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           

15

ITEM 3. –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           

47

ITEM 4. –

CONTROLS AND PROCEDURES           

47

PART II

ITEM 1. –

LEGAL PROCEEDINGS           

48

ITEM 2. –

CHANGES IN SECURITIES AND USE OF PROCEEDS           

48

ITEM 3. –

DEFAULTS UPON SENIOR SECURITIES           

48

ITEM 4. –

SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS           

48

ITEM 5. –

OTHER INFORMATION           

48

ITEM 6. –

EXHIBITS AND REPORTS ON FORM 8-K           

49

AVAILABILITY OF REPORTS           

49

SIGNATURES           

50

June 30,

December 31,

June 30,

(Dollars in Thousands, Except Per Share Data)

2004

2003

2003

Assets

Cash

$

126,361

$

111,667

$

136,423

Federal funds

-

1,500

89,210

Cash and cash equivalents

126,361

113,167

225,633

Trading securities, at fair value

-

-

201,781

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

securities available for sale, at fair value

630,785

690,347

276,971

Municipal securities held to maturity, at amortized cost (estimated

fair value of $6,135 at June 30, 2003)

-

-

6,148

Loans and securities purchased under resale agreements

-

-

60,000

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

661,481

279,657

721,929

Mortgage-backed securities available for sale, at fair value

321

334

1,736

Loans receivable held for investment

12,309,935

10,116,519

10,049,361

Investments in real estate and joint ventures

31,517

35,716

36,297

Real estate acquired in settlement of loans

2,424

5,803

9,464

Premises and equipment

107,277

110,316

113,434

Federal Home Loan Bank stock, at cost

167,797

123,089

120,517

Investment in Downey Financial Capital Trust I

3,711

3,711

3,711

Mortgage servicing rights, net

92,049

82,175

48,722

Other assets

88,689

85,146

75,573

$

14,222,347

$

11,645,980

$

11,951,277

Liabilities and Stockholders’ Equity

Deposits

$

8,948,238

$

8,293,758

$

8,895,452

Securities sold under agreements to repurchase

239,688

-

-

Federal Home Loan Bank advances

3,556,087

2,125,150

1,672,850

Real estate notes

-

4,161

3,121

Senior notes

198,179

-

-

Junior subordinated debentures

123,711

123,711

123,711

Accounts payable and accrued liabilities

88,608

63,584

303,937

Deferred income taxes

125,384

118,598

82,841

Total liabilities

13,279,895

10,728,962

11,081,912

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 June 30, 2004, December 31, 2003 and

June 30, 2003; outstanding 27,968,283 shares at June 30, 2004 and

27,928,722 shares at both December 31, 2003 and June 30, 2003

282

282

282

Additional paid-in capital

93,792

93,792

93,792

Accumulated other comprehensive income (loss)

(5,745

)

807

1,135

Retained earnings

864,704

834,307

786,326

Treasury stock, at cost, 266,739 shares at June 30, 2004 and 306,300 shares

at both December 31, 2003 and June 30, 2003

(10,581

)

(12,170

)

(12,170

)

Total stockholders’ equity

942,452

917,018

869,365

$

14,222,347

$

11,645,980

$

11,951,277

Three Months Ended

Six Months Ended

June 30,

June 30,

(Dollars in Thousands, Except Per Share Data)

2004

2003

2004

2003

Interest income

Loans receivable

$

123,313

$

130,884

$

238,843

$

273,373

U.S. Treasury securities and agency obligations

6,332

1,886

10,396

5,023

Mortgage-backed securities

3

19

6

35

Other investments

1,594

1,485

2,792

3,140

Total interest income

131,242

134,274

252,037

281,571

Interest expense

Deposits

34,662

42,369

67,262

90,219

Federal Home Loan Bank advances and other borrowings

16,543

14,559

32,248

29,976

Senior notes

292

-

292

-

Junior subordinated debentures

3,134

3,134

6,268

6,268

Total interest expense

54,631

60,062

106,070

126,463

Net interest income

76,611

74,212

145,967

155,108

Provision for (reduction of) loan losses

1,458

(624

)

3,262

(2,333

)

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

75,153

74,836

142,705

157,441

Other income, net

Loan and deposit related fees

14,419

13,649

26,875

25,627

Real estate and joint ventures held for investment, net

7,048

2,069

7,974

3,012

Secondary marketing activities:

Loan servicing income (loss), net

13,786

(21,692

)

(459

)

(35,378

)

Net gains on sales of loans and mortgage-backed securities

15,675

12,652

17,047

32,415

Net gains on sales of mortgage servicing rights

-

18

-

23

Net gains on trading securities

-

591

-

591

Net gains (losses) on sales of investment securities

(21,271

)

-

(19,159

)

8

Litigation award

-

265

-

2,717

Other

523

938

855

1,517

Total other income, net

30,180

8,490

33,133

30,532

Operating expense

Salaries and related costs

37,575

33,028

73,144

67,154

Premises and equipment costs

8,200

7,971

16,408

15,684

Advertising expense

1,165

1,016

2,873

1,809

SAIF insurance premiums and regulatory assessments

744

825

1,501

1,656

Professional fees

356

418

724

1,046

Other general and administrative expense

9,432

8,111

17,914

16,004

Total general and administrative expense

57,472

51,369

112,564

103,353

Net operation of real estate acquired in settlement of loans

(237

)

(111

)

(309

)

186

Total operating expense

57,235

51,258

112,255

103,539

Income before income taxes

48,098

32,068

63,583

84,434

Income taxes

20,277

13,553

26,850

35,702

Net income

$

27,821

$

18,515

$

36,733

$

48,732

PER SHARE INFORMATION

Basic

$

0.99

$

0.66

$

1.31

$

1.74

Diluted

$

0.99

$

0.66

$

1.31

$

1.74

Cash dividends declared and paid

$

0.10

$

0.09

$

0.20

$

0.18

Weighted average diluted shares outstanding

27,990,588

27,970,022

27,985,565

27,968,194

Three Months Ended

Six Months Ended

June 30,

June 30,

(In Thousands)

2004

2003

2004

2003

Net income

$

27,821

$

18,515

$

36,733

$

48,732

Other comprehensive income (loss), net of income taxes (benefits)

Unrealized gains (losses) on securities available for sale:

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

securities available for sale, at fair value

(5,962

)

97

(6,272

)

(639

)

Mortgage-backed securities available for sale, at fair value

-

(5

)

(1

)

(12

)

Reclassification of realized amounts included in net income

158

-

158

(5

)

Unrealized gains (losses) on cash flow hedges:

Net derivative instruments

1,869

(4,437

)

2,507

(7,735

)

Reclassification of realized amounts included in net income

(3,563

)

6,059

(2,944

)

10,948

Total other comprehensive income, net of income taxes

(7,498

)

1,714

(6,552

)

2,557

Comprehensive income

$

20,323

$

20,229

$

30,181

$

51,289

Six Months Ended

June 30,

(In Thousands)

2004

2003

Cash flows from operating activities

Net income

$

36,733

$

48,732

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

Depreciation and amortization

42,165

43,378

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

1,937

22,737

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

trading and investment securities, real estate and other assets

(4,579

)

(35,283

)

Interest capitalized on loans (negative amortization)

(4,965

)

(5,584

)

Federal Home Loan Bank stock dividends

(2,399

)

(2,954

)

Loans originated for sale

(2,206,985

)

(3,768,301

)

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

as mortgage-backed securities

1,822,422

3,724,399

Other, net

(62,748

)

(33,039

)

Net cash used for operating activities

(378,419

)

(5,915

)

Cash flows from investing activities

Proceeds from sales of:

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

available for sale

1,259,216

5,255

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

10,446

9,398

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

and other investment securities available for sale

383,746

452,630

Purchase of:

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

available for sale