UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2007
	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	(I.R.S. Employer
incorporation or organization)	Identification No.)
888 East Walnut Street,	91101-7211
Pasadena, California	(Zip Code)
(Address of principal executive offices)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

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

Common stock outstanding as of July 25, 2007: 73,669,733 shares

FORM 10-Q QUARTERLY REPORT
For the Quarter Ended June 30, 2007

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Forward-Looking Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3
Overview		3
Selected Consolidated Financial Highlights		5
Summary of Business Segment Results		8
Consolidated Risk Management Discussion		31
Expenses		49
Prospective Trends and Future Outlook		50
Off-Balance Sheet Arrangements		50
Aggregate Contractual Obligations		51
Critical Accounting Policies and Judgments		51
Regulatory Update		51
Other Considerations		51
Appendix A: Additional Quantitative Disclosures		52
Item 3. Quantitative and Qualitative Disclosures About Market Risk		69
Item 4. Controls and Procedures		69
Item 1. Financial Statements (Unaudited)		70
Consolidated Balance Sheets		70
Consolidated Statements of Earnings		71
Consolidated Statements of Shareholders’ Equity and Comprehensive Income		72
Consolidated Statements of Cash Flows		73
Notes to Consolidated Financial Statements		74
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		79
Item 1A. Risk Factors		79
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		80
Item 4. Submission of Matters to a Vote of Security Holders		80
Item 6. Exhibits		81
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q may be deemed to be forward-looking statements within the meaning of the federal securities laws. The words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” “goal,” “target,” and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, the effect of economic and market conditions including industry volumes and margins; the level and volatility of interest rates; the Company’s hedging strategies, hedge effectiveness and asset and liability management; the accuracy of subjective estimates used in determining the fair value of financial assets of Indymac; the credit risks with respect to our loans and other financial assets; the actions undertaken by both current and potential new competitors; the availability of funds from Indymac’s lenders and from loan sales and securitizations to fund mortgage loan originations and portfolio investments; the execution of Indymac’s growth plans and ability to gain market share in a significant market transition; the impact of disruptions triggered by natural disasters; the impact of current, pending or future legislation, regulations or litigation; and other risk factors described in the reports that Indymac files with the Securities and Exchange Commission, including its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its reports on Form 8-K. For further information on our risk factors, please refer to “Risk Factors” on pages 72 to 80 in the Company’s annual report on Form 10-K for the year ended December 31, 2006 (“2006 10-K”).

References to “Indymac Bancorp” or the “Parent Company” refer to the parent company alone, while references to “Indymac,” the “Company,” or “we” refer to the parent company and its consolidated subsidiaries. References to “Indymac Bank” or the “Bank” refer to our subsidiary IndyMac Bank, F.S.B. and its consolidated subsidiaries. The following discussion addresses the Company’s financial condition and results of operations for the three and six months ended June 30, 2007.

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

OVERVIEW

Indymac’s hybrid business model combines the best elements of mortgage banking and thrift investing. Mortgage banking involves the origination, securitization and sale of mortgage loans and related assets, and the servicing of those loans. The revenues from mortgage banking consist primarily of gains on the sale of loans, fees earned from origination, interest income earned while the loans are held for sale and servicing fees. On the thrift side, we generate core spread income from our investment portfolio of prime single-family residential (“SFR”) mortgage loans, home equity loans, consumer and builder construction loans and mortgage-backed securities (“MBS”).

As a result of the quick asset turn times associated with mortgage banking, it is less capital intensive than thrift investing and generally offers higher returns on invested capital. When demand for mortgages and related secondary products is high, more capital can be deployed in this segment. Thrift investing requires more capital than mortgage banking and generates correspondingly lower returns on invested capital. However, the returns generally tend to be more stable and less cyclical than those from mortgage banking. We allocate more capital to the thrift segment when we believe the secondary market is under-valuing returns on mortgage-related assets. The ability to deploy capital into the segment with the best opportunities at any given time allows us to focus on strong shareholder returns throughout the interest rate cycle.

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For the three months ended June 30, 2007, Indymac had consolidated net income of $44.6 million, representing an 8.6% return on average equity (“ROE”). Regarding business segment performance¹, mortgage production divisions had earnings of $38.3 million and a 21% ROE in the second quarter. Mortgage servicing had earnings of $31.9 million and a 37% ROE. Combining production and servicing, mortgage banking earned $59.1 million and a 22% ROE. The thrift segment earned $15.5 million, representing a 7% ROE for the second quarter. Negatively impacting the performance of the thrift segment was an increase in delinquencies in our loan portfolios, which resulted in increased loan loss provisions, and credit valuation adjustments in our non-investment grade and residual securities portfolios to reflect expected increases in credit losses.

¹ Net income for the mortgage production divisions, mortgage servicing and the thrift portfolio is before divisional and corporate overhead. Net income for total mortgage banking segment is after divisional overhead but before corporate overhead.

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SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS

The following highlights the Company’s consolidated financial condition and results of operations for the periods indicated:

	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2007			2007			2006			2006			2006
	(Dollars in millions, except per share data)
Balance Sheet Information (at period end)(1)
Cash and cash equivalents	$	618		$	577		$	542		$	521		$	165
Securities (trading and available for sale)		5,608			5,253			5,443			4,950			4,890
Loans held for sale		11,762			10,511			9,468			8,341			6,493
Loans held for investment		8,648			8,988			10,177			10,030			8,773
Allowance for loan losses		(77	)		(68	)		(62	)		(61	)		(58	)
Mortgage servicing rights		2,387			2,053			1,822			1,631			1,599
Other assets		2,713			2,380			2,105			1,973			1,894
Total Assets		31,659			29,694			29,495			27,385			23,756
Deposits		11,747			11,452			10,898			10,111			9,352
Advances from Federal Home Loan Bank		10,873			10,350			10,413			9,333			7,070
Other borrowings		4,527			4,313			4,637			4,595			4,165
Other liabilities and preferred stock in subsidiary		2,462			1,525			1,519			1,409			1,366
Total Liabilities and Preferred Stock in Subsidiary		29,609			27,639			27,467			25,447			21,952
Shareholders’ Equity		2,050			2,055			2,028			1,938			1,804
Income Statement Information(1)
Net interest income	$	149		$	135		$	133		$	137		$	130
Provision for loan losses		17			11			9			5			2
Gain on sale of loans		101			118			165			160			202
Service fee income		86			49			22			21			27
(Loss) gain on MBS		(46	)		(5	)		(4	)		19			8
Fee and other income		25			16			13			14			12
Net revenues		298			302			320			346			377
Operating expenses		224			216			211			203			204
Net earnings		45			52			72			86			105
Other Operating Data
SFR mortgage loan production	$	22,505		$	25,569		$	25,946		$	23,968		$	20,060
Total loan production(2)		23,023			25,930			26,328			24,439			20,591
Mortgage industry market share(3)		3.07	%		3.90	%		3.63	%		3.32	%		2.67	%
Pipeline of SFR mortgage loans in process		13,376			16,112			11,821			14,556			12,527
Loans sold		20,194			24,537			23,417			19,508			19,415
Loans sold/SFR mortgage loan production		90	%		96	%		90	%		81	%		97	%
SFR mortgage loans serviced for others (at period end)(4)		167,710			156,144			139,817			124,395			109,989
Total SFR mortgage loans serviced (at period end)		183,578			171,955			155,656			139,022			122,112
Average full-time equivalent employees		9,431			8,755			8,477			8,186			7,861
Per Share Data
Basic earnings per share	$	0.62		$	0.72		$	1.02		$	1.25		$	1.57
Diluted earnings per share		0.60			0.70			0.97			1.19			1.49
Dividends declared per share		0.50			0.50			0.50			0.48			0.46
Dividend payout ratio(5)		83	%		71	%		52	%		40	%		31	%
Book value per share (at period end)		27.83			27.93			27.78			27.35			26.29
Closing price per share (at period end)		29.17			32.05			45.16			41.16			45.85
Average Common Shares (in thousands):
Basic		72,412			72,297			71,059			68,866			66,483
Diluted		73,976			74,305			74,443			72,286			70,213
Performance Ratios
Return on average equity (annualized)		8.62	%		10.45	%		14.56	%		18.27	%		24.09	%
Return on average assets (annualized)		0.50	%		0.60	%		0.85	%		1.17	%		1.51	%
Net interest income to pre-tax income after minority interest and dividends declared on preferred stock on subsidiary		203.61	%		157.24	%		122.52	%		95.97	%		75.40	%
Net interest margin, consolidated		1.92	%		1.77	%		1.76	%		2.13	%		2.12	%
Net interest margin, thrift(6)		2.29	%		2.11	%		2.09	%		2.50	%		2.43	%
Mortgage banking revenue (“MBR”) margin on loans sold(7)		0.80	%		0.68	%		0.91	%		1.03	%		1.23	%
Efficiency ratio(8)		71	%		69	%		64	%		58	%		54	%
Operating expenses to total loan production		0.97	%		0.83	%		0.80	%		0.83	%		0.99	%
Balance Sheet and Asset Quality Ratios
Average interest-earning assets	$	31,255		$	31,030		$	29,868		$	25,507		$	24,681
Average assets		35,837			35,341			33,765			29,140			27,770
Average equity		2,078			2,033			1,969			1,871			1,742
Debt to equity ratio(9)		13.2:1			12.7:1			12.8:1			12.4:1			11.4:1
Core capital ratio(10)		8.10	%		7.41	%		7.39	%		7.60	%		8.24	%
Risk-based capital ratio(10)		12.09	%		11.28	%		11.72	%		11.62	%		11.97	%
Non-performing assets to total assets		1.63	%		1.09	%		0.63	%		0.51	%		0.49	%
Allowance for loan losses to total loans held for investment		0.89	%		0.75	%		0.61	%		0.61	%		0.66	%
Allowance for loan losses to non-performing loans held for investment		36.07	%		44.11	%		57.51	%		77.43	%		90.61	%

(1) The items under the balance sheet and income statement sections are rounded individually and therefore may not necessarily add to the total.

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(2)	Includes newly originated commitments on builder construction loans as well as commercial real estate loan production, which started in March 2007.
(3)	Our market share is calculated based on our total SFR mortgage loan production, both purchased (correspondent and conduit) and originated (retail and wholesale), in all channels (the numerator) divided by the Mortgage Bankers Association (“MBA”) July 12, 2007 Mortgage Finance Long-Term Forecast estimate of the overall mortgage market (the denominator). Our market share calculation is consistent with that of our mortgage banking peers. It is important to note that these industry calculations cause purchased mortgages to be counted more than once, i.e., first when they are originated and again by the purchasers (through correspondent and conduit channels) of the mortgages. Therefore, our market share calculation may not be mathematically precise, but it is consistent with industry calculations, which provide investors with a good view of our relative standing compared to the other top mortgage lending peers.
(4)	SFR mortgage loans serviced for others represent the unpaid principal balance on loans sold with servicing retained by Indymac. Total SFR mortgage loans serviced includes mortgage loans serviced for others and mortgage loans owned by and serviced for Indymac.
(5)	Dividends declared per common share as a percentage of diluted earnings per share.
(6)	Net interest margin, thrift, represents the combined margin from thrift, elimination and other, and corporate overhead.
(7)	Mortgage banking revenue margin is calculated using the sum of consolidated gain on sale of loans and the net interest income earned on loans held for sale by our mortgage banking production divisions divided by total loans sold.
(8)	Defined as operating expenses divided by net revenues, excluding provision for loan losses.
(9)	Debt includes deposits. Preferred stock in subsidiary is excluded from the calculation.
(10)	Ratio is for Indymac Bank and excludes unencumbered cash at the Parent Company available for investment in Indymac Bank. Risk-based capital ratio is calculated based on the regulatory standard risk weighting adjusted for the additional risk weightings for subprime loans.

NARRATIVE SUMMARY OF CONSOLIDATED FINANCIAL RESULTS

Three Months ended June 30, 2007 Compared to Three Months ended June 30, 2006

The Company recorded net earnings of $44.6 million, or $0.60 per diluted share, for the second quarter of 2007. This represents a decrease of 57% and 60% in net earnings and earnings per share, respectively, compared with the net earnings of $104.7 million, or $1.49 per diluted share, for the second quarter of 2006. Return on average equity also decreased to 9% for the second quarter of 2007 compared to 24% for the second quarter of 2006. The decline in profitability is mainly attributable to higher credit costs and a lower MBR margin.

Our total SFR mortgage production for the second quarter of 2007 grew 12% to $22.5 billion over the $20.1 billion for the second quarter of 2006 but declined 12% from $25.6 billion for the first quarter of 2007. The decline in volume from the first quarter of 2007 is mainly reflected in the 37% or $3.1 billion drop in volume from our conduit channel as we were less aggressive on our bids for this business due to its inherently lower profit margins and the current uncertainty with respect to secondary market spreads and execution. Production from our core mortgage professionals channels (excluding the conduit) declined from the first quarter of 2007 by 3% to $13.3 billion. The servicing retention channel continues to be strong with an increase of 31% from the first quarter of 2007 to $1.5 billion. Also, the newly acquired New York Mortgage Company (“NYMC”), now part of our retail channel, contributed $376 million to total production this quarter. The overall decline in volume for the second quarter was in line with expectations communicated last quarter given that 31% of our Q107 production would have been eliminated by the guideline cuts we have made this year. We were able to maintain solid volumes despite the guideline cuts as some of the displaced production has migrated to other Indymac loan products for which borrowers qualify, in particular many of our new mortgage insurance based products that are saleable to the GSEs. Our mortgage industry market share based on the industry volume published by the MBA on July 12, 2007, increased to 3.07% for the quarter ended June 30, 2007, from 2.67% for the quarter ended June 30, 2006, but declined from 3.90% for the quarter ended March 31, 2007. The pipeline of SFR mortgage loans in process ended at

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$13.4 billion, up from $12.5 billion at June 30, 2006, but down from the record high of $16.1 billion at March 31, 2007.

Our MBR margin declined to 0.80% for the quarter ended June 30, 2007 from 1.23% for the quarter ended June 30, 2006, but increased from 0.68% for the quarter ended March 31, 2007. This year over year MBR margin decline was primarily due to continuing spread widening caused by the secondary market disruption, increased competition, a shift to lower margin products in the mix of loans sold, higher credit costs related to early payment defaults on loans prior to sale, and an increase in our secondary market reserve provision. We sold $20.2 billion, or 90% of mortgage loans produced, generating $101.0 million in gain on sale in the second quarter of 2007. By comparison, we sold $19.4 billion, or 97% of mortgage loans produced, generating $201.7 million in gain on sale during the same period last year.

The thrift net interest margin was 2.29% for the quarter ended June 30, 2007, down from 2.43% for the quarter ended June 30, 2006, but up from 2.11% for the quarter ended March 31, 2007. Our thrift net interest margin improved over the first quarter of 2007 as a result of selling lower yielding assets out of the thrift portfolio, lower premium amortizations due to slower prepayment speed, and improvements achieved in our deposit cost of funds relative to other funding sources.

Credit costs continued to rise during the current quarter. The credit related mark-to-market valuation reserve on loans held for sale (“HFS”) increased from March 31, 2007 by $47.8 million to $113.1 million at June 30, 2007. For the loans held for investment (“HFI”) portfolio, the provision for loan losses increased to $17.2 million for the second quarter of 2007 from $2.2 million for the second quarter of 2006. Moreover, the Company repurchased $219 million of loans mainly due to early payment defaults in the second quarter of 2007, up from $48 million for the second quarter of 2006. In addition, provision for the secondary market reserve was increased to $24.2 million compared to $10.2 million a year ago, but down from $31.7 million in the first quarter of 2007. We have implemented guideline cuts in our production that would have eliminated 94% of the credit losses on the loans held for sale portfolio had they been in place at the time of production. We believe the credit quality of our portfolio and repurchase activity should start to improve in the second half of 2007.

Total operating expenses of $224.0 million were up 4% over the first quarter and 10% year over year. Operating expense growth in the second quarter over the first quarter was driven mainly by a $13.4 million expense increase in two of our new business activities, our retail lending and commercial mortgage divisions, with the bulk of the increase coming from the April 1, 2007 acquisition of the retail lending platform of NYMC, including roughly 400 employees. We also continued to invest in the revenue generating capacity of our wholesale, correspondent and retention divisions, increasing our expenses in these areas by $6.9 million over the first quarter. These increases were largely offset by a one-time expense reduction of $10.3 million related to the curtailment of our pension plan and a $6.5 million, or 15%, reduction in corporate overhead from the first quarter. The hiring freeze we have on non-revenue generating personnel continues to have a positive effect on our expenses, as our non-revenue generating headcount declined by an annualized 12% rate from the first quarter, which comes on top of a 20% annualized decline last quarter. Although we continue to manage our expenses effectively, our efficiency ratio worsened to 71% from 69% last quarter primarily because of the investment we made in our retail lending division and other incubator initiatives and the decline in revenues.

During the third quarter of 2007, we engaged in the right-sizing of our workforce, mainly in operations and information technology, resulting in the layoff of approximately 400 employees. These layoffs will result in Indymac taking a pre-tax charge to earnings of approximately $6.5 million in the third quarter. The cost savings we will realize will substantially offset this charge during the third quarter of this year, and on an ongoing basis we project $30 million in annual cost savings.

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Six Months ended June 30, 2007 Compared to Six Months ended June 30, 2006

The Company recorded net earnings of $97.0 million, or $1.31 per diluted share, for the first half of 2007. This represents a decrease of 47% and 51% in net earnings and earnings per share, respectively, compared with net earnings of $184.5 million, or $2.68 per diluted share, for the first half of 2006. Return on average equity also decreased to 10% for the first half of 2007 from 22% a year ago. The decline in profitability is mainly attributable to higher credit costs, a lower MBR margin and a lower thrift net interest margin.

While total SFR mortgage loan production grew 20% to $48.1 billion and loan sales grew 24% to $44.7 billion during the first half of 2007 compared to the first half of 2006, net revenues declined 12% to $599.8 million during the same period. This is primarily due to the decline in MBR margin caused by the secondary market disruption discussed earlier and higher credit costs due to worsening delinquencies in our HFS portfolio. The change in product mix of loans sold also contributed to the decline in MBR margin.

The thrift net interest margin was down from 2.42% for the first half of 2006 to 2.20% for the first half of 2007. We were negatively impacted by the inverted yield curve as the spread between the average 10-year treasury rate and the average one-month LIBOR worsened from a negative 0.03% in the first half of 2006 to a negative 0.56% in the first half of 2007.

As discussed earlier, credit costs during the first half of 2007 increased significantly due primarily to increases in non-performing loans and early payment defaults and increased delinquencies in both our HFS and HFI portfolios. As a result, we increased the provision for loan losses to $27.9 million for the first half of 2007 compared to $6.1 million in the first half of 2006. We repurchased $443 million of loans in the first half of 2007, mainly due to early payment defaults, compared to $62 million in the first half of 2006.

Total non-interest income, excluding gain on sale of loans, increased 43% from $87.5 million for the first half of 2006 to $124.8 million for the first half of 2007. This increase is mainly attributable to a $76.7 million increase in service fee income, which is a direct result of the growth in our servicing portfolio and slower prepayment rates. Revenue from our MBS portfolio declined from $5.6 million for the first half of 2006 to a loss of $51.7 million for the first half of 2007, primarily due to valuation adjustments on non-investment and residual securities reflecting expected credit losses.

Operating expenses increased 17% from $375.5 million for the first half of 2006 to $439.8 million for the first half of 2007. The increase is primarily reflected in the growth of our average FTEs from 7,545 for the first half of 2006 to 9,093 for the first half of 2007, which was necessary to support the growth in our mortgage production volume, loan servicing portfolio and thrift investment portfolio. While year-over-year loan production, servicing portfolio and total assets have grown by 20%, 52% and 33%, respectively, we have been able to hold the growth in operating expenses to 17% through the cost saving initiatives previously disclosed by the Company.

SUMMARY OF BUSINESS SEGMENT RESULTS

Holding managers accountable for growing profits and earning attractive returns on capital is a key component of our meritocracy culture. Accordingly, we have developed a detailed reporting process that computes net income and ROE for our key business segments each reporting period and uses the results to evaluate our managers’ performance and determine their incentive compensation. In addition, we use the results to evaluate the performance and prospects of our divisions and adjust our capital allocations to those that earn the best returns for our shareholders.

We predominantly use Generally Accepted Accounting Principles (“GAAP”) to compute each division’s financial results as if it were a stand-alone entity. Consistent with this approach, borrowed funds and their interest cost are allocated based on the funds actually used by the Company to fund the division’s assets and capital is allocated based on regulatory capital rules for the specific assets of each segment. Additionally, transactions between divisions are reflected at arms-length in these financial results and intercompany profits are eliminated in consolidation. We do not allocate fixed corporate and business unit overhead costs to our profit center divisions, because the methodologies to do so are arbitrary and distort each division’s marginal contribution to our profits. However, the cost of these overhead activities is included in the following tables so they reconcile to our

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consolidated results, and they are tracked closely, so the responsible managers can be held accountable for the level of these costs and their efficient use.

Our segment reporting is organized consistent with our hybrid business model that combines mortgage banking and thrift investing. Mortgage banking involves the origination, securitization and sale of mortgage loans and related assets, and the servicing of those loans. The revenues from mortgage banking consist primarily of gains on the sale of the loans, fees earned from origination, net interest income earned while the loans are held pending sale, and servicing fees. In the thrift segment, we primarily generate core spread income from our investment portfolio of mortgage-backed securities, prime SFR mortgages, home equity loans, and consumer and builder construction loans.

The following tables and discussion explain the recent results of our two major operating segments, mortgage banking and thrift. These activities, combined with the elimination and other category, which includes supporting deposit and treasury costs as well as eliminating entries, form our total operating results. Our unallocated corporate overhead costs are also presented and discussed. We have also included supplemental tables showing detailed division level financial results for each of our segments.

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The following tables summarize the Company’s financial results by its two primary segments for the periods indicated:

										Total
	Mortgage						Eliminations			Operating			Corporate			Total
	Banking			Thrift			& Other(1)			Results			Overhead			Company
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	54,286		$	71,699		$	26,506		$	152,491		$	(3,247	)	$	149,244
Provision for loan losses		—			(17,204	)		—			(17,204	)		—			(17,204	)
Gain (loss) on sale of loans		116,962			7,679			(23,611	)		101,030			—			101,030
Service fee income		92,709			476			(7,567	)		85,618			—			85,618
Gain (loss) on sale of securities		(26,392	)		(20,698	)		743			(46,347	)		—			(46,347	)
Other income		12,751			11,280			775			24,806			607			25,413
Net revenues (expense)		250,316			53,232			(3,154	)		300,394			(2,640	)		297,754
Operating expenses		209,369			32,579			16,013			257,961			27,751			285,712
Deferral of expenses under SFAS 91		(56,464	)		(4,793	)		—			(61,257	)		—			(61,257	)
Pretax income (loss)		97,411			25,446			(19,167	)		103,690			(30,391	)		73,299
Net income (loss)	$	59,078		$	15,495		$	(11,426	)	$	63,147		$	(18,508	)	$	44,639
Relevant Financial and Performance Data
Average interest-earning assets	$	14,634,017		$	16,276,519		$	(92,737	)	$	30,817,799		$	437,229		$	31,255,028
Allocated capital		1,100,429			897,521			1,984			1,999,934			77,640			2,077,574
Loans produced		21,626,275			1,396,865			—			23,023,140			—			23,023,140
Loans sold		20,496,742			1,204,928			(1,508,093	)		20,193,577			—			20,193,577
MBR Margin		0.87	%		0.64	%		N/A			N/A			N/A			0.80	%
ROE		22	%		7	%		N/A			13	%		N/A			9	%
Net interest margin		N/A			1.77	%		N/A			1.98	%		N/A			1.92	%
Net interest margin, thrift		N/A			1.77	%		N/A			N/A			N/A			2.29	%
Average FTE		7,145			660			326			8,131			1,300			9,431
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	37,897		$	76,780		$	17,432		$	132,109		$	(1,955	)	$	130,154
Provision for loan losses		—			(2,230	)		—			(2,230	)		—			(2,230	)
Gain (loss) on sale of loans		196,924			17,005			(12,270	)		201,659			—			201,659
Service fee income		35,050			288			(8,091	)		27,247			—			27,247
Gain (loss) on sale of securities		6,832			(1,577	)		3,003			8,258			—			8,258
Other income		2,431			9,445			(150	)		11,726			276			12,002
Net revenues (expense)		279,134			99,711			(76	)		378,769			(1,679	)		377,090
Operating expenses		181,458			33,282			12,005			226,745			43,901			270,646
Deferral of expenses under SFAS 91		(61,295	)		(4,599	)		(281	)		(66,175	)		—			(66,175	)
Pretax income (loss)		158,971			71,028			(11,800	)		218,199			(45,580	)		172,619
Net income (loss)	$	96,651		$	43,258		$	(7,492	)	$	132,417		$	(27,758	)	$	104,659
Relevant Financial and Performance Data
Average interest-earning assets	$	9,428,400		$	14,498,089		$	(90,914	)	$	23,835,575		$	845,002		$	24,680,577
Allocated capital		786,573			776,126			2,154			1,564,853			177,384			1,742,237
Loans produced		19,252,719			1,337,863			—			20,590,582			—			20,590,582
Loans sold		20,180,744			1,269,497			(2,035,077	)		19,415,164			—			19,415,164
MBR Margin		1.16	%		1.34	%		N/A			N/A			N/A			1.23	%
ROE		49	%		22	%		N/A			34	%		N/A			24	%
Net interest margin		N/A			2.12	%		N/A			2.22	%		N/A			2.12	%
Net interest margin, thrift		N/A			2.12	%		N/A			N/A			N/A			2.43	%
Average FTE		5,655			655			312			6,622			1,239			7,861
Quarter to Quarter Comparison
% change in net income		(39	)%		(64	)%		(53	)%		(52	)%		33	%		(57	)%
% change in capital		40	%		16	%		(8	)%		28	%		(56	)%		19	%

(1) Included are eliminations, deposits, and treasury items, the details of which are provided on page 30.

10

MORTGAGE BANKING SEGMENT

Our mortgage banking segment primarily consists of mortgage production divisions and our mortgage servicing division, which services the loans that Indymac originates, whether they have been sold into the secondary market or are held for investment on our balance sheet.

The mortgage banking segment earnings declined 39% from $96.7 million in the second quarter of last year to $59.1 million in the second quarter of 2007. These lower earnings were caused by a significant reduction in earnings from our production divisions partially offset by strong returns and growth in the mortgage servicing area.

The primary driver of the 55% reduction in production divisions earnings was the decline in the MBR margin from 1.16% of loans sold in last year’s second quarter to 0.82% in the same period this year. Although increased competition has contributed to these lower revenue margins, increased production credit costs is the primary cause of this decline. Mortgage banking revenue was reduced by $61.0 million in credit related costs, or 30 basis points of our total MBR margin, in the second quarter of 2007. These losses have almost doubled from $38 million in the second quarter of 2006. As credit conditions in the United States mortgage market have deteriorated, our production credit losses have increased. However, we have identified the products where these losses were concentrated and stopped offering them. Mortgage banking credit losses recognized in the second quarter on products we no longer offer, totaled $38.7 million, or 94% of the total. Excluding these losses, the production divisions’ MBR margin would have been 1.02% and its ROE would have been 34%. We expect these credit costs to decline in the second half of this year; however, volatile secondary market conditions are expected to pressure MBR margins during this time. In addition to the negative impact of credit losses on our production earnings, we made investments during the second quarter in the consumer direct and retail that lost money during their start-up phase. These losses totaled $5.0 million after-tax and when combined with the $1.1 million loss from similar investments in commercial mortgage banking lowered our total mortgage banking segment ROE by 2.2%.

The credit losses above affected all of our major channels in the production divisions, except Financial Freedom which grew earnings 69% year over year despite increased competition. These earnings were down 33% from a very strong first quarter of 2007, and we expect increased competition to continue to pressure Financial Freedom’s earnings.

The 63% increase in Mortgage Servicing earnings reflects growth in the portfolio, slower prepayment speeds, and improved customer retention earnings. The portfolio of loans serviced for others grew 52% to $167.7 billion at June 30, 2007 from $110.0 billion a year ago. Our retention percentage among customers paying off their mortgage improved to 17.0% this quarter versus 8.8% in last year’s second quarter. Combined with the growth in our servicing portfolio, this led to a 176% in increase in retention loan volume from last year to $1.5 billion, and retention profits quadrupled from $2.4 million to $9.5 million in the same period.

11

The following tables provide additional detail on total mortgage banking division for the periods indicated:

							Consumer
							Mortgage			Commercial			Total
	Production			Mortgage			Banking			Mortgage			Mortgage
	Divisions			Servicing			O/H(1)			Banking			Banking
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	61,347		$	(7,414	)	$	319		$	34		$	54,286
Provision for loan losses		—			—			—			—			—
Gain (loss) on sale of loans		96,290			20,449			—			223			116,962
Service fee income		10,815			81,894			—			—			92,709
Gain (loss) on sale of securities		—			(26,392	)		—			—			(26,392	)
Other income		7,194			4,590			941			26			12,751
Net revenues (expense)		175,646			73,127			1,260			283			250,316
Operating expenses		164,390			25,043			17,820			2,116			209,369
Deferral of expenses under SFAS 91		(52,050	)		(4,310	)		—			(104	)		(56,464	)
Pretax income (loss)		63,306			52,394			(16,560	)		(1,729	)		97,411
Net income (loss)	$	38,308		$	31,908		$	(10,085	)	$	(1,053	)	$	59,078
Relevant Financial and Performance Data
Average interest-earning assets	$	13,517,736		$	1,100,083		$	2,470		$	13,728		$	14,634,017
Allocated capital		735,268			348,360			16,196			605			1,100,429
Loans produced		20,091,316			1,490,172			—			44,787			21,626,275
Loans sold		19,253,790			1,241,952			—			1,000			20,496,742
MBR Margin		0.82	%		1.65	%		N/A			N/A			0.87	%
ROE		21	%		37	%		N/A			(698	)%		22	%
Net interest margin		1.82	%		N/A			N/A			0.99	%		N/A
Average FTE		5,386			291			1,440			28			7,145
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	37,650		$	(221	)	$	468		$	—		$	37,897
Provision for loan losses		—			—			—			—			—
Gain (loss) on sale of loans		191,333			5,591			—			—			196,924
Service fee income		4,650			30,400			—			—			35,050
Gain (loss) on sale of securities		—			6,832			—			—			6,832
Other income		484			1,222			725			—			2,431
Net revenues (expense)		234,117			43,824			1,193			—			279,134
Operating expenses		152,837			13,308			15,313			—			181,458
Deferral of expenses under SFAS 91		(59,608	)		(1,687	)		—			—			(61,295	)
Pretax income (loss)		140,888			32,203			(14,120	)		—			158,971
Net income (loss)	$	85,638		$	19,612		$	(8,599	)	$	—		$	96,651
Relevant Financial and Performance Data
Average interest-earning assets	$	8,851,454		$	573,655		$	3,291		$	—		$	9,428,400
Allocated capital		521,875			253,768			10,930			—			786,573
Loans produced		18,712,491			540,228			—			—			19,252,719
Loans sold		19,743,413			437,331			—			—			20,180,744
MBR Margin		1.16	%		1.28	%		N/A			N/A			1.16	%
ROE		66	%		31	%		N/A			N/A			49	%
Net interest margin		1.71	%		N/A			N/A			N/A			N/A
Average FTE		4,405			183			1,067			—			5,655
Quarter to Quarter Comparison
% change in net income		(55	)%		63	%		(17	)%		N/A			(39	)%
% change in equity		41	%		37	%		48	%		N/A			40	%

(1) Included production division overhead, servicing overhead and secondary marketing overhead of $3.7 million, $3.4 million and $3.0 million, respectively, for the second quarter of 2007. For the second quarter of 2006, the production division overhead, servicing overhead and secondary marketing overhead were $3.7 million, $2.4 million and $2.5 million, respectively.

12

PRODUCTION DIVISIONS

The mortgage production divisions originate loans through three main channels: consumer direct, mortgage professionals group (“MPG”) and Financial Freedom. The MPG sources loans through relationships with mortgage brokers, financial institutions, realtors, and homebuilders through four business units: retail, wholesale, correspondent and conduit.

The consumer direct division offers mortgage loans directly to consumers through our southern California retail branch network and our centralized call center, sourcing leads through direct mail, internet lead aggregators, online advertising and referral programs.

Within the MPG, the retail channel provides mortgage financing directly to home purchase oriented consumers by targeting Realtors^®, homebuilders and financial professionals via storefront mortgage loan offices. Our recent acquisition of the retail platform of New York Mortgage Company is a major component of and provides a model for this channel. As of June 30, 2007, we have 30 retail storefront mortgage offices and plans to open more in the second half of 2007, with the goal of becoming a top 15 retail lender over the next five years. Wholesale is the largest channel in our MPG, funding loans originated through mortgage brokers and emerging mortgage bankers nationwide. The correspondent channel purchases closed loans — those already funded — on a flow basis from mortgage brokers, realtors, homebuilders, mortgage bankers and financial institutions. The conduit channel opportunistically purchases pools of closed loans for portfolio, resale, or securitization and this channel is characterized by its low cost operations and quick asset turn times.

Financial Freedom is the third division of our mortgage banking segment. It provides reverse mortgage products directly to seniors (age 62 and older) and through third-party lenders.

13

The following tables provide details on the results for the mortgage production divisions of our mortgage banking segment for the periods indicated:

				Mortgage Professionals Group
																Total			Financial
																Mortgage			Freedom			Total
	Consumer															Professionals			(Reverse			Production
	Direct			Retail			Wholesale			Correspondent			Conduit			Group			Mortgage)			Divisions
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	289		$	975		$	23,567		$	6,000		$	26,162		$	56,704		$	4,354		$	61,347
Provision for loan losses		—			—			—			—			—			—			—			—
Gain (loss) on sale of loans		3,519			1,565			62,193			5,989			(22,192	)		47,555			45,216			96,290
Service fee income		—			—			—			—			—			—			10,815			10,815
Gain (loss) on securities		—			—			—			—			—			—			—			—
Other income		161			4,116			2,898			—			(111	)		6,903			130			7,194
Net revenues (expense)		3,969			6,656			88,658			11,989			3,859			111,162			60,515			175,646
Operating expenses		7,331			14,978			85,936			12,022			7,543			120,479			36,580			164,390
Deferral of expenses under SFAS 91		(2,776	)		(638	)		(35,857	)		(5,423	)		—			(41,918	)		(7,356	)		(52,050	)
Pre-tax income (loss)		(586	)		(7,684	)		38,579			5,390			(3,684	)		32,601			31,291			63,306
Net income (loss)	$	(357	)	$	(4,680	)	$	23,495		$	3,282		$	(2,244	)	$	19,853		$	18,812		$	38,308
Relevant Financial and Performance Data
Average interest-earning assets	$	130,510		$	89,907			5,237,671			1,347,963			5,871,693			12,547,234			839,992			13,517,736
Allocated capital		6,302			9,271			260,417			68,811			258,857			597,356			131,610			735,268
Loans produced		288,610			376,406			10,238,487			2,649,220			5,280,941			18,545,054			1,257,652			20,091,316
Loans sold		302,384			177,872			9,758,231			2,633,810			5,019,690			17,589,603			1,361,803			19,253,790
MBR Margin		1.26	%		1.43	%		0.88	%		0.46	%		0.08	%		0.59	%		3.64	%		0.82	%
ROE		(23	)%		(202	)%		36	%		19	%		(3	)%		13	%		57	%		21	%
Net interest margin		0.89	%		4.35	%		1.80	%		1.79	%		1.79	%		1.81	%		2.08	%		1.82	%
Average FTE		265			532			2,755			272			166			3,725			1,396			5,386
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	647		$	1		$	14,462		$	3,375		$	17,576		$	35,414		$	1,589		$	37,650
Provision for loan losses		—			—			—			—			—			—			—			—
Gain (loss) on sale of loans		10,357			4			107,401			16,482			18,918			142,805			38,171			191,333
Service fee income		—			—			—			—			—			—			4,650			4,650
Gain (loss) on securities		—			—			—			—			—			—			—			—
Other income		127			(1	)		1			—			(9	)		(9	)		366			484
Net revenues (expense)		11,131			4			121,864			19,857			36,485			178,210			44,776			234,117
Operating expenses		16,231			617			81,713			12,862			6,750			101,942			34,664			152,837
Deferral of expenses under SFAS 91		(6,203	)		(2	)		(38,757	)		(6,197	)		—			(44,956	)		(8,449	)		(59,608	)
Pre-tax income (loss)		1,103			(611	)		78,908			13,192			29,735			121,224			18,561			140,888
Net income (loss)	$	672		$	(372	)	$	48,055		$	8,034		$	18,109		$	73,826		$	11,140		$	85,638
Relevant Financial and Performance Data
Average interest-earning assets	$	224,931		$	122			3,680,523			919,027			3,603,890			8,203,562			422,961			8,851,454
Allocated capital		12,872			6			212,691			53,252			168,293			434,242			74,761			521,875
Loans produced		551,455			800			8,824,662			2,527,672			5,471,341			16,824,475			1,336,561			18,712,491
Loans sold		589,577			—			9,296,911			2,601,936			6,054,148			17,952,995			1,200,841			19,743,413
MBR Margin		1.87	%		N/A			1.31	%		0.76	%		0.60	%		0.99	%		3.31	%		1.16	%
ROE		21	%		N/A			91	%		61	%		43	%		68	%		60	%		66	%
Net interest margin		1.15	%		N/A			1.58	%		1.47	%		1.96	%		1.73	%		1.51	%		1.71	%
Average FTE		369			10			2,382			229			146			2,767			1,269			4,405
Quarter to Quarter Comparison
% change in net income		(153	)%		N/M			(51	)%		(59	)%		(112	)%		(73	)%		69	%		(55	)%
% change in capital		(51	)%		N/A			22	%		29	%		54	%		38	%		76	%		41	%

14

Key production drivers for mortgage professionals’ wholesale and correspondent channels, for the three months ended June 30, 2007 and 2006 and March 31, 2007 follow:

	Three Months Ended
	June 30,		June 30,		Percent			March 31,		Percent
	2007		2006		Change			2007		Change
Key Production Drivers:
Active customers(1)		9,187		7,472		23	%		8,290		11	%
Sales personnel		1,241		952		30	%		1,182		5	%
Number of regional offices		16		15		7	%		16		—

(1) Active customers are defined as customers who funded at least one loan during the most recent 90-day period.

Loan Production

Loan production and sales are the profitability drivers of our mortgage banking segment. While the table on page 14 presents only the results of the mortgage production divisions of our mortgage banking segment, which contribute 87% to our total loan originations, the following discussion refers to total Company production, through both the mortgage banking and thrift segments.

We generated SFR mortgage loan production of $22.5 billion for the three months ended June 30, 2007, up 12% from the second quarter of 2006 but down 12% from the first quarter of 2007. Total loan production, including commercial loan production, reached $23.0 billion for the three months ended June 30, 2007, compared to $20.6 billion for the three months ended June 30, 2006. At June 30, 2007, our total pipeline of SFR mortgage loans in process reached $13.4 billion, up 7% from June 30, 2006 but down 17% from March 31, 2007. On July 12, 2007, the MBA issued an estimate of the industry volume for the second quarter of 2007 of $732 billion, which represents a 12% increase from the first quarter of 2007 but a 3% decrease from the second quarter of 2006. Based on this estimate, our market share is 3.07% for the quarter ended June 30, 2007, up from 2.67% but down from 3.90% in the quarters ended June 30, 2006 and March 31, 2007, respectively.

The production growth from the second quarter of 2006 was driven by the hiring of new salespeople, increased customer penetration due to expanded product offering and expansion into new regions and improved retention efforts regarding our servicing portfolio. Contributing to this year over year change in production and market share was the strong performance of the MPG, whose volume increased 10% year over year accounting for 70% of overall SFR mortgage production growth. The sales force for the MPG’s wholesale and correspondent channels increased 30% from a year ago while active customers increased 23% during the same period, reflecting the ramp-up time needed for sales personnel to become effective. The newly acquired New York Mortgage Company, now part of the retail division, originated $376 million of loans in the second quarter. We significantly improved our retention activities with volume from the retention channel, increasing 176% during the same period. Financial Freedom saw a 6% decline in its reverse mortgage production from the second quarter of 2006, but was up 3% from the first quarter of 2007. We began offering commercial real estate loans in March 2007, which we believe will further increase production.

15

The following summarizes our loan production by channel for the periods indicated:

	Three Months Ended												Six Months Ended
	June 30,		June 30,		Percent			March 31,		Percent			June 30,		June 30,		Percent
	2007		2006		Change			2007		Change			2007		2006		Change
	(Dollars in millions)
Production by Channel:
SFR mortgage loan production:
Mortgage professionals group:
Wholesale(1)	$	10,238	$	8,825		16	%	$	10,632		(4	)%	$	20,870	$	17,606		19	%
Correspondent		2,649		2,528		5	%		3,024		(12	)%		5,673		4,804		18	%
Conduit		5,281		5,471		(3	)%		8,368		(37	)%		13,649		11,607		18	%
Retail		376		—		N/A			49		667	%		425		—		N/A
Consumer direct		289		552		(48	)%		320		(10	)%		609		1,077		(43	)%
Financial Freedom		1,258		1,337		(6	)%		1,221		3	%		2,479		2,455		1	%
Servicing retention		1,490		540		176	%		1,118		33	%		2,608		967		170	%
Home equity division(2)		7		33		(79	)%		25		(72	)%		32		63		(49	)%
Consumer construction Division(2)		917		774		18	%		812		13	%		1,729		1,458		19	%
Total SFR mortgage loan production		22,505		20,060		12	%		25,569		(12	)%		48,074		40,037		20	%
Commercial loan production:
Commercial mortgage banking		45		—		N/A			1		N/M			46		—		N/A
Homebuilder division(2)		473		531		(11	)%		360		31	%		833		894		(7	)%
Total production	$	23,023	$	20,591		12	%	$	25,930		(11	)%	$	48,953	$	40,931		20	%
Total pipeline at period End	$	13,376	$	12,527		7	%	$	16,112		(17	)%

(1)

Wholesale channel includes $1.4 billion, $712 million, and $1.3 billion of production from wholesale inside sales for the quarters ended June 30, 2007 and 2006 and March 31, 2007, respectively and $2.7 billion, and $1.3 billion of production from wholesale inside sales for the six months ended June 30, 2007 and 2006, respectively. The wholesale inside sales force focuses on small and geographically remote mortgage brokers through centralized in-house sales personnel instead of field sales personnel.

(2)

The amounts of HELOCs, consumer construction and builder construction loans originated by these channels represent commitments.

16

The following summarizes our loan production by product type for the periods indicated:

	Three Months Ended															Six Months Ended
	June 30,			June 30,			Percent			March 31,			Percent			June 30,			June 30,			Percent
	2007			2006			Change			2007			Change			2007			2006			Change
	(Dollars in millions)
Production by Product Type:
Standard first mortgage products:
Prime	$	18,536		$	15,334			21	%	$	20,719			(11	)%	$	39,255		$	31,062			26	%
Subprime		751			505			49	%		1,084			(31	)%		1,835			1,059			73	%
Total standard first mortgage products (S&P evaluated)		19,287			15,839			22	%		21,803			(12	)%		41,090			32,121			28	%
Specialty consumer home mortgage products:
Home equity line of credit(1)/Seconds		876			1,860			(53	)%		1,703			(49	)%		2,579			3,503			(26	)%
Reverse mortgages		1,258			1,337			(6	)%		1,221			3	%		2,479			2,455			1	%
Consumer construction(1)		1,084			1,024			6	%		842			29	%		1,926			1,958			(2	)%
Subtotal SFR mortgage production		22,505			20,060			12	%		25,569			(12	)%		48,074			40,037			20	%
Commercial loan products:
Commercial real estate		45			—			N/A			1			N/M			46			—			N/A
Builder construction commitments(1)		473			531			(11	)%		360			31	%		833			894			(7	)%
Total production	$	23,023		$	20,591			12	%	$	25,930			(11	)%	$	48,953		$	40,931			20	%
Total S&P lifetime loss estimate(2)		0.63	%		0.84	%					0.85	%					0.75	%		0.78	%

(1)	Amounts represent total commitments.
(2)	While our production is evaluated using the Standard & Poor’s (“S&P”) Levels model, the data are not audited or endorsed by S&P. S&P evaluated production excludes second liens, home equity lines of credit (“HELOC”), reverse mortgages, and construction loans.

The above loan production by product type provides a breakdown of standard first mortgage products by prime and subprime only. As the definition of various product types tends to vary widely in the mortgage industry, we believe that further classification may not accurately reflect the credit quality of loans produced implied through such classification.

17

Loan Sales

The following table shows the various channels through which loans were distributed for the total Company during the periods indicated:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in millions)
Distribution of Loan Sales by Channel:
Sales of government-sponsored enterprises (“GSEs”) equivalent loans		40	%		18	%		31	%		35	%		19	%
Private-label securitizations		46	%		46	%		30	%		37	%		42	%
Whole loan sales, servicing retained		13	%		33	%		36	%		26	%		35	%
Whole loan sales, servicing released		—			2	%		1	%		1	%		2	%
Subtotal sales		99	%		99	%		98	%		99	%		98	%
Investment portfolio acquisitions		1	%		1	%		2	%		1	%		2	%
Total loan distribution percentage		100	%		100	%		100	%		100	%		100	%
Total loan distribution	$	20,378		$	19,631		$	24,933		$	45,311		$	36,951

We maintain multiple channels for loan dispositions to achieve sustainable liquidity and develop a deep and diverse investor base. In conjunction with the sale of mortgage loans, we generally retain certain assets. The primary assets retained include mortgage servicing rights (“MSRs”) and, to a lesser degree, AAA-rated and agency interest-only securities, AAA-rated principal-only securities, prepayment penalty securities, investment and non-investment grade securities, and residual securities. The allocated cost of the retained assets at the time of sale is recorded as an asset with an offsetting increase to the gain on sale of loans (or a reduction in the cost basis of the loans sold). The calculation of the $101.0 million in gain on sale of loans earned during the three months ended June 30, 2007 included the retention of $276.8 million of MSRs and $335.9 million of other retained assets, primarily consisting of investment-grade securities of $256.6 million and non-investment grade and residual securities of $79.3 million. The increased amount of other assets retained reflected illiquidity in the secondary markets in the second quarter. During the three months ended June 30, 2007, assets previously retained generated cash flows of $227.5 million. More information on the valuation assumptions related to our retained assets can be found in table 14 “Valuation of MSRs, Interest-Only, Prepayment Penalty, and Residual Securities” on page 67.

We are able to employ this multiple channel strategy to reduce whole loan sales from 35% of total loans sold for the second quarter of 2006 and 37% for the first quarter of 2007 to 13% for the second quarter of 2007. This reduces our potential exposure to early payment default provisions and potential loan repurchases that accompany whole loan sales transactions.

Gain on sale is a significant component of earnings. The profitability of our loans is measured by the MBR margin, which is calculated using mortgage banking revenue divided by total loans sold. The MBR includes total consolidated gain on sale of loans and the net interest income earned on mortgage loans held for sale by mortgage banking production divisions. Most of the gain on sale of loans resulted from the loan sale activities in our mortgage banking segment. The gain on sale recognized in the thrift segment, primarily lot loans and home equity products, is included in the MBR margin calculation.

18

The following table summarizes the amount of loans sold and the MBR margin during the periods indicated:

	Three Months Ended															Six Months Ended
	June 30,			June 30,			Percent			March 31,			Percent			June 30,			June 30,			Percent
	2007			2006			Change			2007			Change			2007			2006			Change
	(Dollars in millions)
Total loans sold	$	20,194		$	19,415			4	%	$	24,537			(18	)%	$	44,731		$	36,123			24	%
MBR margin after production hedging		1.31	%		1.67	%		(22	)%		1.11	%		18	%		1.20	%		1.55	%		(23	)%
MBR margin after credit costs		1.01	%		1.48	%		(32	)%		0.88	%		14	%		0.94	%		1.41	%		(34	)%
Net MBR margin		0.80	%		1.23	%		(34	)%		0.68	%		18	%		0.74	%		1.17	%		(37	)%

For more details on our MBR margin see Table 7 on page 61 of our Appendix A.

MORTGAGE SERVICING DIVISION

Servicing is a key component of our business model, as it is a natural complement to our mortgage production operations and its financial performance tends to run countercyclical to the mortgage production business. Through MSRs retained from our mortgage banking activities or purchased from others, we collect a steady stream of fees and ancillary revenues for servicing loans sold into the secondary market. As interest rates rise, the expected life of the underlying loans is extended, which extends the life of the income stream flowing from those loans. This in turn increases the capitalized value of the associated MSRs. Conversely, as interest rates decline, the value of the MSRs will also decline. To mitigate the potential volatility in the MSRs, we hedge this asset to earn a stable return throughout the interest rate cycle. For more information on servicing hedges, see the “Consolidated Risk Management Discussion” section on page 31.

Our servicing portfolio provides opportunities to cross sell other products, such as home equity lines of credit, checking accounts, CDs and other deposit services. In a declining interest rate environment, our servicing portfolio provides an existing base of customers who may be in the market to refinance. Capturing or “retaining” these customers helps mitigate the decline in the value of our mortgage servicing asset caused by early prepayment of the original loan.

The fair value of our MSRs is determined using discounted cash flow techniques benchmarked against third-party opinions of their value. Estimates of fair value involve several assumptions, including assumptions about future prepayment rates, market expectations of future interest rates and discount rates. Prepayment speeds are projected using a prepayment model developed by a third-party vendor and calibrated for the Company’s collateral. The model considers key factors, such as refinance incentive, housing turnover, seasonality and aging of the pool of loans. Prepayment speeds incorporate expectations of future rates implied by the market forward LIBOR/swap curve, as well as collateral specific current coupon information. Refer to table 14 “Valuation of MSRs, Interest-Only, Prepayment Penalty, and Residual Securities” on page 67 for further detail on the valuation assumptions.

Total capitalized MSRs reached $2.4 billion as of June 30, 2007, up $788.3 million, or 49%, from $1.6 billion at June 30, 2006.

19

The following tables provide additional detail on the results for the mortgage servicing division of our mortgage banking segment for the periods indicated:

	Mortgage						Total
	Servicing			Customer			Mortgage
	Rights			Retention			Servicing
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income (expense)	$	(10,525	)	$	3,111		$	(7,414	)
Provision for loan losses		—			—			—
Gain (loss) on sale of loans		1,321			19,128			20,449
Service fee income		81,894			—			81,894
Gain (loss) on sale of securities		(26,392	)		—			(26,392	)
Other income		2,655			1,935			4,590
Net revenues (expense)		48,953			24,174			73,127
Operating expenses		12,222			12,821			25,043
Deferral of expenses under SFAS 91		—			(4,310	)		(4,310	)
Pre-tax income (loss)		36,731			15,663			52,394
Net income (loss)	$	22,369		$	9,539		$	31,908
Relevant Financial and Performance Data
Average interest-earning assets	$	233,838		$	866,245		$	1,100,083
Allocated capital		309,189			39,171			348,360
Loans produced		—			1,490,172			1,490,172
Loans sold		—			1,241,952			1,241,952
MBR Margin		N/A			1.54	%		1.65	%
ROE		29	%		98	%		37	%
Net interest margin		N/A			1.44	%		N/A
Average FTE		92			199			291
Three Months Ended June 30, 2006
Operating Results
Net interest income (expense)	$	(1,194	)	$	973		$	(221	)
Provision for loan losses		—			—			—
Gain (loss) on sale of loans		(825	)		6,416			5,591
Service fee income		30,400			—			30,400
Gain (loss) on sale of securities		6,832			—			6,832
Other income		25			1,197			1,222
Net revenues (expense)		35,238			8,586			43,824
Operating expenses		6,928			6,380			13,308
Deferral of expenses under SFAS 91		—			(1,687	)		(1,687	)
Pre-tax income (loss)		28,310			3,893			32,203
Net income (loss)	$	17,241		$	2,371		$	19,612
Relevant Financial and Performance Data
Average interest-earning assets	$	311,352		$	262,303		$	573,655
Allocated capital		239,750			14,018			253,768
Loans produced		—			540,228			540,228
Loans sold		5,778			431,553			437,331
MBR Margin		N/A			1.49	%		1.28	%
ROE		29	%		68	%		31	%
Net interest margin		N/A			N/A			N/A
Average FTE		85			98			183
Quarter to Quarter Comparison
% change in net income		30	%		302	%		63	%
% change in capital		29	%		179	%		37	%

Total loans serviced for others reached $167.7 billion (including reverse mortgages and HELOCs) at June 30, 2007, with a weighted average coupon of 7.06%. In comparison, we serviced $110.0 billion of mortgage loans owned by others at June 30, 2006, with a weighted average coupon of 6.70%; and $156.1 billion at March 31, 2007, with a weighted average coupon of 7.09%.

20

The following table provides the activity in the servicing portfolios for the periods indicated:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in millions)
Unpaid principal balance at beginning of period	$	156,144		$	96,512		$	139,817		$	139,817		$	84,495
Additions		20,580			19,422			24,690			45,270			36,113
Clean-up calls exercised		(153	)		(31	)		—			(153	)		(31	)
Loan payments and prepayments		(8,861	)		(5,914	)		(8,363	)		(17,224	)		(10,588	)
Unpaid principal balance at end of period	$	167,710		$	109,989		$	156,144		$	167,710		$	109,989

The following tables also provide additional information related to the servicing portfolio as of the dates indicated:

	June 30,			June 30,			March 31,
	2007			2006			2007
By Product Type:
Fixed rate mortgages		36	%		35	%		35	%
Intermediate term fixed-rate loans		34	%		28	%		32	%
Pay option ARMs		18	%		25	%		21	%
Reverse mortgages (all ARMs)		9	%		9	%		9	%
HELOCs		2	%		2	%		2	%
Other		1	%		1	%		1	%
Total		100	%		100	%		100	%
Additional Information(1)
Weighted average FICO		704			703			703
Weighted average original LTV(2)		72	%		72	%		72	%
Average original loan size (in thousands)		239			225			230
Percent of portfolio with prepayment penalty		39	%		40	%		41	%
Portfolio delinquency (% of unpaid principal balance)(3)		5.23	%		3.96	%		4.26	%
By Geographic Distribution:
California		43	%		42	%		43	%
Florida		8	%		8	%		8	%
New York		8	%		8	%		8	%
New Jersey		4	%		4	%		4	%
Virginia		4	%		4	%		4	%
Other		33	%		34	%		33	%
Total		100	%		100	%		100	%

(1)	Portfolio delinquency is calculated for the entire servicing portfolio. All other information presented excludes reverse mortgages.
(2)	Combined loan-to-value ratio for loans in the second lien position is used to calculate weighted average original loan-to-value ratio for the portfolio.
(3)	Delinquency is defined as 30 days or more past the due date.

21

THRIFT SEGMENT

Our thrift segment invests in loans originated by our various production units as well as in mortgage-backed securities. Additionally, the segment engages in warehouse lending and consumer construction and homebuilder financing. These investing activities provide core spread income and generally, a more stable return on equity.

Our overall thrift segment results were poor this quarter as the ROE in this segment was only 7% compared with 22% a year ago. Continued strong results in our consumer and homebuilder construction businesses, which earned strong ROE’s of 26% and 23%, respectively, were more than offset by credit related charges in other thrift divisions. We took net valuation losses totaling $16.3 million in our non-investment grade and residual securities portfolio primarily consisting of $26.4 million in credit related adjustments, offset by $10.1 million in valuation gains due to slower prepayment rates, which drove this portfolio’s results to a loss of $1.4 million compared with net income of $5.0 million in last year’s second quarter. In addition, the provision for loan losses in our SFR mortgage loan portfolio totaled $13.8 million this quarter, up from just under $1 million a year ago, resulting in a quarterly loss in this division as well.

The following tables provide detail on the results for divisions of our thrift segment for the periods indicated:

	Thrift
				Non-
				Investment			Total
	Investment			Grade and			Mortgage-			SFR			Home			Consumer
	Grade			Residual			Backed			Mortgage			Equity			Construction			Homebuilder			Warehouse			Discontinued			Total
	Securities			Securities			Securities			Loans			Division			Division			Division			Lending			Products			Thrift
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	7,650		$	14,586		$	22,236		$	10,479		$	6,293		$	14,985		$	15,470		$	1,778		$	458		$	71,699
Provision for loan losses		—			—			—			(13,800	)		(490	)		(1,693	)		(1,000	)		(96	)		(125	)		(17,204	)
Gain (loss) on sale of loans		—			—			—			3,421			(4,125	)		8,383			—			—			—			7,679
Service fee income		—			—			—			—			476			—			—			—			—			476
Gain (loss) on securities		(1,879	)		(16,292	)		(18,171	)		—			(2,068	)		(459	)		—			—			—			(20,698	)
Other income		—			—			—			460			1,367			8,364			314			775			—			11,280
Net revenues (expense)		5,771			(1,706	)		4,065			560			1,453			29,580			14,784			2,457			333			53,232
Operating expenses		334			650			984			2,776			3,812			17,211			6,507			1,104			185			32,579
Deferral of expenses under SFAS 91		—			—			—			—			(74	)		(2,571	)		(2,148	)		—			—			(4,793	)
Pre-tax income (loss)		5,437			(2,356	)		3,081			(2,216	)		(2,285	)		14,940			10,425			1,353			148			25,446
Net income (loss)	$	3,311		$	(1,435	)	$	1,876		$	(1,350	)	$	(1,392	)	$	9,098		$	6,349		$	824		$	90		$	15,495
Relevant Financial and Performance Data
Average interest-earning assets	$	4,318,907		$	343,315		$	4,662,222		$	5,847,366		$	1,389,106		$	2,804,611		$	1,241,967		$	298,703		$	32,544		$	16,276,519
Allocated capital		82,044			210,102			292,146			219,454			108,489			139,491			110,709			24,296			2,936			897,521
Loans produced		—			—			—			—			6,664			917,223			472,978			—			—			1,396,865
Loans sold		—			—			—			466,542			119,519			618,867			—			—			—			1,204,928
ROE		16	%		(3	)%		3	%		(2	)%		(5	)%		26	%		23	%		14	%		12	%		7	%
Net interest margin, thrift.		0.71	%		17.04	%		1.91	%		0.72	%		1.82	%		2.14	%		5.00	%		2.39	%		5.64	%		1.77	%
Efficiency ratio		6	%		(38	)%		24	%		19	%		192	%		47	%		28	%		43	%		40	%		39	%
Average FTE		2			6			8			12			81			404			125			30			—			660
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	10,054		$	8,855		$	18,909		$	18,723		$	9,817		$	12,211		$	15,809		$	728		$	583		$	76,780
Provision for loan losses		—			—			—			(975	)		—			(625	)		(250	)		—			(380	)		(2,230	)
Gain (loss) on sale of loans		(122	)		—			(122	)		765			5,280			11,093			—			—			(11	)		17,005
Service fee income		—			—			—			—			288			—			—			—			—			288
Gain (loss) on securities		(257	)		3			(254	)		—			(1,787	)		464			—			—			—			(1,577	)
Other income		11			—			11			429			2,262			5,934			376			433			—			9,445
Net revenues (expense)		9,686			8,858			18,544			18,942			15,860			29,077			15,935			1,161			192			99,711
Operating expenses		286			636			922			1,056			5,682			18,413			5,993			1,122			94			33,282
Deferral of expenses under SFAS 91		—			—			—			—			(327	)		(2,309	)		(1,963	)		—			—			(4,599	)
Pre-tax income (loss)		9,400			8,222			17,622			17,886			10,505			12,973			11,905			39			98			71,028
Net income (loss)	$	5,725		$	5,007		$	10,732		$	10,893		$	6,398		$	7,901		$	7,250		$	24		$	60		$	43,258
Relevant Financial and Performance Data
Average interest-earning assets	$	3,097,846		$	195,856		$	3,293,702		$	5,552,768		$	1,959,586		$	2,478,231		$	1,077,306		$	94,938		$	41,558		$	14,498,089
Allocated capital		63,178			102,837			166,015			223,102			148,496			120,104			105,365			9,331			3,713			776,126
Loans produced		—			—			—			—			32,808			774,060			530,995			—			—			1,337,863
Loans sold		—			—			—			2,845			615,834			650,818			—			—			—			1,269,497
ROE		36	%		20	%		26	%		20	%		17	%		26	%		28	%		1	%		6	%		22	%
Net interest margin, thrift.		1.30	%		18.13	%		2.30	%		1.35	%		2.01	%		1.98	%		5.89	%		3.08	%		5.63	%		2.12	%
Efficiency ratio		3	%		7	%		5	%		5	%		34	%		54	%		25	%		97	%		16	%		28	%
Average FTE		6			7			13			14			77			426			101			24			—			655
Quarter to Quarter Comparison
% change in net income		(42	)%		(129	)%		(83	)%		(112	)%		(122	)%		15	%		(12	)%		N/M			50	%		(64	)%
% change in capital		30	%		104	%		76	%		(2	)%		(27	)%		16	%		5	%		160	%		(21	)%		16	%

22

The following tables and discussion present supplemental information to help understand the composition and credit quality of the assets held in our thrift portfolios. This section refers to companywide assets, a small portion of which may be held in our mortgage banking divisions.

MORTGAGE-BACKED SECURITIES

The following table provides the details of the mortgage-backed securities portfolio as of the dates indicated:

	June 30, 2007						June 30, 2006						December 31, 2006
	Trading		AFS		Total		Trading		AFS		Total		Trading		AFS		Total
	(Dollars in thousands)
Mortgage banking segment:
AAA-rated agency securities	$	205,872	$	—	$	205,872	$	—	$	3,154	$	3,154	$	—	$	2,915	$	2,915
AAA-rated and agency interest-only securities		136,267		—		136,267		61,528		—		61,528		66,581		—		66,581
AAA-rated principal-only securities		69,127		—		69,127		129,951		—		129,951		38,478		—		38,478
Prepayment penalty and other securities		85,187		—		85,187		78,115		—		78,115		93,176		—		93,176
Total mortgage banking		496,454		—		496,454		269,595		3,154		272,748		198,235		2,915		201,150
Thrift segment:
AAA-rated non-agency securities		74,446		3,957,194		4,031,640		73,434		3,972,977		4,046,411		43,957		4,604,489		4,648,446
AAA-rated agency securities		16,148		50,448		66,596		—		49,547		49,547		—		62,260		62,260
AAA-rated and agency interest-only securities		—		—		—		2,845		—		2,845		6,989		—		6,989
Prepayment penalty and other securities		3,426		—		3,426		1,921		—		1,921		4,400		—		4,400
Other investment grade securities		121,958		444,627		566,585		27,060		160,885		187,945		29,015		160,238		189,253
Other non-investment grade securities		144,857		38,466		183,323		35,348		52,696		88,044		41,390		38,784		80,174
Non-investment grade residual securities		250,700		9,172		259,872		198,292		42,230		240,522		218,745		31,828		250,573
Total thrift.		611,535		4,499,907		5,111,442		338,900		4,278,335		4,617,235		344,496		4,897,599		5,242,095
Total mortgage-backed securities	$	1,107,989	$	4,499,907	$	5,607,896	$	608,495	$	4,281,489	$	4,889,983	$	542,731	$	4,900,514	$	5,443,245

(1) AAA-rated mortgage-backed securities represented 80%, 88% and 85% of the total portfolio at June 30, 2007 and 2006 and December 31, 2006, respectively. These securities had an expected weighted average life of 3.5 years, 3.0 years and 2.9 years at June 30, 2007 and 2006 and December 31, 2006, respectively.

SFR MORTGAGE LOANS HELD FOR INVESTMENT

The SFR mortgage loans held for investment portfolio is comprised primarily of adjustable-rate and intermediate term fixed-rate mortgage loans to mitigate interest rate risk. We manage our investments in the thrift portfolio based on the extent to which (1) the ROEs exceed the cost of both core and risk-based capital, or (2) they are needed to support the core mortgage banking investments in mortgage servicing rights and residual and non-investment grade securities, if the ROEs are below our cost of capital. During the three months ended June 30, 2007, we sold $48.1 million of loans out of our held for investment portfolio to a GSE. We also transferred an additional $217.1 million of loans to the held for sale portfolio in the second quarter of 2007. These loans are expected to be sold in the third quarter of 2007. Overall, we recognized a gain of $1.9 million in the second quarter of 2007 related to the sale of these HFI loans. Hedge gains on terminated interest rate swap agreements related to these loans will be amortized over the remaining original life of the hedges. Embedded in the net transfer balance of the loans that were sold/transferred was a cost basis adjustment totaling $0.3 million and $2.0 million for the three and six months ended June 30, 2007, respectively, related to the credit risk associated with these loans. The cost basis adjustment was reclassified out of the allowance for loan losses.

Included in our loans held for investment portfolio at June 30, 2007 were $1.0 billion in pay option ARM loans, or 22% of the portfolio, as compared to $1.3 billion, or 24% of the portfolio, at June 30, 2006 and $1.2 billion, or

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18% of the portfolio, at December 31, 2006. As of June 30, 2007, approximately 88% (based on loan count) of our pay option ARM loans had negatively amortized, resulting in an increase of $38.6 million to their original loan balance. This is an increase from 74% and 83% at June 30, 2006 and December 31, 2006, respectively. The net increase in unpaid principal balance due to negative amortization was $4.8 million and $11.8 million for the three and six months ended June 30, 2007, respectively, which approximated the deferred interest recognized for the periods. The original weighted average loan-to-value on our pay option ARM loans was 73%, while the estimated current LTV is 67%, calculated based on the Office of the Federal Housing Enterprise Oversight House Price Index Metropolitan Statistical Areas data on a loan level basis. The decline in the current loan-to-value was due to estimated appreciation of the underlying property values. The original weighted average FICO score on our pay option ARM loans was 708 at June 30, 2007, slightly lower than the average FICO for the entire SFR mortgage loans held for investment portfolio.

The following tables provide a composition of the portfolio and the relevant credit quality characteristics as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
SFR mortgage loans held for investment (book value)	$	4,743,018		$	5,427,609		$	6,519,340
Average loan size		342			290			310
Non-performing loans		2.93	%		0.86	%		1.09	%
Estimated average life in years(1)		3.0			2.3			2.6
Estimated average net duration in month(2)		0.3			(0.7	)		(3.5	)
Annualized yield		6.33	%		5.74	%		6.01	%
Percent of loans with active prepayment penalty		37	%		40	%		34	%
Fixed-rate mortgages		6	%		6	%		5	%
Intermediate term fixed-rate loans		17	%		16	%		15	%
Interest-only loans		53	%		51	%		60	%
Pay option ARMs		22	%		24	%		18	%
Other		2	%		3	%		2	%
Additional Information:
Average FICO score(3)		714			713			716
Original average loan-to-value ratio		73	%		73	%		73	%
Current average loan-to-value ratio(4)		63	%		58	%		61	%
Geographic distribution of top five states:
Southern California		34	%		31	%		32	%
Northern California		22	%		21	%		20	%
Total California		56	%		52	%		52	%
Florida		6	%		6	%		6	%
New York		4	%		3	%		4	%
Virginia		3	%		3	%		3	%
Arizona		3	%		3	%		3	%
Other		28	%		33	%		32	%
Total		100	%		100	%		100	%

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

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(2)	Average net duration measures the expected change in the value of a financial instrument in response to changes in interest rates, taking into consideration the impact of the related hedges. The negative net duration implies an increase in value as rates rise while the positive net duration implies a decrease in value.
(3)	FICO scores are the result of a credit scoring system developed by Fair Isaacs and Co. and are generally used by lenders to evaluate a borrower’s credit history. FICO scores of 700 or higher are generally considered in the mortgage industry to be very high quality borrowers with low risk of default, but in general, the secondary market will consider FICO scores of 620 or higher to be prime.
(4)	Current average loan-to-value ratio is estimated based on the Office of the Federal Housing Enterprise Oversight House Price Index Metropolitan Statistical Area data for the first quarter of 2007 on a loan level basis.

HOME EQUITY DIVISION

The home equity division specializes in providing HELOC and closed-end second mortgages nationwide through our wholesale and retail channels. We also purchase HELOC and closed-end second mortgages through our conduit channel. At June 30, 2007, our total HELOC servicing portfolio amounted to $4.0 billion, an increase of approximately $0.4 billion from the portfolio size at December 31, 2006.

We produced $597.6 million of new HELOC commitments through our mortgage banking segment and internal channels during the second quarter of 2007, and no HELOCs were sold during the period. During the same period in 2006, the amount of HELOC loans produced and sold was $1.1 billion and $585.4 million, respectively, with a total gain on sale of $5.3 million.

All HELOC loans are adjustable-rate loans and indexed to the prime rate. Information on the combined HELOC portfolio, including both held for sale and held for investment loans, as of and for the three months ended June 30, 2007 and 2006 and December 31, 2006 follows:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
Outstanding balance (book value)	$	1,147,540		$	759,527		$	656,714
Total commitments(1)		2,786,871			1,907,873			2,211,298
Average spread over prime		1.29	%		1.26	%		1.39	%
Average FICO score		730			734			737
Average CLTV ratio(2)		77	%		77	%		77	%

Additional Information on HELOC Portfolio

	June 30, 2007
			Average Loan							30+ Days
	Outstanding		Commitment		Average Spread			Average		Delinquency
CLTV	Balance		Balance		Over Prime			FICO		Percentage
	(Dollars in thousands)
96% to 100%	$	102,029	$	92		2.46	%		711		6.23	%
91% to 95%		203,540		94		1.95	%		715		1.93	%
81% to 90%		375,227		85		1.71	%		712		2.13	%
71% to 80%		254,470		147		0.46	%		738		1.01	%
70% or less		212,274		149		0.35	%		748		0.78	%
Total	$	1,147,540		115		1.29	%		730		1.96	%

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	June 30, 2006
			Average Loan							30+ Days
	Outstanding		Commitment		Average Spread			Average		Delinquency
CLTV	Balance		Balance		Over Prime			FICO		Percentage
	(Dollars in thousands)
96% to 100%	$	100,909	$	120		2.11	%		730		1.50	%
91% to 95%		86,927		104		2.11	%		714		0.23	%
81% to 90%		293,590		91		1.59	%		714		0.68	%
71% to 80%		152,513		158		0.46	%		741		0.56	%
70% or less		125,588		159		0.20	%		751		0.50	%
Total	$	759,527		125		1.26	%		734		0.68	%

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

CONSUMER CONSTRUCTION DIVISION

Our consumer construction division provides construction financing for individual consumers who want to build a new primary residence or second home. The primary product is a construction-to-permanent residential mortgage loan. This product typically provides financing for a construction term from 6 to 12 months and automatically converts to a permanent mortgage loan at the end of construction. The end result is a loan product that represents a hybrid activity between our portfolio lending activities and mortgage banking activities. As of June 30, 2007, based on the underlying note agreements, 72% of the construction loans will be converted to adjustable-rate permanent loans, 18% to intermediate term fixed-rate loans, and 10% to fixed-rate loans. The consumer construction division also provides financing to builders who are building single-family residences without a guaranteed sale at inception of project, or on a speculative basis.

During the second quarter of 2007, we entered into new consumer construction commitments of $1.1 billion, which is an increase of 29%, or $243 million, from the first quarter of 2007 and an increase of 6%, or $60 million, from the second quarter of 2006. Approximately 68% of new commitments are generated through mortgage broker customers of the MPG and the remaining 32% of new commitments are retail originations. Once each loan has converted to a permanent mortgage loan, the mortgage is classified as a mortgage loan held for sale and may be sold in the secondary market or acquired by our SFR mortgage loan portfolio. The amount of construction loans that were converted to permanent status was $540 million for the second quarter of 2007, an increase of 11% over the first quarter of 2007 and an increase of 18% over the second quarter of 2006. Overall, we are one of the largest custom residential construction lenders in the nation. Consumer construction loans outstanding at June 30, 2007 increased 4% from December 31, 2006 and 10% from June 30, 2006.

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Information on our consumer construction portfolio follows as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
Portfolio balance (book value)	$	2,498,788		$	2,191,965		$	2,276,133
Total commitments		3,899,874			3,578,789			3,600,454
Average loan commitment		479			459			474
Non-performing loans		1.39	%		0.73	%		1.14	%
Fixed-rate loans		48	%		84	%		71	%
Adjustable-rate loans		52	%		16	%		29	%
Additional Information:
Average loan-to-value ratio(1)		73	%		72	%		73	%
Average FICO score		720			718			718
Geographic distribution of top five states:
Southern California		29	%		29	%		28	%
Northern California		13	%		15	%		15	%
Total California		42	%		44	%		43	%
Florida		8	%		9	%		9	%
Washington		4	%		4	%		4	%
New York		4	%		4	%		4	%
Colorado		3	%		3	%		4	%
Other		39	%		36	%		36	%
Total		100	%		100	%		100	%

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

HOMEBUILDER DIVISION

The homebuilder division provides land acquisition, development and construction financing to small to mid-sized homebuilders for residential construction. Builder construction loans are typically adjustable-rate loans, indexed to the prime interest rate with terms ranging from 12 to 24 months. We earn net interest income on these loans. The homebuilder division has central operations in Pasadena, California with 19 satellite sales offices in Arizona, California, Florida, Georgia, Illinois, Massachusetts, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Washington D.C. Our typical customer is a mid-size, professional homebuilder who builds between 200 and 2,000 homes per year. We do a limited amount of business with large private and public homebuilders.

During the second quarter of 2007, we entered into new commitments of $473 million, which is an increase of 31%, or $113 million, from the first quarter of 2007 and a decrease of 11%, or $58 million, from the second quarter of 2006. 59% of new commitments in the second quarter of 2007 were renewals or refinances, in part necessitated by the slowing home sale market, as compared to 26% for both the first quarter of 2007 and second quarter of 2006. Builder loans outstanding, including tract construction and land and other mortgage loans, totaled $1.3 billion, or 4% of the Company’s total assets at June 30, 2007, representing an increase of $146 million, or 13%, compared to December 31, 2006 and an increase of $222 million, or 21%, compared to June 30, 2006.

At June 30, 2007, non-performing loans for the builder construction portfolio were at 3.10% increasing from 0.78% at December 31, 2006. Provision to the allowance for loan losses was $1 million in the quarter for this portfolio and the allowance for loan losses as a percentage of book value was 1.7% at June 30, 2007. Charge-offs and REO continue to be zero. The weighted average loan-to-value ratio of this portfolio has remained relatively

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consistent at 73% compared to December 31, 2006 and increased two percentage points from June 30, 2006. In addition, 93% of our builder construction loans are secured by corporate or personal guarantees of the builders as well as the underlying real estate.

The current softening of the housing market makes the prospect of increased non-performing assets and future losses likely. Moreover, due to the size of certain assets in this heterogeneous portfolio, the deterioration of a single asset may significantly increase our non-performing ratios. Because of the continuing softening of the housing market, the homebuilder division is being more selective about new commitments and actively managing its portfolio. New risk management guidelines include reduced loan and relationship concentration limits.

Information on our homebuilder portfolio follows as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
Portfolio balance (book value)	$	1,290,470		$	1,068,945		$	1,144,835
Total commitments		1,955,541			2,003,745			2,010,727
Average loan commitments		9,447			10,602			10,810
Percentage of homes under construction or completed that are sold		40	%		51	%		37	%
Median sales price of homes		427			394			420
Non-performing loans		3.10	%		0.00	%		0.78	%
Additional Information:
Average loan-to-value ratio(1)		73	%		71	%		73	%
Geographic distribution of top five states:
Southern California		41	%		37	%		41	%
Northern California		26	%		17	%		19	%
Total California		67	%		54	%		60	%
Florida		9	%		13	%		11	%
Illinois		7	%		13	%		9	%
Oregon		5	%		6	%		6	%
Arizona		3	%		5	%		4	%
Other		9	%		9	%		10	%
Total		100	%		100	%		100	%

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

WAREHOUSE LENDING DIVISION

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

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Information on our warehouse lending portfolio follows as of the dates indicated:

	June 30,		June 30,		December 31,
	2007		2006		2006
	(Dollars in thousands)
Total customers		116		77		107
Outstanding balance (book value)	$	262,222	$	121,292	$	246,778
Total commitments		841,500		468,000		712,000

Total customers at June 30, 2007 increased 8% from December 31, 2006 and 51% from a year ago. As a result, total commitments at June 30, 2007 also increased to $841.5 million, representing increases of 18% from December 31, 2006 and 80% from June 30, 2006. Total mortgages funded by our customers were up 13% to $1.9 billion for the three months ended June 30, 2007 from $1.7 billion for the three months ended December 31, 2006 and up 140% from $0.8 billion for the same quarter a year ago. Non-performing loans in this portfolio increased to $0.5 million at June 30, 2007. There were no non-performing loans at June 30, 2006 and December 31, 2006.

Given the current environment, we are being very selective about customers in this business and are actively monitoring each borrower’s status. We require loans that we finance to have a sale commitment so we reduce our market risk.

ELIMINATIONS & OTHER SEGMENT

This segment contains the fixed costs of our deposit raising and treasury functions that are not allocated to our operating divisions, as well as entries to eliminate the impact of transactions between segments. In addition to selling loans into the secondary market, our production divisions regularly sell loans to our SFR mortgage division. These transactions are recorded as arms-length in our segment results resulting in intercompany gain on sale in the production divisions and a premium in the SFR mortgage division that is amortized over the life of the loan. Both the gain and the premium amortization are eliminated in consolidation.

Production divisions and mortgage servicing are exposed to movements in the intermediate fixed-rate loan spreads. Mortgage spread is the difference between mortgage interest rates and LIBOR/Swap rates. Tighter spreads benefit mortgage bank as they lead to improved loan sales execution while wider spreads lead to slower projected prepayment speeds and an increase in the MSR value. Due to the inherent difficulty in hedging the movement of these spreads, the potential for an internal hedge exists whereby the risks from the spread movements will be shared between the two groups. Starting in the first quarter of 2007, the production divisions and mortgage servicing entered into an inter-divisional transaction to economically hedge their respective financial risks to mortgage spreads for certain products in the absence of readily available derivative instruments. With all else remaining constant, when mortgage spreads widen, the pipeline of mortgage loans held for sale is negatively impacted and mortgage servicing is positively impacted. The impact of the hedges has been reflected in the respective channel results with the consolidation adjustment recorded under “Interdivision Hedge Transactions” within eliminations.

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The following tables provide additional detail on deposits, treasury and eliminations for the periods indicated:

							Eliminations
										Interdivision
							Interdivision			Hedge
	Deposits			Treasury			Loan Sales(1)			Transactions			Other			Total
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	—		$	11,349		$	9,012		$	—		$	6,145		$	26,506
Provision for loan losses		—			—			—			—			—			—
Gain (loss) on sale of loans		—			—			(20,326	)		2,381			(5,666	)		(23,611	)
Service fee income		—			—			—			(2,381	)		(5,186	)		(7,567	)
Gain (loss) on sale of securities		—			—			—			—			743			743
Other income		1,104			236			—			—			(565	)		775
Net revenues (expense)		1,104			11,585			(11,314	)		—			(4,529	)		(3,154	)
Operating expenses		6,607			13,935			—			—			(4,529	)		16,013
Deferral of expenses under SFAS 91		—			—			—			—			—			—
Pretax income (loss)		(5,503	)		(2,350	)		(11,314	)		—			—			(19,167	)
Net income (loss)	$	(3,351	)	$	(1,431	)	$	(6,644	)	$	—		$	—		$	(11,426	)
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	—		$	6,490		$	7,568		$	—		$	3,374		$	17,432
Provision for loan losses		—			—			—			—			—			—
Gain (loss) on sale of loans		—			—			(11,213	)		—			(1,057	)		(12,270	)
Service fee income		—			—			—			—			(8,091	)		(8,091	)
Gain (loss) on sale of securities		—			—			—			—			3,003			3,003
Other income		883			180			—			—			(1,213	)		(150	)
Net revenues (expense)		883			6,670			(3,645	)		—			(3,984	)		(76	)
Operating expenses		6,261			9,447			—			—			(3,703	)		12,005
Deferral of expenses under SFAS 91		—			—			—			—			(281	)		(281	)
Pretax income (loss)		(5,378	)		(2,777	)		(3,645	)		—			—			(11,800	)
Net income (loss)	$	(3,275	)	$	(1,691	)	$	(2,526	)	$	—		$	—		$	(7,492	)

(1) Includes loans sold of $1.5 billion and $2.0 billion for the three months ended June 30, 2007 and 2006, respectively.

CORPORATE OVERHEAD SEGMENT

As previously mentioned, we do not allocate fixed corporate overhead costs to our profit center divisions, because the methodologies to do so are arbitrary and distort each division’s marginal contribution to our profits. These costs are reported in the corporate overhead segment. The after-tax loss from these expenses improved from a loss of $27.8 million in the second quarter of 2006 to a loss of $18.5 million in 2007. The largest driver of this improvement was a $6.3 million after-tax gain related to the curtailment of our pension plan in the second quarter of 2007. In addition to this gain, this curtailment will reduce consolidated expenses by approximately $6 million per year going forward. The remaining reduction in corporate overhead expenses primarily relates to reduced incentive

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compensation for corporate personnel consistent with the Company’s lower earnings and reduced headcount among non-revenue generating employees as a result of our hiring freeze on these positions.

CONSOLIDATED RISK MANAGEMENT DISCUSSION

We manage many types of risks with several layers of risk management and oversight, using both a centralized and decentralized approach. Our philosophy is to put risk management at the core of our operations and establish a unified framework for measuring and managing risk across the enterprise, providing our business units with the tools — and accountability — to manage risk. At the corporate level, this consolidated risk management is known as Enterprise Risk Management (“ERM”). ERM, in partnership with the Board of Directors and senior management, provide support to the business units.

ERM, as a part of management, develops, maintains and monitors our cost effective yet comprehensive enterprise-wide risk management framework, including our system of operating internal controls. ERM fosters a risk management culture throughout Indymac and exists to protect us from unexpected losses, earnings surprises and reputation damage. It also provides management and the Board with a better understanding of the trade-offs between risks and rewards, leading to smarter investment decisions and more consistent and generally higher long-term returns on equity.

CAMELS FRAMEWORK FOR RISK MANAGEMENT

The framework for organizing ERM is based on the six-point rating scale used by the Office of Thrift Supervision (“OTS”), our regulating body, to evaluate the financial condition of savings and loan associations. A discussion of the areas covered by CAMELS (Capital, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk) follows.

CAPITAL

The Bank is subject to regulatory capital regulations administered by the federal banking agencies. As of June 30, 2007, the Bank met all of the requirements of a “well-capitalized” institution under the general regulatory capital regulations.

Our business is primarily centered on single-family lending and the related production and sale of loans. As such, the accumulation of MSRs is a large component of our strategy. As of June 30, 2007, the capitalized value of MSRs was $2.4 billion. OTS regulations generally impose higher capital requirements on MSRs that exceed total Tier 1 capital. These higher capital requirements could result in lowered returns on our retained assets and could limit our ability to retain servicing assets. We have flexibility to sell or retain MSRs and the ability to increase our capital base through retention of earnings and other capital raising activities. While management believes that compliance with the capital limits on MSRs will not materially impact future results, no assurance can be given that our plans and strategies will be successful.

Capital Ratios

The following presents the Bank’s actual and required capital ratios and the minimum required capital ratios to be categorized as “well-capitalized” at June 30, 2007:

	Capital Ratios
	Tangible			Tier 1 Core			Tier 1 Risk-Based			Total Risk-Based
	(Dollars in thousands)
June 30, 2007:
As reported pre-subprime risk-weighting		8.10	%		8.10	%		11.85	%		12.24	%
Adjusted for additional subprime risk weighting		8.10	%		8.10	%		11.70	%		12.09	%
Well-capitalized minimum		2.00	%		5.00	%		6.00	%		10.00	%
Excess over well-capitalized minimum requirement	$	1,890,746		$	960,733		$	1,087,413		$	398,270

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The OTS guidance for subprime lending programs requires a lender to quantify the additional risks in its subprime lending activities and determine the appropriate amounts of allowances for loan losses and capital it needs to offset those risks. We generally classify all non-GSE loans in a first lien position with a FICO score less than 620 and all non-GSE loans in a second lien position with a FICO score less than 660 as subprime. We report our subprime loan calculation in an addendum to the Thrift Financial Report that we file quarterly with the OTS. Subprime loans held for investment and subprime loans held for sale, which are either delinquent or more than 90 days old since origination, are supported by capital two times that of similar prime loans. These subprime loans totaled $279.5 million at June 30, 2007. The impact of the additional risk-weighting criteria related to subprime loans had the effect of reducing our total risk-based capital by 15 basis points from 12.24% to 12.09%.

On May 30, 2007, the Bank received $491 million in net proceeds from the issuance of 20 million shares of Perpetual Non-Cumulative Fixed Rate Preferred Stock with a liquidation preference of $25 per value (the “Series A Preferred Stock”). Dividends, when declared by Indymac Bank’s Board of Directors, are payable quarterly at a rate of 8.5%. At the option of Indymac Bank, the Series A Preferred Stock may be redeemed on or after June 15, 2017 at $25 per share plus any declared and unpaid dividends. The Series A Preferred Stock qualifies as Tier 1 core capital of the Bank under the OTS’s applicable regulatory capital regulations.

We believe that, under current regulations, the Bank will continue to meet its “well-capitalized” minimum capital requirements in the foreseeable future. The Bank’s regulatory capital compliance could be impacted, however, by a number of factors, such as changes to applicable regulations, adverse action by our regulators, changes in our mix of assets, interest rate fluctuations, loan loss provisions and credit losses, or significant changes in the economy in areas where we have most of our loans, or disruption in the secondary mortgage market. Any of these factors could cause 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.

Capital Management and Allocation

As a federally regulated thrift, we are required to measure regulatory capital using two different methods: core capital and risk-based capital. Under the core capital method, a fixed percentage of capital is required against each dollar of assets without regard to the type of asset. Under the risk-based capital method, capital is held against assets which are adjusted for their relative risk using standard “risk weighting” percentages. We allocate capital using the regulatory minimums for well-capitalized institutions for each applicable asset class. The ratios are below the minimums due to the use of trust preferred securities as a form of regulatory capital.

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The following provides information on the core and risk-based capital ratios for the two primary segments and each of their operating divisions for the period indicated:

	Total Assets					Core											Risk-Based
			% of			Avg.		% of									Avg.		% of
	Average		Total			Allocated		Total			Capital/						Allocated		Total			Capital/
Three Months Ended June 30, 2007	Assets		Assets			Capital		Capital			Assets			ROE			Capital		Capital			Assets			ROE
Mortgage Banking:
Consumer Direct	$	135,405		0.4	%	$	5,416		0.3	%		4.0	%		(27	)%	$	6,302		0.3	%		4.7	%		(23	)%
Retail		102,598		0.3	%		4,104		0.2	%		4.0	%		(461	)%		9,271		0.4	%		9.0	%		(202	)%
Wholesale		5,256,382		14.7	%		210,255		10.1	%		4.0	%		44	%		260,417		12.5	%		5.0	%		36	%
Correspondent		1,351,321		3.8	%		54,053		2.6	%		4.0	%		23	%		68,811		3.3	%		5.1	%		19	%
Conduit		5,927,757		16.5	%		237,110		11.4	%		4.0	%		(4	)%		258,857		12.5	%		4.4	%		(3	)%
Total Mortgage Professionals Group		12,638,058		35.3	%		505,522		24.3	%		4.0	%		15	%		597,356		28.7	%		4.7	%		13	%
Financial Freedom		1,118,212		3.1	%		139,018		6.7	%		12.4	%		54	%		131,610		6.3	%		11.8	%		57	%
Total Production Divisions		13,891,675		38.8	%		649,956		31.3	%		4.7	%		23	%		735,268		35.3	%		5.3	%		21	%
Mortgage Servicing Rights		2,937,446		8.2	%		206,437		9.9	%		7.0	%		42	%		309,189		14.9	%		10.5	%		29	%
Servicing/Customer Retention		869,470		2.4	%		34,779		1.7	%		4.0	%		110	%		39,171		1.9	%		4.5	%		98	%
Total Mortgage Servicing		3,806,916		10.6	%		241,246		11.6	%		6.3	%		52	%		348,360		16.8	%		9.2	%		37	%
Mortgage Bank Overhead		137,435		0.4	%		5,498		0.3	%		4.0	%		N/A			16,196		0.8	%		11.8	%		N/A
Total Consumer Mortgage Banking		17,836,026		49.8	%		896,670		43.2	%		5.0	%		26	%		1,099,824		52.9	%		6.2	%		22	%
Commercial Mortgage Banking		14,500		—			580		—			4.0	%		(728	)%		605		—			4.2	%		(698	)%
Total Mortgage Banking		17,850,526		49.8	%		897,250		43.2	%		5.0	%		26	%		1,100,429		52.9	%		6.2	%		22	%
Thrift:
Investment grade securities		4,334,414		12.1	%		173,377		8.3	%		4.0	%		9	%		82,044		3.9	%		1.9	%		16	%
Non-investment grade and residuals		393,190		1.1	%		15,728		0.8	%		4.0	%		(77	)%		210,102		10.1	%		53.4	%		(3	)%
Total Mortgage-Backed Securities		4,727,604		13.2	%		189,105		9.1	%		4.0	%		2	%		292,146		14.0	%		6.2	%		3	%
Consumer lending portfolio
Prime SFR mortgage loans		5,868,151		16.4	%		234,726		11.3	%		4.0	%		(2	)%		219,454		10.6	%		3.7	%		(2	)%
Home equity division		1,432,950		4.0	%		57,553		2.8	%		4.0	%		(13	)%		108,489		5.2	%		7.6	%		(5	)%
Total Consumer Loans		7,301,101		20.4	%		292,279		14.1	%		4.0	%		(4	)%		327,943		15.8	%		4.5	%		(3	)%
Consumer construction division		2,811,200		7.8	%		112,448		5.4	%		4.0	%		32	%		139,491		6.7	%		5.0	%		26	%
Total Consumer Thrift Activities		10,112,301		28.2	%		404,727		19.5	%		4.0	%		6	%		467,434		22.5	%		4.6	%		5	%
Home builder division		1,232,691		3.4	%		49,308		2.4	%		4.0	%		48	%		110,709		5.3	%		9.0	%		23	%
Warehouse Lending		298,607		0.8	%		11,944		0.6	%		4.0	%		24	%		24,296		1.2	%		8.1	%		14	%
Total Commercial Thrift Activities		1,531,298		4.2	%		61,252		3.0	%		4.0	%		43	%		135,005		6.5	%		8.8	%		21	%
Discontinued products		28,136		0.1	%		1,125		0.1	%		4.0	%		27	%		2,936		0.1	%		10.4	%		12	%
Total Thrift Activities		16,399,339		45.7	%		656,209		31.7	%		4.0	%		8	%		897,521		43.1	%		5.5	%		7	%
Consumer Bank — Deposits		47,658		0.1	%		1,906		0.1	%		4.0	%		N/A			1,984		0.1	%		4.2	%		N/A
Treasury		—		—			—		—			N/A			N/A			—		—			N/A			N/A
Eliminations		—		—			—		—			N/A			N/A			—		—			N/A			N/A
Total Operating Activities		34,297,523		95.6			1,555,365		75.0	%		4.5	%		15	%		1,999,934		96.1	%		5.8	%		13	%
Corporate overhead		1,538,978		4.4			522,209		25.0	%		33.9	%		N/A			77,640		3.9	%		5.0	%		N/A
Total Company	$	35,836,501		100.0	%	$	2,077,574		100.0	%		5.8	%		9	%	$	2,077,574		100.0	%		5.8	%		9	%

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As the table shows, certain asset types require more or less capital depending on the capital measurement method. For example, non-investment grade and residual securities are allocated 4.0% core capital and 53.4% risk-based capital. These differing methods result in significantly different ROEs as shown. We attempt to manage our business segments and balance sheet to optimize capital efficiency under both capital methods.

ASSET QUALITY

Indymac uses both a centralized and a decentralized approach to credit risk management. At the corporate level, ERM oversees the development of a framework (through people, policies and processes) for credit risk management that the business unit leaders can use to document and “matrix manage” their credit and fraud risk. This framework includes the establishment and enforcement of strong corporate credit governance to maintain investment, lending and fraud polices that are simple, but highly effective. Each business unit has its own chief credit officer to oversee and implement these procedures. By tracking historical credit losses and factors contributing to the losses, we continuously implement changes to significantly reduce the likelihood of similar losses repeating. The appropriate classification of assets, through independent loan review, ensures that credit reserves are adequate. This ongoing analysis of credit performance provides a feedback loop that serves to continually refine and enhance credit risk policies.

We assume a degree of credit risk in connection with our investments in certain mortgage securities and loans held for investment and sale as well as with our construction lending operations. We also retain limited credit exposure from repurchase obligations on the sale of mortgage loans through standard representations and warranties to investors.

The following shows a summary of reserves against our key credit risks as of June 30, 2007:

				“Reserve”
Credit Risk Area	Reserve Type	Balance		Balance		UPB
		(Dollars in millions)
Mortgage Banking:
Loans held for sale(1)	Market valuation reserve	$	11,762	$	113	$	11,727
Repurchase risk	Secondary market reserve		N/A		47		167,710
Thrift(3):
Loans held for investment	Allowance for loan losses		8,648		77		8,589
Non-investment grade and residual securities(4)	Loss assumption in valuations		443		698		21,002
Foreclosed Assets	Reduction in book value due to property value deterioration		64		12		76

(1)	Risks include borrower’s credit deteriorating and adversely impacting loan saleability; further deterioration of credit quality of loans previously repurchased for repurchase/warranty issues of through called deals and actual losses exceeding losses that are assumed in our valuations.
(2)	Risks include repurchase of impaired loans due to EPD or other repurchase and warranty violations beyond the amount reserved at time of sale and Indymac loans becoming unsaleable or suffer adverse price impact due to poor performance of previously sold Indymac collateral.
(3)	Risk includes credit losses exceeding the risk priced for in the allowance.
(4)	Reserve balance for non-investment grade and residual securities represents the expected remaining cumulative losses.

Non-Performing Assets

Loans are generally placed on non-accrual status when they are 90 days past due. Non-performing assets include non-performing loans and foreclosed assets. We record the balance of our assets acquired in foreclosure or by deed in lieu of foreclosure at estimated net realizable value.

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The following summarizes the asset quality of our total loans held for sale and held for investment portfolio as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
Total non-performing loans	$	451,944		$	104,641		$	162,830
Foreclosed assets		63,749			11,999			21,638
Total non-performing assets	$	515,693		$	116,640		$	184,468
Total non-performing assets to total assets		1.63	%		0.49	%		0.63	%

At June 30, 2007, non-performing assets as a percentage of total assets was 1.63%, increasing from 0.63% at December 31, 2006. Non-performing loans increased $104.6 million and $184.5 million in loans held for investment and loans held for sale, respectively, from December 31, 2006. As a result of the increased delinquencies in these portfolios, foreclosure activities rose during the period, leading to increased foreclosed assets of $63.7 million at June 30, 2007. The weakening real estate market and the general tightening of underwriting in the mortgage industry continue to have a negative impact to our portfolios. It became increasingly difficult for distressed borrowers to find other options than facing foreclosure. This resulted in a higher percentage of loans going through foreclosure and a longer average time for us to liquidate our foreclosed assets. We continue to expect a higher level of non-performing loans in the future.

The following provides additional comparative data on non-performing loans for the loans held for investment portfolio as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
SFR mortgage loans	$	136,375		$	42,888		$	66,360
Consumer construction division		32,161			15,562			25,957
Homebuilder division		40,055			—			8,981
Other (1)		4,493			5,463			7,185
Total non-performing loans held for investment	$	213,084		$	63,913		$	108,483
Allowance for loan losses to non-performing loans held for investment		36	%		91	%		58	%

(1) Includes loans from the home equity division, discontinued products and the warehouse lending division.

Allowance for Loan Losses

For the loans held for investment portfolio, an allowance for loan losses is established and allocated to various loan products for segment reporting purposes. The determination of the level of the allowance for loan losses and, correspondingly, the provision for loan losses, is based on delinquency trends and prior loan loss experience and management’s judgment and assumptions regarding various matters, including general economic conditions and loan portfolio composition. Management continually evaluates these assumptions and various relevant factors impacting credit quality and inherent losses. A component of the overall allowance for loan losses is not specifically allocated (“unallocated component”). The unallocated component reflects management’s assessment of various factors that create inherent imprecision in the methods used to determine the specific portfolio allocations. Those factors include, but are not limited to, levels of and trends in delinquencies and impaired loans, charge-offs and recoveries, volume and terms of the loans, effects of any changes in risk selection and underwriting standards, other changes in lending policies, procedures, and practices, and national and local economic trends and conditions. As of June 30, 2007, the unallocated component of the total allowance for loan losses was $22.4 million, compared to $17.2 million at December 31, 2006.

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The following summarizes our loans held for investment portfolio by loan type and the corresponding allowance for loan losses as of June 30, 2007:

					Total
			Allowance		Reserves as a
			for Loan		Percentage of
By Division	Book Value		Losses		Book Value
	(Dollars in thousands)
SFR mortgage loans	$	4,711,362	$	36,253		0.77	%
Consumer construction division		2,328,637		11,789		0.51	%
Homebuilder division		1,290,470		21,447		1.66	%
Other(1)		317,095		7,367		2.32	%
Total held for investment portfolio at June 30, 2007	$	8,647,564	$	76,856		0.89	%
Total held for investment portfolio at December 31, 2006	$	10,177,209	$	62,386		0.61	%

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

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
				(Dollars in thousands)
Balance, beginning of period	$	67,587		$	57,321		$	62,386		$	55,168
Allowance transferred to loans held for sale		(327	)		—			(1,988	)		—
Provision for loan losses		17,204			2,230			27,891			6,052
Charge-offs, net of recoveries:
SFR mortgage loans		(4,214	)		(54	)		(5,600	)		(568	)
Consumer construction division		(1,693	)		(854	)		(3,084	)		(1,239	)
Other(1)		(1,701	)		(731	)		(2,749	)		(1,501	)
Total charge-offs, net of recoveries		(7,608	)		(1,639	)		(11,433	)		(3,308	)
Balance, end of period	$	76,856		$	57,912		$	76,856		$	57,912
Annualized charge-offs to average loans held for investment		0.35	%		0.08	%		0.24	%		0.08	%

(1) Includes loans from the home equity division, discontinued product and warehouse lending division.

In the second quarter of 2007, we transferred $265.2 million of SFR mortgage loans in the held for investment portfolio to the held for sale portfolio. As a result, $0.3 million of allowance for loan losses associated with these loans were transferred concurrently as a cost basis adjustment.

In the second quarter of 2007, net charge-offs increased to $7.6 million from $1.6 million in the second quarter of 2006, primarily in the SFR mortgage loans held for investment and the HELOC portfolios. This is largely due to increased delinquencies and loans migrating through the foreclosure process.

Credit Discounts

As part of credit risk management, we have established credit discounts on loans held for sale that represent the credit-related lower of cost or market adjustments on the portfolio. We determine the fair value of these assets based on a review of all available, relevant, and reliable information. In determining the fair value of first lien loans, one of the primary determinants is the estimated value of the underlying collateral as adjusted by discount assumptions based on our expectation of what a willing market participant would use. For second lien loans, the primary determinant of fair value is the most recently executed trade since it is the most reliable indication of value available to us.

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The following summarizes our loans held for sale portfolio, the corresponding market valuation reserves and non-performing assets as of the dates indicated:

	June 30,			June 30,			December 31,
	2007			2006			2006
	(Dollars in thousands)
Loans held for sale before market valuation reserves	$	11,875,260		$	6,510,614		$	9,507,307
Market valuation reserves		(113,093	)		(17,474	)		(39,464	)
Net loans held for sale portfolio	$	11,762,167		$	6,493,140		$	9,467,843
Market valuation reserves as a percentage of gross loans held for sale		0.95	%		0.27	%		0.42	%
Non-performing loans held for sale, net of applicable market valuation reserves	$	238,860		$	40,728		$	54,347
Non-performing loans held for sale as a percentage of net loans held for sale portfolio		2.03	%		0.63	%		0.57	%

Secondary Market Reserve

We do not generally sell loans with recourse in our loan sale activities. However, we can be required to repurchase loans from investors when our loan sales contain individual loans that do not conform to the representations and warranties we made at the time of sale (including early payment default provisions). We have made significant investments in our pre-production and post-production quality control processes to identify potential issues that could cause repurchases. We believe that these efforts have improved our production quality; however, possible increases in default rates could cause the overall rate of repurchases to increase. We maintain a secondary market reserve for losses that arise in connection with loans that we may be required to repurchase from whole loan sales, sales to the GSEs, and securitizations. The reserve has two general components: reserves for repurchases arising from representation and warranty claims and reserves for repurchases arising from early payment defaults.

The following reflects the repurchase activities during the periods indicated:

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
	(Dollars in millions)
Loans sold:
GSEs and whole loans	$	10,815		$	10,477		$	27,961		$	20,638
Securitization trusts		9,379			8,938			16,769			15,485
Total	$	20,194		$	19,415		$	44,730		$	36,123
Total repurchases(1)	$	219		$	48		$	443		$	62
Repurchases as a percentage of total loans sold during the period		1.08	%		0.25	%		0.99	%		0.17	%

(1) Amounts exclude repurchases that are administrative in nature and generally are re-sold immediately at little or no loss.

As a percentage of total loans sold, repurchases have increased significantly to 108 basis points for the second quarter of 2007 from 25 basis points for the second quarter of 2006. The increase is mainly due to early payment defaults on certain products, including 80/20s and pay option ARMs purchased through the conduit group. The Company has made several improvements in its underwriting guidelines and expects to see benefits of the tightened guidelines beginning in the third quarter of 2007. In addition, we have reduced the percentage of whole loan sales. As a result, future repurchases due to early payment defaults can be expected to decline.

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The following reflects the activity in the secondary market reserve during the periods indicated:

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	50,592		$	30,413		$	33,932		$	27,638
Additions/provisions		24,235			10,246			55,905			14,773
Actual losses/mark-to-market		(28,779	)		(5,258	)		(43,864	)		(7,784	)
Recoveries on previous claims		566			1			641			775
Balance, end of period	$	46,614		$	35,402		$	46,614		$	35,402

Reserve levels are a function of expected losses based on actual pending and expected claims and repurchase requests, historical experience, loan volume and loan sales distribution channels and the assessment of the probability of investor claims. While the ultimate amount of repurchases and claims is uncertain, management believes the reserve is adequate. In response to increased repurchases and related losses, the provision for the secondary market reserve increased to $24.2 million for the three months ended June 30, 2007 from $10.2 million for the three months ended June 30, 2006. We relieved $24.2 million of secondary market reserve in the second quarter of 2007 mainly for mark-to-market adjustments on loans repurchased during the quarter, of which 80/20s and pay option ARMs from our conduit business accounted for over 75% of the adjustments. As previously disclosed by us, the guideline changes implemented in the first quarter of 2007 should improve our repurchase activities as the tightened guidelines take full effect. We will continue to evaluate the adequacy of our reserve and allocate a portion of our gain on sale proceeds to the reserve going forward. Secondary market reserve is included on the consolidated balance sheets as a component of other liabilities.

Credit Reserves Embedded in Non-Investment Grade and Residual Securities

As part of the securitization process, we create non-investment grade and residual securities which can be sold into the secondary market or retained on the balance sheet. These securities provide credit enhancement to absorb the losses in the securitization trust.

The following table shows more information on our non-investment grade and residual securities as of the dates indicated:

	June 30,			June 30,			March 31,
	2007			2006			2007
	(Dollars in millions)
Non-investment Grade and Residual Securities:
Fair market value	$	443		$	329		$	381
As a percentage of Tier 1 core capital		18	%		18	%		18	%
UPB of underlying collateral	$	21,002		$	13,662		$	15,505
Credit reserves embedded in value	$	698		$	378		$	621
Additions to credit reserves	$	126		$	62		$	160
Net charge-off (losses)	$	49		$	5		$	17
Credit reserves/NPAs		91	%		131	%		84	%

MANAGEMENT

We manage key CAMELS risks through policies and procedures that begin with the Board, senior executives and the ERM group, creating standardized frameworks and processes for the business units to implement. We strive for accountability, transparency and consistency, including a semi-annual certification process to ensure that business units are up to date on the administration of key CAMELS risks. Management maintains a central database of internally identified findings, and this, in conjunction with operational and financial controls, ensures follow-up and accountability for any issues identified in this process.

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Models are used as key decision making tools in executing transactions, such as the pricing and trading of loans, and in hedging risks. They are also used to assist us in valuing assets and liabilities that don’t have readily available market prices. Given the importance of these models to our operations and financial position, it is the responsibility of Corporate Model Management and Research (“CMMR”) to develop and maintain an effective model management framework across the Company. CMMR ensures that key models are consistent and accurate (e.g., utilize the best available assumptions, particularly for prepayment and credit) across the enterprise and result in the correct economic decisions being made and assets and liabilities being properly valued (both on a GAAP and economic basis).

EARNINGS

Our regulators evaluate the quality and consistency of our earnings. See “Summary of Business Segment Results” on page 8 for a discussion of our second quarter earnings.

LIQUIDITY

Our principal financing needs are to fund acquisitions of mortgage loans and our investment in mortgage loans, MBS and MSRs. Our primary sources of funds used to meet these financing needs are loan sales and securitizations, deposits, advances from the Federal Home Loan Bank (“FHLB”), borrowings, custodial balances and retained earnings. The sources used vary depending on such factors as rates paid, collateral requirements, maturities and the impact on our capital. Additionally, we may occasionally securitize mortgage loans that we intend to hold for investment to lower our costs of borrowing against such assets and reduce the capital requirement associated with such assets. During the quarter ended June 30, 2007, we had average total liquidity of $3.1 billion consisting of $490.0 million in short-term liquidity (primarily cash) and $2.6 billion in operating liquidity, which represents unpledged liquid assets on hand plus amounts that may be immediately raised through the pledging of other available assets as collateral pursuant to committed financing facilities. We currently believe that our liquidity level is in excess of that necessary to satisfy our operating requirements and meet our obligations and commitments in a timely and cost effective manner.

The following presents the components of our major sources of funds as of the dates indicated:

	June 30,		June 30,		December 31,
	2007		2006		2006
	(Dollars in thousands)
Deposits	$	11,746,654	$	9,351,871	$	10,898,006
Advances from FHLB		10,872,800		7,069,800		10,412,800
Other Borrowings:
Asset-backed commercial paper		2,855,922		667,341		2,114,508
Loans and securities sold under agreements to repurchase		941,723		2,211,053		1,405,505
HELOC notes payable		288,312		881,179		659,283
Trust preferred debentures		441,180		401,800		456,695
Other notes payable		399		3,167		1,009
	$	27,146,990	$	20,586,211	$	25,947,806

Principal Sources of Cash

Loan Sales and Securitizations

Our business model relies heavily upon selling the majority of our mortgage loans shortly after acquisition. The proceeds of these sales are a critical component of the liquidity necessary for our ongoing operations. During the three months ended June 30, 2007, we sold $20.2 billion of mortgage loans, which represented approximately 90% of our funded mortgage loans during the period, to third-party investors through three channels: (1) GSEs; (2) private label securitizations; and (3) whole loan sales. Our prime SFR mortgage loan portfolio also acquired $183.7 million of the mortgage loans for our portfolio of mortgage loans held for investment to provide future

39

interest income. The remainder of our funded mortgage loans during the quarter is retained in our held for sale portfolio for future sale.

Our liquidity could be negatively impacted if any of our sales channels were disrupted. Disruptions in our whole loan sales and mortgage securitization transactions could occur as a result of the performance of our existing securitizations, as well as economic events or other factors beyond our control. These disruptions can also adversely impact our earnings.

Deposits/Retail Bank

We solicit deposits from the general public and institutions by offering a variety of accounts and rates through our network of 31 branches in Southern California and our telebanking, and Internet channels. Through our web site at www.indymacbank.com, consumers can access their accounts 24-hours a day, seven days a week. Online banking allows customers to access their accounts, view balances, transfer funds between accounts, view transactions, download account information, and pay their bills conveniently from any computer terminal. Total deposits increased to $11.7 billion at June 30, 2007, up from $9.4 billion at June 30, 2006 and $10.9 billion at December 31, 2006.

Advances from Federal Home Loan Bank

The FHLB system functions as a borrowing source for regulated financial depositories and similar institutions that are engaged in residential housing finance. As a member of the FHLB of San Francisco, we are required to own capital stock of the FHLB and are authorized to apply for advances from the FHLB, on a secured basis, in amounts determined by reference to available collateral. SFR mortgage loans, agency and AAA-rated MBS are the principal collateral that may be used to secure these borrowings, although certain other types of loans and other assets may also be accepted pursuant to FHLB policies and statutory requirements. The FHLB offers several credit programs, each with its own fixed or floating interest rate, and a range of maturities.

Currently, Indymac Bank is approved for collateralized advances of up to $16.5 billion. At June 30, 2007, advances from FHLB totaled $10.9 billion, of which $6.4 billion were collateralized by mortgage loans and $4.5 billion were collateralized by mortgage-backed securities.

Other Borrowings, Excluding Subordinated Debentures Underlying Trust Preferred Securities

Other borrowings, excluding the subordinated debentures underlying the trust preferred securities, consist of asset-backed commercial paper, loans and securities sold under committed financing facilities and uncommitted agreements to repurchase and notes payable. Total other borrowings decreased to $4.1 billion at June 30, 2007, from $4.2 billion at December 31, 2006.

At June 30, 2007, we had $7.7 billion in committed financing facilities ($7.3 billion whole loan facilities, $300 million bond facilities and $100 million in unsecured revolving line of credit). Of these committed financing facilities, $2.3 billion was available for use, based on eligible collateral. Decisions by our lenders and investors to make additional funds available to us in the future will depend upon a number of factors. These include our compliance with the terms of existing credit arrangements, our financial performance, eligible collateral, changes in our credit rating, industry and market trends in our various businesses, the general availability and interest rates applicable to financing and investments, the lenders’ and/or investors’ own resources and policies concerning loans and investments and the relative attractiveness of alternative investment or lending opportunities. As of June 30, 2007, we believe we were in compliance with all representations, warranties, and financial covenants under our borrowing facilities.

In April 2006, we established the North Lake Capital Funding Program, a single seller asset-backed commercial paper facility, which allows us to issue directly, secured liquidity notes backed by mortgage loans. Both the collateral pledged and secured liquidity notes are recorded on our balance sheet as assets and liabilities, respectively. The secured liquidity notes have been rated F-1+ by Fitch Ratings, P-1 by Moody’s Investors Service and A-1+ by Standard & Poor’s, and are supported by credit enhancements, such as over collateralization, excess spread and market value agreements provided by highly rated counterparties. We are authorized to issue up to $2.5 billion in short-term

40

notes, with expected maturities not to exceed 180 days after issuance and final maturities of 60 days following the expected maturities. As of June 30, 2007, we had $1.8 billion in secured liquidity notes outstanding. Subsequent to June 30, 2007, we renewed this facility and increased the committed amount to $4.0 billion.

In November 2006, we established a multi-seller asset-backed commercial paper facility to provide up to $1.5 billion dedicated financing for our construction to permanent, lot, and reverse mortgage loans. This is an annually renewable 364-day committed facility administered by Citicorp North America, Inc. As of June 30, 2007, we had $1.1 billion outstanding under this facility.

Trust Preferred Securities and Warrants

On November 14, 2001, we completed an offering of Warrants and Income Redeemable Equity Securities (“WIRES”) to investors. Gross proceeds of the transaction were $175 million. The securities were offered as units consisting of trust preferred securities, issued by a trust formed by us, and warrants, to purchase Indymac Bancorp’s common stock. As part of this transaction, Indymac Bancorp issued subordinated debentures to the trust and purchased common securities from the trust. The yield on the subordinated debentures and the common securities is the same as the yield on the trust preferred securities. As part of the WIRES offering, 3,500,000 warrants were issued with each convertible into 1.5972 shares of Indymac Bancorp’s common stock. Beginning on November 14, 2006, Indymac had the option to redeem the warrants for cash equal to the warrant value, subject to the conditions in the prospectus. No warrants were exercised in the second quarter of 2007. To date, 2.6 million warrants have been exercised and converted into a total of 4.2 million shares of Indymac Bancorp’s common stock. Subordinated debentures redeemed to date in conjunction with the warrant exercises totaled $130.2 million as of June 30, 2007.

In June 2007, we issued an additional $30 million in pooled trust preferred securities. To date, we have issued $398 million trust preferred securities (without warrants attached) with interest rates ranging from 5.83% to 7.37%. Interest rates on these securities are fixed for terms ranging from five to 10 years, after which the rates reset quarterly indexed to 3-month LIBOR. The securities can be called at the option of Indymac Bancorp five or 10 years after issuance. In each of these transactions, Indymac Bancorp issued subordinated debentures to, and purchased common securities from, each of the trusts. The rates on the subordinated debentures and the common securities in each of these transactions match the rates on the related trust preferred securities. The proceeds of these securities have been used in ongoing operations. Book values of the subordinated debentures underlying the trust preferred securities, which represent the liabilities due from Indymac Bancorp to the trusts, totaled $441.2 million and $456.7 million at June 30, 2007 and December 31, 2006, respectively. These subordinated debentures are included in other borrowings on the consolidated balance sheets.

Direct Stock Purchase Plan

Our direct stock purchase plan offers investors the ability to purchase shares of our common stock directly over the Internet. For those interested in investing over $10,000, investors can also participate in the waiver program administered by Mellon Investor Services LLC. We did not issue any common stock through this plan during the quarter ended June 30, 2007.

Cash from Operating Activities

In addition to the financing sources discussed above, our cash needs are funded by net cash flows from operations before net purchases and originations of loans held for sale, sales of mortgage-backed securities and principal and interest payments on loans and securities. The amounts of net acquisitions of loans held for sale, and trading securities included as components of net cash used in operating activities, totaled $3.0 billion during the six months ended June 30, 2007 and $2.3 billion during the six months ended June 30, 2006. Excluding the purchase and sale activity for loans held for sale and trading securities, the net cash (used in) provided by the Company’s operating activities totaled $(6.6) million and $121.7 million for the six months ended June 30, 2007 and 2006, respectively.

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SENSITIVITY TO MARKET RISK

A key area of risk for us is interest rate risk sensitivity. This is due to the impact that changes in interest rates can have on the demand for mortgages, as well as the value of loans in our pipeline and assets on our balance sheet, particularly the valuation of our MSRs. To manage interest rate risk sensitivity we have a Centralized Interest Rate Risk Group (“CIRRG”). CIRRG fosters an interest rate and market risk management culture throughout the Company and exists to assist in protecting the Company from unexpected losses, earnings surprises and reputation damage due to interest rate risk. It also provides management and the Board with a better understanding of the trade-offs between risk and rewards, leading to smarter risk management and investment decisions, and more consistent and generally higher long term returns on equity. We hedge our assets at the portfolio level, to ensure accountability and make certain that each portfolio can stand on its own.

To evaluate our ability to manage interest rate risk, there are a number of performance measures we track. These include net interest margin for both the total company as well as our segments, the fluctuation in net interest income and expense and average balances, and the net portfolio value of our net assets.

Net Interest Margin

Information regarding our consolidated average balance sheets (all segments are combined), along with the total dollar amounts of interest income and interest expense and the weighted-average interest rates follows:

	Three Months Ended
	June 30, 2007							June 30, 2006							March 31, 2007
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Assets
Securities	$	5,221,396	$	95,537		7.34	%	$	4,596,115	$	80,998		7.07	%	$	5,377,680	$	92,279		6.96	%
Loans held for sale		16,208,651		289,262		7.16	%		10,532,302		181,079		6.90	%		14,442,890		252,157		7.08	%
Mortgage loans held for investment		5,615,519		88,622		6.33	%		6,016,878		86,092		5.74	%		7,117,335		108,994		6.21	%
Builder construction loans		815,861		20,209		9.94	%		743,515		19,221		10.37	%		789,266		19,753		10.15	%
Consumer construction loans		2,190,732		44,519		8.15	%		1,957,587		34,138		6.99	%		2,158,355		43,646		8.20	%
Investment in Federal Home Loan Bank stock and other		1,202,869		16,328		5.44	%		834,180		10,683		5.14	%		1,144,072		15,848		5.62	%
Total interest-earning assets		31,255,028		554,477		7.12	%		24,680,577		412,211		6.70	%		31,029,598		532,677		6.96	%
Mortgage servicing assets		2,153,439							1,434,234							1,867,582
Other		2,428,034							1,655,158							2,443,740
Total assets	$	35,836,501						$	27,769,969						$	35,340,920
Liabilities and Shareholders’ Equity
Interest-bearing deposits	$	10,761,811		138,618		5.17	%	$	8,211,312		92,840		4.53	%	$	10,333,760		132,067		5.18	%
Advances from Federal Home Loan Bank		14,059,734		184,175		5.25	%		9,775,167		110,468		4.53	%		13,651,211		174,529		5.18	%
Other borrowings		5,737,455		82,440		5.76	%		5,923,472		78,749		5.33	%		6,428,718		91,011		5.74	%
Total interest-bearing liabilities		30,559,000		405,233		5.32	%		23,909,951		282,057		4.73	%		30,413,689		397,607		5.30	%
Other		3,199,927							2,117,781							2,894,332
Total liabilities		33,758,927							26,027,732							33,308,021
Shareholders’ equity		2,077,574							1,742,237							2,032,899
Total liabilities and shareholders’ equity	$	35,836,501						$	27,769,969						$	35,340,920
Net interest income			$	149,244						$	130,154						$	135,070
Net interest spread						1.80	%						1.97	%						1.66	%
Net interest margin						1.92	%						2.12	%						1.77	%

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	Six Months Ended
	June 30, 2007							June 30, 2006
	Average				Yield			Average				Yield
	Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Assets
Securities	$	5,299,107	$	187,816		7.15	%	$	4,363,348	$	147,481		6.82	%
Loans held for sale		15,330,649		541,419		7.12	%		10,579,433		354,640		6.76	%
Mortgage loans held for investment		6,362,278		197,616		6.26	%		5,981,016		168,271		5.67	%
Builder construction loans		802,637		39,962		10.04	%		703,275		34,584		9.92	%
Consumer construction loans		2,174,633		88,165		8.18	%		1,905,814		64,502		6.83	%
Investment in Federal Home Loan Bank stock and other		1,173,632		32,176		5.53	%		824,490		20,579		5.03	%
Total interest-earning assets		31,142,936		1,087,154		7.04	%		24,357,376		790,057		6.54	%
Mortgage servicing assets		2,011,300							1,287,492
Other		2,435,843							1,498,698
Total assets	$	35,590,079						$	27,143,566
Liabilities and Shareholders’ Equity
Interest-bearing deposits	$	10,548,968		270,685		5.17	%	$	7,766,962		167,083		4.34	%
Advances from Federal Home Loan Bank		13,856,601		358,704		5.22	%		9,875,570		214,077		4.37	%
Other borrowings		6,081,177		173,451		5.75	%		5,937,527		151,533		5.15	%
Total interest-bearing liabilities		30,486,746		802,840		5.31	%		23,580,059		532,693		4.56	%
Other		3,047,974							1,893,236
Total liabilities		33,534,720							25,473,295
Shareholders’ equity		2,055,359							1,670,271
Total liabilities and shareholders’ equity	$	35,590,079						$	27,143,566
Net interest income			$	284,314						$	257,364
Net interest spread						1.73	%						1.98	%
Net interest margin						1.84	%						2.13	%

Average balances are calculated on a daily basis. Non-performing loans are included in the average balances for the periods presented. The allowance for loan losses is excluded from the average loan balances. Minority interest and perpetual preferred stock in subsidiary are included in other liabilities.

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Interest income and interest expense fluctuations depend upon changes in the average balances and interest rates of interest-earning assets and interest-bearing liabilities. The following tables detail the changes in interest income and expense by key attribute:

	Increase/(Decrease) Due to
	Volume(1)			Rate(2)			Mix(3)			Total Change
	(Dollars in thousands)
Three Months Ended June 30, 2007 vs. 2006
Interest income:
Securities	$	11,019		$	3,098		$	422		$	14,539
Loans held for sale		97,592			6,882			3,709			108,183
Mortgage loans held for investment		(5,743	)		8,864			(591	)		2,530
Builder construction loans		1,870			(804	)		(78	)		988
Consumer construction loans		4,066			5,643			672			10,381
Investment in Federal Home Loan Bank stock and other		4,722			640			283			5,645
Total interest income		113,526			24,323			4,417			142,266
Interest expense:
Interest-bearing deposits		28,837			12,926			4,015			45,778
Advances from Federal Home Loan Bank		48,419			17,581			7,707			73,707
Other borrowings		(2,473	)		6,364			(200	)		3,691
Total interest expense		74,783			36,871			11,522			123,176
Net interest income	$	38,743		$	(12,548	)	$	(7,105	)	$	19,090

	Increase/(Decrease) Due to
	Volume(1)		Rate(2)			Mix(3)			Total Change
	(Dollars in thousands)
Six Months Ended June 30, 2007 vs. 2006
Interest income:
Securities	$	31,629	$	7,169		$	1,537		$	40,335
Loans held for sale		159,269		18,984			8,526			186,779
Mortgage loans held for investment		10,726		17,503			1,116			29,345
Builder construction loans		4,886		431			61			5,378
Consumer construction loans		9,098		12,764			1,801			23,663
Investment in Federal Home Loan Bank stock and other		8,714		2,025			858			11,597
Total interest income		224,322		58,876			13,899			297,097
Interest expense:
Interest-bearing deposits		59,847		32,216			11,539			103,602
Advances from Federal Home Loan Bank		86,299		41,571			16,757			144,627
Other borrowings		3,666		17,821			431			21,918
Total interest expense		149,812		91,608			28,727			270,147
Net interest income	$	74,510	$	(32,732	)	$	(14,828	)	$	26,950

(1)	Changes in volume are calculated by taking changes in average balances multiplied by the prior period’s average interest rate.
(2)	Changes in the rate are calculated by taking changes in the average interest rate multiplied by the prior period’s average balance.

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(3) Changes in rate/volume (“mix”) are calculated by taking changes in rates times the changes in volume.

Net Interest Margin by Segment

The following tables summarize net interest margin by segment for the periods indicated:

	Three Months Ended
	June 30, 2007							June 30, 2006							March 31, 2007
	Average		Net		Net			Average		Net		Net			Average		Net		Net
	Earning		Interest		Interest			Earning		Interest		Interest			Earning		Interest		Interest
	Assets		Income		Margin			Assets		Income		Margin			Assets		Income		Margin
	(Dollars in millions)
By Segment:
Thrift segment and other	$	16,621	$	95		2.29	%	$	15,252	$	92		2.43	%	$	17,367	$	90		2.11	%
Mortgage banking segment		14,634		54		1.49	%		9,429		38		1.61	%		13,663		45		1.33	%
Total Company	$	31,255	$	149		1.92	%	$	24,681	$	130		2.12	%	$	31,030	$	135		1.77	%

	Six Months Ended
	June 30, 2007							June 30, 2006
	Average		Net		Net			Average		Net		Net
	Earning		Interest		Interest			Earning		Interest		Interest
	Assets		Income		Margin			Assets		Income		Margin
	(Dollars in millions)
By Segment:
Thrift segment and other	$	16,992	$	185		2.20	%	$	14,959	$	179		2.42	%
Mortgage banking segment		14,151		99		1.41	%		9,398		78		1.67	%
Total Company	$	31,143	$	284		1.84	%	$	24,357	$	257		2.13	%

The net interest margin during the second quarter of 2007 was 1.92%, down from 2.12% for the second quarter of 2006, but up from 1.77% for the first quarter of 2007. Thrift net interest margin of 2.29% for the second quarter of 2007 also declined from 2.43% for the second quarter of 2006 but improved from 2.11% for the first quarter of 2007. Although we experienced compression in our net interest margin as a result of an inverted yield curve, our thrift net interest margin improved over the first quarter of 2007 as a result of selling lower yielding assets out of the thrift portfolio, lower premium amortizations due to slower prepayment speed, and improvements achieved in our deposit cost of funds relative to other funding sources.

Loans Held for Sale and Pipeline Hedging

We hedge the interest rate risk inherent in our pipeline of mortgage loans held for sale to protect our margin on sale of loans. We focus on trying to maintain stable profit margins with an emphasis on forecasting expected fallout to more precisely estimate our required hedge coverage ratio and minimize hedge costs. By closely monitoring key factors, such as product type, origination channels, progress or “status” of transactions, as well as changes in market interest rates since we committed a rate to the borrower (“rate lock commitments”), we seek to quantify the optional component of each rate lock, and in turn, the aggregate rate lock pipeline. By accurately evaluating these factors, we can minimize the cost of hedging and also stabilize gain on sale margins over different rate environments.

We also attempt to hedge the type of spread widening caused by the secondary market disruptions started in the first quarter 2007. However, given the current uncertainties and resulting volatility in the secondary market, our hedging activities may not be effective. When spread widening does occur, we increase our loan pricing to attain our target MBR margins on future production.

In addition to mortgage loans held for sale, the hedging activities also include rate lock commitments. Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”). The rate lock commitments are initially valued at zero and continue to be adjusted for changes in value resulting from changes in market interest rates, pursuant to the Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments.” We hedge the risk of changes in fair value of rate lock commitments by selling forward contracts on securities of Fannie Mae or Freddie Mac, Eurodollar futures and other hedge instruments as we deem

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appropriate to prudently manage this risk. These forward and futures contracts are also accounted for as derivatives and recorded at fair value.

The following table summarizes the effect that hedging for interest rate risk management had on our gross mortgage banking revenue margin for the periods indicated:

	Three Months Ended															Six Months Ended
	June 30,			June 30,			Percent			March 31,			Percent			June 30,			June 30,			Percent
	2007			2006			Change			2007			Change			2007			2006			Change
	(Dollars in millions)
Gross MBR margin		0.91	%		1.96	%		(53	)%		1.12	%		(18	)%		1.02	%		1.72	%		(40	)%
MBR margin after hedging(1)		1.31	%		1.67	%		(22	)%		1.11	%		18	%		1.20	%		1.55	%		(23	)%

(1) Before credit costs and SFAS 91 deferred costs.

Hedging Interest Rate Risk On Servicing-Related Assets

We are exposed to interest rate risk with respect to the investment in servicing-related assets. The mortgage servicing division is responsible for the management of interest rate and prepayment risks in the servicing-related assets, subject to policies and procedures established by, and oversight from, our management-level Interest Rate Risk Committee (“IRRC”), Asset and Liability Valuation Committee (“ALVC”) and ERM group, and our Board of Directors-level ERM Committee.

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

In addition to the hedging gain (loss) on MSRs, we also use other hedging strategies to manage our economic risks associated with MSRs. A summary of the performance on MSRs, including AAA-rated and agency interest-only securities, and hedges for the respective periods follows:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
Valuation adjustment due to market changes and external benchmarking	$	222,659		$	64,381		$	30,840		$	253,499		$	144,864
Loss on financial instruments used to hedge MSRs		(213,213	)		(66,660	)		(28,747	)		(241,960	)		(146,289	)
Hedge (loss) gain on AAA-rated and agency interest-only securities		(14,741	)		(4,259	)		(435	)		(15,176	)		(13,632	)
Unrealized gain on AAA-rated and agency interest-only securities		10,465			6,272			1,481			11,947			12,767
Unrealized (loss) gain on principal-only securities		(4,916	)		(5,614	)		301			(4,615	)		(6,508	)
Unrealized (loss) gain on prepayment penalty securities		(21,658	)		10,909			(2,204	)		(23,862	)		4,657
Net (loss) gain on MSRs, AAA-rated and agency interest-only securities, and hedges	$	(21,404	)	$	5,029		$	1,236		$	(20,167	)	$	(4,141	)

The above gains and losses include costs inherent in transacting and holding the hedge instruments. If these assets were perfectly hedged, a net loss would have been reported representing these costs. In the second quarter of 2007, the hedges on the servicing-related assets, although had a net loss of $21.4 million, performed within management’s expectations as evidenced by the 37% ROE reported by the mortgage servicing division.

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Value-at-Risk

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

In modeling the VAR, we have made a number of assumptions and approximations. As there is no standardized methodology for estimating VAR, different assumptions and approximations could result in materially different VAR estimates.

As of June 30, 2007, the combined portfolio of MSRs and interest-only securities (the “MSR/IO portfolio”) and the mortgage-backed securities portfolio were valued at $2.4 billion and $4.3 billion, respectively. The average VAR (after the effect of hedging transactions) for the quarter on the MSR/IO portfolio was $3.0 million, or 13 basis points of the recorded value, and the average VAR (after the effect of hedging transactions) for the quarter on the MBS portfolio was $1.3 million, or 3 basis points of the recorded value. During the quarter, the VAR measure ranged from $1.3 million to $7.8 million and from $0.9 million to $1.9 million for the MSR/IO and MBS portfolios, respectively.

Net Portfolio Value

In addition to our hedging activities to mitigate the interest rate risk in our pipeline of mortgage loans held for sale, rate locks and our investment in servicing-related assets, we perform extensive, company-wide interest rate risk management. A primary measurement tool used to evaluate interest rate risk over the comprehensive balance sheet is net portfolio value (“NPV”) analysis. The NPV analysis and duration gap estimate the exposure of the fair value of net assets attributable to shareholders’ equity to changes in interest rates.

The following sets forth the NPV and change in NPV that we estimate might result from a 100 basis point change in interest rates as of the dates indicated:

	June 30, 2007								December 31, 2006
			Effect of Change in								Effect of Change in
			Interest Rates								Interest Rates
			Decrease			Increase					Decrease			Increase
	Fair Value		100 bps			100 bps			Fair Value		100 bps			100 bps
	(Dollars in thousands)
Cash and cash equivalents	$	616,678	$	616,678		$	616,678		$	541,545	$	541,545		$	541,545
Trading securities		1,107,179		1,117,185			1,055,300			541,175		573,028			522,503
Available for sale securities		4,166,431		4,263,762			4,022,674			4,183,629		4,272,980			4,064,097
Loans held for sale		11,906,329		12,069,863			11,675,103			9,566,224		9,645,767			9,440,968
Loans held for investment		8,697,274		8,772,005			8,600,878			10,191,350		10,266,772			10,081,430
MSRs		2,387,077		1,922,512			2,670,966			1,822,455		1,393,979			2,142,276
Other assets		2,375,963		2,734,183			2,324,067			1,992,698		2,317,284			1,813,516
Total assets	$	31,256,931	$	31,496,188		$	30,965,666		$	28,839,076	$	29,011,355		$	28,606,335
Deposits	$	11,953,481	$	11,983,998		$	11,923,248		$	11,045,977	$	11,076,458		$	11,015,812
Advances from Federal Home Loan Bank		10,829,789		10,988,867			10,670,182			10,409,767		10,565,054			10,256,128
Other borrowings		3,761,040		3,762,530			3,759,552			3,464,290		3,466,577			3,462,006
Other liabilities		927,126		927,126			927,126			775,455		775,455			775,455
Total liabilities		27,471,436		27,662,521			27,280,108			25,695,489		25,883,544			25,509,401
Shareholders’ equity (NPV)	$	3,785,495	$	3,833,667		$	3,685,558		$	3,143,587	$	3,127,811		$	3,096,934
% Change from base case				1.27	%		(2.64	)%				(0.50	)%		(1.48	)%

Our NPV model has been built to focus on the Bank alone as the $0.4 billion of assets at the Parent Company and its non-bank subsidiaries have little interest rate risk exposure.

47

The increase in the net present value of equity from December 31, 2006 to June 30, 2007 is partly due to: (i) an increase in our balance sheet; (ii) an increase in retained earnings of the Bank in the amount of $109.5 million; (iii) a capital contribution of $25.0 million from the Parent Company to the Bank; (iv) net proceeds of $491 million in perpetual preferred stock issued by the Bank; and offset by (v) a dividend payment of $186.2 million from the Bank to the Parent Company. This analysis is based on an instantaneous change in interest rates and does not reflect the impact of changes in hedging activities as interest rates change nor changes in volumes and profits from our mortgage banking operations that would be expected to result from the interest rate environment.

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

The assumptions inherent in our interest rate shock models include expected valuation changes in an instantaneous and parallel interest rate shock and assumptions as to the degree of correlation between the hedges and hedged assets and liabilities. These assumptions may not adequately reflect factors such as the spread-widening or spread-tightening risk among the changes in rates on Treasury securities, the LIBOR/swap curve, mortgages, changes in the shape of the yield curve and volatility. In addition, the sensitivity analysis described in the prior paragraph is limited by the fact that it is performed at a particular point in time and does not incorporate other factors that would impact our financial performance in these scenarios, such as increases in income associated with the increase in production volume that could result from a decrease in interest rates. Consequently, the preceding estimates should not be viewed as a forecast, and it is reasonable to expect that actual results could vary significantly from the analyses discussed above.

At June 30, 2007, net duration gap for our mortgage banking and thrift segments was 4.3 months and 0.8 month, respectively, with the overall net duration gap of 2.1 months. Fair value gains and losses will generally occur as market conditions change. We actively manage duration risk through asset selection by appropriate funding and hedging to within the duration limits approved by senior management and the Board of Directors. The duration gap measures are estimated on a daily basis for the mortgage servicing rights and on a monthly basis for the assets in our thrift portfolio and pipeline. Although the duration gap for the mortgage banking segment and our overall portfolio has risen slightly since March 31, 2007, it is within management’s target range.

48

EXPENSES

A summary of non-interest expense follows:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
Salaries and related	$	180,234		$	179,280		$	182,474		$	362,708		$	331,838
Premises and equipment		24,961			20,113			24,297			49,258			37,085
Loan purchase and servicing costs		14,057			13,149			15,026			29,083			26,055
Professional services		8,853			8,158			9,864			18,717			16,266
Data processing		20,331			15,758			19,756			40,087			30,033
Office and related		16,977			17,602			16,127			33,104			32,697
Advertising and promotion		9,659			12,409			9,635			19,294			23,626
Operations and sale of foreclosed assets		4,291			385			2,180			6,471			927
Other		5,920			3,005			5,038			10,958			6,324
Deferral of expenses under SFAS 91		(61,258	)		(66,175	)		(68,647	)		(129,905	)		(129,401	)
Total operating expenses		224,025			203,684			215,750			439,775			375,450
Amortization of other intangible assets		430			130			430			860			264
Total non-interest expense	$	224,455		$	203,814		$	216,180		$	440,635		$	375,714

Our operating expenses increased 10% from $203.7 million for the second quarter of 2006 to $224.0 million for the second quarter of 2007. The increase is primarily attributable to our operational growth and geographic expansion to execute on our strategy to increase production and revenue. Since the second quarter of 2006, we have opened three new regional operations centers and a number of sales offices in the mortgage banking group, acquired the retail lending platform of NYMC, including roughly 400 employees and increased our consumer bank network to 31 branches from 26 branches, resulting in higher salaries and related, premises and data processing expenses. Our average FTE employees increased 20% from 7,861 for the three months ended June 30, 2006 to 9,431 for the three months ended June 30, 2007, including 831 FTE off-shore as part of our Global Resources program. We utilize the off-shore workforce predominantly in non-customer-facing back office functions to enhance service levels and improve efficiencies. Of the 20% increase in FTE, 70% was from revenue generating departments.

Our operating expenses increased by 4% compared to the first quarter of 2007. Operating expense growth in the second quarter over the first quarter was driven mainly by a $13.4 million expense increase in two of our new business activities, our retail lending and commercial mortgage divisions, with the bulk of the increase coming from the acquisition of the retail lending platform of NYMC. We also continued to invest in the revenue generating capacity of our wholesale, correspondent and retention divisions, increasing our expenses in these areas by $6.9 million over the first quarter. These increases were largely offset by a one-time expense reduction of $10.3 million related to the curtailment of our pension plan and a $6.5 million, or 15%, reduction in corporate overhead from the first quarter. The hiring freeze we have on non-revenue generating personnel continues to have a positive effect on our expenses, as our non-revenue generating headcount declined by an annualized 12% rate from the first quarter, which comes on top of a 20% annualized decline last quarter.

In July 2007, we announced the layoff of approximately 400 employees, roughly 4% of our workforce, mainly in our Operations and Enterprise Process and Technology groups, in various offices around the country. These layoffs were considered necessary as we concluded that we needed to both “right-size” our workforce to our current volumes and also be very “hardnosed” in redesigning our processes in our drive to become “the” low cost provider in the mortgage industry, while at the same time ensuring that we maintain our high standards for customer service and credit quality. Recent advances in our technology are enabling us to be more productive and efficient, and our goal is to reap the cost savings associated with these advances and pass them on to our customers in order to be competitive in the market.

The layoffs will result in Indymac taking a pre-tax charge to earnings of approximately $6.5 million in the third quarter, most of which is severance. The cost savings we expect to realize will substantially offset this charge during the third quarter of this year, and on an ongoing basis we project $30 million in annual cost savings.

49

PROSPECTIVE TRENDS AND FUTURE OUTLOOK

We anticipate that the second half of 2007 and 2008 will continue to be challenging for the mortgage and housing markets and for Indymac. We expect competitive pricing pressures on our MBR margins to continue. In addition, we expect that the current, temporary volatility and reduced liquidity in the secondary markets will adversely impact secondary market execution, putting further pressure on MBR margins, although we expect this negative impact to abate once the secondary market stabilizes. While our recent guideline tightening has improved the quality of our loan production, additional deterioration in the housing market could further increase our credit costs.

Notwithstanding the current tough market conditions, we are confident we will be able to navigate through the industry storms and expect to remain solidly profitable during this cyclical downturn in our business. We are also optimistic about the long term profit and growth prospects for both the mortgage industry and Indymac and are confident that our hybrid thrift/mortgage banking business model and related strategies, and our execution relative to our competitors, will position us favorably for when the markets do recover. However, given the significant current uncertainties in the housing and mortgage markets and, in particular, in the secondary market, we feel it is prudent to temporarily refrain from our normal practice of providing quantitative guidance.

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

OFF-BALANCE SHEET ARRANGEMENTS

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

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

In connection with our loan sales that are securitization transactions, there are $76.5 billion in loans owned by off-balance sheet trusts as of June 30, 2007. The trusts have issued bonds secured by these loans. We have no obligation to provide funding support to either the third-party investors or the off-balance sheet trusts. Generally, neither the third-party investors nor the trusts have recourse to our assets or us, and they have no ability to require us to repurchase their loans other than for non-credit-related recourse that can arise under standard representations and warranties. We maintain secondary market reserves mostly for losses that could arise in connection with loans that we are required to repurchase from GSEs, whole loan sales and securitizations. For information on the sales proceeds and cash flows from our securitizations for 2007, see “Liquidity and Capital Resources — Principal Sources of Cash — Loan Sales and Securitizations.”

We often retain certain interests, which may include subordinated classes of securities, MSRs, AAA-rated and agency interest-only securities, prepayment penalty and residual securities in the securitization trust. The performance of the loans in the trusts will impact our ability to realize the current estimated fair value of these assets that are included on our balance sheet. See discussions on MSRs and other retained assets under “Mortgage Servicing” and “Mortgage-Backed Securities” on page 19 and 23, respectively.

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

50

AGGREGATE CONTRACTUAL OBLIGATIONS

Our material contractual obligations were summarized and included in our 2006 10-K. There have been no material changes outside the ordinary course of our business in the contractual obligations as specified in our 2006 10-K during the six months ended June 30, 2007.

CRITICAL ACCOUNTING POLICIES AND JUDGMENTS

Several of the critical accounting policies that are very important to the portrayal of our financial condition and results of operations require management to make difficult and complex judgments that rely on estimates about the effect of matters that are inherently uncertain due to the impact of changing market conditions and/or consumer behavior. We believe our most critical accounting policies relate to: (1) assets that are highly dependent on internal valuation models and assumptions rather than market quotations, including, AAA-rated and agency interest-only securities, prepayment penalty securities, MSRs and non-investment grade and residual securities; (2) derivatives hedging instruments and hedge accounting; (3) our allowance for loan losses (“ALL”); and (4) our secondary market reserve. Refer to pages 80 to 85 of our 2006 10-K for further discussion of our critical accounting policies and judgments.

Management discusses these critical accounting policies and related judgments with Indymac’s Audit Committee and external auditors on a quarterly basis. We believe that the judgments, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition.

REGULATORY UPDATE

The federal banking agencies published the final “Statement on Subprime Mortgage Lending” on June 29, 2007 to address certain risks and emerging issues relating to subprime mortgage lending practices. The statement specifies that an institution’s analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. In addition, stated income and reduced documentation should be accepted only if there are documented mitigating factors that clearly minimize the need for verification of a borrower’s repayment capacity. The statement also underscores that communications with consumers should provide clear and balanced information about the relative benefits and risks of the products. In anticipation of the final guidance, we had already begun reducing stated income subprime lending. Additionally, as subprime lending represents such a small percentage of our total mortgage loan production, such reduction would only reduce 1.3% of our total mortgage bank production.

OTHER CONSIDERATIONS

Under OTS regulations, limitations have been imposed on all capital distributions, including cash dividends. Indymac Bancorp, as the holding company for the Bank, is substantially dependent upon dividends from the Bank for cash used to pay dividends on common stock and other cash outflows. We are required to seek approval from the OTS in order to pay dividends from the Bank to the Parent Company. There is no assurance that the Bank will be able to pay such dividends in the future or that the OTS will continue to grant approvals. While the holding company maintains cash and an unsecured line of credit to manage its liquidity, a disruption in dividends from the Bank could cause the holding company to reduce or eliminate the dividends paid on common stock.

For holders of the Bank’s Series A preferred stock and Indymac Bancorp’s common stock, dividends we pay will be treated as dividends for U.S. federal income tax purposes only to the extent paid out of our current or accumulated “earnings and profits” as measured by federal and state tax law. Any dividend that we pay at a time when we do not have any current or accumulated earnings and profits will not be taxable as a dividend for U.S. federal income tax purposes, and instead will be treated first as a return of capital, reducing a holder’s basis in its stock to the extent of such basis, and thereafter as capital gain. Any dividends we pay that are not treated as dividends will not be eligible for the dividends-received deduction or the reduced rates of taxation available for certain holders subject to U.S. federal income tax.

51

APPENDIX A: ADDITIONAL QUANTITATIVE DISCLOSURES

We believe that the information provided in the body of this 10-Q provides a good overview of the Company’s business and its results for the second quarter of 2007. However, we are including the following tables for a more detailed analysis of our operations.

TABLE OF CONTENTS

Table			Page
	1	Product Profitability Analysis		53
	2	S&P Lifetime Loss Estimates		59
	3	Production by Product — FICO and CLTV		59
	4	SFR Mortgage Production and Pipeline by Purpose		60
	5	SFR Mortgage Production by Amortization Type		60
	6	SFR Mortgage by Geographic Distribution		61
	7	MBR Margin		61
	8	Servicing Fee Income		61
	9	Mortgage Servicing Rights Rollforward		62
	10	Gain (Loss) on Mortgage-Backed Securities		63
	11	Unrealized Gains and Losses of Securities Available for Sale		63
	12	Other Investment Grade and Non-Investment Grade Mortgage-Backed Securities		64
	13	Other Retained Assets		65
	14	Valuation of MSRs, Interest-Only, Prepayment Penalty and Residual Securities		67
	15	Deposits by Channel and Category		68

52

TABLE 1. PRODUCT PROFITABILITY ANALYSIS

As part of our process of measuring results and holding managers responsible for specific targets, we evaluate profitability at the product level in addition to our segment results. We currently have four product groups: standard consumer home loans held for sale, specialty consumer home loans held for sale and/or investment, home loans and related investment, and specialty commercial loans held for investment. Please refer to our 2006 10-K, pages 29 to 30, for further discussion on the products included within each product group.

The following tables summarize the profitability for each of the four product groups and the loan servicing operations for the periods indicated:

							Home
	Standard			Specialty			Loans &			Specialty
	Consumer			Consumer			Related			Commercial									Total
	Home Loans			Home Loans			Investments			Loans			Treasury			Overhead			Company
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	50,770		$	42,077		$	32,571		$	20,134		$	674		$	3,018		$	149,244
Provision for loan losses		—			(2,144	)		(13,800	)		(1,260	)		—			—			(17,204	)
Gain (loss) on sale of loans		53,633			23,304			23,870			223			—			—			101,030
Service fee income		—			15,302			69,750			—			—			566			85,618
Gain (loss) on sale of securities		—			(7,828	)		(38,519	)		—			—			—			(46,347	)
Other income		6,953			11,239			2,926			1,972			236			2,087			25,413
Net revenue (expense)		111,356			81,950			76,798			21,069			910			5,671			297,754
Variable expenses		66,333			36,220			8,240			3,730			—			—			114,523
Deferral of expenses under SFAS 91		(41,824	)		(13,679	)		(3,384	)		(2,370	)		—			—			(61,257	)
Fixed expenses		58,009			25,856			18,218			7,522			3,260			58,324			171,189
Pre-tax income (loss)		28,838			33,553			53,724			12,187			(2,350	)		(52,653	)		73,299
Net income (loss)	$	17,563		$	20,189		$	32,718		$	7,422		$	(1,431	)	$	(31,822	)	$	44,639
Balance Sheet Data
Average interest-earning assets	$	12,155,773		$	5,470,428		$	11,437,931		$	1,770,540		$	—		$	420,356		$	31,255,028
Allocated capital	$	561,585		$	428,577		$	751,503		$	154,860		$	—		$	181,049		$	2,077,574
Performance Ratios
ROE		13	%		19	%		17	%		19	%		N/A			N/A			9	%
Net interest margin		1.68	%		3.09	%		1.14	%		4.56	%		N/A			N/A			1.92	%
MBR margin		0.68	%		1.61	%		1.40	%		N/A			N/A			N/A			0.80	%
Efficiency ratio		74	%		58	%		25	%		40	%		N/A			N/A			71	%
Operating Data
Loan production	$	17,390,934		$	3,683,613		$	1,356,395		$	592,198		$	—		$	—		$	23,023,140
Loans sold	$	16,284,021		$	2,201,062		$	1,708,494		$	—		$	—		$	—		$	20,193,577
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	28,022		$	36,296		$	45,043		$	20,134		$	(859	)	$	1,518		$	130,154
Provision for loan losses		—			(930	)		(975	)		(325	)		—			—			(2,230	)
Gain (loss) on sale of loans		157,203			38,222			6,234			—			—			—			201,659
Service fee income		—			6,238			20,521			—			—			488			27,247
Gain (loss) on sale of securities		—			(4,375	)		12,633			—			—			—			8,258
Other income		—			7,818			1,662			1,553			180			789			12,002
Net revenue (expense)		185,225			83,269			85,118			21,362			(679	)		2,795			377,090
Variable expenses		59,169			45,586			2,274			3,392			—			—			110,421
Deferral of expenses under SFAS 91		(43,663	)		(19,391	)		(1,081	)		(2,040	)		—			—			(66,175	)
Fixed expenses		48,459			23,885			11,816			4,846			2,098			69,121			160,225
Pre-tax income (loss)		121,260			33,189			72,109			15,164			(2,777	)		(66,326	)		172,619
Net income (loss)	$	73,847		$	20,048		$	43,914		$	9,235		$	(1,691	)	$	(40,695	)	$	104,658
Balance Sheet Data
Average interest-earning assets	$	7,763,901		$	5,324,900		$	9,351,463		$	1,423,150		$	—		$	817,163		$	24,680,577
Allocated capital	$	389,127		$	355,963		$	616,829		$	137,241		$	—		$	243,077		$	1,742,237
Performance Ratios
ROE		76	%		23	%		29	%		27	%		N/A			N/A			24	%
Net interest margin		1.45	%		2.73	%		1.93	%		5.67	%		N/A			N/A			2.12	%
MBR margin		1.20	%		1.36	%		1.42	%		N/A			N/A			N/A			1.23	%
Efficiency ratio		35	%		59	%		15	%		29	%		N/A			N/A			54	%
Operating Data
Loan production	$	14,968,754		$	4,628,706		$	412,416		$	580,706		$	—		$	—		$	20,590,582
Loans sold	$	15,412,389		$	3,562,599		$	440,176		$	—		$	—		$	—		$	19,415,164

53

The following tables provide details on the profitability for the standard consumer home loans held for sale for the periods indicated:

	Standard Consumer Home Loans Held for Sale
	Prime			Subprime			Total
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	49,119		$	1,651		$	50,770
Provision for loan losses		—			—			—
Gain (loss) on sale of loans		50,662			2,971			53,633
Service fee income		—			—			—
Gain (loss) on sale of securities		—			—			—
Other income		6,665			288			6,953
Net revenues (expense)		106,446			4,910			111,356
Variable expenses		60,402			5,931			66,333
Deferral of expenses under SFAS 91		(38,084	)		(3,740	)		(41,824	)
Fixed expenses		53,135			4,874			58,009
Pre-tax income (loss)		30,993			(2,155	)		28,838
Net income (loss)	$	18,875		$	(1,312	)	$	17,563
Balance Sheet Data
Average interest-earning assets	$	11,975,871		$	179,902		$	12,155,773
Allocated capital	$	550,682		$	10,903		$	561,585
Performance Ratios
ROE		14	%		(48	)%		13	%
Net interest margin		1.65	%		3.68	%		1.68	%
MBR margin		0.69	%		0.62	%		0.68	%
Efficiency ratio		71	%		144	%		74	%
Operating Data
Loan production	$	16,669,901		$	721,033		$	17,390,934
Loans sold	$	15,488,147		$	795,874		$	16,284,021
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	22,051		$	5,971		$	28,022
Provision for loan losses		—			—			—
Gain (loss) on sale of loans		150,974			6,229			157,203
Service fee income		—			—			—
Gain (loss) on sale of securities		—			—			—
Other income		—			—			—
Net revenues (expense)		173,025			12,200			185,225
Variable expenses		52,590			6,579			59,169
Deferral of expenses under SFAS 91		(38,802	)		(4,861	)		(43,663	)
Fixed expenses		44,178			4,281			48,459
Pre-tax income (loss)		115,059			6,201			121,260
Net income (loss)	$	70,071		$	3,776		$	73,847
Balance Sheet Data
Average interest-earning assets	$	6,794,839		$	969,062		$	7,763,901
Allocated capital	$	328,268		$	60,859		$	389,127
Performance Ratios
ROE		86	%		25	%		76	%
Net interest margin		1.30	%		2.47	%		1.45	%
MBR margin		1.16	%		2.36	%		1.20	%
Efficiency ratio		34	%		49	%		35	%
Operating Data
Loan production	$	14,490,204		$	478,550		$	14,968,754
Loans sold	$	14,896,035		$	516,354		$	15,412,389

54

The following tables provide details on the profitability for the specialty consumer home loans held for sale and/or investment for the periods indicated:

	Specialty Consumer Home Loans Held for Sale and/or Investment
	HELOCs/			Reverse
	Seconds			Mortgages			CTP/Lot			Discontinued			Total
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	21,287		$	4,354		$	15,978		$	458		$	42,077
Provision for loan losses		(490	)		—			(1,529	)		(125	)		(2,144	)
Gain (loss) on sale of loans		(35,382	)		45,216			13,470			—			23,304
Service fee income		4,487			10,815			—			—			15,302
Gain (loss) on sale of securities		(7,369	)		—			(459	)		—			(7,828	)
Other income		3,602			130			7,507			—			11,239
Net revenues (expense)		(13,865	)		60,515			34,967			333			81,950
Variable expenses		6,202			21,685			8,333			—			36,220
Deferral of expenses under SFAS 91		(3,870	)		(7,356	)		(2,453	)		—			(13,679	)
Fixed expenses		3,423			14,895			7,353			185			25,856
Pre-tax income (loss)		(19,620	)		31,291			21,734			148			33,553
Net income (loss)	$	(11,949	)	$	18,812		$	13,236		$	90		$	20,189
Balance Sheet Data
Average interest-earning assets	$	2,019,036		$	839,992		$	2,578,856		$	32,544		$	5,470,428
Allocated capital	$	254,841		$	51,328		$	119,472		$	2,936		$	428,577
Performance Ratios
ROE		(19	)%		147	%		44	%		12	%		19	%
Net interest margin		4.23	%		2.08	%		2.49	%		5.64	%		3.09	%
MBR margin		(12.51	)%		3.64	%		2.18	%		N/A			1.61	%
Efficiency ratio		(43	)%		48	%		36	%		40	%		58	%
Operating Data
Loan production	$	875,826		$	1,257,652		$	1,550,135		$	—		$	3,683,613
Loans sold	$	220,392		$	1,361,803		$	618,867		$	—		$	2,201,062
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	21,410		$	1,589		$	12,714		$	583		$	36,296
Provision for loan losses		—			—			(550	)		(380	)		(930	)
Gain (loss) on sale of loans		(5,228	)		38,171			5,290			(11	)		38,222
Service fee income		1,588			4,650			—			—			6,238
Gain (loss) on sale of securities		(4,839	)		—			464			—			(4,375	)
Other income		2,262			366			5,190			—			7,818
Net revenues (expense)		15,193			44,776			23,108			192			83,269
Variable expenses		14,403			20,948			10,235			—			45,586
Deferral of expenses under SFAS 91		(8,710	)		(8,449	)		(2,232	)		—			(19,391	)
Fixed expenses		3,020			13,716			7,055			94			23,885
Pre-tax income (loss)		6,480			18,561			8,050			98			33,189
Net income (loss)	$	3,946		$	11,140		$	4,902		$	60		$	20,048
Balance Sheet Data
Average interest-earning assets	$	2,642,792		$	422,961		$	2,217,589		$	41,558		$	5,324,900
Allocated capital	$	229,181		$	26,318		$	96,751		$	3,713		$	355,963
Performance Ratios
ROE		7	%		170	%		20	%		6	%		23	%
Net interest margin		3.25	%		1.51	%		2.30	%		5.63	%		2.73	%
MBR margin		0.20	%		3.31	%		0.81	%		N/A			1.36	%
Efficiency ratio		57	%		59	%		64	%		16	%		59	%
Operating Data
Loan production	$	1,860,406		$	1,336,561		$	1,431,739		$	—		$	4,628,706
Loans sold	$	1,710,940		$	1,200,841		$	650,818		$	—		$	3,562,599

55

The following tables provide details on the profitability for the home loans and related investments and the loan servicing operations for the periods indicated:

	Home Loans and Related Investments
	Retained Servicing						SFR Loans
	and Retention						Held for
	Activities			MBS			Investment			Total
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	3,932		$	16,319		$	12,320		$	32,571
Provision for loan losses		—			—			(13,800	)		(13,800	)
Gain (loss) on sale of loans		20,449			—			3,421			23,870
Service fee income		69,750			—			—			69,750
Gain (loss) on sale of securities		(26,769	)		(11,750	)		—			(38,519	)
Other income		2,466			—			460			2,926
Net revenues (expense)		69,828			4,569			2,401			76,798
Variable expenses		8,240			—			—			8,240
Deferral of expenses under SFAS 91		(3,384	)		—			—			(3,384	)
Fixed expenses		14,458			984			2,776			18,218
Pre-tax income (loss)		50,514			3,585			(375	)		53,724
Net income (loss)	$	30,763		$	2,183		$	(228	)	$	32,718
Balance Sheet Data
Average interest-earning assets	$	1,095,499		$	4,518,167		$	5,824,265		$	11,437,931
Allocated capital	$	339,418		$	193,555		$	218,530		$	751,503
Performance Ratios
ROE		36	%		5	%		—			17	%
Net interest margin		1.44	%		1.45	%		0.85	%		1.14	%
MBR margin		1.65	%		N/A			N/A			1.40	%
Efficiency ratio		28	%		22	%		17	%		25	%
Operating Data
Loan production	$	1,356,395		$	—		$	—		$	1,356,395
Loans sold	$	1,241,952		$	—		$	466,542		$	1,708,494
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	15,327		$	9,238		$	20,478		$	45,043
Provision for loan losses		—			—			(975	)		(975	)
Gain (loss) on sale of loans		5,591			(122	)		765			6,234
Service fee income		20,521			—			—			20,521
Gain (loss) on sale of securities		12,561			72			—			12,633
Other income		1,222			11			429			1,662
Net revenues (expense)		55,222			9,199			20,697			85,118
Variable expenses		2,274			—			—			2,274
Deferral of expenses under SFAS 91		(1,081	)		—			—			(1,081	)
Fixed expenses		10,474			286			1,056			11,816
Pre-tax income (loss)		43,555			8,913			19,641			72,109
Net income (loss)	$	26,525		$	5,428		$	11,961		$	43,914
Balance Sheet Data
Average interest-earning assets	$	790,692		$	3,027,166		$	5,533,605		$	9,351,463
Allocated capital	$	338,548		$	55,974		$	222,307		$	616,829
Performance Ratios
ROE		31	%		39	%		22	%		29	%
Net interest margin		7.78	%		1.22	%		1.48	%		1.93	%
MBR margin		1.28	%		N/A			N/A			1.42	%
Efficiency ratio		21	%		3	%		5	%		15	%
Operating Data
Loan production	$	412,416		$	—		$	—		$	412,416
Loans sold	$	437,331		$	—		$	2,845		$	440,176

56

The following table provides details on the profitability for the specialty commercial loans held for investment for the periods indicated:

	Specialty Commercial Loans Held for Sale and/or Investment
							Warehouse			Commercial
	Single Spec			Subdivision			Lending			Lending			Total
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	2,852		$	15,470		$	1,778		$	34		$	20,134
Provision for loan losses		(164	)		(1,000	)		(96	)		—			(1,260	)
Gain (loss) on sale of loans		—			—			—			223			223
Service fee income		—			—			—			—			—
Gain (loss) on sale of securities		—			—			—			—			—
Other income		857			314			775			26			1,972
Net revenues (expense)		3,545			14,784			2,457			283			21,069
Variable expenses		859			2,645			—			226			3,730
Deferral of expenses under SFAS 91		(118	)		(2,148	)		—			(104	)		(2,370	)
Fixed expenses		666			3,862			1,104			1,890			7,522
Pretax income (loss)		2,138			10,425			1,353			(1,729	)		12,187
Net income (loss)	$	1,302		$	6,349		$	824		$	(1,053	)	$	7,422
Balance Sheet Data
Average interest-earning assets	$	216,142		$	1,241,967		$	298,703		$	13,728		$	1,770,540
Allocated capital	$	19,250		$	110,709		$	24,296		$	605		$	154,860
Performance Ratios
ROE		27	%		23	%		14	%		N/A			19	%
Net interest margin		5.29	%		5.00	%		2.39	%		N/A			4.56	%
Efficiency ratio		38	%		28	%		43	%		N/A			40	%
Operating Data
Loan production	$	74,433		$	472,978		$	—		$	44,787		$	592,198
Loans sold	$	—		$	—		$	—		$	—		$	—
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	3,597		$	15,809		$	728		$	—		$	20,134
Provision for loan losses		(75	)		(250	)		—			—			(325	)
Gain (loss) on sale of loans		—			—			—			—			—
Service fee income		—			—			—			—			—
Gain (loss) on sale of securities		—			—			—			—			—
Other income		744			376			433			—			1,553
Net revenues (expense)		4,266			15,935			1,161			—			21,362
Variable expenses		688			2,704			—			—			3,392
Deferral of expenses under SFAS 91		(77	)		(1,963	)		—			—			(2,040	)
Fixed expenses		435			3,289			1,122			—			4,846
Pretax income (loss)		3,220			11,905			39			—			15,164
Net income (loss)	$	1,961		$	7,250		$	24		$	—		$	9,235
Balance Sheet Data
Average interest-earning assets	$	250,906		$	1,077,306		$	94,938		$	—		$	1,423,150
Allocated capital	$	22,545		$	105,365		$	9,331		$	—		$	137,241
Performance Ratios
ROE		35	%		28	%		N/A			N/A			27	%
Net interest margin		5.75	%		5.89	%		N/A			N/A			5.67	%
Efficiency ratio		24	%		25	%		N/A			N/A			29	%
Operating Data
Loan production	$	49,711		$	530,995		$	—		$	—		$	580,706
Loans sold	$	—		$	—		$	—		$	—		$	—

57

The following table provides details on the overhead costs for the periods indicated:

				Mortgage
	Servicing			Banking			Deposit			Corporate(1)			Total Overhead
	(Dollars in thousands)
Three Months Ended June 30, 2007
Operating Results
Net interest income	$	72		$	247		$	6,145		$	(3,446	)	$	3,018
Provision for loan losses		—			—			—			—			—
Gain (loss) on sale of loans		—			—			—			—			—
Service fee income		—			—			—			566			566
Gain (loss) on sale of securities		—			—			—			—			—
Other income		864			77			1,104			42			2,087
Net revenues (expense)		936			324			7,249			(2,838	)		5,671
Variable expenses		—			—			—			—			—
Deferral of expenses under SFAS 91		—			—			—			—			—
Fixed expenses		6,557			11,263			12,752			27,752			58,324
Pretax income (loss)		(5,621	)		(10,939	)		(5,503	)		(30,590	)		(52,653	)
Net income (loss)	$	(3,423	)	$	(6,662	)	$	(3,351	)	$	(18,386	)	$	(31,822	)
Balance Sheet Data
Average interest-earning assets	$	—		$	2,470		$	173		$	417,713		$	420,356
Allocated capital	$	(587	)	$	16,783		$	1,984		$	162,869		$	181,049
Performance Ratios
ROE		N/A			N/A			N/A			N/A			N/A
Net interest margin		N/A			N/A			N/A			N/A			N/A
Efficiency ratio		N/A			N/A			N/A			N/A			N/A
Operating Data
Loan production	$	—		$	—		$	—		$	—		$	—
Loans sold	$	—		$	—		$	—		$	—		$	—
Three Months Ended June 30, 2006
Operating Results
Net interest income	$	(40	)	$	508		$	3,313		$	(2,263	)	$	1,518
Provision for loan losses		—			—			—			—			—
Gain (loss) on sale of loans		—			—			—			—			—
Service fee income		—			—			—			488			488
Gain (loss) on sale of securities		—			—			—			—			—
Other income		831			(106	)		883			(819	)		789
Net revenues (expense)		791			402			4,196			(2,594	)		2,795
Variable expenses		—			—			—			—			—
Deferral of expenses under SFAS 91		—			—			—			—			—
Fixed expenses		4,745			10,568			9,574			44,234			69,121
Pretax income (loss)		(3,954	)		(10,166	)		(5,378	)		(46,828	)		(66,326	)
Net income (loss)	$	(2,408	)	$	(6,191	)	$	(3,275	)	$	(28,821	)	$	(40,695	)
Balance Sheet Data
Average interest-earning assets	$	—		$	3,291		$	176		$	813,696		$	817,163
Allocated capital	$	13		$	10,917		$	2,154		$	229,993		$	243,077
Performance Ratios
ROE		N/A			N/A			N/A			N/A			N/A
Net interest margin		N/A			N/A			N/A			N/A			N/A
Efficiency ratio		N/A			N/A			N/A			N/A			N/A
Operating Data
Loan production	$	—		$	—		$	—		$	—		$	—
Loans sold	$	—		$	—		$	—		$	—		$	—

(1) Corporate overhead under the product profitability analysis is different from the corporate overhead under the business segment results as certain elimination items are included here.

58

TABLE 2. S&P LIFETIME LOSS ESTIMATES

One method we use to evaluate the credit quality of our production is S&P Levels model. We believe this model provides another objective, third-party method to evaluate our production. The Levels model is the oldest licensed mortgage loss model in the industry, developed and tested over various economic cycles, and one of only two models accepted by the industry for evaluating securitizations.

The following summarizes the estimated lifetime losses for mortgage production using the S&P Levels model for the periods indicated:

	Three Months Ended
	June 30, 2007			June 30, 2006			March 31, 2007
	(Dollars in millions)
Total S&P average lifetime loss estimates		0.63	%		0.84	%		0.85	%
Total S&P evaluated production	$	19,287		$	15,839		$	21,803

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

Total estimated average lifetime loss rate for the second quarter of 2007 decreased 21 basis points and 22 basis points to 0.63% from 0.84% for the second quarter of 2006 and 0.85% for the first quarter of 2007. The year-over-year decrease was due to us substantially eliminating higher LTV subprime loans and 80/20 piggyback loans from our product offerings through recent guideline cutbacks. Loss rates for other production remained roughly the same year-over-year. The loss estimates are shown to describe the relative level of credit risk in our loan production at time of origination. Because we routinely sell the vast majority of loans produced, these estimates do not reflect the amount of credit risk retained by us.

TABLE 3. PRODUCTION BY PRODUCT — FICO AND CLTV

The following table shows the average FICO and CLTV by portfolio for loans originated during the periods indicated:

	Three Months Ended
	June 30, 2007							June 30, 2006							March 31, 2007
(Dollars in millions)	Production		FICO		CLTV			Production		FICO		CLTV			Production		FICO		CLTV
Total production	$	23,023		N/A		N/A		$	20,591		N/A		N/A		$	25,930		N/A		N/A
Less:
Home equity line of credit(1)/Seconds		876		724		85	%		1,860		716		86	%		1,703		706		91	%
Reverse mortgages		1,258		N/A		57	%		1,337		N/A		53	%		1,221		N/A		54	%
Consumer construction(1)		1,084		724		74	%		1,024		724		77	%		842		722		76	%
Commercial real estate		45		N/A		67	%		—		N/A		—			1		N/A		45	%
Builder construction commitments(1)		473		N/A		70	%		531		N/A		82	%		360		N/A		75	%
Total S&P evaluated production	$	19,287		705		78	%	$	15,839		702		80	%	$	21,803		704		80	%

(1) Amounts represent total commitments.

59

TABLE 4. SFR MORTGAGE PRODUCTION AND PIPELINE BY PURPOSE

	As of and for the Three Months Ended
	June 30,			June 30,			Percent			March 31,			Percent
	2007			2006			Change			2007			Change
	(Dollars in millions)
Production and Pipeline by Purpose:
SFR mortgage loan production:
Purchase transactions	$	7,285		$	8,284			(12	)%	$	9,274			(21	)%
Cash-out refinance transactions		10,577			9,373			13	%		11,226			(6	)%
Rate/term refinance transactions		4,643			2,403			93	%		5,069			(8	)%
Total single-family mortgage production	$	22,505		$	20,060			12	%	$	25,569			(12	)%
% purchase and cash-out refinance transactions		79	%		88	%					80	%
Mortgage industry market share		3.07	%		2.67	%		15	%		3.90	%		(21	)%
Mortgage pipeline:
Purchase transactions	$	5,003		$	4,459			12	%	$	5,278			(5	)%
Cash-out refinance transactions		4,848			4,062			19	%		5,054			(4	)%
Rate/term refinance transactions		2,979			1,492			100	%		2,512			19	%
Total specific rate locks		12,830			10,013			28	%		12,844			0	%
Non-specific rate locks on bulk purchases		546			2,514			(78	)%		3,268			(83	)%
Total pipeline at period end(1)	$	13,376		$	12,527			7	%	$	16,112			(17	)%

(1) Total pipeline of loans in process includes rate lock commitments we have provided on loans that are specifically identified or non-specific bulk packages, and loan applications we have received for which the borrower has not yet locked in the interest rate commitment. Non-specific bulk packages represent pools of loans we have committed to purchase, where the pool characteristics are specified but the actual loans are not.

TABLE 5. SFR MORTGAGE PRODUCTION BY AMORTIZATION TYPE

	Three Months Ended
	June 30,			June 30,			March 31,
	2007			2006			2007
SFR Mortgage Production by Amortization Type:
Fixed-rate mortgages		24	%		20	%		25	%
Intermediate term fixed-rate loans		7	%		7	%		7	%
Interest-only loans		47	%		37	%		47	%
Pay option ARMs		11	%		21	%		11	%
Other ARMs		11	%		15	%		10	%
		100	%		100	%		100	%

60

TABLE 6. SFR MORTGAGE PRODUCTION BY GEOGRAPHIC DISTRIBUTION

	Three Months Ended
	June 30,			June 30,			March 31,
	2007			2006			2007
Geographic distribution:
California		45	%		44	%		45	%
Florida		8	%		9	%		8	%
New York		7	%		6	%		6	%
New Jersey		4	%		4	%		4	%
Arizona		3	%		3	%		3	%
Other		33	%		34	%		34	%
Total		100	%		100	%		100	%

TABLE 7. MBR MARGIN

The following table shows a reconciliation of gross MBR margin to net MBR margin in basis points for the periods indicated:

																			Production
													Secondary			Total			Credit			Net MBR
								MBR		Net HFS			Market			Production			Costs/MBR			After		FAS 91
			Gross		Pipeline			After		Credit			Reserve			Credit			After			Production		Deferred			Net MBR
(In Basis Points Unless Otherwise Noted)	Loans Sold		MBR		Hedging			Hedging(a)		Losses			Accrual			Costs(b)			Hedging (b/a)			Credit Costs		Cost			Reported
Quarter ended	(In millions)
June 30, 2007		20,194		91		40			131		(18	)		(12	)		(30	)		23	%		101		(21	)		80
June 30, 2006		19,415		196		(29	)		167		(13	)		(6	)		(19	)		12	%		148		(25	)		123
March 31, 2007		24,537		112		(1	)		111		(10	)		(13	)		(23	)		21	%		88		(20	)		68

TABLE 8. SERVICING FEE INCOME

The components of service fee income for the Company are as follows:

	Three Months Ended
	June 30,			BPS			June 30,			BPS			March 31,			BPS
	2007			UPB			2006			UPB			2007			UPB
	(Dollars in thousands)
Service fee income:
Gross service fee income	$	182,175			45		$	117,787			45		$	164,875			45
Change in value due to portfolio run-off		(106,003	)		(26	)		(88,261	)		(34	)		(117,781	)		(32	)
Service fee income, net of change in value due to portfolio run-off		76,172			19			29,526			11			47,094			13
Change in value due to application of external benchmarking policies		3,920			1			(12,289	)		(5	)		—			—
Valuation adjustment due to market changes		218,739			54			76,670			30			30,840			8
Loss on financial instruments used to hedge MSRs		(213,213	)		(53	)		(66,660	)		(26	)		(28,747	)		(8	)
Total service fee income	$	85,618			21		$	27,247			10		$	49,187			13

61

	Six Months Ended
	June 30,			BPS			June 30,			BPS
	2007			UPB			2006			UPB
	(Dollars in thousands)
Service fee income:
Gross service fee income	$	347,050			45		$	215,980			45
Change in value due to portfolio run-off		(223,784	)		(29	)		(156,419	)		(33	)
Service fee income, net of change in value due to portfolio run-off		123,266			16			59,561			12
Change in value due to application of external benchmarking policies		3,920			1			(15,860	)		(3	)
Valuation adjustment due to market changes		249,579			32			160,724			33
Loss on financial instruments used to hedge MSRs		(241,960	)		(31	)		(146,289	)		(30	)
Total service fee income	$	134,805			18		$	58,136			12

TABLE 9. MORTGAGE SERVICING RIGHTS ROLLFORWARD

The following table provides additional information on our activities in MSRs:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
Balance at beginning of period	$	2,052,822		$	1,354,433		$	1,822,455		$	1,822,455		$	1,094,490
Cumulative-effect adjustment due to change in accounting for MSRs		—			—			—			—			17,561
Net additions from loan sale or securitization		272,260			268,515			319,663			591,923			498,572
Purchase or assumption		2,268			27			—			2,268			27
Transfers to AAA-rated and agency interest-only and residual securities		(56,040	)		—			—			(56,040	)		—
Transfers due to clean-up calls and other		(889	)		(274	)		(2,355	)		(3,244	)		(274	)
Change in fair value due to run-off		(106,003	)		(88,261	)		(117,781	)		(223,784	)		(156,419	)
Change in fair value due to market changes		218,739			76,670			30,840			249,579			160,724
Change in fair value due to application of external benchmarking policies		3,920			(12,289	)		—			3,920			(15,860	)
Balance at end of period	$	2,387,077		$	1,598,821		$	2,052,822		$	2,387,077		$	1,598,821
MSRs as basis points of unpaid principal balance		142			145			131			142			145

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TABLE 10. GAIN (LOSS) ON MORTGAGE-BACKED SECURITIES

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

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
Net (loss) gain on securities:
Realized loss on available for sale securities	$	—		$	—		$	(486	)	$	(486	)	$	—
Impairments on available for sale securities		—			(1,501	)		(2,057	)		(2,057	)		(1,936	)
Unrealized (loss) gain on prepayment penalty securities		(21,658	)		10,909			(2,204	)		(23,862	)		4,657
Unrealized gain on late fee securities		582			—			—			582			—
Unrealized (loss) gain on AAA-rated and agency interest-only and residual securities		(1,584	)		5,566			(1,145	)		(2,729	)		11,850
Net (loss) gain on trading securities and other instruments used to hedge AAA-rated and agency interest-only and residual securities		(23,687	)		(6,716	)		545			(23,142	)		(8,928	)
Total (loss) gain on securities, net	$	(46,347	)	$	8,258		$	(5,347	)	$	(51,693	)	$	5,643

Loss on securities reached $46.3 million for the second quarter of 2007. This is primarily the result of a slower prepayment rate during the period affecting the value of prepayment penalty securities and higher expected credit losses affecting the value of non-investment grade and residual securities.

TABLE 11. UNREALIZED GAINS AND LOSSES OF SECURITIES AVAILABLE FOR SALE

The following table summarizes the unrealized gains and losses of securities available for sale as of dates indicated:

	June 30,			June 30,			March 31,
	2007			2006			2007
	(Dollars in thousands)
Amortized cost	$	4,564,495		$	4,363,388		$	4,643,722
Gross unrealized holding gains		3,984			2,685			18,326
Gross unrealized holding losses		(68,572	)		(84,584	)		(39,883	)
Estimated fair value	$	4,499,907		$	4,281,489		$	4,622,165

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

	As of June 30, 2007
	Less Than 12 Months					12 Months or Greater					Total
	Unrealized					Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
	(Dollars in thousands)
Securities — available for sale:
AAA-rated non-agency securities	$	(12,904	)	$	1,941,701	$	(47,430	)	$	1,390,385	$	(60,334	)	$	3,332,086
AAA-rated agency securities		(1,160	)		23,644		(348	)		14,606		(1,508	)		38,250
Other investment grade securities		(3,947	)		245,763		(959	)		27,763		(4,906	)		273,526
Residual securities		(1,824	)		9,172		—			—		(1,824	)		9,172
Total securities — available for sale	$	(19,835	)	$	2,220,280	$	(48,737	)	$	1,432,754	$	(68,572	)	$	3,653,034

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As of June 30, 2007, the available for sale securities that have been in unrealized loss position for 12 months or more are primarily related to AAA-rated securities issued by private institutions. These unrealized losses are primarily attributable to changes in interest rates. Because the Company has the ability and the intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2007.

TABLE 12. OTHER INVESTMENT GRADE AND NON-INVESTMENT GRADE MORTGAGE-BACKED SECURITIES

The fair values of other investment grade and non-investment grade mortgage-backed securities by credit ratings follows:

										December 31,
	June 30, 2007									2006
	Current		Net Discount
	Face		to Face			Amortized
	Value		Value			Cost		Fair Value		Fair Value
	(Dollars in thousands)
Other investment grade mortgage-backed securities:
AA+	$	7,445	$	(63	)	$	7,382	$	7,402	$	7,513
AA		277,020		(3,053	)		273,967		271,638		86,311
AA−		13,977		(337	)		13,640		13,674		14,138
A+		4,000		(8	)		3,992		4,000		—
A		113,951		(5,171	)		108,780		108,084		2,160
A−		13,650		(28	)		13,622		13,769		—
BBB+		1,810		(156	)		1,654		1,654		—
BBB		87,005		(10,496	)		76,509		75,848		20,734
BBB−		77,368		(6,678	)		70,690		70,516		58,397
Total other investment grade mortgage-backed securities	$	596,226	$	(25,990	)	$	570,236	$	566,585	$	189,253
Non-investment grade mortgage-backed securities:
BB+	$	41,168	$	(9,131	)	$	32,037	$	32,037	$	7,299
BB		140,437		(33,329	)		107,108		107,528		49,856
BB−		27,016		(2,980	)		24,036		24,036		21,170
B		47,297		(33,221	)		14,076		14,644		1,442
CCC+		1,851		(1,430	)		421		421		—
CCC		4,852		(3,860	)		991		991		—
C		579		(554	)		25		25		—
Other		34,266		(30,832	)		3,434		3,641		407
Total other non-investment grade mortgage-backed securities	$	297,466	$	(115,337	)	$	182,128	$	183,323	$	80,174

At June 30, 2007, other investment grade and non-investment grade mortgage-backed securities totaled $749.9 million, of which 84% were collateralized by prime loans and 16% were collateralized by subprime loans.

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TABLE 13. OTHER RETAINED ASSETS

The carrying value of AAA-rated and agency interest-only, principal-only, prepayment penalty, residual and non-investment grade securities is evaluated by discounting estimated net future cash flows. For these securities, estimated net future cash flows are primarily based on assumptions related to prepayment speeds, in addition to expected credit loss assumptions on the residual securities. The models used for estimation are periodically tested against historical prepayment speeds and our valuations are benchmarked to external sources, where available. We also may retain certain other investment grade securities from our securitizations and to a lesser extent purchase from third parties to serve as hedges for our AAA-rated and agency interest-only securities. A summary of the activity of the retained assets follows:

	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
AAA-rated and agency interest-only and other investment grade securities:
Beginning balance	$	375,434		$	230,315		$	262,823		$	262,823		$	170,851
Retained investments from securitizations		233,375			25,808			59,190			292,565			45,805
Purchases		60,048			23,974			58,799			118,847			64,997
Transfer from MSRs		56,040			—			—			56,040			—
Transfer to non-investment-grade securities		(4,163	)		—			(1,439	)		(5,602	)		—
Impairments		—			—			(182	)		(182	)		(183	)
Sales		(16,644	)		(22,939	)		—			(16,644	)		(22,939	)
Clean-up calls exercised		—			(107	)		—			—			(107	)
Cash received, net of accretion		(6,097	)		(8,541	)		(7,072	)		(13,169	)		(15,571	)
Valuation gains before hedges		4,859			3,808			3,315			8,174			9,465
Ending balance	$	702,852		$	252,318		$	375,434		$	702,852		$	252,318
Principal-only securities:
Beginning balance	$	55,977		$	12,820		$	38,478		$	38,478		$	9,483
Retained investments from securitizations		1,118			3,445			2,637			3,755			7,669
Purchases		17,733			121,281			14,925			32,658			121,281
Cash received, net of accretion		(785	)		(1,981	)		(364	)		(1,149	)		(1,974	)
Valuation (losses) gains before hedges		(4,916	)		(5,614	)		301			(4,615	)		(6,508	)
Ending balance	$	69,127		$	129,951		$	55,977		$	69,127		$	129,951
Prepayment penalty securities:
Beginning balance	$	93,106		$	66,949		$	97,576		$	97,576		$	75,741
Retained investments from securitizations		9,883			13,466			8,105			17,988			22,057
Transfer from MSRs/residual securities		1,076			—			163			1,239			—
Cash received, net of accretion		(6,677	)		(11,288	)		(10,534	)		(17,211	)		(22,419	)
Valuation (losses) gains before hedges		(21,658	)		10,909			(2,204	)		(23,862	)		4,657
Ending balance	$	75,730		$	80,036		$	93,106		$	75,730		$	80,036
Late fee securities:
Beginning balance	$	—		$	—		$	—		$	—		$	—
Retained investments from securitizations		12,175			—			—			12,175			—
Transfer from MSRs		135			—			—			135			—
Cash received, net of accretion		(9	)		—			—			(9	)		—
Valuation gains before hedges		582			—			—			582			—
Ending balance	$	12,883		$	—		$	—		$	12,883		$	—
Non-Investment-grade securities:
Beginning balance	$	110,204		$	66,339		$	80,173		$	80,173		$	57,712
Retained investments from securitizations		65,908			22,232			25,911			91,819			30,881
Purchases		9,758			—			1,827			11,585			—
Transfer from investment-grade securities		4,163			—			1,439			5,602			—
Impairments		—			(202	)		(103	)		(103	)		(454	)
Cash received, net of accretion		(969	)		(111	)		843			(126	)		96
Valuation (losses) gain before hedges		(5,741	)		(213	)		114			(5,627	)		(190	)
Ending balance	$	183,323		$	88,045		$	110,204		$	183,323		$	88,045

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	Three Months Ended									Six Months Ended
	June 30,			June 30,			March 31,			June 30,			June 30,
	2007			2006			2007			2007			2006
	(Dollars in thousands)
Residual securities(1):
Beginning balance	$	270,831		$	205,128		$	250,573		$	250,573		$	167,771
Retained investments from securitizations, net(2)		13,397			43,933			23,707			37,104			85,809
Transfer to prepayment penalty securities		(1,076	)		—			—			(1,076	)		—
Transfer due to clean-up calls and other		—			—			(5,615	)		(5,615	)		—
Impairments		—			(1,300	)		(1,770	)		(1,770	)		(1,300	)
Clean-up calls exercised		(2,106	)		—			—			(2,106	)		—
Cash received, net of accretion		(7,565	)		(3,255	)		6,864			(701	)		(9,304	)
Valuation losses before hedges		(13,609	)		(3,984	)		(2,928	)		(16,537	)		(2,454	)
Ending balance	$	259,872		$	240,522		$	270,831		$	259,872		$	240,522

(1)	Included in the residual securities balance at June 30, 2007 were $9.2 million of HELOC residuals retained from two separate guaranteed mortgage securitization transactions. There was no gain on sale of loans recognized in connection with these transactions.
(2)	Amounts retained consist of 82% in subprime loans and 18% in HELOCs for the three months ended June 30, 2007.

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TABLE 14. VALUATION OF MSRs, INTEREST-ONLY, PREPAYMENT PENALTY, AND RESIDUAL SECURITIES

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

	Actual															Valuation Assumptions
					Gross Wtd.			Servicing			3-Month			Weighted		Lifetime			3-Month						Remaining
	Book		Collateral		Average			Fee/Interest			Prepayment			Average		Prepayment			Prepayment			Discount			Cumulative
	Value		Balance		Coupon			Strip			Speeds			Multiple		Speeds			Speeds			Yield			Loss Rate(1)
	(Dollars in thousands)
June 30, 2007
MSRs	$	2,387,077	$	167,710,148		7.06	%		0.35	%		17.7	%		4.12		20.6	%		19.1	%		8.7	%		N/A
AAA-rated interest-only securities	$	136,267	$	5,860,016		6.57	%		0.74	%		17.5	%		3.14		19.6	%		18.5	%		12.7	%		N/A
Prepayment penalty securities	$	75,730	$	20,181,683		7.36	%		N/A			14.9	%		N/A		23.4	%		23.2	%		17.3	%		N/A
Lot loan residual securities		67,398	$	2,021,954		9.64	%		4.14	%		36.7	%		0.81		41.3	%		39.7	%		23.4	%		0.73	%
HELOC residual securities		90,150	$	2,898,580		9.58	%		2.64	%		38.0	%		1.18		43.3	%		43.3	%		20.8	%		1.85	%
Closed-end seconds residual securities		28,303	$	2,260,980		10.56	%		4.78	%		14.7	%		0.26		20.3	%		23.8	%		23.7	%		9.86	%
Subprime residual securities		74,021	$	5,570,118		8.17	%		1.91	%		25.1	%		0.69		29.9	%		24.5	%		22.3	%		6.31	%
Total non-investment grade residual securities	$	259,872
June 30, 2006
MSRs	$	1,598,821	$	109,988,858		6.70	%		0.37	%		18.5	%		3.98		22.1	%		20.5	%		10.2	%		N/A
AAA-rated interest-only securities	$	64,373	$	4,512,539		6.61	%		0.41	%		12.6	%		3.47		13.5	%		16.4	%		15.0	%		N/A
Prepayment penalty securities	$	80,036	$	16,388,466		6.79	%		N/A			22.9	%		N/A		21.1	%		19.3	%		27.9	%		N/A
Lot loan residual securities		58,779	$	2,266,191		8.46	%		2.82	%		34.0	%		0.92		40.0	%		38.2	%		22.7	%		0.53	%
HELOC residual securities		87,434	$	2,299,992		9.02	%		3.01	%		48.9	%		1.26		49.7	%		48.2	%		19.4	%		0.69	%
Closed-end seconds residual securities		13,030	$	672,065		10.17	%		4.22	%		N/A			0.46		35.0	%		19.9	%		25.3	%		6.90	%
Subprime residual securities		81,279	$	5,987,129		7.67	%		1.44	%		28.5	%		0.94		38.4	%		32.4	%		25.0	%		4.77	%
Total non-investment grade residual securities	$	240,522
March 31, 2007
MSRs	$	2,052,822	$	156,144,082		7.09	%		0.36	%		18.4	%		3.63		26.3	%		25.2	%		8.1	%		N/A
AAA-rated interest-only securities	$	74,720	$	6,152,269		6.63	%		0.50	%		21.1	%		2.43		21.6	%		21.2	%		12.5	%		N/A
Prepayment penalty securities	$	93,106	$	20,887,449		7.54	%		N/A			16.3	%		N/A		27.7	%		21.1	%		23.1	%		N/A
Lot loan residual securities		65,186	$	2,201,884		9.34	%		3.74	%		30.8	%		0.79		40.3	%		37.8	%		23.4	%		0.66	%
HELOC residual securities		107,985	$	3,377,932		9.41	%		3.28	%		38.5	%		0.97		47.3	%		45.7	%		20.3	%		1.54	%
Closed-end seconds residual securities		21,001	$	2,358,518		10.51	%		4.43	%		15.3	%		0.20		37.7	%		26.0	%		23.7	%		8.13	%
Subprime residual securities		76,659	$	5,707,589		7.96	%		1.41	%		29.1	%		0.95		32.1	%		25.9	%		22.2	%		6.25	%
Total non-investment grade residual securities	$	270,831

(1) As a percentage of the original pool balance, the actual cumulative loss rate to date totaled 0.79%, 0.93% and 0.62% for HELOC, closed-end seconds and subprime loans, respectively, at June 30, 2007. Loss incurred on lot loans as of June 30, 2007 was less than 0.003%.

The lifetime prepayment speeds represent the annual constant prepayment rate (“CPR”) estimated for the remaining life of the collateral supporting the asset. The prepayment rates are projected using a prepayment model developed by a third-party vendor and calibrated for our collateral. The model considers key factors, such as refinance incentive, housing turnover, seasonality and aging of the pool of loans. Prepayment speeds incorporate

67

expectations of future rates implied by the market forward LIBOR/swap curve, as well as collateral specific current coupon information.

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

Beginning in the fourth quarter of 2006, the calculation of remaining cumulative loss rate changed to using the remaining lifetime loss projection divided by current collateral balance. All prior periods have been adjusted to reflect such change.

The prepayment penalty securities are used as hedges of MSRs. The value of prepayment penalty securities generally rises in a declining rate environment due to higher prepayment activities, which typically mitigates a decline in MSR value attendant to faster prepayments. As of June 30, 2007, as a percent of the underlying collateral, the value of prepayment penalty securities was 38 basis points, down from 49 basis points and 45 basis points at June 30, 2006 and March 31, 2007, respectively, as a result of a rising interest rate environment and consequently lower prepayment assumptions.

TABLE 15. DEPOSITS BY CHANNEL AND CATEGORY

The following table shows our deposits by channel as of periods indicated:

	June 30, 2007					June 30, 2006					December 31, 2006
			% of					% of					% of
			Total					Total					Total
	Amount		Deposits			Amount		Deposits			Amount		Deposits
						(Dollars in thousands)
Deposit Channel
Branch	$	6,025,269		51	%	$	4,206,638		45	%	$	5,211,365		48	%
Internet		1,186,452		10	%		1,004,474		11	%		1,185,423		11	%
Telebanking		1,421,553		12	%		1,171,650		13	%		1,290,595		12	%
Money desk		2,358,802		20	%		2,351,336		25	%		2,593,719		24	%
Custodial		754,578		7	%		617,773		6	%		616,904		5	%
Total deposits	$	11,746,654		100	%	$	9,351,871		100	%	$	10,898,006		100	%

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

	June 30, 2007					June 30, 2006					December 31, 2006
	Amount		Rate			Amount		Rate			Amount		Rate
						(Dollars in thousands)
Deposit Category
Non-interest-bearing checking	$	78,362		0.0	%	$	68,988		0.0	%	$	72,081		0.0	%
Interest-bearing checking		51,270		1.2	%		53,113		1.2	%		54,844		1.2	%
Savings		2,348,224		4.9	%		1,606,540		4.5	%		1,915,333		5.0	%
Custodial accounts		754,578		0.0	%		617,773		0.0	%		616,904		0.0	%
Total core deposits		3,232,434		3.6	%		2,346,414		3.1	%		2,659,162		3.6	%
Certificates of deposit		8,514,220		5.1	%		7,005,457		4.7	%		8,238,844		5.2	%
Total deposits	$	11,746,654		4.7	%	$	9,351,871		4.3	%	$	10,898,006		4.8	%

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to “Sensitivity to Market Risk” on page 42 as well as Item 1A included on page 79 for quantitative and qualitative disclosure about market risk.

ITEM 4.   CONTROLS AND PROCEDURES

The management of Indymac is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15 and 15d-15 of Securities Exchange Act of 1934. As of June 30, 2007, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Indymac’s disclosure controls and procedures. Based on that evaluation, management concluded that Indymac’s disclosure controls and procedures as of June 30, 2007 were effective in ensuring that information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported within the time period required by the SEC’s rules and forms.

There have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect the Company’s disclosure of controls and procedures subsequent to June 30, 2007.

69

ITEM 1.   FINANCIAL STATEMENTS

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	June 30,			December 31,
	2007			2006
	(Unaudited)
ASSETS
Cash and cash equivalents	$	617,689		$	541,725
Securities classified as trading		1,107,988			542,731
Securities classified as available for sale		4,499,907			4,900,514
Loans held for sale		11,762,167			9,467,843
Loans held for investment, net of allowance for loan losses of $76,856 and $62,386, respectively		8,570,708			10,114,823
Mortgage servicing rights		2,387,077			1,822,455
Other assets held for sale		54,785			—
Other assets		2,658,613			2,105,225
Total assets	$	31,658,934		$	29,495,316
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	11,746,654		$	10,898,006
Advances from Federal Home Loan Bank		10,872,800			10,412,800
Other borrowings		4,527,536			4,637,000
Other liabilities		1,970,512			1,519,242
Total liabilities		29,117,502			27,467,048
Perpetual preferred stock in subsidiary		491,000			—
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 102,137,187 shares and 102,258,939 shares at June 30, 2007 and December 31, 2006, respectively		1,021			1,023
Additional paid-in-capital		1,595,333			1,597,814
Accumulated other comprehensive loss		(47,323	)		(31,439	)
Retained earnings		1,007,057			983,348
Treasury stock		(505,656	)		(522,478	)
Total shareholders’ equity		2,050,432			2,028,268
Total liabilities and shareholders’ equity	$	31,658,934		$	29,495,316

The accompanying notes are an integral part of these financial statements.

70

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(Dollars in thousand, except per share data)

	For the Three Months					For the Six Months
	Ended June 30,					Ended June 30,
	2007			2006		2007			2006
Interest income
Mortgage-backed and other securities	$	95,537		$	80,998	$	187,816		$	147,481
Loans held for sale		289,262			181,079		541,419			354,640
Loans held for investment		153,350			139,451		325,743			267,357
Other		16,328			10,683		32,176			20,579
Total interest income		554,477			412,211		1,087,154			790,057
Interest expense
Deposits		138,618			92,840		270,685			167,083
Advances from Federal Home Loan Bank		184,175			110,468		358,704			214,077
Other borrowings		82,440			78,749		173,451			151,533
Total interest expense		405,233			282,057		802,840			532,693
Net interest income		149,244			130,154		284,314			257,364
Provision for loan losses		17,204			2,230		27,891			6,052
Net interest income after provision for loan losses		132,040			127,924		256,423			251,312
Non-interest income
Gain on sale of loans		101,030			201,659		218,573			342,858
Service fee income		85,618			27,247		134,805			58,136
Loss (gain) on mortgage-backed securities		(46,347	)		8,258		(51,694	)		5,643
Fee and other income		25,413			12,002		41,729			23,676
Total non-interest income		165,714			249,166		343,413			430,313
Net revenues		297,754			377,090		599,836			681,625
Non-interest expense		224,455			203,814		440,635			375,714
Earnings before provision for income taxes and minority interests		73,299			173,276		159,201			305,911
Provision for income taxes		28,660			67,960		62,180			120,279
Net earnings before minority interests		44,639			105,316		97,021			185,632
Minority interests		—			657		—			1,124
Net earnings	$	44,639		$	104,659	$	97,021		$	184,508
Earnings per share:
Basic	$	0.62		$	1.57	$	1.34		$	2.82
Diluted	$	0.60		$	1.49	$	1.31		$	2.68
Weighted-average shares outstanding:
Basic		72,412			66,483		72,355			65,402
Diluted		73,976			70,213		74,140			68,870
Dividends declared per share	$	0.50		$	0.46	$	1.00		$	0.90

The accompanying notes are an integral part of these financial statements.

71

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

										Accumulated
							Additional			Other									Total
	Shares			Common			Paid-In-			Comprehensive			Retained			Treasury			Shareholders’
	Outstanding			Stock			Capital			Loss			Earnings			Stock			Equity
Balance at December 31, 2005		64,246,767		$	934		$	1,318,751		$	(15,157	)	$	759,330		$	(520,417	)	$	1,543,441
Comprehensive income:
Net earnings		—			—			—			—			184,508			—			184,508
Other comprehensive income (loss), net of tax:
Net unrealized loss on mortgage-backed securities available for sale		—			—			—			(25,168	)		—			—			(25,168	)
Net unrealized gain on derivatives used in cash flow hedges		—			—			—			15,484			—			—			15,484
Total comprehensive income		—			—			—			—			—			—			174,824
Cumulative-effect adjustment due to change in accounting for MSRs		—			—			—			—			10,624			—			10,624
Issuance of common stock		1,747,675			18			73,408			—			—			—			73,426
Exercises of common stock options		641,310			6			17,789			—			—			—			17,795
Exercises of warrants		1,653,898			17			36,269			—			—			—			36,286
Compensation expense for common stock options		—			—			4,963			—			—			—			4,963
Net officers’ notes receivable payments		—			—			82			—			—			—			82
Deferred compensation and restricted stock amortization, net of forfeitures		380,959			4			4,647			—			—			—			4,651
Purchases of common stock		(50,401	)		—			—			—			—			(2,006	)		(2,006	)
Cash dividends		—			—			—			—			(59,905	)		—			(59,905	)
Balance at June 30, 2006		68,620,208		$	979		$	1,455,909		$	(24,841	)	$	894,557		$	(522,423	)	$	1,804,181
Balance at December 31, 2006		73,017,356		$	1,023		$	1,597,814		$	(31,439	)	$	983,348		$	(522,478	)	$	2,028,268
Comprehensive income:
Net earnings		—			—			—			—			97,021			—			97,021
Other comprehensive income (loss), net of tax:
Net unrealized loss on mortgage-backed securities available for sale		—			—			—			(20,874	)		—			—			(20,874	)
Net unrealized gain on derivatives used in cash flow hedges		—			—			—			81			—			—			81
Change in post retirement benefit plan		—			—			—			4,909			—			—			4,909
Total comprehensive income		—			—			—			—			—			—			81,137
Exercises of common stock options		143,415			—			—			—			—			3,540			3,540
Exercises of warrants		63,888			1			1,405			—			—			—			1,406
Compensation expense for common stock options		—			—			4,384			—			—			—			4,384
Net officers’ notes receivable payments		—			—			306			—			—			—			306
Deferred compensation and restricted stock amortization, net of forfeitures		479,557			(3	)		(8,576	)		—			—			14,776			6,197
Purchases of common stock		(39,573	)		—			—			—			—			(1,494	)		(1,494	)
Cash dividends		—			—			—			—			(73,312	)		—			(73,312	)
Balance at June 30, 2007		73,664,643		$	1,021		$	1,595,333		$	(47,323	)	$	1,007,057		$	(505,656	)	$	2,050,432

The accompanying notes are an integral part of these financial statements.

72

INDYMAC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	For the Six Months
	Ended June 30,
	2007			2006
Cash flows from operating activities:
Net earnings	$	97,021		$	184,508
Adjustments to reconcile net earnings to net cash used in operating activities:
Gain on sale of loans		(218,573	)		(342,858	)
Compensation expense related to stock options and restricted stocks		10,581			9,614
Other amortization and depreciation		75,005			31,058
Change in valuation of mortgage servicing rights, including amortization		(29,715	)		11,554
Loss (gain) on mortgage-backed securities, net		51,694			(5,643	)
Provision for loan losses		27,891			6,052
Provision for deferred income taxes		62,180			158,111
Net (increase) decrease in other assets and liabilities		(82,685	)		69,275
Net cash (used in) provided by operating activities before activity for trading securities and loans held for sale		(6,601	)		121,671
Net sales of trading securities		(236,436	)		32,242
Net purchases and originations of loans held for sale		(2,778,764	)		(2,333,293	)
Net cash used in operating activities		(3,021,801	)		(2,179,380	)
Cash flows from investing activities:
Net sales of and payments from loans held for investment		987,763			319,827
Purchases of mortgage-backed securities available for sale		(428,851	)		(377,157	)
Proceeds from sales of and principal payments from mortgage-backed securities available for sale		1,055,544			384,915
Net increase in investment in Federal Home Loan Bank stock, at cost		(36,708	)		(22,475	)
Net decrease in real estate investment		1,843			702
Net purchases of property, plant and equipment		(41,780	)		(47,654	)
Net cash provided by investing activities		1,537,811			258,158
Cash flows from financing activities:
Net increase in deposits		847,296			1,678,082
Net increase in advances from Federal Home Loan Bank		460,000			116,800
Net decrease in borrowings		(150,520	)		(306,685	)
Net proceeds from issuance of common stock		—			73,426
Net proceeds from issuance of trust preferred securities		30,000			90,000
Redemption of trust preferred securities		(48,268	)		—
Net proceeds from stock options, warrants and notes receivable		5,252			54,163
Proceeds from issuance of preferred stock by subsidiary		491,000			—
Cash dividends paid		(73,312	)		(59,905	)
Purchases of common stock		(1,494	)		(2,006	)
Net cash provided by financing activities		1,559,954			1,643,875
Net increase (decrease) in cash and cash equivalents		75,964			(277,347	)
Cash and cash equivalents at beginning of period		541,725			442,525
Cash and cash equivalents at end of period	$	617,689		$	165,178
Supplemental cash flow information:
Cash paid for interest	$	666,777		$	517,197
Cash paid (received) for income taxes	$	996		$	(48,905	)
Supplemental disclosure of non-cash investing and financing activities:
Net transfer of loans held for sale to loans held for investment	$	588,965		$	840,902
Net transfer of mortgage servicing rights to trading securities	$	56,338		$	—

The accompanying notes are an integral part of these financial statements.

73

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Indymac Bancorp and all of its wholly-owned and majority-owned subsidiaries, including IndyMac Bank, F.S.B. (“Indymac Bank”) and variable interest entities. All significant intercompany balances and transactions with Indymac’s consolidating subsidiaries have been eliminated in consolidation. Minority interests and perpetual preferred stock in Indymac’s majority-owned subsidiaries or variable interest entities are reported separately on the consolidated balance sheets and consolidated statements of earnings.

The consolidated financial statements of Indymac are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the Securities and Exchange Commission’s instructions on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods have been included. Certain prior year amounts have been reclassified to conform to the current year presentation.

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results may differ from those estimates. Operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in Indymac’s 2006 10-K.

NOTE 2 — ACQUISITION

On April 1, 2007, the Company executed its definitive agreement with New York Mortgage Trust, Inc. to purchase certain assets of the retail mortgage banking business of its wholly-owned taxable REIT subsidiary, The New York Mortgage Company, LLC (“NYMC”), for a purchase price of approximately $13.4 million, which includes an $8 million premium to the net book value of assets acquired. The Company purchased substantially all of the operating assets related to NYMC’s retail mortgage banking platform, including the use of The New York Mortgage Company name, and assumed certain liabilities of NYMC’s retail platform, including certain lease liabilities and obligations under the pipeline of loan applications. The Company hired a majority of NYMC employees and assumed a portion of the retention and severance expenses associated with the transaction.

NOTE 3 — NEWLY ADOPTED AND NEW ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted this Statement on January 1, 2007. The Company has an uncertain income tax position for its claimed research and development tax credits, filed in 2006 for $1.5 million for the year 2002, and for additional credits to which it may be entitled for subsequent years. Management has determined the research and development tax credits do not meet the more-likely-than-not recognition threshold under FIN 48 and no tax benefit has been recognized in the Company’s financial statements. The Company recognizes interest and penalties in other expense.

74

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under U.S. GAAP. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective prospectively for fiscal years beginning after November 15, 2007. The Company will adopt SFAS 157 on January 1, 2008, and is assessing the impact of the adoption of this Statement.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 would allow the Company an irrevocable election to measure certain financial assets and liabilities at fair value, with unrealized gains and losses on the elected items recognized in earnings at each reporting period. The fair value option may only be elected at the time of initial recognition of a financial asset or financial liability or upon the occurrence of certain specified events. The election is applied on an instrument by instrument basis, with a few exceptions, and is applied only to entire instruments and not to portions of instruments. SFAS 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. SFAS 159 is effective prospectively for fiscal years beginning after November 15, 2007. The Company is currently evaluating this Statement and has not yet determined the financial assets and liabilities, if any, for which the fair value option would be elected or the potential impact on the consolidated financial statements, if such election were made.

In April 2007, the FASB issued FSP No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP 39-1”). FSP 39-1 amends FIN No. 39, “Offsetting of Amounts Related to Certain Contracts” (“FIN 39”), to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with FIN 39. FSP 39-1 also amends FIN 39 for certain terminology modifications. FSP 39-1 is effective for fiscal years beginning after November 15, 2007, with early application permitted, and is applied retrospectively as a change in accounting principle for all financial statements presented. Upon adoption of FSP 39-1, the Company is permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. The Company is currently evaluating FSP 39-1 and has not yet determined the effect the adoption of FSP 39-1 will have on the consolidated financial statements.

NOTE 4 — SEGMENT REPORTING

The Company operates through two primary segments: mortgage banking and thrift. For more information regarding each segment as well as the accounting methodology used for reporting segment financial results, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Business Segment Results” on page 8. Commercial mortgage banking, mortgage banking overhead, elimination and other, and corporate overhead costs, such as corporate salaries and related expenses, excess capital and non-recurring corporate items not allocated to the operating channels, are included in the “Other” column in the tables below.

75

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segment information for the three and six months ended June 30, 2007 and 2006 follows:

	Mortgage Banking
	Production			Mortgage									Total
	Divisions			Servicing			Thrift			Other			Company
	(Dollars in thousands)
Three months ended June 30, 2007
Net interest income (expense)	$	61,347		$	(7,414	)	$	71,699		$	23,612		$	149,244
Net revenues (expense)		175,646			73,127			53,232			(4,251	)		297,754
Net earnings (loss)		38,308			31,908			15,495			(41,072	)		44,639
Allocated average capital		735,268			348,360			897,521			96,425			2,077,574
Assets as of June 30, 2007	$	9,559,141		$	4,170,909		$	16,560,383		$	1,368,501		$	31,658,934
Return on equity		21	%		37	%		7	%		N/A			9	%
Three months ended June 30, 2006
Net interest income (expense)	$	37,650		$	(221	)	$	76,780		$	15,945		$	130,154
Net revenues (expense)		234,117			43,824			99,711			(562	)		377,090
Net earnings (loss)		85,638			19,612			43,258			(43,849	)		104,659
Allocated average capital		521,875			253,768			776,126			190,468			1,742,237
Assets as of June 30, 2006	$	5,418,369		$	2,474,469		$	14,683,064		$	1,180,540		$	23,756,442
Return on equity		66	%		31	%		22	%		N/A			24	%
Six months ended June 30, 2007
Net interest income (expense)	$	111,109		$	(12,466	)	$	141,519		$	44,152		$	284,314
Net revenues (expense)		343,658			132,797			128,181			(4,800	)		599,836
Net earnings (loss)		82,343			56,813			45,440			(87,575	)		97,021
Allocated average capital		707,691			340,267			874,874			132,527			2,055,359
Assets as of June 30, 2007	$	9,559,141		$	4,170,909		$	16,560,383		$	1,368,501		$	31,658,934
Return on equity		23	%		34	%		10	%		N/A			10	%
Six months ended June 30, 2006
Net interest income (expense)	$	80,901		$	(3,517	)	$	152,442		$	27,538		$	257,364
Net revenues (expense)		416,627			73,103			198,310			(6,415	)		681,625
Net earnings (loss)		150,193			31,273			88,694			(85,652	)		184,508
Allocated average capital		516,384			225,667			751,930			176,290			1,670,271
Assets as of June 30, 2006	$	5,418,369		$	2,474,469		$	14,683,064		$	1,180,540		$	23,756,442
Return on equity		59	%		28	%		24	%		N/A			22	%

NOTE 5 — STOCK-BASED COMPENSATION

The Company has two stock incentive plans, the 2002 Incentive Plan, as amended and restated, and the 2000 Stock Incentive Plan, as amended (collectively, the “Plans”), which provide for the granting of non-qualified and incentive stock options, restricted and performance stock awards, and other awards to employees (including officers) and directors. Options granted under the Plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant, and generally vest based on one, three or five years of continuous service. Grants issued after April 25, 2006 will expire in seven years from the grant date, while grants issued prior to April 25, 2006 have a ten-year term. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plans). The fair value of each option award is estimated on the date of grant using an enhanced binomial lattice model.

76

INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The assumptions used in the valuations for options granted during the six months ended June 30, 2007 and 2006 are summarized as follows:

	2007	2006
Expected volatility	28.68-30.20%	28.11-28.44%
Expected dividends	5.08-6.76%	4.00-4.60%
Weighted average expected term (in years)	5.20-5.50	6.89-7.34
Risk-free rate	4.58-4.82%	4.54-4.73%

The impact of stock option compensation cost to the statement of earnings follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	(Dollars in thousands except per share data)
Stock option compensation cost, before tax	$	1,790	$	2,449	$	4,384	$	4,963
Stock option compensation cost, after tax		1,156		1,263		2,794		2,918
Effect on basic earnings per share		0.02		0.02		0.04		0.04
Effect on dilutive earnings per share		0.02		0.02		0.04		0.04

There were no options granted during the three months ended June 30, 2007 and 2006. The total fair value of options exercised during the three months ended June 30, 2007 and 2006, was $0.2 million and $3.0 million, respectively. The total fair value of options exercised during the six months ended June 30, 2007 and 2006, was $1.0 million and $4.2 million, respectively.

As of June 30, 2007, there was $9.5 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested options under the Plans. That cost is expected to be recognized in less than three years. The total fair value of shares vested during the three months ended June 30, 2007 and 2006, was $0.3 million and $0.6 million, respectively. The total fair value of shares vested during the six months ended June 30, 2007 and 2006, was $6.6 million and $9.6 million, respectively.

Cash received from options exercised under the Plans for the six months ended June 30, 2007 and 2006 was $0.8 million and $14.4 million, respectively. The actual tax benefit for the tax deductions from option exercises totaled $0.7 million and $5.5 million, respectively, for the six months ended June 30, 2007 and 2006.

Restricted stock activity under the Plans as of June 30, 2007 and changes during the three and six months ended June 30, 2007 follows:

						Six Months Ended
	Three Months Ended June 30, 2007					June 30, 2007
				Weighted-					Weighted-
				Average					Average
				Grant-Date					Grant-Date
	Shares			Fair Value		Shares			Fair Value
Restricted Stock:
Nonvested, beginning of period		1,194,353		$	36.11		889,117		$	39.14
Granted		83,675			30.74		538,807			30.69
Vested		(8,611	)		39.05		(142,205	)		37.48
Canceled and forfeited		(43,046	)		37.12		(59,348	)		37.68
Nonvested, end of period		1,226,371			35.69		1,226,371			35.69

The Company recorded compensation cost of $3.5 million and $2.7 million related to the restricted stock granted under the Plans for the three months ended June 30, 2007 and 2006, respectively. For the six months ended

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INDYMAC BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

June 30, 2007 and 2006, the compensation cost related to the restricted stock was $6.3 million and $4.6 million, respectively.

NOTE 6 — DEFINED BENEFIT PENSION PLAN

Through December 31, 2002, Indymac Bank provided a defined benefit pension plan (the “DBP Plan”) to substantially all of its employees. Employees hired prior to January 1, 2003, with one or more years of service, are entitled to annual pension benefits beginning at normal retirement age (65 years of age) equal to a formula approximating 0.9% of final average compensation multiplied by credited service (not in excess of 35 years), subject to a vesting requirement of five years of service. Employees hired after December 31, 2002 are not eligible for the DBP Plan.

In April 2007, the Board of Directors, at management’s recommendation, approved a resolution to freeze the DBP Plan effective May 31, 2007. Participants would no longer accrue additional benefits starting with the 2007 Plan year. As a result, we recognized a curtailment gain of $10.3 million in the second quarter as a reduction to pension expense.

NOTE 7 — PERPETUAL NON-CUMULATIVE PREFERRED STOCK

On May 30, 2007, Indymac Bank received approximately $491 million in net proceeds from the issuance of 20 million shares of Series A Perpetual Non-Cumulative Fixed Rate Preferred Stock with a $25.00 liquidation preference value (the “Series A Preferred Stock”) and distributed $100 million of the net proceeds to the Parent Company. As of June 30, 2007, $491 million is reflected as preferred shares in subsidiary on the balance sheets.

Dividends, when declared by the Bank’s Board of Directors, are payable quarterly at a rate of 8.5%. At the option of the Bank, the Series A Preferred Stock may be redeemed on or after June 15, 2017 at $25 per share plus any declared and unpaid dividends. Outstanding shares of Series A Preferred Stock rank senior to the Bank’s common shares both as to dividends and liquidation preferences but do not have any voting rights.

NOTE 8 — SUBSEQUENT EVENTS

On July 11, 2007, the Company completed the sale and leaseback of one of its properties in Pasadena, California for a purchase price of $116 million and entered into a lease agreement for a portion of the property with an initial term of ten years. The leased portion of the property serves as our mortgage banking headquarters. The Company expects to recognize approximately $60 million in total gain from the sale and leaseback transaction, with approximately $24 million recognized upon sale in the third quarter of 2007 and the balance amortized over the term of the lease.

On July 19, 2007, the Company announced the layoff of approximately 400 employees, roughly 4% of its workforce, mainly in the Operations and Enterprise Process and Technology groups, in various offices around the country. The layoff will result in Indymac taking a pre-tax charge of approximately $6.5 million in the third quarter of 2007, mostly of which is severance.

In July 2007, Indymac’s Board of Directors declared a cash dividend of $0.50 per share payable on September 6, 2007, to shareholders of record on August 9, 2007. Also, the Board of Indymac Bank approved the first payment of the dividend on the Series A Preferred Stock equal to $0.62 per share. The cash dividend is payable on September 17, 2007, to shareholders of record on September 3, 2007.

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PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

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

ITEM 1A.   RISK FACTORS

Indymac’s 2006 10-K presents on pages 72 to 80 a comprehensive set of risk factors that may impact the Company’s future results. Given recent developments in the mortgage, housing and secondary markets, we are adding the following:

Significant illiquidity, volatility and spread widening (i.e., an increase in credit risk premiums required by investors between mortgage backed securities and comparable duration Treasury securities) in the secondary markets could have a material adverse impact on our mortgage production earnings and the earnings of the Company overall.

Indymac relies heavily on the secondary markets, having sold 46% of the loans we sold in the second quarter in private label securitizations and 13% to whole loan investors. The secondary markets are currently experiencing mortgage spread widening and reduced liquidity, and this could continue or worsen in the future. One factor contributing greatly to secondary market uncertainty at present is uncertainty with respect to potential actions to be taken by the major agencies who rate mortgage-backed securities (Standard and Poor’s, Moody’s and Fitch). The agencies have recently downgraded many securities, announced that others are under review and stated that they are reviewing their models for determining subordination levels given mortgage industry credit deterioration, which will likely result in increased subordination levels and, therefore, increased mortgage credit costs for borrowers.

Spread widening can be severe and happen abruptly, as has happened recently. Indymac hedges the interest rate risk inherent in our pipeline of mortgage loans held for sale and rate-locked loans in process to protect our MBR margins, and we attempt to hedge the type of spread widening caused by the secondary market disruptions we have experienced in 2007 (When spread widening does occur, we increase our loan pricing to attain our target MBR margins on future production.). Severe and abrupt spread widening, as we have recently experienced, can have a material adverse impact on the Company’s near-term earnings. Given the current uncertainties and resulting volatility in the secondary market, the risk of further spread widening must be considered significant, and our hedging activities may not be effective.

Illiquidity in the secondary market at present means that with respect to private label securitizations, there is reduced investor demand for mortgage backed securities. Illiquidity is also reducing demand from whole loan investors. Under these conditions, Indymac uses its capital capacity and liquidity to hold increased levels of both securities and loans. While Indymac’s capital and liquidity positions are currently strong, our capacity to retain loans and securities on our balance sheet is not unlimited. A prolonged period of secondary market illiquidity could result in the Company having to implement further mortgage guideline tightening, which would result in lower mortgage production volumes. This could have a material adverse impact on future earnings for the Company.

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Mitigating this risk is the fact that the Company sold 40% of its production in the second quarter to the GSEs, and the GSEs continue to provide a stable source of liquidity.

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

There were no unregistered sales of equity securities during the three months ended June 30, 2007. The following summarizes share repurchase activities during the three months ended June 30, 2007:

					Total Number of		Maximum Approximate
	Total				Shares Purchased		Dollar Value (In Million) of
	Number of		Weighted		as Part of Publicly		Shares that may yet be
	Shares		Average Price		Announced Plans or		Purchased Under the
	Purchased(1)		Paid per Share		Programs		Plans or Programs(2)
Calendar Month:
April 2007		1,279	$	30.90		—	$	300
May 2007		1,017		30.80		—		300
June 2007		—		—		—		300
Total		2,296	$	30.85		—		300

(1)	All shares purchased during the periods indicated represent withholding of a portion of shares to cover taxes in connection with vesting of restricted stocks or exercise of stock options.
(2)	Our Board of Directors previously approved a $500 million share repurchase program. Since its inception in 1999, we have repurchased a total of 28.0 million shares through this program. In January 2007, we obtained an authorization from the Board of Directors to repurchase an additional $236.4 million of common stock for a total current authorization of up to $300 million.

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

At the annual meeting of IndyMac Bancorp, Inc.’s stockholders held on April 26, 2007, the shareholders voted to elect Indymac Bancorp’s directors. The votes cast in this regard were as follows:

	Shares for		Shares Withheld
Michael W. Perry		64,439,188		1,922,680
Louis E. Caldera		64,762,491		1,599,377
Lyle E. Gramley		64,767,414		1,594,454
Hugh M. Grant		64,750,260		1,611,608
Patrick C. Haden		64,781,939		1,579,929
Terrance G. Hodel		64,786,037		1,575,831
Robert L. Hunt II		64,785,237		1,576,631
Lydia H. Kennard		64,778,480		1,583,388
Senator John Seymour (ret.)		62,528,311		3,833,557
Bruce G. Willison		64,756,892		1,604,976

In addition, the stockholders voted to ratify the appointment of Ernst & Young LLP as Indymac Bancorp’s independent auditors for the year ending December 31, 2007. The votes cast in this regard were as follows:

	Number of
	Votes Cast
For		65,847,498
Against		456,131
Abstain		58,240

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ITEM 6.   EXHIBITS

31	.1	Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Chief Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized, in the City of Pasadena, State of California, on July 31, 2007.

INDYMAC BANCORP, INC.

(Registrant)

By:  /s/  MICHAEL W. PERRY

Michael W. Perry

Chairman of the Board of Directors
and Chief Executive Officer

By:  /s/  A. SCOTT KEYS

A. Scott Keys

Executive Vice President

and Chief Financial Officer

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