QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED

Delaware
(State or other jurisdiction of
incorporation or organization)

33-0633413
(I.R.S. Employer Identification No.)

3501 Jamboree Road, Newport Beach, CA
(Address of principal executive office)

92660
(Zip Code)

Registrant’s telephone number, including area code

(949) 854-0300

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

Title of each class
Common Stock, $0.01 Par Value

Name of each exchange
on which registered
New York Stock Exchange
Pacific Exchange

PART I

ITEM 1. –

FINANCIAL INFORMATION           

1

Consolidated Balance Sheets          

1

Consolidated Statements of Income           

2

Consolidated Statements of Comprehensive Income          

3

Consolidated Statements of Cash Flows           

4

Notes To Consolidated Financial Statements           

6

ITEM 2. –

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS           

14

ITEM 3. –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           

45

ITEM 4. –

CONTROLS AND PROCEDURES           

45

PART II

ITEM 1. –

LEGAL PROCEEDINGS           

46

ITEM 2. –

CHANGES IN SECURITIES AND USE OF PROCEEDS           

46

ITEM 3. –

DEFAULTS UPON SENIOR SECURITIES           

46

ITEM 4. –

SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS           

46

ITEM 5. –

OTHER INFORMATION           

46

ITEM 6. –

EXHIBITS AND REPORTS ON FORM 8-K           

46

AVAILABILITY OF REPORTS           

48

SIGNATURES           

48

March 31,

December 31,

March 31,

(Dollars in Thousands, Except Per Share Data)

2004

2003

2003

Assets

Cash

$

115,905

$

111,667

$

136,461

Federal funds

2,300

1,500

1,201

Cash and cash equivalents

118,205

113,167

137,662

U.S. Treasury securities, agency obligations and other investment

securities available for sale, at fair value

872,103

690,347

214,516

Municipal securities held to maturity, at amortized cost (estimated

fair value of $6,135 at March 31, 2003)

-

-

6,148

Loans held for sale, at lower of cost or fair value

529,085

279,657

633,676

Mortgage-backed securities available for sale, at fair value

327

334

1,875

Loans receivable held for investment

11,064,686

10,116,519

10,040,006

Investments in real estate and joint ventures

35,768

35,716

34,307

Real estate acquired in settlement of loans

5,189

5,803

10,205

Premises and equipment

108,372

110,316

114,201

Federal Home Loan Bank stock, at cost

124,277

123,089

119,125

Investment in Downey Financial Capital Trust I

3,711

3,711

3,711

Mortgage servicing rights, net

69,721

82,175

56,506

Other assets

593,685

85,146

69,712

$

13,525,129

$

11,645,980

$

11,441,650

Liabilities and Stockholders’ Equity

Deposits

$

8,817,173

$

8,293,758

$

8,997,558

Securities sold under agreements to repurchase

507,027

-

-

Federal Home Loan Bank advances

2,424,230

2,125,150

1,300,850

Real estate notes

4,144

4,161

-

Junior subordinated debentures

123,711

123,711

123,711

Accounts payable and accrued liabilities

604,757

63,584

91,839

Deferred income taxes

119,530

118,598

76,042

Total liabilities

12,600,572

10,728,962

10,590,000

Stockholders’ equity:

Preferred stock, par value of $0.01 per share; authorized 5,000,000

shares; outstanding none

-

-

-

Common stock, par value of $0.01 per share; authorized 50,000,000 shares;

issued 28,235,022 shares at March 31, 2004, December 31, 2003

and March 31, 2003; outstanding 27,953,747 shares at March 31, 2004 and

27,928,722 shares at both December 31, 2003 and March 31, 2003

282

282

282

Additional paid-in capital

93,792

93,792

93,792

Accumulated other comprehensive income (loss)

1,753

807

(579

)

Retained earnings

839,898

834,307

770,325

Treasury stock, at cost, 281,275 shares at March 31, 2004 and 306,300 shares

at both December 31, 2003 and March 31, 2003

(11,168

)

(12,170

)

(12,170

)

Total stockholders’ equity

924,557

917,018

851,650

$

13,525,129

$

11,645,980

$

11,441,650

Three Months Ended

March 31,

(Dollars in Thousands, Except Per Share Data)

2004

2003

Interest income

Loans receivable

$

115,530

$

142,489

U.S. Treasury securities and agency obligations

4,064

3,137

Mortgage-backed securities

3

16

Other investments

1,198

1,655

Total interest income

120,795

147,297

Interest expense

Deposits

32,600

47,850

Federal Home Loan Bank advances and other borrowings

15,705

15,417

Junior subordinated debentures

3,134

3,134

Total interest expense

51,439

66,401

Net interest income

69,356

80,896

Provision for (reduction of) loan losses

1,804

(1,709

)

Net interest income after provision for (reduction of) loan losses

67,552

82,605

Other income, net

Loan and deposit related fees

12,456

11,978

Real estate and joint ventures held for investment, net

926

943

Secondary marketing activities:

Loan servicing loss, net

(14,245

)

(13,686

)

Net gains on sales of loans and mortgage-backed securities

1,372

19,763

Net gains on sales of mortgage servicing rights

-

5

Net gains on sales of investment securities

2,112

8

Litigation award

-

2,452

Other

332

579

Total other income, net

2,953

22,042

Operating expense

Salaries and related costs

35,569

34,126

Premises and equipment costs

8,208

7,713

Advertising expense

1,708

793

SAIF insurance premiums and regulatory assessments

757

831

Professional fees

368

628

Other general and administrative expense

8,482

7,893

Total general and administrative expense

55,092

51,984

Net operation of real estate acquired in settlement of loans

(72

)

297

Total operating expense

55,020

52,281

Income before income taxes

15,485

52,366

Income taxes

6,573

22,149

Net income

$

8,912

$

30,217

PER SHARE INFORMATION

Basic

$

0.32

$

1.08

Diluted

$

0.32

$

1.08

Cash dividends declared and paid

$

0.10

$

0.09

Weighted average diluted shares outstanding

27,980,542

27,966,367

Three Months Ended

March 31,

(In Thousands)

2004

2003

Net income

$

8,912

$

30,217

Other comprehensive income, net of income taxes

Unrealized gains (losses) on securities available for sale:

U.S. Treasury securities, agency obligations and other investment

securities available for sale, at fair value

(310

)

(736

)

Mortgage-backed securities available for sale, at fair value

(1

)

(7

)

Less reclassification of realized gains included in net income

-

(5

)

Unrealized gains (losses) on cash flow hedges:

Net derivative instruments

638

(3,298

)

Less reclassification of realized losses included in net income

619

4,889

Total other comprehensive income, net of income taxes

946

843

Comprehensive income

$

9,858

$

31,060

Three Months Ended

March 31,

(In Thousands)

2004

2003

Cash flows from operating activities

Net income

$

8,912

$

30,217

Adjustments to reconcile net income to net cash used for operating activities:

Depreciation and amortization

19,771

18,000

Provision for losses on loans, real estate acquired in settlement of loans, investments

in real estate and joint ventures, mortgage servicing rights and other assets

14,757

9,945

Net gains on sales of loans and mortgage-backed securities, mortgage servicing rights,

investment securities, real estate and other assets

(3,670

)

(20,146

)

Interest capitalized on loans (negative amortization)

(1,553

)

(3,523

)

Federal Home Loan Bank stock dividends

(1,188

)

(1,562

)

Loans originated for sale

(927,777

)

(1,607,147

)

Proceeds from sales of loans held for sale, including those sold

as mortgage-backed securities

677,001

1,635,811

Other, net

(24,760

)

(11,925

)

Net cash provided by (used for) operating activities

(238,507

)

49,670

Cash flows from investing activities

Proceeds from sales of:

U.S. Treasury securities, agency obligations and other investment securities

available for sale

4,150

5,250

Wholly owned real estate and real estate acquired in settlement of loans

1,979

5,095

Proceeds from maturities of U.S. Treasury securities, agency obligations

and other investment securities available for sale

377,746

378,710

Purchase of:

U.S. Treasury securities, agency obligations and other investment securities

available for sale

(539,057

)

(141,575

)

Loans receivable held for investment

(65,537

)

(91,676

)

Premises and equipment

(2,164

)

(5,599

)

Originations of loans receivable held for investment (net of refinances of $153,812 for the

three months ended March 31, 2004 and $59,537 for the three months ended

March 31, 2003)

(1,808,959

)

(680,009

)

Principal payments on loans receivable held for investment and mortgage-backed

securities available for sale

910,487

1,068,441

Net change in undisbursed loan funds

41,560

(10,939

)

Investments in real estate held for investment

(145

)

(620

)

Other, net

379

1,375

Net cash provided by (used for) investing activities

(1,079,561

)

528,453

Three Months Ended

March 31,

(In Thousands)

2004

2003

Cash flows from financing activities

Net increase (decrease) in deposits

$

523,415

$

(240,792

)

Proceeds