                                                                |                                                                                                              | 7,707    |            |          |         | 15,236   |           
|                                                 | Purchases of common stock                                                                         |                                                                |                                                                                                              | (36,689  | )          |          |         | (66,333  | )         
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Net cash (used in) provided by financing
    activities                                                      |          |            | (184,524 | )       |          |            | 1,591,383  |  
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|Net decrease in cash and cash equivalents        |                                                                                                   |                                                                | (44,416                                                                                                      | )        |            |          | (26,103 | )       
|Cash and cash equivalents at beginning of period |                                                                                                   |                                                                | 153,295                                                                                                      |          |            |          | 67,867  |         
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|Cash and cash equivalents at end of period       |                                                                                                   | $                                                              | 108,879                                                                                                      |          |            | $        | 41,764  |         
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 | Supplemental cash flow information:                                                               |                                                                |                                                                                                              |          |            |          |         |          |           
|                                                 |                                                                                                   |                                                                | Cash paid for interest                                                                                       |          | $          | 132,039  |         |          | $          | 180,439    |  
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Cash paid for income taxes                                                                                   |          | $          | 611      |         |          | $          | 2,054      |  
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 | Supplemental disclosure of noncash investing
    and financing activities:                        |                                                                |                                                                                                              |          |            |          |         |          |           
|                                                 |                                                                                                   |                                                                | Transfer of loans held for sale to loans held for
    investment                                             |          | $          | 296,881  |         |          | $          | 316,014    |  
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         
|                                                 |                                                                                                   |                                                                | Transfer of loans held for investment to loans
    held for sale                                             |          | $          | 710,772  |         |          | $          |           |  
|                                                 |                                                                                                   |                                                                |                                                                                                              |          |            |          |         |         

The accompanying notes are an integral part of
these statements.

5



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


June 30, 2002


(Unaudited)


Note 1  Basis of
Presentation

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

The consolidated financial statements include the
accounts of IndyMac Bancorp and its subsidiaries, including
IndyMac Bank®, F.S.B. (IndyMac Bank). All
significant intercompany balances and transactions with
IndyMacs consolidated subsidiaries have been eliminated in
consolidation. The consolidated financial statements of IndyMac
are prepared in conformity with accounting principles generally
accepted in the United States of America (US GAAP).
The balance of trust preferred securities at December 31,
2001 was reclassified from mezzanine debt to liabilities to
conform to the current period presentation. Operating results
for the six months ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2002. 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, 2001.

Note 2  Recently Adopted Accounting
Pronouncement

Effective January 1, 2002, goodwill is no
longer amortized, but rather is tested for impairment annually
as a result of the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (SFAS 142). We did not recognize
any impairment on our goodwill upon adoption of SFAS 142.
Our core deposit intangible asset continues to be amortized
using an accelerated method of amortization over a period of
10 years, which is the estimated life of the deposit
relationships acquired.

Accumulated amortization of $2.9 million as
of June 30, 2002 and $2.3 million as of
December 31, 2001 was netted against our gross core deposit
intangible asset of $7.7 million. Estimated amortization
expense for our core deposit intangible asset is as follows for
the years ended December 31, 2002 
$1.1 million; 2003  $852 thousand;
2004  $701 thousand; 2005  $591 thousand;
2006  $498 thousand; and 2007  $469
thousand.

Goodwill of $30.3 million as of
January 1, 2002 was allocated to our segments as follows:
Mortgage Banking  $1.5 million; Investment Portfolio
 $0.3 million; and $28.5 million is included in
Other, as that segment includes our retail banking
operations.

6



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##### Table of Contents



INDYMAC BANCORP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Had goodwill amortization not been recognized in
the three and six months ended June 30, 2001, net
earnings and basic and diluted earnings per share would have
been as follows:

|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|------------------------------- |  | --------------------------------------------- | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                |  |                                               |        |                 
|                                |  | Three Months Ended                            |        | Six Months Ended
|                                |  | June 30,                                      |        | June 30,        
|                                |  |                                               |        |                 
|                                |  | 2002                                          |        | 2001             |  | 2002 |        | 2001
|                                |  |                                               |        |                  |  |      |        |     
|                                |  |                                              
|                                |  | (Dollars in thousands, except per share data)
|Reported net earnings           |  | $                                             | 34,574 |                  |  | $    | 30,402 |      |  | $ | 70,593 |  |  | $ | 45,440 | 
|Add back goodwill amortization  |  |                                               |       |                  |  |      | 244    |      |  |   |       |  |  |   | 488    | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Adjusted net earnings           |  | $                                             | 34,574 |                  |  | $    | 30,646 |      |  | $ | 70,593 |  |  | $ | 45,928 | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic earnings per share:       |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Reported net earnings per share |  | $                                             | 0.58   |                  |  | $    | 0.50   |      |  | $ | 1.17   |  |  | $ | 0.74   | 
|Goodwill amortization           |  |                                               |       |                  |  |      |       |      |  |   |       |  |  |   | 0.01   | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Adjusted net earnings per share |  | $                                             | 0.58   |                  |  | $    | 0.50   |      |  | $ | 1.17   |  |  | $ | 0.75   | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted earnings per share:     |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Reported net earnings per share |  | $                                             | 0.56   |                  |  | $    | 0.48   |      |  | $ | 1.14   |  |  | $ | 0.71   | 
|Goodwill amortization           |  |                                               |       |                  |  |      |       |      |  |   |       |  |  |   | 0.01   | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Adjusted net earnings per share |  | $                                             | 0.56   |                  |  | $    | 0.48   |      |  | $ | 1.14   |  |  | $ | 0.72   | 
|                                |  |                                               |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

Note 3  Segment Reporting

Our reportable operating segments are Mortgage
Banking and Investment Portfolio. Prior to 2002, we also had a
Builder Finance segment. Commencing in 2002, the Builder Finance
segment was combined with the Mortgage Banking segment to align
our builder-oriented business more closely with our mortgage
banking activities, by focusing our builder construction lending
efforts on those homebuilders that have the highest likelihood
of utilizing our technology to provide the related permanent
mortgage loans to their customers. Segment information for 2001,
including a change in the allocation method of interest expense
to the operating segments, has been restated to conform to the
current year presentation.

The Mortgage Banking segment purchases
conforming, jumbo and other non-conforming mortgage loans from
business-to-business (B2B) customers, and funds
loans directly to consumers (B2C). These loans are
then either securitized through the issuance of mortgage-backed
securities, sold to government sponsored enterprises
(GSEs), resold in bulk whole loan sales to
investors, or transferred to and retained by our Investment
Portfolio segment. The Mortgage Banking segment also administers
the related construction advances for the purchase of
construction-to-permanent mortgage loans originated by or
sourced through our B2B sellers and direct customers, as well as
residential development and construction loans to builders.
Additionally, Mortgage Banking operates a business-to-realtor
(B2R) channel, LoanWorks.com®, which allows
real estate professionals to utilize our technology to fulfill
the mortgage loan process for their customers in the process of
purchasing a home.

The Investment Portfolio segment invests in
single-family residential loans, mortgage securities and
mortgage servicing rights on a long-term basis. The Investment
Portfolio segment also actively hedges its mortgage servicing
rights and performs mortgage servicing activities.

The profitability of each operating segment is
measured on a fully-leveraged basis after allocating capital
based on regulatory capital rules. Corporate costs such as
corporate salaries and related expenses, excess capital, and
non-recurring corporate items are unallocated and included in
Other below.

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INDYMAC BANCORP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Segment information for the three and six months
ended June 30, 2002 and 2001 was as follows:

|                                 |                                                                                  |                        |   |            |  |       |   |              |   |  |   |         |   |  |   |           |  
|-------------------------------- | -------------------------------------------------------------------------------- | ---------------------- | - | ---------- |  | ----- | - | ------------ | - |  | - | ------- | - |  | - | --------- | -
|                                 |                                                                                  | Mortgage               |   | Investment |  |       |   |             
|                                 |                                                                                  | Banking                |   | Portfolio  |  | Other |   | Consolidated
|                                 |                                                                                  |                        |   |            |  |       |   |             
|                                 |                                                                                  |                       
|                                 |                                                                                  | (Dollars in thousands)
|Three months ended June 30, 2002 |                                                                                  |                        |   |            |  |       |   |              |   |  |   |         |   |  |   |          
|                                 | Net interest income (expense)                                                    |                        | $ | 39,636     |  |       | $ | 20,150       |   |  | $ | (10,583 | ) |  | $ | 49,203    |  
|                                 | Net revenues (loss)                                                              |                        |   | 121,393    |  |       |   | 27,137       |   |  |   | (9,829  | ) |  |   | 138,701   |  
|                                 | Net earnings (loss)                                                              |                        |   | 42,450     |  |       |   | 10,381       |   |  |   | (18,257 | ) |  |   | 34,574    |  
|Three months ended June 30, 2001 |                                                                                  |                        |   |            |  |       |   |              |   |  |   |         |   |  |   |          
|                                 | Net interest income (expense)                                                    |                        | $ | 33,870     |  |       | $ | 21,134       |   |  | $ | (2,765  | ) |  | $ | 52,239    |  
|                                 | Net revenues (loss)                                                              |                        |   | 98,699     |  |       |   | 23,586       |   |  |   | (2,467  | ) |  |   | 119,818   |  
|                                 | Net earnings (loss)                                                              |                        |   | 33,790     |  |       |   | 11,410       |   |  |   | (14,798 | ) |  |   | 30,402    |  
|Six months ended June 30, 2002   |                                                                                  |                        |   |            |  |       |   |              |   |  |   |         |   |  |   |          
|                                 | Net interest income (expense)                                                    |                        | $ | 84,529     |  |       | $ | 43,885       |   |  | $ | (25,457 | ) |  | $ | 102,957   |  
|                                 | Net revenues (loss)                                                              |                        |   | 255,011    |  |       |   | 49,730       |   |  |   | (24,563 | ) |  |   | 280,178   |  
|                                 | Net earnings (loss)                                                              |                        |   | 92,070     |  |       |   | 18,594       |   |  |   | (40,071 | ) |  |   | 70,593    |  
|Six months ended June 30, 2001   |                                                                                  |                        |   |            |  |       |   |              |   |  |   |         |   |  |   |          
|                                 | Net interest income (expense)                                                    |                        | $ | 57,246     |  |       | $ | 42,848       |   |  | $ | (4,798  | ) |  | $ | 95,296    |  
|                                 | Net revenues (loss)                                                              |                        |   | 181,207    |  |       |   | 46,064       |   |  |   | (4,275  | ) |  |   | 222,996   |  
|                                 | Earnings (loss) before cumulative effect of
    a change in accounting principle |                        |   | 60,266     |  |       |   | 23,275       |   |  |   | (27,916 | ) |  |   | 55,625    |  
|                                 | Cumulative effect of a change in accounting
    principle                        |                        |   | 21         |  |       |   | (10,206      | ) |  |   |        |   |  |   | (10,185   | )
|                                 | Net earnings (loss)                                                              |                        |   | 60,287     |  |       |   | 13,069       |   |  |   | (27,916 | ) |  |   | 45,440    |  
|                                 | Assets as of June 30, 2002                                                       |                        | $ | 2,947,305  |  |       | $ | 4,300,083    |   |  | $ | 187,446 |   |  | $ | 7,434,834 |  

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Item
2.Managements Discussion
and Analysis of Financial Condition and Results of
Operations

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
financial condition, results of operations, plans, objectives,
future performance and business. Forward-looking statements
typically include the words anticipate,
believe, estimate, expect,
project, plan, forecast,
intend and other similar expressions. These
statements reflect our current views with respect to future
events and financial performance. They are subject to risks and
uncertainties, which could cause future results to differ
materially from historical results or from the results
anticipated. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of
their dates or as of the date hereof if no other date is
identified. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. For further information
on our key operating risks, refer to IndyMacs annual
report on Form 10-K for the year ended December 31,
2001.

Business Model

We are a savings and loan holding company. Our
strategy is to be a leading provider of home mortgage loans. We
offer a wide array of home mortgage products using a
technology-based approach, leveraged across multiple products,
channels and customers. We serve a wide range of customers,
including consumers, mortgage brokers, mortgage bankers,
community financial institutions, homebuilders and real estate
professionals. To manage our various operations, we have aligned
our business into two reportable operating segments: Mortgage
Banking and Investment Portfolio. References to IndyMac
Bancorp refer to the parent company alone while references
to IndyMac, the Company or
we refer to IndyMac Bancorp, Inc. and its
consolidated subsidiaries.



| |                       
| | ----------------------
| | Mortgage Banking Group

The Mortgage Banking group is our core business.
The Mortgage Banking groups operations include the
acquisition (purchase and origination), sale and securitization
of mortgage loans secured by one-to-four family
(single-family) residences. It also provides
construction financing for single-family residences directly to
individual consumers and builder construction financing
activities for larger residential subdivision loans. The
Mortgage Banking group derives its revenue primarily from gain
on the sale of loans, net interest income, and fee income
associated with the loans held for sale portfolio. During the
three and six months ended June 30, 2002, we sold loans in
pools through one of three sales distribution channels in 40 and
42 days on average, respectively, after the loans were
acquired. These distribution channels include sales to the
government-sponsored enterprises (GSEs) (which then
securitize or place the loans in their portfolios), whole loan
sales, and private-label securitizations. One of our strategies
is to reduce the period of time we hold loans before they are
sold. We believe that the reduction in net interest income
caused by a faster loan turnover rate should be more than offset
by increases in gain on sale of loans.



| |                           
| | --------------------------
| | Investment Portfolio Group

The strategy of our Investment Portfolio group
is: 1) to provide support for the Mortgage Banking group
through its ability to hold whole loans and retain assets from
loan sales and securitizations, and 2) to acquire loans,
servicing and securities in the secondary market. Whether assets
are retained from the Mortgage Bank or purchased in the
secondary market, assets must meet or exceed minimum targeted
return requirements.

The composition of the Investment Portfolio
includes mortgage loans held for investment, mortgage-backed
securities and mortgage servicing rights. Mortgage-backed
securities include agency and non-agency investment grade
securities, non-investment grade securities and residuals.
Mortgage loans held for investment are typically originated or
acquired by the Mortgage Banking group and transferred to the
Investment Portfolio group for long-term investment, although
the group may purchase loans in bulk from third party sellers.
Such loans are typically prime quality adjustable-rate mortgage
loans as the majority of fixed rate loans

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and subprime loans are securitized and sold. A
limited portion of the loan portfolio may contain fixed rate
mortgages, which are funded with liabilities that have terms
generally consistent with the expected average life of the loans.


Mortgage-backed securities retained by the
Investment Portfolio group are generated in connection with the
Mortgage Banking groups issuance of private-label
securities and agency loan sales. Retained assets typically
include mortgage servicing rights, and to a lesser degree,
AAA-rated interest-only securities, non-investment grade
securities and residuals. Senior securities created in
connection with the Mortgage Banking groups securitization
activities are not usually retained in the Investment Portfolio.
In addition to retaining assets from IndyMacs
private-label securitizations and agency loan sales, the
Investment Portfolio also purchases mortgage-backed securities
issued by other lenders in the secondary mortgage market.

The primary source of revenue for the Investment
Portfolio is net interest income on loans and securities and
service fee income from mortgage servicing rights. Valuation
changes related to mortgage servicing rights (subject to lower
of amortized cost or fair value limitations), AAA-rated and
agency interest-only securities and the related hedges,
including principal-only securities, are also recognized through
earnings.

Key Operating Risks

Like all businesses, we assume a certain amount
of risk in order to earn our targeted returns on capital. The
following is a summary of what we believe to be our current key
operating risks. For further information on our key operating
risks, refer to IndyMacs annual report on Form 10-K
for the year ended December 31, 2001.



| |                   
| | ------------------
| | Interest Rate Risk

Due to the characteristics of our financial
assets and liabilities and the nature of our business
activities, our financial position and results of operations may
be materially affected by changes in interest rates in various
ways. While we have devised and implemented a comprehensive
asset/ liability management strategy that seeks, on an economic
and an accounting basis, to mitigate significant fluctuations in
our financial position and results of operations likely to be
caused by market interest rate changes, there can be no
assurance that this strategy (including assumptions concerning
the correlation thought to exist among different types of
assets, liabilities and hedge instruments) or its implementation
will be successful in any particular interest rate environment.
For further information on our interest rate risk, refer to
Item 3. Quantitative and Qualitative Disclosure About
Market Risk located below in this Form 10-Q.



| |               
| | --------------
| | Valuation Risk

In connection with the loan sale process, we
retain certain assets for which the secondary market is highly
illiquid. As a result, valuations are derived using complex
modeling and significant subjective assumptions and judgments.
These assets include AAA-rated and agency interest-only
securities, mortgage servicing rights, non-investment grade
securities and residuals. In addition, from time to time, we may
acquire these types of securities from third party issuers. The
fair value of these assets could vary significantly as market
conditions change.



| |            
| | -----------
| | Credit Risk

We have invested in various assets that contain
elements of credit risk. These assets include loans,
non-investment grade securities and residuals. The
non-investment grade securities and residuals are collateralized
by mortgage loans. While the majority of our loan collateral is
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 the loan. 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 June 30, 2002, the
net balance of our home improvement and manufactured housing
portfolios was $95.8 million. Further, we provide
construction lending to consumers and

10



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developers to develop and build residential
properties. Such asset types also have a higher risk profile
than permanent mortgage loans.


We also sell loans to GSEs and whole loans to
outside investors. In these instances, we are subject to
repurchase risk if representations and warranties made at the
time of sale are violated. While we have made what we believe to
be adequate loss 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 and borrowings from the Federal Home
Loan Bank of San Francisco (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 borrowings can be refinanced upon
maturity.

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 revenues and earnings. Likewise, a deterioration in
the performance of our private-label securities could adversely
impact the availability and pricing of future transactions.



| |            
| | -----------
| | Other Risks

We are subject to various other risks including
the fluctuating demand for mortgage loans. The demand for
mortgage loans, historically, tends to decrease as interest
rates increase. In addition, the banking industry, in general,
is subject to various supervisory, monetary and fiscal policies
and regulations, which include those determined by the Office of
Thrift Supervision (OTS), the Federal Deposit
Insurance Corporation (FDIC) and the Federal Reserve
Board. Depending on the nature of any new policies, such
policies and regulations can have a negative impact on
operations. Additionally, we are required to maintain minimum
capital levels determined by the OTS. While historically we have
been able to access the capital markets when necessary and
currently have, on a consolidated basis, $298 million of
capital in excess of our minimum regulatory requirement, there
is no guarantee that we will be able to access the capital
markets when or if a need for additional capital arises in the
future. 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. 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, we could be adversely
affected by economic downturns or business disruptions triggered
by natural disasters, acts of war or terrorism.

Critical Accounting Policies

Various elements of our accounting policies, by
their nature, are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments. In
particular, we have identified five policies, that, due to the
judgments, estimates and assumptions inherent in those policies
are critical to an understanding of our financial statements.
These policies relate to (a) the valuation of AAA-rated and
agency interest-only securities, (b) the valuation of
mortgage servicing rights, (c) the valuation of
non-investment grade securities and residuals, (d) the
methodology for determining our allowance for loan losses, and
(e) 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. These policies and the
related judgments, estimates and assumptions are described in
greater detail in subsequent sections of this
Form 10-Qs Managements Discussion and Analysis
of Financial Condition and Results of Operations, and in
IndyMacs Annual Report on Form 10-K. 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

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accounting policies, the use of other judgments,
estimates and assumptions could result in material differences
in our results of operations or financial condition.


Results of Operations



| |         
| | --------
| | Overview

Net earnings for the quarter ended June 30,
2002 were $34.6 million, compared to $30.4 million in
the same period of 2001. Net diluted earnings per share were
$0.56 and $0.48 for the quarters ended June 30, 2002 and
2001, respectively. The growth in net earnings was attributable
to an $18.5 million increase in gain on sale of loans due
to a $0.8 billion increase in loan sale volume and a
10 basis point increase in profit margin. The increase in
profit margin was due to the securitization of higher profit
margin loans totaling $1.3 billion in the second quarter of
2002, whereas, only $0.3 billion of loans were securitized
in the second quarter of 2001. This increase in gain on sale of
loans was coupled with a $3.5 million increase in service
fee income primarily as a result of net hedging gains. These
increases to net earnings were offset, in part, by an increase
in expenses of $13.2 million and a drop in net interest
income after provision for loan losses of $3.6 million.

Net earnings for the six months ended
June 30, 2002 were $70.6 million, compared to
$45.4 million in the same period of 2001. Net diluted
earnings per share were $1.14 and $0.71, for the six months
ended June 30, 2002 and 2001, respectively. The growth in
net earnings was attributable to a $46.8 million increase
in gain on sale of loans due to a $2.5 billion increase in
loan sale volume, an $11.9 million increase in net interest
income driven by a $316.7 million increase in the average
balance of net interest earning assets, and a $10.2 million
one-time charge in 2001 related to the cumulative effect of a
change in accounting principle. These increases to net earnings
were offset, in part, by an increase in expenses of
$33.0 million and an increase in income taxes of
$9.2 million.

A more detailed analysis of the components of net
earnings follows.



| |                    
| | -------------------
| | Net Interest Income

The net interest spread is the difference between
the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities. The net
interest margin measures net interest income as a percentage of
average interest-earning assets.

Net interest income was $49.2 million for
the three months ended June 30, 2002, compared to
$52.2 million for the three months ended June 30,
2001. The net interest margin was 3.04% in the second quarter of
2002, compared to 3.13% in the second quarter of 2001.
Additionally, the net interest spread was 2.55% in the second
quarter of 2002, compared to 2.85% in the same period of 2001.

Net interest income was $103.0 million for
the six months ended June 30, 2002, compared to
$95.3 million for the six months ended June 30, 2001.
The net interest margin was 3.13% for the first six months of
2002, compared to 3.05% for the first six months of 2001.
Additionally, the net interest spread was 2.65% for the first
six months of 2002, compared to 2.70% for the same period in
2001.

The following table sets forth information
regarding our consolidated average balance sheets, together 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

12



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##### Table of Contents



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,
|                                                         |                                            |                            
|                                                         |                                            |                             |           |          
|                                                         |                                            | 2002                        |           | 2001     
|                                                         |                                            |                             |           |          
|                                                         |                                            | Average                     |           |           |  | Yield |        | Average |  |          |      | Yield
|                                                         |                                            | Balance                     |           | Interest  |  | Rate  |        | Balance |  | Interest |      | Rate 
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |      
|                                                         |                                            |                            
|                                                         |                                            | (Dollars in thousands)     
|Securities                                               |                                            | $                           | 1,620,863 |           |  | $     | 27,933 |         |  |          | 6.91 | %     |   | $ | 1,384,305 |           |  | $ | 30,467 |         |  |  | 8.80 | %   
|Loans held for sale                                      |                                            |                             | 1,640,629 |           |  |       | 28,373 |         |  |          | 6.94 | %     |   |   | 2,476,951 |           |  |   | 49,671 |         |  |  | 8.04 | %   
|Loans held for investment                                |                                            |                             | 3,088,988 |           |  |       | 55,669 |         |  |          | 7.23 | %     |   |   | 2,738,393 |           |  |   | 60,305 |         |  |  | 8.83 | %   
|Investment in Federal Home Loan Bank stock and
    other |                                            |                             | 138,650   |           |  |       | 1,585  |         |  |          | 4.59 | %     |   |   | 93,359    |           |  |   | 1,560  |         |  |  | 6.70 | %   
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|                                                         | Total interest-earning assets              |                             |           | 6,489,130 |  |       |        | 113,560 |  |          |      | 7.02  | % |   |           | 6,693,008 |  |   |        | 142,003 |  |  |      | 8.51 | %
|Other                                                    |                                            |                             | 699,058   |           |  |       |        |         |  |          |      |       |   |   | 527,226   |           |  |   |        |         |  |  |      |     
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|                                                         | Total assets                               |                             | $         | 7,188,188 |  |       |        |         |  |          |      |       |   |   | $         | 7,220,234 |  |   |        |         |  |  |      |      |  
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|Interest-bearing deposits                                |                                            | $                           | 2,652,629 |           |  |       | 26,828 |         |  |          | 4.06 | %     |   | $ | 1,440,955 |           |  |   | 20,302 |         |  |  | 5.65 | %   
|Advances from Federal Home Loan Bank                     |                                            |                             | 1,922,567 |           |  |       | 25,004 |         |  |          | 5.22 | %     |   |   | 1,593,874 |           |  |   | 23,742 |         |  |  | 5.97 | %   
|Other borrowings                                         |                                            |                             | 1,089,202 |           |  |       | 9,768  |         |  |          | 3.60 | %     |   |   | 3,323,107 |           |  |   | 45,720 |         |  |  | 5.52 | %   
|Trust preferred securities                               |                                            |                             | 116,463   |           |  |       | 2,757  |         |  |          | 9.49 | %     |   |   |          |           |  |   |       |         |  |  |     |     
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|                                                         | Total interest-bearing liabilities         |                             |           | 5,780,861 |  |       |        | 64,357  |  |          |      | 4.47  | % |   |           | 6,357,936 |  |   |        | 89,764  |  |  |      | 5.66 | %
|Other                                                    |                                            |                             | 526,226   |           |  |       |        |         |  |          |      |       |   |   | 118,203   |           |  |   |        |         |  |  |      |     
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|                                                         | Total liabilities                          |                             |           | 6,307,087 |  |       |        |         |  |          |      |       |   |   |           | 6,476,139 |  |   |        |         |  |  |      |      |  
|                                                         | Shareholders equity                       |                             |           | 881,101   |  |       |        |         |  |          |      |       |   |   |           | 744,095   |  |   |        |         |  |  |      |      |  
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|                                                         | Total liabilities and shareholders equity |                             | $         | 7,188,188 |  |       |        |         |  |          |      |       |   |   | $         | 7,220,234 |  |   |        |         |  |  |      |      |  
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|Net interest spread                                      |                                            |                             |           |           |  |       |        |         |  |          | 2.55 | %     |   |   |           |           |  |   |        |         |  |  | 2.85 | %   
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     
|Net interest margin                                      |                                            |                             |           |           |  |       |        |         |  |          | 3.04 | %     |   |   |           |           |  |   |        |         |  |  | 3.13 | %   
|                                                         |                                            |                             |           |           |  |       |        |         |  |          |      |       |   |   |           |           |  |   |        |         |  |  |      |     

13



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##### Table of Contents



|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |      |  
|-------------------------------------------------------- | ------------------------------------------ | ------------------------- | --------- | --------- |  | ----- | ------- | ------- |  | -------- | ---- | ---- | - | - | --------- | --------- |  | - | ------- | ------- |  |  | ---- | ---- | -
|                                                         |                                            |                          
|                                                         |                                            | Six Months Ended June 30,
|                                                         |                                            |                          
|                                                         |                                            |                           |           |          
|                                                         |                                            | 2002                      |           | 2001     
|                                                         |                                            |                           |           |          
|                                                         |                                            | Average                   |           |           |  | Yield |         | Average |  | Yield    |      |     
|                                                         |                                            | Balance                   |           | Interest  |  | Rate  |         | Balance |  | Interest |      | Rate
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |     
|                                                         |                                            |                          
|                                                         |                                            | (Dollars in thousands)   
|Securities                                               |                                            | $                         | 1,588,444 |           |  | $     | 56,815  |         |  |          | 7.21 | %    |   | $ | 1,368,405 |           |  | $ | 62,026  |         |  |  | 9.14 | %   
|Loans held for sale                                      |                                            |                           | 1,851,862 |           |  |       | 65,116  |         |  |          | 7.09 | %    |   |   | 2,158,157 |           |  |   | 87,599  |         |  |  | 8.19 | %   
|Loans held for investment                                |                                            |                           | 3,063,434 |           |  |       | 111,944 |         |  |          | 7.37 | %    |   |   | 2,693,942 |           |  |   | 121,226 |         |  |  | 9.07 | %   
|Investment in Federal Home Loan Bank stock and
    other |                                            |                           | 138,990   |           |  |       | 3,367   |         |  |          | 4.89 | %    |   |   | 89,118    |           |  |   | 3,112   |         |  |  | 7.04 | %   
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                         | Total interest-earning assets              |                           |           | 6,642,730 |  |       |         | 237,242 |  |          |      | 7.20 | % |   |           | 6,309,622 |  |   |         | 273,963 |  |  |      | 8.76 | %
|Other                                                    |                                            |                           | 685,617   |           |  |       |         |         |  |          |      |      |   |   | 485,426   |           |  |   |         |         |  |  |      |     
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                         | Total assets                               |                           | $         | 7,328,347 |  |       |         |         |  |          |      |      |   |   | $         | 6,795,048 |  |   |         |         |  |  |      |      |  
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Interest-bearing deposits                                |                                            | $                         | 2,807,688 |           |  |       | 58,136  |         |  |          | 4.18 | %    |   | $ | 1,190,257 |           |  |   | 34,776  |         |  |  | 5.89 | %   
|Advances from Federal Home Loan Bank                     |                                            |                           | 1,939,597 |           |  |       | 49,393  |         |  |          | 5.14 | %    |   |   | 1,521,149 |           |  |   | 46,158  |         |  |  | 6.12 | %   
|Other borrowings                                         |                                            |                           | 1,093,624 |           |  |       | 21,243  |         |  |          | 3.92 | %    |   |   | 3,229,508 |           |  |   | 97,733  |         |  |  | 6.10 | %   
|Trust preferred securities                               |                                            |                           | 116,398   |           |  |       | 5,513   |         |  |          | 9.55 | %    |   |   |          |           |  |   |        |         |  |  |     |     
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                         | Total interest-bearing liabilities         |                           |           | 5,957,307 |  |       |         | 134,285 |  |          |      | 4.55 | % |   |           | 5,940,914 |  |   |         | 178,667 |  |  |      | 6.06 | %
|Other                                                    |                                            |                           | 498,163   |           |  |       |         |         |  |          |      |      |   |   | 112,413   |           |  |   |         |         |  |  |      |     
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                         | Total liabilities                          |                           |           | 6,455,470 |  |       |         |         |  |          |      |      |   |   |           | 6,053,327 |  |   |         |         |  |  |      |      |  
|                                                         | Shareholders equity                       |                           |           | 872,877   |  |       |         |         |  |          |      |      |   |   |           | 741,721   |  |   |         |         |  |  |      |      |  
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                         | Total liabilities and shareholders equity |                           | $         | 7,328,347 |  |       |         |         |  |          |      |      |   |   | $         | 6,795,048 |  |   |         |         |  |  |      |      |  
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Net interest spread                                      |                                            |                           |           |           |  |       |         |         |  |          | 2.65 | %    |   |   |           |           |  |   |         |         |  |  | 2.70 | %   
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Net interest margin                                      |                                            |                           |           |           |  |       |         |         |  |          | 3.13 | %    |   |   |           |           |  |   |         |         |  |  | 3.05 | %   
|                                                         |                                            |                           |           |           |  |       |         |         |  |          |      |      |   |   |           |           |  |   |         |         |  |  |      |     

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

14



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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, 2002 vs 2001
|                                                         |                        |                                         
|                                                         |                        |                                         
|                                                         |                        | Increase/(Decrease) Due to              
|                                                         |                        |                                         
|                                                         |                        | Volume                                   |         | Rate   |   | Mix |         | Total Change
|                                                         |                        |                                          |         |        |   |     |         |             
|                                                         |                        |                                         
|                                                         |                        | (Dollars in thousands)                  
|Interest income                                          |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        
|Securities                                               |                        | $                                        | 5,206   |        |   | $   | (6,610  | )            |   | $ | (1,130 | )      |   | $ | (2,534  | )      
|Loans held for sale                                      |                        |                                          | (16,771 | )      |   |     | (6,835  | )            |   |   | 2,308  |        |   |   | (21,298 | )      
|Loans held for investment                                |                        |                                          | 7,721   |        |   |     | (10,955 | )            |   |   | (1,402 | )      |   |   | (4,636  | )      
|Investment in Federal Home Loan Bank stock and
    other |                        |                                          | 757     |        |   |     | (493    | )            |   |   | (239   | )      |   |   | 25      |        
|                                                         |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        
|                                                         | Total interest income  |                                          |         | (3,087 | ) |     |         | (24,893      | ) |   |        | (463   | ) |   |         | (28,443 | )
|Interest expense                                         |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        
|Interest-bearing deposits                                |                        |                                          | 17,072  |        |   |     | (5,729  | )            |   |   | (4,817 | )      |   |   | 6,526   |        
|Advances from Federal Home Loan Bank                     |                        |                                          | 4,896   |        |   |     | (3,013  | )            |   |   | (621   | )      |   |   | 1,262   |        
|Other borrowings                                         |                        |                                          | (30,735 | )      |   |     | (15,918 | )            |   |   | 10,701 |        |   |   | (35,952 | )      
|Trust preferred securities                               |                        |                                          | 2,757   |        |   |     |        |              |   |   |       |        |   |   | 2,757   |        
|                                                         |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        
|                                                         | Total interest expense |                                          |         | (6,010 | ) |     |         | (24,660      | ) |   |        | 5,263  |   |   |         | (25,407 | )
|                                                         |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        
|                                                         | Net interest income    |                                          | $       | 2,923  |   |     | $       | (233         | ) |   | $      | (5,726 | ) |   | $       | (3,036  | )
|                                                         |                        |                                          |         |        |   |     |         |              |   |   |        |        |   |   |         |        

|                                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |         |  
|-------------------------------------------------------- | ---------------------- | -------------------------------------- | ------- | ------ |  | --- | ------- | ------------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                         |                        |                                       
|                                                         |                        | Six Months Ended June 30, 2002 vs 2001
|                                                         |                        |                                       
|                                                         |                        |                                       
|                                                         |                        | Increase/(Decrease) Due to            
|                                                         |                        |                                       
|                                                         |                        | Volume                                 |         | Rate   |  | Mix |         | Total Change
|                                                         |                        |                                        |         |        |  |     |         |             
|                                                         |                        |                                       
|                                                         |                        | (Dollars in thousands)                
|Interest income                                          |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        
|Securities                                               |                        | $                                      | 9,973   |        |  | $   | (13,081 | )            |   | $ | (2,103  | )       |   | $ | (5,211  | )      
|Loans held for sale                                      |                        |                                        | (12,432 | )      |  |     | (11,713 | )            |   |   | 1,662   |         |   |   | (22,483 | )      
|Loans held for investment                                |                        |                                        | 16,627  |        |  |     | (22,784 | )            |   |   | (3,125  | )       |   |   | (9,282  | )      
|Investment in Federal Home Loan Bank stock and
    other |                        |                                        | 1,741   |        |  |     | (953    | )            |   |   | (533    | )       |   |   | 255     |        
|                                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        
|                                                         | Total interest income  |                                        |         | 15,909 |  |     |         | (48,531      | ) |   |         | (4,099  | ) |   |         | (36,721 | )
|Interest expense                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        
|Interest-bearing deposits                                |                        |                                        | 47,257  |        |  |     | (10,131 | )            |   |   | (13,766 | )       |   |   | 23,360  |        
|Advances from Federal Home Loan Bank                     |                        |                                        | 12,697  |        |  |     | (7,421  | )            |   |   | (2,041  | )       |   |   | 3,235   |        
|Other borrowings                                         |                        |                                        | (64,637 | )      |  |     | (35,002 | )            |   |   | 23,149  |         |   |   | (76,490 | )      
|Trust preferred securities                               |                        |                                        | 5,513   |        |  |     |        |              |   |   |        |         |   |   | 5,513   |        
|                                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        
|                                                         | Total interest expense |                                        |         | 830    |  |     |         | (52,554      | ) |   |         | 7,342   |   |   |         | (44,382 | )
|                                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        
|                                                         | Net interest income    |                                        | $       | 15,079 |  |     | $       | 4,023        |   |   | $       | (11,441 | ) |   | $       | 7,661   |  
|                                                         |                        |                                        |         |        |  |     |         |              |   |   |         |         |   |   |         |        



| |                          
| | -------------------------
| | Provision for Loan Losses

The provision for loan losses was
$3.6 million and $3.0 million for the three months
ended June 30, 2002 and 2001, respectively, and
$7.8 million and $12.0 million for the six months then
ended. Our determination of the level of the allowance for loan
losses and, correspondingly, the provision for loan losses, is
based on our judgments and assumptions regarding various
matters, including general economic conditions, loan portfolio
composition, delinquency trends and prior loan loss experience.
During the first quarter of 2001, management determined that it
should bolster its reserves on one of our non-core portfolios,
specifically, the home improvement portfolio, due to the losses
inherent in this portfolio that we estimated at that time.
Substantially

15



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##### Table of Contents



all of this portfolio was sold in the fourth
quarter of 2001, reducing the level of provisions required for
this portfolio in the future. During the second quarter of 2002,
$2.1 million of the $3.6 million provision was related
to the Companys core portfolio, and during the six months
ended June 30, 2002, $4.3 million of the
$7.8 million provision was related to the Companys
core portfolio. We believe our allowance for loan losses was
adequate at June 30, 2002.




| |             
| | ------------
| | Other Income

Other income consisted of the following:

|                                                   |                    |                        |        |                  |  |      |        |        |  |   |         |         |  |   |         |         | 
|-------------------------------------------------- | ------------------ | ---------------------- | ------ | ---------------- |  | ---- | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                   |                    |                        |        |                 
|                                                   |                    | Three Months Ended     |        | Six Months Ended
|                                                   |                    | June 30,               |        | June 30,        
|                                                   |                    |                        |        |                 
|                                                   |                    | 2002                   |        | 2001             |  | 2002 |        | 2001  
|                                                   |                    |                        |        |                  |  |      |        |       
|                                                   |                    |                       
|                                                   |                    | (Dollars in thousands)
|Gain on sale of loans                              |                    | $                      | 71,280 |                  |  | $    | 52,714 |        |  | $ | 148,746 |         |  | $ | 101,913 |        
|Service fee income                                 |                    |                        | 6,405  |                  |  |      | 2,906  |        |  |   | 14,227  |         |  |   | 14,368  |        
|Gain (loss) on mortgage-backed securities,
    net |                    |                        | 2,701  |                  |  |      | 1,572  |        |  |   | (4,287  | )       |  |   | (915    | )      
|Fee and other income                               |                    |                        | 12,680 |                  |  |      | 13,413 |        |  |   | 26,289  |         |  |   | 24,360  |        
|                                                   |                    |                        |        |                  |  |      |        |        |  |   |         |         |  |   |         |        
|                                                   | Total other income |                        | $      | 93,066           |  |      | $      | 70,605 |  |   | $       | 184,975 |  |   | $       | 139,726 | 
|                                                   |                    |                        |        |                  |  |      |        |        |  |   |         |         |  |   |         |        



| |                      
| | ---------------------
| | Gain on Sale of Loans

The gain on sale of loans was $71.3 million
for the three months ended June 30, 2002, up from
$52.7 million for the same period in 2001, and was
$148.7 million for the six months ended June 30, 2002,
up from $101.9 million in the same period a year ago.
During the three and six months ended June 30, 2002,
$3.7 billion and $8.0 billion of loans were sold,
respectively, compared to $2.9 billion and
$5.5 billion during the same periods a year ago. The profit
margin for the three and six months ended June 30, 2002 was
1.93% and 1.87%, respectively, compared to 1.83% and 1.85% a
year ago. Although some of the increase in the gain on sale of
loans, quarter over quarter, reflects a 10 basis point
increase in the profit margin, most of the increase for the
three and six month periods ending June 30, 2002 over the
corresponding 2001 periods resulted from an increase in the
aggregate principal amount of loans sold.

In conjunction with our loan sale transactions,
we retain certain assets from private-label securitizations and
loan sales to the GSEs. The primary assets retained include
mortgage servicing rights and, to a lesser degree, AAA-rated
interest-only securities, non-investment grade securities and
residual securities. The allocated cost of the retained assets
at the time of the sale is recorded as a component of the gain
on sale of loans. The calculation of the $71.3 million in
gain on sale of loans earned during the three months ended
June 30, 2002 included $72.0 million in fair value of
retained assets.

We have established a reserve for losses that
arise in connection with loans that we are required to
repurchase from loan sales based on standard representations and
warranties made at the time of the sale or securitization or for
payments to settle disputes related to these representations and
warranties. During the quarter ended June 30, 2002, the
gain on sale of loans was reduced by $2.4 million for
provisions made to this secondary market reserve. See additional
information below in Financial Condition 
Secondary Market Reserve.



| |                   
| | ------------------
| | Service Fee Income

Service fee income totaled $6.4 million for
the three months ended June 30, 2002, compared to
$2.9 million for the same period in 2001, and was
$14.2 million for the six months ended June 30, 2002,
compared to $14.4 million in the same period a year ago.
Service fee income includes reinvestment income, prepayment and
late fee income, net of compensating interest paid to borrowers
and investors, and net hedging gains and losses. The
$3.5 million increase in service fee income quarter over
quarter was driven by a lower net valuation loss (valuation and
hedges) for the three months ended June 30, 2002 compared
to the same period in 2001.

16



---



##### Table of Contents



Service fee income consisted of the following:

|                                       |                                             |                        |        |                  |   |      |        |         |   |   |        |         |   |   |        |         |  
|-------------------------------------- | ------------------------------------------- | ---------------------- | ------ | ---------------- | - | ---- | ------ | ------- | - | - | ------ | ------- | - | - | ------ | ------- | -
|                                       |                                             |                        |        |                 
|                                       |                                             | Three Months Ended     |        | Six Months Ended
|                                       |                                             | June 30,               |        | June 30,        
|                                       |                                             |                        |        |                 
|                                       |                                             | 2002                   |        | 2001             |   | 2002 |        | 2001   
|                                       |                                             |                        |        |                  |   |      |        |        
|                                       |                                             |                       
|                                       |                                             | (Dollars in thousands)
|Gross service fee income               |                                             | $                      | 25,908 |                  |   | $    | 24,417 |         |   | $ | 51,988 |         |   | $ | 46,462 |        
|                                       | Amortization                                |                        |        | (16,959          | ) |      |        | (15,587 | ) |   |        | (35,812 | ) |   |        | (29,412 | )
|                                       |                                             |                        |        |                  |   |      |        |         |   |   |        |         |   |   |        |        
|Service fee income net of amortization |                                             |                        | 8,949  |                  |   |      | 8,830  |         |   |   | 16,176 |         |   |   | 17,050 |        
|                                       | Valuation adjustments on mortgage servicing |                        |        | (45,177          | ) |      |        | 15,207  |   |   |        | (27,579 | ) |   |        | 4,135   |  
|                                       | Hedges on mortgage servicing rights         |                        |        | 42,633           |   |      |        | (21,131 | ) |   |        | 25,630  |   |   |        | (6,817  | )
|                                       |                                             |                        |        |                  |   |      |        |         |   |   |        |         |   |   |        |        
|Net service fee income                 |                                             | $                      | 6,405  |                  |   | $    | 2,906  |         |   | $ | 14,227 |         |   | $ | 14,368 |        
|                                       |                                             |                        |        |                  |   |      |        |         |   |   |        |         |   |   |        |        



| |                                                   
| | --------------------------------------------------
| | Gain (Loss) on Mortgage-Backed Securities,
    Net

We recorded a net gain on mortgage-backed
securities of $2.7 million for the three months ended
June 30, 2002, compared to a net gain of $1.6 million
for the same period in 2001. For the six months ended
June 30, 2002 and 2001, we recorded net losses on sales of
mortgage-backed securities of $4.3 million and
$0.9 million, respectively. The net gain (loss) on
mortgage-backed securities consisted of the following:

|                                                                                       |  |                        |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                       |  |                        |         |                 
|                                                                                       |  | Three Months Ended     |         | Six Months Ended
|                                                                                       |  | June 30,               |         | June 30,        
|                                                                                       |  |                        |         |                 
|                                                                                       |  | 2002                   |         | 2001             |  | 2002 |         | 2001
|                                                                                       |  |                        |         |                  |  |      |         |     
|                                                                                       |  |                       
|                                                                                       |  | (Dollars in thousands)
|Realized gain on available for sale
    (AFS) securities                             |  | $                      | 4,857   |                  |  | $    | 4,003   |      |  | $ | 7,476   |   |  | $ | 5,178   |  
|Impairment on AFS securities                                                           |  |                        | (1,931  | )                |  |      | (3,831  | )    |  |   | (2,431  | ) |  |   | (7,000  | )
|Unrealized loss on AAA-rated IOs                                                      |  |                        | (15,291 | )                |  |      | 32,435  |      |  |   | (25,977 | ) |  |   | 32,196  |  
|Net gains on trading securities and other
    instruments used to hedge AAA-rated IOs |  |                        | 15,066  |                  |  |      | (31,035 | )    |  |   | 16,645  |   |  |   | (31,289 | )
|                                                                                       |  |                        |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Total gain (loss) on mortgage-backed
    securities, net                               |  | $                      | 2,701   |                  |  | $    | 1,572   |      |  | $ | (4,287  | ) |  | $ | (915    | )
|                                                                                       |  |                        |         |                  |  |      |         |      |  |   |         |   |  |   |         |  

Faster than projected actual short-term
prepayment speeds on the AAA-rated interest-only securities, and
a tightening of mortgage spreads relative to swap spreads,
resulted in an underperformance of the assets and hedges during
the first quarter of 2002. In response to the spread tightening,
which resulted in reduced correlation between the assets and the
related hedges, the Company sold securities to realize gains and
increased its mix of AAA-rated principal-only securities and
U.S. Treasury notes in the second quarter, which
diversified our hedge position to mitigate basis risk. See
further discussion in Financial Condition 
Mortgage-Backed Securities.



| |                     
| | --------------------
| | Fee and Other Income

Fee and other income decreased to
$12.7 million for the three months ended June 30, 2002
from $13.4 million for the same period in 2001, and was
$26.3 million for the six months ended June 30, 2002, up
from $24.4 million in the same period a year ago. The 5%
decrease quarter over quarter was mostly due to a decrease in
table funding fees, and the 8% increase during the six months
ended June 30, 2002, compared to the same period in 2001,
was primarily a result of the increase in mortgage production
volume in 2002 compared to 2001.

17



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| |                    
| | -------------------
| | Total Other Expense



| |        
| | -------
| | General

Total other expense consisted of the following:

|                                                         |                     |                        |        |                  |  |      |        |        |  |   |        |         |  |   |        |         | 
|-------------------------------------------------------- | ------------------- | ---------------------- | ------ | ---------------- |  | ---- | ------ | ------ |  | - | ------ | ------- |  | - | ------ | ------- | 
|                                                         |                     |                        |        |                 
|                                                         |                     | Three Months Ended     |        | Six Months Ended
|                                                         |                     | June 30,               |        | June 30,        
|                                                         |                     |                        |        |                 
|                                                         |                     | 2002                   |        | 2001             |  | 2002 |        | 2001  
|                                                         |                     |                        |        |                  |  |      |        |       
|                                                         |                     |                       
|                                                         |                     | (Dollars in thousands)
|Salaries and related                                     |                     | $                      | 47,188 |                  |  | $    | 41,249 |        |  | $ | 96,723 |         |  | $ | 77,998 |        
|General and administrative expenses                      |                     |                        | 33,514 |                  |  |      | 25,621 |        |  |   | 63,533 |         |  |   | 47,937 |        
|Amortization of goodwill and other intangible
    assets |                     |                        | 280    |                  |  |      | 935    |        |  |   | 579    |         |  |   | 1,895  |        
|                                                         |                     |                        |        |                  |  |      |        |        |  |   |        |         |  |   |        |        
|                                                         | Total other expense |                        | $      | 80,982           |  |      | $      | 67,805 |  |   | $      | 160,835 |  |   | $      | 127,830 | 
|                                                         |                     |                        |        |                  |  |      |        |        |  |   |        |         |  |   |        |        

Salaries and related and general and
administrative expenses increased during 2002 as the Company has
built infrastructure and opened new locations to support its
projections for continued growth in its operations. The Company
has also made investments to (1) enhance and strengthen the
quality controls and compliance structure to ensure continued
improvement in asset quality and support the growth of higher
risk products; (2) strengthen its technology platform;
(3) expand its sales force infrastructure with dedicated
resources focused on new customer activation, customer training
and support, and pull-through of loan submissions, and
(4) enhance its customer service response performance.

During the three months ended June 30, 2002,
amortization of intangible assets was $280 thousand, down from
$517 thousand for the same period in 2001, and was $579 thousand
for the six months ended June 30, 2002, compared to
$1.1 million in the same period a year ago. In addition,
during the quarter and six months ended June 30, 2001,
goodwill amortization was $418 thousand and $835 thousand,
respectively, whereas in 2002 there was no goodwill amortization
due to the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (SFAS 142) on January 1,
2002, which mandated that goodwill no longer be amortized, but
rather tested for impairment, annually. We did not recognize any
impairment on our goodwill upon adoption of SFAS 142. Our core
deposit intangible asset continues to be amortized using an
accelerated method of amortization over a period of
10 years, which is the estimated life of the deposit
relationships acquired.



| |             
| | ------------
| | Income Taxes

Income tax provisions of $23.1 million and
$48.8 million for the three and six months ended
June 30, 2002, represented an effective tax rate of 40.1%
and 40.8%, respectively. Income taxes of $21.6 million and
$39.5 million for the same periods in 2001 represented an
effective tax rate of 41.6%.

Cumulative
Effect of a Change in Accounting Principle

During January of 2001, we recognized a
$10.2 million charge to earnings, net of taxes, which was
recorded as a cumulative effect of a change in accounting
principle in connection with the adoption of Emerging Issues
Task Force Issue No. 99-20 Recognition of Interest
Income and Impairment on Certain Investments
(EITF 99-20). This charge was primarily
attributable to the non-investment grade and residual securities
portfolio associated with the discontinued manufactured housing
product line. We discontinued the manufactured housing product
line with dealers during 1999, but the portfolio investments
that were retained from this product line continued to be
impacted by declining trends in the industry. These securities
had previously been marked-to-market through other comprehensive
income (OCI), a separate component of
shareholders equity. As a result, this change had a
$2.1 million net impact on total shareholders equity.

18



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Financial Condition



| |                                         
| | ----------------------------------------
| | Mortgage-Backed and Other
    Securities



| |         
| | --------
| | Overview

Our securities portfolio consists of
mortgage-backed securities and U.S. Treasury notes. All
securities are recorded at fair value. The balances consisted of
the following types of securities:

|                                              |                                                           |                        |           |              |  |   |           |           | 
|--------------------------------------------- | --------------------------------------------------------- | ---------------------- | --------- | ------------ |  | - | --------- | --------- | 
|                                              |                                                           | June 30,               |           | December 31,
|                                              |                                                           | 2002                   |           | 2001        
|                                              |                                                           |                        |           |             
|                                              |                                                           |                       
|                                              |                                                           | (Dollars in thousands)
|AAA-rated and agency interest-only securities |                                                           | $                      | 232,154   |              |  | $ | 211,104   |          
|AAA-rated principal-only securities           |                                                           |                        | 97,805    |              |  |   | 4,096     |          
|U.S. Treasury notes                           |                                                           |                        | 301,642   |              |  |   |          |          
|                                              |                                                           |                        |           |              |  |   |           |          
|                                              | Total trading securities                                  |                        | $         | 631,601      |  |   | $         | 215,200   | 
|                                              |                                                           |                        |           |              |  |   |           |          
|AAA-rated agency securities                   |                                                           | $                      | 162,186   |              |  | $ | 89,752    |          
|AAA-rated non-agency securities               |                                                           |                        | 1,095,421 |              |  |   | 1,170,960 |          
|Other investment grade securities             |                                                           |                        | 33,300    |              |  |   | 40,042    |          
|                                              |                                                           |                        |           |              |  |   |           |          
|                                              | Total investment grade mortgage-backed securities         |                        |           | 1,290,907    |  |   |           | 1,300,754 | 
|                                              |                                                           |                        |           |              |  |   |           |          
|Non-investment grade residual securities      |                                                           |                        | 67,992    |              |  |   | 43,123    |          
|Other non-investment grade securities         |                                                           |                        | 4,980     |              |  |   | 5,282     |          
|                                              |                                                           |                        |           |              |  |   |           |          
|                                              | Total non-investment grade mortgage-backed
    securities |                        |           | 72,972       |  |   |           | 48,405    | 
|                                              |                                                           |                        |           |              |  |   |           |          
|                                              | Total AFS securities                                      |                        | $         | 1,363,879    |  |   | $         | 1,349,159 | 
|                                              |                                                           |                        |           |              |  |   |           |          

During 2002, we had net purchases of
$300 million and $130 million of U.S. Treasury
notes and AAA-rated principal-only securities, respectively, as
a component of our overall position to hedge the interest rate
risk with AAA-rated and agency interest-only securities and
mortgage servicing rights in our portfolio. The purchase of
these securities allowed us to reduce and diversify our position
in swap-based hedges, which we believe reduced the basis risk
between swap and mortgage-based assets and hedges. The Company
seeks to manage the effects of rising and falling interest rates
through investing in financial instruments with contrasting
sensitivities to interest rates. The U.S. Treasury notes
and AAA-rated principal-only securities generate core interest
income and serve to balance the overall interest rate
sensitivity of our balance sheet.



| |                                                                
| | ---------------------------------------------------------------
| | AAA-Rated and Agency Interest-Only Securities
    and Residuals

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

Adjustments to the carrying value of AAA-rated
and agency interest-only and principal-only securities, which
are classified as trading securities, are recorded as gain
(loss) on mortgage-backed securities through the statement of
earnings. Additionally, hedging gains and losses related to
AAA-rated and agency interest-only securities are recorded
through earnings with the corresponding fair value of the hedge
reported in other assets or other liabilities. Adjustments to
the carrying value of residual securities are recorded as a
component of OCI in shareholders equity, except for other
than temporary impairments, which are recorded as a component of
gain (loss) on mortgage-backed securities through the statement
of earnings. During the quarter ended June 30, 2002, the
Company recorded $1.9 million of impairment on its prime
and residual securities.

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The assumptions used to value AAA-rated and
agency interest-only and residual securities at June 30,
2002 and December 31, 2001 follow:

|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|--------------------------------------------- |  | ---------------------- | ------- | --------------------- |  | ----- | ---------- | --------- |  | ------- | ----- | -------- |  | -------- | ---- | -------- |  | ---------- | ---- | - |  |  | ---- |  |  |  | ---- | - |  |  | ---- | - |  |  | --- | -
|                                              |  |                        |         |                      
|                                              |  | Actual                 |         | Valuation Assumptions
|                                              |  |                        |         |                      
|                                              |  |                        |         | Wtd.                  |  |       |            | Remaining
|                                              |  | Book                   |         | Collateral            |  | Gross |            | Interest  |  | 3-Month |       | Avg.     |  | Lifetime |      | Discount |  | Cumulative
|                                              |  | Value                  |         | Balance               |  | WAC   |            | Strip     |  | CPR     |       | Multiple |  | CPR      |      | Yield    |  | Loss Rate 
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |           
|                                              |  |                       
|                                              |  | (Dollars in thousands)
|June 30, 2002                                 |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|AAA-rated and agency interest-only securities |  | $                      | 232,154 |                       |  | $     | 13,961,170 |           |  |         | 7.70  | %        |  |          | 0.57 | %        |  |            | 38.4 | % |  |  | 2.92 |  |  |  | 17.9 | % |  |  | 9.5  | % |  |  | N/A |  
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|Prime residual securities                     |  | $                      | 38,810  |                       |  | $     | 2,277,100  |           |  |         | 7.75  | %        |  |          | 1.63 | %        |  |            | 21.9 | % |  |  | 1.07 |  |  |  | 18.7 | % |  |  | 18.0 | % |  |  | 0.9 | %
|Sub-prime residual securities                 |  |                        | 29,182  |                       |  |       | 2,014,057  |           |  |         | 10.06 | %        |  |          | 4.25 | %        |  |            | 33.0 | % |  |  | 0.34 |  |  |  | 36.5 | % |  |  | 27.7 | % |  |  | 2.1 | %
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|Total residual securities                     |  | $                      | 67,992  |                       |  | $     | 4,291,157  |           |  |         | 8.84  | %        |  |          | 2.86 | %        |  |            | 27.1 | % |  |  | 0.73 |  |  |  | 27.1 | % |  |  | 22.6 | % |  |  | 1.6 | %
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|December 31, 2001                             |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|AAA-rated interest-only securities            |  | $                      | 211,104 |                       |  | $     | 8,943,350  |           |  |         | 7.55  | %        |  |          | 0.81 | %        |  |            | 31.9 | % |  |  | 2.91 |  |  |  | 16.9 | % |  |  | 11.6 | % |  |  | N/A |  
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|Prime residual securities                     |  | $                      | 16,887  |                       |  | $     | 850,311    |           |  |         | 8.08  | %        |  |          | 1.98 | %        |  |            | 17.8 | % |  |  | 1.00 |  |  |  | 20.7 | % |  |  | 18.0 | % |  |  | 0.8 | %
|Sub-prime residual securities                 |  |                        | 26,236  |                       |  |       | 1,995,668  |           |  |         | 10.28 | %        |  |          | 4.17 | %        |  |            | 32.5 | % |  |  | 0.32 |  |  |  | 34.5 | % |  |  | 28.3 | % |  |  | 2.3 | %
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  
|Total residual securities                     |  | $                      | 43,123  |                       |  | $     | 2,845,979  |           |  |         | 9.62  | %        |  |          | 3.52 | %        |  |            | 28.1 | % |  |  | 0.52 |  |  |  | 30.4 | % |  |  | 25.2 | % |  |  | 2.0 | %
|                                              |  |                        |         |                       |  |       |            |           |  |         |       |          |  |          |      |          |  |            |      |   |  |  |      |  |  |  |      |   |  |  |      |   |  |  |     |  

The lifetime CPR represents the annualized
constant prepayment rate (CPR) we estimate for the
remaining life of the collateral supporting the asset. For
AAA-rated and agency interest-only securities, we project
prepayment rates using four-factor prepayment models which
incorporate relative weighted average note rate, seasoning,
seasonality and burn out of the pool of loans relative to
expectations of future rates implied by the forward LIBOR/swap
curve. The projected remaining cumulative loss rate for
residuals represents the projected future cumulative credit
losses as a percentage of the original collateral balance. The
remaining cumulative loss rate assumption decreased to 1.6% at
June 30, 2002 compared to 2.0% at December 31, 2001.
This was driven by an increase in residuals collateralized by
prime loans at June 30, 2002 compared to the balance
collateralized by prime loans at December 31, 2001.
Residuals that are collateralized by prime loans typically
experience lower loss rates than those that are collateralized
by subprime loans. Actual losses incurred through June 30,
2002 on all collateral underlying residual securities totaled
0.6% for a total lifetime loss estimate of 2.2%. We use internal
loss estimation models to estimate such losses.

The weighted average multiple for AAA-rated and
agency interest-only and residual securities represents the book
value divided by the product of collateral balance and 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 weighted average life of the discounted cash
flows. With regard to AAA-rated and agency interest-only
securities, the marketplace frequently uses calculated multiples
to assess the overall impact valuation assumptions have on
value. When comparing multiples, collateral type, coupon, loan
age and the size of the interest strip must be considered.

On June 30, 2002, the Company transferred
$60.0 million of excess yield certificates from mortgage
servicing rights to AAA-rated interest only securities. See
further discussion below in Mortgage Servicing
Rights.



| |                                                               
| | --------------------------------------------------------------
| | Other Investment Grade and Non-Investment
    Grade Securities

We estimate fair value for other investment grade
and non-investment grade mortgage-backed securities based on
market information when available or, if not available, by using
discounted cash flow techniques using assumptions for credit
losses, prepayment rates, and market yield requirements. For
AAA-rated and agency mortgage-backed securities, we use an
independent pricing service to substantiate value. Adjustments

20



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to the carrying value are recorded as a component
of OCI in shareholders equity, except for other than
temporary impairments, which are recorded as a component of gain
(loss) on mortgage-backed securities through the statement of
earnings.


Information regarding other investment grade and
non-investment grade mortgage-backed securities by credit rating
as of June 30, 2002 and December 31, 2001 follows:

|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |        | 
|----------------- | --------------------------------------------------------------- | ---------------------- | ------ | -------- |  | --------- | ------- | ------- | - | - | ------ | ------ |  | - | ------ | ------ | 
|                  |                                                                 | Current                |        | Discount |  |           |         |        
|                  |                                                                 | Face                   |        | to Face  |  | Amortized |         | Book   
|                  |                                                                 | Value                  |        | Value    |  | Cost      |         | Value  
|                  |                                                                 |                        |        |          |  |           |         |        
|                  |                                                                 |                       
|                  |                                                                 | (Dollars in thousands)
|June 30, 2002     |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|AA                |                                                                 | $                      | 21,183 |          |  | $         | (99     | )       |   | $ | 21,084 |        |  | $ | 21,195 |       
|A                 |                                                                 |                        | 2,367  |          |  |           | (136    | )       |   |   | 2,231  |        |  |   | 2,315  |       
|BBB               |                                                                 |                        | 8,161  |          |  |           | (613    | )       |   |   | 7,548  |        |  |   | 7,676  |       
|BBB-              |                                                                 |                        | 2,197  |          |  |           | (186    | )       |   |   | 2,011  |        |  |   | 2,114  |       
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|                  | Total other investment grade mortgage-backed
    securities     |                        | $      | 33,908   |  |           | $       | (1,034  | ) |   | $      | 32,874 |  |   | $      | 33,300 | 
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|B                 |                                                                 | $                      | 12,492 |          |  | $         | (7,754  | )       |   | $ | 4,738  |        |  | $ | 4,899  |       
|D                 |                                                                 |                        | 3,222  |          |  |           | (3,113  | )       |   |   | 109    |        |  |   | 81     |       
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|                  | Total other non-investment grade mortgage-backed
    securities |                        | $      | 15,714   |  |           | $       | (10,867 | ) |   | $      | 4,847  |  |   | $      | 4,980  | 
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|December 31, 2001 |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|AA                |                                                                 | $                      | 21,341 |          |  | $         | (125    | )       |   | $ | 21,216 |        |  | $ | 21,103 |       
|A                 |                                                                 |                        | 2,382  |          |  |           | (142    | )       |   |   | 2,240  |        |  |   | 2,307  |       
|BBB               |                                                                 |                        | 14,605 |          |  |           | (696    | )       |   |   | 13,909 |        |  |   | 14,037 |       
|BBB-              |                                                                 |                        | 2,712  |          |  |           | (194    | )       |   |   | 2,518  |        |  |   | 2,595  |       
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|                  | Total other investment grade mortgage-backed
    securities     |                        | $      | 41,040   |  |           | $       | (1,157  | ) |   | $      | 39,883 |  |   | $      | 40,042 | 
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|BB                |                                                                 | $                      | 12,676 |          |  | $         | (7,831  | )       |   | $ | 4,845  |        |  | $ | 4,845  |       
|CCC               |                                                                 |                        | 11,061 |          |  |           | (10,624 | )       |   |   | 437    |        |  |   | 437    |       
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       
|                  | Total other non-investment grade mortgage-backed
    securities |                        | $      | 23,737   |  |           | $       | (18,455 | ) |   | $      | 5,282  |  |   | $      | 5,282  | 
|                  |                                                                 |                        |        |          |  |           |         |         |   |   |        |        |  |   |        |       

A substantial portion of our other investment
grade and non-investment grade mortgage-backed securities were
retained from our prime-quality private-label security issuances.



| |                 
| | ----------------
| | Loans Receivable

Total loans receivable, exclusive of the
allowance for loan losses, decreased to $4.6 billion at
June 30, 2002, from $5.1 billion at December 31,
2001. The decrease in loan balances corresponds with our overall
strategy to sell the majority of the mortgage loans that we
acquire within a short period after origination. During the
second quarter of 2002, mortgage loans held for sale were held
for 40 days prior to sale on average. The average length of
time a mortgage loan was held in inventory during the year ended
December 31, 2001 was approximately 60 days.

It is managements expectation that interest
rates may rise over the next twelve to twenty-four months, and
therefore action was taken during the second quarter of 2002 to
reposition the loans held for investment portfolio. During the
quarter, the Investment Portfolio group purchased
$685.1 million of primarily adjustable rate mortgages, and
reclassified $710.8 million of predominately fixed-rate
products to the held for sale portfolio. Included in this amount
were $143.0 million of consumer lot loans, substantially
all of which were

21



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subsequently securitized and sold, and
$172.6 million of home equity lines of credit, which we
intend to securitize before December 31, 2002. These
securitizations represent new sources of liquidity for IndyMac,
but we do not currently have sufficient volume to execute
securitizations in these products on a quarterly or more
frequent basis. Embedded in the net transfer balance of
$710.8 million was a basis adjustment totaling
$3.2 million related to the credit risk associated with
these loans. The $3.2 million was reclassified out of the
allowance for loan losses.




| |              
| | -------------
| | Asset Quality

Non-performing assets include non-performing
loans and foreclosed assets. Loans are generally placed on
non-accrual status when they are 90 days past due. The
balance of our foreclosed assets, defined as properties acquired
in foreclosure or by deed in lieu of foreclosure, are recorded
at estimated net realizable value. We recognized net gains on
sale of foreclosed assets of $578 thousand and
$1.2 million during the three and six months ended
June 30, 2002, respectively.

A summary of our non-performing assets follows:

|                                            |                            |                          |                             |                            |        |        |        |        |        |         |        | 
|------------------------------------------- | -------------------------- | ------------------------ | --------------------------- | -------------------------- | ------ | ------ | ------ | ------ | ------ | ------- | ------ | 
|                                            |                            | June 30,                 |                             | December 31,              
|                                            |                            | 2002                     |                             | 2001                      
|                                            |                            |                          |                             |                           
|                                            |                            |                         
|                                            |                            | (Dollars in thousands)  
|Loans held for investment                   |                            |                          |                             |                            |        |        |        |       
|                                            | Portfolio loans            |                          |                             |                            |        |        |        |        |       
|                                            |                            | Mortgage loans           |                             | $                          | 31,093 |        |        | $      | 28,868 |        
|                                            |                            | Residential construction |                             |                            | 22,789 |        |        |        | 28,069 |        
|                                            |                            |                          |                             |                            |        |        |        |       
|                                            |                            |                          |                             | Total portfolio loans      |        |        | 53,882 |        |        |         | 56,937 | 
|                                            | Discontinued product lines |                          |                             | 11,669                     |        |        |        | 15,894 |       
|Loans held for sale                         |                            |                          | 10,889                      |                            |        |        | 24,036 |       
|                                            |                            |                          |                             |                            |        |        |        |       
|                                            |                            |                          |                             | Total non-performing loans |        |        | 76,440 |        |        |         | 96,867 | 
|Foreclosed assets                           |                            |                          | 21,569                      |                            |        |        | 19,372 |       
|                                            |                            |                          |                             |                            |        |        |        |       
|                                            |                            |                          | Total non-performing assets |                            | $      | 98,009 |        |        | $      | 116,239 |       
|                                            |                            |                          |                             |                            |        |        |        |       
|Total non-performing assets to total assets |                            |                          | 1.32                        | %                          |        |        | 1.55   | %     
|                                            |                            |                          |                             |                            |        |        |        |       

The average recorded book value of non-performing
loans during the three months ended June 30, 2002 was
approximately $94.4 million.

22



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| |                          
| | -------------------------
| | Allowance for Loan Losses

Following is a rollforward of the allowance for
loan losses:

|                             |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |        |        |  
|---------------------------- | --------------------------------------------------- | ------------------------ | ------ | ---------------- | ---- | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                             |                                                     |                          |        |                 
|                             |                                                     | Three Months Ended       |        | Six Months Ended
|                             |                                                     | June 30,                 |        | June 30,        
|                             |                                                     |                          |        |                 
|                             |                                                     | 2002                     |        | 2001             |      | 2002 |        | 2001  
|                             |                                                     |                          |        |                  |      |      |        |       
|                             |                                                     |                         
|                             |                                                     | (Dollars in thousands)  
|Balance, beginning of period |                                                     | $                        | 56,902 |                  |      | $    | 65,113 |        |        | $ | 57,700 |        |        | $ | 58,962 |       
|Provision for loan losses    |                                                     |                          | 3,568  |                  |      |      | 3,026  |        |        |   | 7,754  |        |        |   | 12,026 |       
|Portfolio Loans:             |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |       
|                             | Charge-offs net of recoveries:                      |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |        |       
|                             |                                                     | Mortgage loans           |        |                  | (971 | )    |        |        | (960   | ) |        |        | (1,743 | ) |        |        | (1,123 | )
|                             |                                                     | Residential construction |        |                  | (102 | )    |        |        | (1,201 | ) |        |        | (1,075 | ) |        |        | (1,805 | )
|                             |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |       
|                             | Charge-offs net of recoveries 
    Portfolio Loans |                          |        | (1,073           | )    |      |        | (2,161 | )      |   |        | (2,818 | )      |   |        | (2,928 | )     
|Discontinued Product Lines:  |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |       
|                             | Charge-offs net of recoveries                       |                          |        | (3,261           | )    |      |        | (1,962 | )      |   |        | (6,500 | )      |   |        | (4,044 | )     
|                             | Transfer to held for sale portfolio basis           |                          |        | (3,158           | )    |      |        |       |        |   |        | (3,158 | )      |   |        |       |       
|                             |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |       
|Balance, end of period       |                                                     | $                        | 52,978 |                  |      | $    | 64,016 |        |        | $ | 52,978 |        |        | $ | 64,016 |       
|                             |                                                     |                          |        |                  |      |      |        |        |        |   |        |        |        |   |        |       

The decrease in the allowance for loan losses of
$11.0 million from June 30, 2001 to June 30, 2002
was primarily due to the sale of a majority of the home
improvement loans during the fourth quarter of 2001. At the time
of sale, $8.3 million of the allowance for loan losses was
charged off. Additionally, the Company recognized
$4.6 million in charge-offs during the first six months of
2002 related to the manufactured housing portfolio. The home
improvement and manufactured housing portfolios are included in
the Companys discontinued product lines.

Provision for loan losses has exceeded net
charge-offs on the Companys core portfolio during the
12 months ended June 30, 2002. With respect to loans
held for investment in IndyMacs core businesses, loan loss
reserves at June 30, 2002 were $40.1 million, or 1.5%
of loan balances. Charge-offs on these core portfolios during
the second quarter of 2002 were $1.1 million, or
$4.3 million on an annualized basis. While charge-offs were
lower during the second quarter than in the first quarter of
2002, the Company reallocated $4.9 million of general
reserves to specific reserves on its portfolio of builder
construction loans based on specific issues with respect to two
loans in this portfolio. These specific reserve allocations are
considered charge-offs for regulatory purposes, but for GAAP
purposes will likely be reflected in charge-offs later this year
and, as a result, annual charge-offs in the core portfolio for
2002 are expected to remain consistent with annual charge-offs
of $7.6 million in the core portfolio in 2001.

The following table sets forth the allocation of
our allowance for loan losses and the percentage that the
allowance allocated to each category represents of the total
allowance at the dates indicated.

|                           |                          |                                 |        |                   |        |         |    |            |     |   |        |        |        |  |    |    |     |  
|-------------------------- | ------------------------ | ------------------------------- | ------ | ----------------- | ------ | ------- | -- | ---------- | --- | - | ------ | ------ | ------ |  | -- | -- | --- | -
|                           |                          |                                 |        |                  
|                           |                          | June 30, 2002                   |        | December 31, 2001
|                           |                          |                                 |        |                  
|                           |                          |                                 |        | % of Total        |        |         |    | % of Total
|                           |                          | Balance                         |        | Allowance         |        | Balance |    | Allowance 
|                           |                          |                                 |        |                   |        |         |    |           
|                           |                          |                                
|                           |                          | (Dollars in thousands)         
|Portfolio Loans:           |                          |                                 |        |                   |        |         |    |            |     |   |        |        |        |  |    |   
|                           | Mortgage loans           |                                 | $      | 13,747            |        |         |    | 26         | %   |   | $      | 16,201 |        |  |    | 28 | %  
|                           | Residential construction |                                 |        | 25,293            |        |         |    | 48         | %   |   |        | 24,512 |        |  |    | 42 | %  
|                           | Income property          |                                 |        | 1,058             |        |         |    | 2          | %   |   |        | 1,058  |        |  |    | 2  | %  
|                           |                          |                                 |        |                   |        |         |    |            |     |   |        |        |        |  |    |   
|                           |                          | Total portfolio loans           |        |                   | 40,098 |         |    |            | 76  | % |        |        | 41,771 |  |    |    | 72  | %
|Discontinued Product Lines |                          |                                 | 12,880 |                   |        |         | 24 | %          |     |   | 15,929 |        |        |  | 28 | % 
|                           |                          |                                 |        |                   |        |         |    |            |     |   |        |        |        |  |    |   
|                           |                          | Total allowance for loan losses |        | $                 | 52,978 |         |    |            | 100 | % |        | $      | 57,700 |  |    |    | 100 | %
|                           |                          |                                 |        |                   |        |         |    |            |     |   |        |        |        |  |    |   

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Allocation of the allowance is only an analytical
tool as the allowance is available for losses in the entire
portfolio.

While we consider the allowance for loan losses
to be adequate based on information currently available, future
adjustments to the allowance may be necessary due to changes in
economic conditions, delinquency levels, foreclosure rates, or
loss rates. The level of our allowance for loan losses is also
subject to review by our federal regulators, the OTS and the
FDIC. These agencies may require that our allowance for loan
losses be increased based on their evaluation of the information
available to them at the time of their regular or special
examination of the Bank.



| |                         
| | ------------------------
| | Secondary Market Reserve

In addition to the allowance for loan losses, the
Company maintains a secondary market reserve for credit losses
that arise in connection with loans that we are required to
repurchase from whole loan sales or securitization transactions.
This reserve has two components: a reserve for repurchases
arising from representation and warranty claims, and a reserve
for disputes with investors and vendors with respect to
contractual obligations pertaining to mortgage operations. We
can be required to repurchase loans from investors when they
claim that our loan sales contain individual loans that are not
in conformity with the representations and warranties we make at
the time of sale. Investors have increased their scrutiny of
defaulted loans and are aggressively requiring repurchase. We
have made significant investments in our post-production quality
control processes to identify potential systemic issues that
could cause repurchases. We believe that these efforts have
improved our production quality. However, increases in default
rates due to an economic slowdown could cause the overall rate
of repurchases to remain consistent or even increase. Since
inception in 1993, the Company has repurchased only a very small
amount of loans from its securitization trusts, or
SPEs. Inception-to-date, we have repurchased
$29.4 million from GSE sales, $14.3 million of loans
from whole loan sales, and $4.2 million from securitization
trusts related to standard representation and warranty claims.
These balances represent 0.16%, 0.11%, and 0.01% of total GSE,
whole loan, and securitization sales, respectively,
inception-to-date.

The calculation of the secondary market reserve
is a function of expected losses based on actual pending claims
and repurchase requests, historical experience, loan volume and
loan sales distribution channels. The balance in the secondary
market reserve was $31.7 million at December 31, 2001.
During the first six months of 2002, we provided
$5.1 million for future losses, which was offset by
$6.3 million for claims reimbursements and estimated losses
on loan repurchases. This activity resulted in an ending balance
in the secondary market reserve at June 30, 2002 of
$30.5 million. This balance is included on the consolidated
balance sheet as a component of other liabilities. Of the
balance, $6.9 million represents reserves for probable loan
repurchases, and $23.6 million represents reserves to cover
probable adverse claims from or settlements with investors and
vendors. While the ultimate amount of repurchases and claims is
uncertain, management believes that the reserve is adequate. The
Company will continue to evaluate the adequacy of the entire
secondary market reserve and likely will continue to allocate a
portion of its gain on sale proceeds to this reserve going
forward.



| |                          
| | -------------------------
| | Mortgage Servicing Rights

Mortgage servicing rights totaled
$316.8 million as of June 30, 2002 and
$321.3 million as of December 31, 2001. The mortgage
servicing rights balance increased $124.9 million due to
retaining servicing from securitizations and sales to GSEs
during the six months ended June 30, 2002. This increase
was offset by amortization and valuation adjustments, as well as
the transfer of $60.0 million in mortgage servicing rights
to AAA-rated interest-only securities. At the end of the second
quarter, IndyMac modified its agreement with one of the GSEs,
bifurcating the fee the Company retains to service loans sold to
the GSE. Previously, the entire contractual servicing fee was
capitalized on the balance sheet as mortgage servicing rights.
Under the new agreement, the contractual servicing fee is
separated into a reduced servicing fee of 25 basis points
(the base servicing fee) and an excess yield certificate/ agency
interest-only security for amounts above the base servicing fee.
The base servicing fee continues to be capitalized as mortgage
servicing rights, while the excess yield certificate is now
included in trading securities and accounted for in a manner
similar to the AAA-rated interest-only securities. The cash
flows from the excess yield certificate are not dependent upon
the continued

24



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servicing of the underlying loans by IndyMac. At
June 30, 2002, the excess yield certificate was valued at
$63.7 million. The increase in value was due to a decrease
in the discount rate assumption as the excess yield certificate
requires less regulatory capital than mortgage servicing rights.


The assumptions used to value mortgage servicing
rights at June 30, 2002 and December 31, 2001 follow:

|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  | 
|----------------- | ------------------------------- | ---------------------- | ------- | ----------- |  | ----- | ---------- | --------- |  | ------- | ----- | -------- |  | -------- | ----- | -------- |  |  | ----- |  |  |  | ---- |  |  |  | ----- |  |  |  | ----- |  | 
|                  |                                 |                        |         |            
|                  |                                 | Actual                 |         | Valuation  
|                  |                                 |                        |         | Assumptions
|                  |                                 |                        |         | Wtd.        |  |      
|                  |                                 | Book                   |         | Collateral  |  | Gross |            | Servicing |  | 3-Month |       | Avg.     |  | Lifetime |       | Discount
|                  |                                 | Value                  |         | Balance     |  | WAC   |            | Fee       |  | CPR     |       | Multiple |  | CPR      |       | Yield   
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |         
|                  |                                 |                       
|                  |                                 | (Dollars in thousands)
|June 30, 2002     |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|Master servicing  |                                 | $                      | 21,904  |             |  | $     | 7,096,725  |           |  |         | 8.30% |          |  |          | 0.10% |          |  |  | 41.4% |  |  |  | 3.18 |  |  |  | 18.3% |  |  |  | 13.0% | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|Primary servicing |                                 |                        | 294,875 |             |  | $     | 23,697,804 |           |  |         | 7.92% |          |  |          | 0.34% |          |  |  | 28.1% |  |  |  | 3.69 |  |  |  | 18.4% |  |  |  | 10.7% | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|                  | Total mortgage servicing rights |                        | $       | 316,779     |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|December 31, 2001 |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|Master servicing  |                                 | $                      | 27,218  |             |  | $     | 9,581,919  |           |  |         | 8.36% |          |  |          | 0.10% |          |  |  | 40.9% |  |  |  | 2.84 |  |  |  | 18.8% |  |  |  | 17.3% | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|Primary servicing |                                 |                        | 294,098 |             |  | $     | 19,889,540 |           |  |         | 8.28% |          |  |          | 0.45% |          |  |  | 29.2% |  |  |  | 3.28 |  |  |  | 19.9% |  |  |  | 12.6% | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|                  | Total mortgage servicing rights |                        | $       | 321,316     |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  | 
|                  |                                 |                        |         |             |  |       |            |           |  |         |       |          |  |          |       |          |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 

The lifetime CPR represents the annualized
constant prepayment rate we estimate for the remaining life of
the collateral supporting the asset. We project prepayment rates
using four-factor prepayment models which incorporate relative
weighted average note rate, seasoning, seasonality and burn out
of the pool of loans relative to expectations of future rates
implied by the forward LIBOR/ swap curve.

The weighted average multiple represents the book
value divided by the product of collateral balance and servicing
fee. While the weighted average life of such assets is a
function of the undiscounted cash flows, the multiple is a
function of the weighted average life of the discounted cash
flows. The marketplace frequently uses calculated multiples to
assess the overall impact valuation assumptions have on value.
When comparing multiples, collateral type, coupon, loan age and
the amount of the servicing fee must be considered. Transferring
the excess yield certificate to securities and the overall drop
in market rates resulted in a lower discount rate assumption on
the primary servicing asset at June 30, 2002 compared to
December 31, 2001. This offset the decrease the transfer
had to the servicing fee, resulting in an increase in the
weighted average multiple on primary servicing rights at
June 30, 2002 compared to December 31, 2001.

Liquidity and Capital Resources



| |         
| | --------
| | Overview

At June 30, 2002, we had operating liquidity
of $1.1 billion and a leverage (debt to equity) ratio of
7 to 1. Operating liquidity is defined as unpledged
liquid assets on hand plus borrowing availability under
committed lines of credit subject to the availability of
eligible assets for pledge as collateral. Under prior
regulations, Federal thrift institutions were required to
maintain a specified ratio of cash and other qualifying
securities to net withdrawable accounts and borrowings payable
in a year or less. As a result of statutory and regulatory
changes, IndyMac Bank, F.S.B. (the Bank) is not
currently required to maintain an average daily liquidity
balance at levels prescribed by the OTS, but we continue to be
subject to the requirement that we maintain sufficient liquidity
to ensure our safe and sound operation. The previously defined
regulatory liquidity base was the previous quarters
average daily balance of deposits and borrowings maturing within
12 months. Our policy is to maintain liquid assets at least
equal to 3% of the liquidity base. We currently believe that our
liquidity level is adequate based upon our current activities
and is consistent with the safe and sound operation of the Bank.
While there can be no guarantees, and subject to the matters
discussed below, we are not aware of any

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trends, demands, commitments or uncertainties
that are reasonably likely to cause a material decrease in
liquidity in the foreseeable future.




| |                          
| | -------------------------
| | Principal Sources of Cash

Our principal financing needs are to fund
acquisitions of mortgage loans and our investment in mortgage
loans, mortgage-backed securities and mortgage servicing rights.
Our primary sources of funds used to meet these financing needs
include loan sales and securitizations, deposits, advances from
the FHLB, borrowings and capital. The sources used vary
depending on such factors as rates paid, maturities, and the
impact on capital.



| |                               
| | ------------------------------
| | Loan Sales and Securitizations

Our business model relies heavily upon selling
the substantial 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.
We sold approximately 55% of our loans to the GSEs during the
quarter ended June 30, 2002. If this sales channel were
disrupted, our liquidity would be negatively impacted. During
the six months ended June 30, 2002, loans were held in our
held for sale portfolio for 42 days on average, compared to
71 days on average during the six months ended
June 30, 2001.



| |         
| | --------
| | Deposits

Consistent with our funding needs, we solicit
short-term deposits and, to a lesser degree, long-term deposits
from the general public and institutions by offering a variety
of accounts and rates. We offer regular passbook accounts,
demand deposit accounts, money market accounts, certificates of
deposit accounts and individual retirement accounts. Deposits
totaled $2.8 billion at June 30, 2002 and
$3.2 billion at December 31, 2001.

Included in deposits at June 30, 2002 and
December 31, 2001 were custodial accounts, primarily
related to our GSE servicing portfolio, totaling
$252.9 million and $178.3 million, respectively.



| |                                     
| | ------------------------------------
| | Advances from Federal Home Loan Bank

The FHLB system functions in a reserve capacity
for savings institutions. As a member of the FHLB, we are
required to own capital stock of the FHLB and are authorized to
apply for advances from the FHLB, generally on a secured basis,
in amounts determined by reference to available collateral. FHLB
stock, one-to-four family mortgage loans and AAA-rated agency
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. The Bank has been
pre-approved for advances up to $2.1 billion, of which
$2.0 billion were outstanding at June 30, 2002. The
FHLB offers several credit programs, each with its own fixed or
floating interest rate, and a range of maturities.



| |                                            
| | -------------------------------------------
| | Trust Preferred Securities and
    Warrants

On November 14, 2001, we completed an
offering of Warrants and Income Redeemable Equity Securities to
investors. Gross proceeds of the transaction were
$175 million. The securities were offered as units
consisting of a trust preferred security, issued by a trust
formed by us, and a warrant to purchase IndyMac Bancorps
common stock. The proceeds from the offering are used in ongoing
operations and will fund future growth and/or repurchase of
IndyMac Bancorp stock under its share repurchase program (see
below). The balance of trust preferred securities at
December 31, 2001 was reclassified from mezzanine debt to
liabilities to conform to the current period presentation.



| |                 
| | ----------------
| | Other Borrowings

Other borrowings primarily consist of loans and
securities sold under committed agreements to repurchase,
syndicated bank lines, a commercial paper conduit and senior
unsecured notes. Other borrowings

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##### Table of Contents



increased to $1.3 billion at June 30,
2002, from $1.1 billion at December 31, 2001. The
increase of $0.2 billion was used primarily to fund the
purchase of U.S. Treasury notes in the second quarter of 2002.


As of June 30, 2002, we had
$3.7 billion in committed financing. 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, changes in our credit
rating, industry and market trends in our various businesses,
the general availability and rates applicable to financing and
investments, these lenders and/or investors own
resources and policies concerning loans and investments and the
relative attractiveness of alternative investment or lending
opportunities. Due to the availability of deposits and FHLB
advances, we are reducing our unused committed financing
facilities in order to reduce the amount of commitment fees we
pay.



| |                       
| | ----------------------
| | 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.

Our most significant use of cash is for the
acquisition of mortgage loans. During the six months ended
June 30, 2002, we acquired $8.0 billion of mortgage
loans, compared to $7.2 billion during the six months ended
June 30, 2001. Purchases of mortgage securities available
for sale required cash resources of $561 million and
$553 million during the six months ended June 30, 2002
and 2001, respectively. Purchases of mortgage securities held
for trading utilized $453 million in cash during the six
months ended June 30, 2002, whereas, we did not purchase
any trading securities in the same period of 2001.



| |                                                                  
| | -----------------------------------------------------------------
| | Cash Flows from Operating, Investing and
    Financing Activities

As presented in the consolidated statements of
cash flows, we had a net decrease in cash and cash equivalents
of $44.4 million during the six months ended June 30,
2002, compared to a net decrease in cash and cash equivalents of
$26.1 million during the same period in 2001.



| |                     
| | --------------------
| | Operating Activities

Net cash provided by operating activities totaled
$0.4 billion for the six months ended June 30, 2002,
as opposed to the net cash used in operating activities of
$1.5 billion for the same period in 2001, an increase of
$1.9 billion. This increase in cash provided by operating
activities resulted from our secondary marketing operations.
Since we are a mortgage banker, our loan purchases and sales are
considered operating activities. Sales of, and payments from,
mortgage loans held for sale exceeded the purchases and
originations of these loans by $0.7 billion in 2002, as
opposed to the reverse in 2001  loan purchases and
originations exceeded sales and payments by $1.5 billion.
There is generally a liquid market for the sale or financing of
the types of loans we hold for sale. Our actual operating cash
needs for growth in loans held for sale is limited to the
portion of loans which we cannot obtain financing. This amount
is typically 2% to 5% of the loan balance. This increase in cash
was partially offset by the $453 million in purchases of
the trading securities discussed above.



| |                     
| | --------------------
| | Investing Activities

Net cash used in investing activities was
$248.1 million for the six months ended June 30, 2002,
compared to $89.5 million in 2001, an increase in the use
of cash of $158.6 million. This was primarily due to the
increase in net purchase activity of mortgage loans held for
investment of $618.3 million offset by an increase in the
net sales activity of mortgage securities available for sale of
$226.1 million and a net decrease in cash used by
construction loan activity totaling $216.1 million during
the six months ended June 30, 2002, compared to the same
period in 2001.



| |                     
| | --------------------
| | Financing Activities

Net cash used in financing activities was
$0.2 billion for the six months ended June 30, 2002,
compared to the net cash provided by financing activities of
$1.6 billion for the same period in 2001, a decrease in
cash of

27



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##### Table of Contents



$1.8 billion. The Company used the cash
received from the sale of its mortgage loans and mortgage
securities to pay down its borrowings in 2002, whereas in 2001
the Company was increasing its investment in loans and
securities, and funded those acquisitions with additional
borrowings.




| |                                    
| | -----------------------------------
| | Regulatory Capital
    Requirements

The Bank is subject to various regulatory capital
regulations administered by the federal banking agencies. In
addition, as a condition to its approval of the acquisition of
SGV Bancorp, Inc. in July 2000, the OTS mandated that the
Bank hold Tier 1 (core) capital at 8% of adjusted
assets for three years following the consummation of the
transaction and maintain a risk-based capital position of 10% of
risk-weighted assets. Additionally, Tier 1 risk-based
capital (core capital plus supplementary capital less allowance
for loan losses) must be equal to at least 6% of risk-weighted
assets. The Bank currently meets all of the requirements of a
well-capitalized institution under the general
regulatory capital regulations and also meets the additional
requirements of the OTS approval condition.

During 2001, the OTS issued guidance for subprime
lending programs, which requires a subprime lender to quantify
the additional risks in its subprime lending activities and
determine the appropriate amounts of allowances for loan losses
and capital it needs to offset those risks. The OTS guidance
suggests that subprime portfolios be supported by capital equal
to one and one-half to three times greater than what is
appropriate for similar prime assets. The OTS has accepted
IndyMac Banks approach to conform to this guidance, which
we report in an addendum to our Thrift Financial Report.

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, 2002.

|                |                   |                |  |                     |   |                  |  |                  |   |  |  |       |   |  |  |       |  
|--------------- | ----------------- | -------------- |  | ------------------- | - | ---------------- |  | ---------------- | - |  |  | ----- | - |  |  | ----- | -
|                |                   | As Reported    |  | Adjusted for        |   |                  |  | IndyMac         
|                |                   | Pre-Subprime   |  | Additional Subprime |   | Well-Capitalized |  | Required Capital
|                |                   | Risk-Weighting |  | Risk-Weighting      |   | Minimum          |  | First 3 years   
|                |                   |                |  |                     |   |                  |  |                 
|Capital Ratios: |                   |                |  |                     |   |                  |  |                  |   |  |  |       |   |  |  |      
|                | Tangible          |                |  | 10.26               | % |                  |  | 10.26            | % |  |  | 2.00  | % |  |  | 2.00  | %
|                | Tier 1 core       |                |  | 10.26               | % |                  |  | 10.26            | % |  |  | 5.00  | % |  |  | 8.00  | %
|                | Tier 1 risk-based |                |  | 15.25               | % |                  |  | 14.31            | % |  |  | 6.00  | % |  |  | 6.00  | %
|                | Total risk-based  |                |  | 16.09               | % |                  |  | 15.10            | % |  |  | 10.00 | % |  |  | 10.00 | %

The ratios above do not include $132 million
of unleveraged and unencumbered capital at IndyMac Bancorp.
Including the excess capital held by the Bank, we had
$298 million of total excess capital at June 30, 2002.

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



| |                          
| | -------------------------
| | Share Repurchase Activity

The Company repurchased 1.5 million shares
during the second quarter of 2002 at an average price of $23.74
per share, for a total investment of $36.5 million during
the quarter. Only 8,665 shares were repurchased during the
first quarter of 2002. At its July 23, 2002 Board meeting,
the Board of Directors authorized an additional
$100 million for share repurchases. The Company plans to
continue to repurchase shares from time to time at prevailing
market prices.

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##### Table of Contents



CANCELLATION OF CHIEF EXECUTIVE OFFICER STOCK
OPTION

The Companys Chief Executive Officer,
Mr. Perry, is employed with the Company under a five-year
employment agreement (Employment Agreement).
Pursuant to the Employment Agreement, Mr. Perry was granted
ten-year options to purchase 1,500,000 shares of IndyMac
common stock at an exercise price equal to the fair market value
of IndyMacs common stock on the grant date. One of the
options, to purchase 1,000,000 shares of IndyMac common
stock, vests in five equal installments commencing May 1,
2003 and thereafter on December 31, 2003, 2004, 2005 and
2006, and the other option, to purchase 500,000 shares of
IndyMac common stock, was to vest on May 1, 2009 (the
seventh anniversary of the date of grant), or in increments upon
the earlier attainment of specified share price levels for
IndyMac common stock.

Without any encouragement from IndyMacs
Board of Directors and solely upon his own initiative,
Mr. Perry asked the Management Development and Compensation
Committee of the Board of Directors to cancel the option to
purchase 500,000 shares of IndyMac common stock, and
Mr. Perry and IndyMac have entered into an Option
Cancellation Agreement, dated August 8, 2002. The shares
underlying the cancelled option will be available for grants of
options or other stock awards to other officers and employees in
the future. Neither the Employment Agreement nor the Option
Cancellation Agreement provide for any additional stock option
grants or any compensation in lieu of the cancelled option.






|        |                                                              
|------- | -------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosure
    About Market Risk

In general, market risk is the exposure to loss
resulting from changes in interest rates, commodity prices and
equity prices. The primary market risk to which we are exposed
is interest rate risk, including fluctuations in short and long
term interest rates. An additional risk is the early prepayment
of loans held for investment, mortgage-backed securities and
mortgage loans underlying our mortgage servicing rights,
AAA-rated and agency interest-only securities and residuals. We
do not have any exposure to foreign currency exchange rates. Our
Investment Portfolio group is responsible for the management of
interest rate and prepayment risks subject to policies and
procedures established by our management level Asset and
Liability Committee (ALCO) and board of directors
level ALCO. See KEY OPERATING RISKS in Managements
Discussion and Analysis of Financial Condition and Results of
Operations located earlier in this Form 10-Q, and in the
Companys annual report filed on Form 10-K for the
year ended December 31, 2001 for further discussion of
risks.

Hedging Activities

We utilize a variety of means to manage interest
rate risk. On a macro basis, we invest in mortgage servicing
rights and AAA-rated and agency interest-only securities, the
fair market values of which tend to increase as market interest
rates rise, to hedge potential decreases in production volumes
and gain on sale of loans due to increases in interest rates.
With regard to the pipeline of mortgage loans held for sale, in
general, we hedge this asset with forward commitments to sell a
Fannie Mae or Freddie Mac security of comparable maturity and
weighted average interest rate. To hedge our investments in
AAA-rated and agency interest-only securities and mortgage
servicing rights, we use several strategies, including investing
in AAA-rated principal-only securities, buying and/or selling
mortgage-backed or U.S. Treasury securities, futures,
floors, swaps, or options, depending on several factors. Lastly,
we enter into swap agreements and utilize FHLB advances to
mitigate interest rate risk on mortgage loans held for
investment and mortgage-backed securities. In connection with
all of the above strategies, we use hedging instruments to
reduce our exposure to interest rate risk, not to speculate on
the direction of market interest rates.

ALCO closely monitors interest rate risk. The
primary measurement tool used to evaluate risk is an interest
rate shock analysis. An interest rate shock analysis simulates
the effects of an instantaneous and sustained change in interest
rates (in a variety of basis point increments) to parallel and
non-parallel yield curve shifts, on our assets and liabilities,
commitments and hedges. The result is an estimate of the
increase or decrease to our earnings, OCI and net portfolio
value of our assets.

29



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##### Table of Contents



The following table sets forth our estimate of
the impact of an instantaneous and sustained parallel shift in
the LIBOR/swap curve of 50 and 100 basis points, or .50% and
1.0%, respectively, all else being constant, on net earnings and
OCI as of June 30, 2002 and December 31, 2001:

|                         |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |         |  
|------------------------ | --------------------------------- | ---------------------------------- | - | -------- | - | ----- | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                         |                                   |                                   
|                         |                                   | Effect of Change in Interest Rates
|                         |                                   |                                   
|                         |                                   |                                    |   |         
|                         |                                   | Decrease                           |   | Increase
|                         |                                   |                                    |   |         
|                         |                                   | 100 bp                             |   | 50 bp    |   | 50 bp |   | 100 bp
|                         |                                   |                                    |   |          |   |       |   |       
|                         |                                   |                                   
|                         |                                   | (Dollars in thousands)            
|As of June 30, 2002:     |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        
|                         | Net earnings                      |                                    | $ | (998     | ) |       | $ | (1,281 | ) |  | $ | 1,085  |   |  | $ | 1,082   |  
|                         | Other comprehensive income (loss) |                                    |   | (4,818   | ) |       |   | (530   | ) |  |   | (3,045 | ) |  |   | (8,198  | )
|                         |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        
|                         | Total comprehensive income (loss) |                                    | $ | (5,816   | ) |       | $ | (1,811 | ) |  | $ | (1,960 | ) |  | $ | (7,116  | )
|                         |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        
|As of December 31, 2001: |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        
|                         | Net earnings                      |                                    | $ | 9,302    |   |       | $ | 714    |   |  | $ | 332    |   |  | $ | 311     |  
|                         | Other comprehensive income (loss) |                                    |   | 12,758   |   |       |   | 7,363  |   |  |   | (8,636 | ) |  |   | (18,105 | )
|                         |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        
|                         | Total comprehensive income (loss) |                                    | $ | 22,060   |   |       | $ | 8,077  |   |  | $ | (8,304 | ) |  | $ | (17,794 | )
|                         |                                   |                                    |   |          |   |       |   |        |   |  |   |        |   |  |   |        

The decreases in OCI associated with increases of
50 and 100 basis points in interest rates do not reflect the
mitigating effect fixed rate FHLB advances and term deposits
would be expected to have on spread income if rates were to
rise. The decrease in OCI associated with the decrease of 50 and
100 basis points in interest rates reflects the increase in
swaps used in connection with funding our Investment Portfolio
Groups assets. The Company expanded its investment in
swaps during 2002 to further mitigate interest rate risk, should
interest rates rise.

The assumptions inherent in our interest rate
shock models include valuation changes in an instantaneous and
parallel 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 analyses described in
the prior paragraphs are limited by the fact that they are
performed at a particular point in time and do 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. Furthermore, the above analysis does not
reflect the economic impact of a change in rates on our
interest-bearing liabilities. An increase in rates would result
in a decrease in the liability amounts. 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.

ALCO monitors our hedging activities to ensure
that the value of hedges, 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.

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##### Table of Contents






PART II




Item
4.Submission of Matters to a
Vote of Security Holders

At the annual meeting of IndyMac Bancorps
shareholders held on April 24, 2002, the shareholders voted
to elect IndyMac Bancorps directors. The votes cast in
this regard were as follows:

|                        |  |            |            |                 |  |  |         | 
|----------------------- |  | ---------- | ---------- | --------------- |  |  | ------- | 
|                        |  | Shares For |            | Shares Withheld
|                        |  |            |            |                
|David S. Loeb           |  |            | 54,592,884 |                 |  |  | 812,112 | 
|Michael W. Perry        |  |            | 54,609,433 |                 |  |  | 795,563 | 
|Lyle E. Gramley         |  |            | 54,599,869 |                 |  |  | 805,127 | 
|Hugh M. Grant           |  |            | 54,596,903 |                 |  |  | 808,093 | 
|Patrick C. Haden        |  |            | 54,606,980 |                 |  |  | 798,015 | 
|Robert L. Hunt II       |  |            | 54,580,118 |                 |  |  | 824,878 | 
|Frederick J. Napolitano |  |            | 54,594,368 |                 |  |  | 810,628 | 
|James R. Ukropina       |  |            | 54,588,407 |                 |  |  | 816,589 | 

In addition, the shareholders voted to approve
the 2002 Incentive Plan. The votes cast in this regard were as
follows:

|                |  |            |            |            |  |  |     | 
|--------------- |  | ---------- | ---------- | ---------- |  |  | --- | 
|                |  | No. of     |            | % of      
|                |  | Votes Cast |            | Votes Cast
|                |  |            |            |           
|For             |  |            | 32,878,686 |            |  |  | 59% | 
|Against         |  |            | 22,215,366 |            |  |  | 40% | 
|Abstain         |  |            | 310,944    |            |  |  | 1%  | 
|Broker Non-Vote |  |            | 0          |            |  |  | 0%  | 




Item
6.Exhibits and Reports on
Form 8-K

(a)Exhibits

| |      |  |  |                                                                                                                                                                                      
| | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1  |  |  | 2000 Stock Incentive Plan, as amended.                                                                                                                                               
| | 4.2  |  |  | 2002 Incentive Plan (incorporated by reference to
    Exhibit 99.1 to IndyMac Bancorps Form S-8
    Registration Statement (No. 333-97339) filed with the SEC
    on July 30, 2002).
| | 10.1 |  |  | First Amendment to Employment Agreement dated
    April 24, 2002 between IndyMac Bancorp and Michael W.
    Perry.                                                                   
| | 10.2 |  |  | Amended and Restated Employment Agreement dated
    July 23, 2002 between IndyMac Bancorp and Michael W.
    Perry.                                                                  
| | 99.1 |  |  | 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 filed a report on Form 8-K on
August 8, 2002. Items included: Item 5. Other Events
regarding the Cancellation of Chief Executive Officer Stock
Option.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pasadena,
State of California, on August 13, 2002 for the six months
ended June 30, 2002.



| |                      
| | ---------------------
| | INDYMAC BANCORP, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ MICHAEL W. PERRY

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



| |     |               
| | --- | --------------
| | By: | /s/ SCOTT KEYS

| |                             
| | ----------------------------
| |                             
| | Scott Keys                  
| | Executive Vice President and
| | Chief Financial Officer     

32