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

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

PART I – FINANCIAL INFORMATION

ITEM 1. –

FINANCIAL STATEMENTS           

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           

16

ITEM 3. –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           

47

ITEM 4. –

CONTROLS AND PROCEDURES           

47

PART II – OTHER INFORMATION

ITEM 1. –

LEGAL PROCEEDINGS           

48

ITEM 2. –

UNREGISTERED SALES OF EQUITY 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           

49

AVAILABILITY OF REPORTS           

49

SIGNATURES           

49

March 31,

December 31,

March 31,

(Dollars in Thousands, Except Per Share Data)

2005

2004

2004

Assets

Cash

$

133,621

$

119,502

$

115,905

Federal funds

10,003

-

2,300

Cash and cash equivalents

143,624

119,502

118,205

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

securities available for sale, at fair value

511,703

497,009

872,103

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

1,255,104

1,118,475

529,085

Mortgage-backed securities available for sale, at fair value

296

304

327

Loans receivable held for investment

14,473,108

13,423,999

11,064,686

Investments in real estate and joint ventures

56,964

55,411

35,768

Real estate acquired in settlement of loans

2,783

2,555

5,189

Premises and equipment

105,596

106,238

108,372

Federal Home Loan Bank stock, at cost

243,613

243,613

124,277

Investment in Downey Financial Capital Trust I

-

-

3,711

Mortgage servicing rights, net

19,610

17,964

69,721

Other assets

80,936

63,738

593,685

$

16,893,337

$

15,648,808

$

13,525,129

Liabilities and Stockholders’ Equity

Deposits

$

10,309,077

$

9,657,978

$

8,817,173

Securities sold under agreements to repurchase

-

-

507,027

Federal Home Loan Bank advances

5,093,874

4,559,622

2,424,230

Real estate notes

-

-

4,144

Senior notes

197,964

197,924

-

Junior subordinated debentures

-

-

123,711

Accounts payable and accrued liabilities

117,008

108,217

604,757

Deferred income taxes

121,078

117,416

119,530

Total liabilities

15,839,001

14,641,157

12,600,572

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, 2005, December 31, 2004 and

March 31,2004; outstanding 27,853,783 shares at both March 31, 2005 and

December 31, 2004 and 27,953,747 shares at March 31, 2004

282

282

282

Additional paid-in capital

93,792

93,792

93,792

Accumulated other comprehensive income (loss)

(1,951

)

318

1,753

Retained earnings

979,005

930,051

839,898

Treasury stock, at cost, 381,239 shares at both March 31, 2005 and

December 31, 2004 and 281,275 shares at March 31, 2004

(16,792

)

(16,792

)

(11,168

)

Total stockholders’ equity

1,054,336

1,007,651

924,557

$

16,893,337

$

15,648,808

$

13,525,129

Three Months Ended

March 31,

(Dollars in Thousands, Except Per Share Data)

2005

2004

Interest income

Loans receivable

$

173,007

$

115,530

U.S. Treasury securities and agency obligations

4,838

4,064

Mortgage-backed securities

3

3

Other investments

2,538

1,198

Total interest income

180,386

120,795

Interest expense

Deposits

49,023

32,600

Federal Home Loan Bank advances and other borrowings

33,980

15,705

Senior notes

3,295

-

Junior subordinated debentures

-

3,134

Total interest expense

86,298

51,439

Net interest income

94,088

69,356

Provision for loan losses

2,038

1,804

Net interest income after provision for loan losses

92,050

67,552

Other income, net

Loan and deposit related fees

19,507

12,456

Real estate and joint ventures held for investment, net

2,580

926

Secondary marketing activities:

Loan servicing income (loss), net

1,484

(14,245

)

Net gains on sales of loans and mortgage-backed securities

30,615

1,372

Net gains on sales of mortgage servicing rights

981

-

Net gains on sales of investment securities

27

2,112

Other

520

332

Total other income, net

55,714

2,953

Operating expense

Salaries and related costs

39,155

35,569

Premises and equipment costs

8,000

8,208

Advertising expense

1,350

1,708

SAIF insurance premiums and regulatory assessments

927

757

Professional fees

336

368

Other general and administrative expense

8,392

8,482

Total general and administrative expense

58,160

55,092

Net operation of real estate acquired in settlement of loans

64

(72

)

Total operating expense

58,224

55,020

Income before income taxes

89,540

15,485

Income taxes

37,801

6,573

Net income

$

51,739

$

8,912

PER SHARE INFORMATION

Basic

$

1.86

$

0.32

Diluted

$

1.86

$

0.32

Cash dividends declared and paid

$

0.10

$

0.10

Weighted average diluted shares outstanding

27,881,839

27,980,542

Three Months Ended

March 31,

(In Thousands)

2005

2004

Net income

$

51,739

$

8,912

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

(2,443

)

(310

)

Mortgage-backed securities available for sale, at fair value

-

(1

)

Reclassification of realized amounts included in net income

(17

)

-

Unrealized gains (losses) on cash flow hedges:

Net derivative instruments

(78

)

638

Reclassification of realized amounts included in net income

269

619

Total other comprehensive income (loss), net of income taxes (benefits)

(2,269

)

946

Comprehensive income

$

49,470

$

9,858

Three Months Ended

March 31,

(In Thousands)

2005

2004

Cash flows from operating activities

Net income

$

51,739

$

8,912

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

Depreciation and amortization

19,939

19,771

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

835

14,757

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

investment securities, real estate and other assets

(33,092

)

(3,670

)

Interest capitalized on loans (negative amortization)

(18,707

)

(1,553

)

Federal Home Loan Bank stock dividends

-

(1,188

)

Loans originated and purchased for sale

(2,181,392

)

(927,777

)

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

as mortgage-backed securities

2,059,786

677,001

Other, net

(48,432

)

(20,680

)

Net cash used for operating activities

(149,324

)

(234,427

)

Cash flows from investing activities

Proceeds from sales of:

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

available for sale

-

4,150

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

663

1,979

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

and other investment securities available for sale

8,100

377,746

Purchase of:

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

available for sale

(27,044

)

(539,057

)

Loans receivable held for investment

(25,360

)

(65,537

)

Premises and equipment

(4,673

)

(2,164

)

Originations of loans receivable held for investment (net of refinances of $166,659 for the

three months ended March 31, 2005 and $153,812 for three months ended

March 31, 2004)

(1,876,331

)

(1,808,959

)

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

securities available for sale

876,996

910,487

Net change in undisbursed loan funds

36,450

41,560

Investments in real estate held for investment

(136

)

(145

)

Other, net

2,175

379

Net cash used for investing activities

(1,009,160

)

(1,079,561

)

Three Months Ended

March 31,

(In Thousands)

2005

2004

Cash flows from financing activities

Net increase in deposits

$

651,099

$

523,415

Proceeds from Federal Home Loan Bank advances and other borrowings

10,558,350

3,630,560

Repayments of Federal Home Loan Bank advances and other borrowings

(10,015,350

)

(2,828,550

)

Proceeds from reissuance of treasury stock and exercise of stock options