Maintain expert enterprise risk management.
We established a new enterprise risk management division during 2002. This division combines our credit risk, interest rate risk and liquidity oversight with our legal, compliance, regulatory and internal audit areas to focus proactively on the balance between the risks and returns of our businesses.

An example of our strength in risk management is the way we handled the interest rate risk in our mortgage-servicing portfolio last year. As the economy continued to soften in 2002, we encountered a very volatile interest rate environment in which rates declined to historical lows. In one respect, the decline in interest rates was a strength for our mortgage-banking model, since it led to unprecedented mortgage production. However, it also led to high levels of prepayments on the mortgage loans we service — the number one risk to the value of our servicing-related assets. We effectively hedged the resulting impairment on these assets. Approximately $183 million in valuation adjustments on our investments in servicing related assets were offset by $180 million of income generated from our risk management hedges, achieving 98% hedge effectiveness.

Achieve superior gains through internal growth and capital sources.
Frequently, companies achieve strong growth by acquiring other entities in the same or new businesses. To fund those acquisitions, they often issue stock. Acquisition strategies carry a great deal of risk — both as they are being executed and during integration of the acquired entities — and more often than not do not achieve the anticipated results. At IndyMac, our historical growth has been internally generated, and our five-year plan is based on the same premise.

We are confident that IndyMac is well positioned with a strong capital base. We expect to generate through earnings the capital required for our growth over the next five years. It is far easier to achieve EPS growth and increases in book value per share without new shares being issued. Our plans also include the continuation and growth of the dividend.