Downey Announces First Quarter Earnings

Apr 16, 2001, 01:00 ET from Downey Financial Corporation

    NEWPORT BEACH, Calif., April 16 /PRNewswire/ -- Downey Financial Corp.
 (NYSE:   DSL) reported that net income for the first quarter of 2001 totaled
 $25.9 million or $0.91 per share on a diluted basis.  This represents an
 increase of 18.5% over the $21.8 million or $0.77 per share of first quarter
 2000, if the $5.6 million or $0.20 per share after-tax gain from the sale of
 Downey's indirect automobile finance subsidiary is excluded from the year-ago
 results.  Including the gain, net income in the first quarter of 2000 totaled
 $27.4 million or $0.97 per share.
     Highlights of the first quarter compared to a year ago (excluding the gain
 from the sale of the indirect automobile finance subsidiary) include:
 
     -- a 10.8% increase in assets and a 25.1% increase in deposits;
     -- net income from banking operations of $25.3 million, up $5.2 million or
        25.6%;
     -- an improved efficiency ratio of 45.9%, compared to 49.5%;
     -- a return on average shareholders' equity of 16.28%, up from 16.07%; and
     -- non-performing assets of 0.53% of total assets, compared to 0.40%.
 
     Daniel D. Rosenthal, President and Chief Executive Officer commented, "We
 are pleased with our 2001 first quarter results, although the new year has
 presented us with a challenging business environment.  The decline in interest
 rates has increased borrower preference for fixed rate loans and, as a result,
 we are experiencing increased levels of refinance activity.  This preference
 allowed us to originate more fixed rate loans, which are held for sale in the
 secondary market.  However, this borrower preference makes it more difficult
 to originate a significant volume of adjustable rate loans to offset current
 prepayments.  In addition, the lower interest rates and expectation of higher
 loan prepayments in future periods required us to make further additions this
 quarter to the valuation allowance for mortgage servicing rights associated
 with loans we have sold and currently service for others."
     Net interest income totaled $76.2 million in the first quarter of 2001, up
 $13.4 million or 21.3% between first quarters reflecting increases in both
 average earning assets and the effective interest rate spread.  Average
 earning assets increased by $1.3 billion or 14.4% to $10.6 billion, while the
 effective interest rate spread increased to 2.87% from 2.71%.  Not only was
 the effective interest rate spread above the year-ago quarter, it was also
 above the fourth quarter 2000 level of 2.71%.
     Provision for loan losses was $0.1 million in the current quarter, down
 from $0.8 million in the year-ago quarter.  The allowance for loan losses was
 $34 million at March 31, 2001, essentially unchanged from year-end 2000.  Net
 charge-offs totaled $0.4 million in the first quarter of 2001, down from
 $0.8 million a year ago.
     Total other income was $6.0 million in the first quarter of 2001, down
 $15.5 million from a year ago.  Included in the year-ago amount was a
 $9.8 million gain from the sale of the indirect auto finance subsidiary.
 Excluding that gain, other income in the current quarter would have declined
 by $5.8 million.  The adjusted decline was primarily in the categories of loan
 servicing fees and income from real estate held for investment.  Loan
 servicing fees in the current quarter reflected a loss of $8.2 million
 compared to income of $0.3 million in the year-ago period.  The current
 quarter loss resulted from a $8.3 million addition to the valuation allowance
 for mortgage servicing assets due to the continued drop in interest rates
 during the quarter and an increase in expected prepayments from the levels
 estimated at year end.  Income from real estate held for investment declined
 by $2.1 million, due primarily to lower net gains on sales that totaled
 $0.4 million in the current quarter, compared to $1.7 million in the year-ago
 quarter.  Those declines were partially offset by an increase of $4.4 million
 in loan and deposit related fees reflecting increases of $2.9 million in loan
 prepayment fees and $1.1 million in deposit related fees, and an increase of
 $0.3 million in net gains on sales of loans and mortgage-backed securities due
 to a higher volume of sales in the current quarter.
     Operating expense totaled $37.3 million in the current quarter, up
 $1.5 million from the first quarter of 2000.  The increase was due to a
 $1.8 million or 5.0% increase in general and administrative expense.  The
 increase in general and administrative expense was primarily due to higher
 costs associated with the increased number of branch locations and higher loan
 origination activity.
     At March 31, 2001, assets totaled $11.0 billion, up $1.1 billion or 10.8%
 from a year ago.  Single family loan originations totaled $1.438 billion in
 the first quarter of 2001, down 4.1% from the $1.499 billion originated in the
 first quarter of 2000.  Of the current quarter total, $641 million represented
 originations of loans for portfolio of which $135 million represented subprime
 credits.  At quarter end, the subprime portfolio totaled $1.8 billion, with an
 average loan-to-value ratio at origination of 75% and, of the total, 73%
 represented "A-" credits, up from 71% at year-end 2000.  In addition to single
 family loans, $29 million of other loans were originated in the quarter.
     At March 31, 2001, deposits totaled $8.7 billion, up $1.7 billion or 25.1%
 from a year ago.  During the quarter, seven new in-store branches were opened,
 increasing total branches to 121, of which 56 were in-store.  At quarter end,
 the average deposit size of our traditional branches was $116 million, while
 the average size of our in-store branches was $21 million.
     Non-performing assets increased $4 million during the quarter to
 $59 million or 0.53% of total assets.  During the quarter, single family
 subprime non-performers increased $6 million and a $1 million commercial loan
 was placed on non-accrual.  These increases were partially offset by a
 $4 million decline in single family non-performers.
     At March 31, 2001, Downey Financial Corp.'s primary subsidiary, Downey
 Savings and Loan Association, F.A., had core and tangible capital ratios of
 6.55% and a risk-based capital ratio of 13.09%.  These capital levels were
 well above the "well capitalized" standards of 5% and 10%, respectively, as
 defined by regulation.
 
     Certain statements in this release may constitute "forward looking
 statements" under the Private Securities Litigation Reform Act of 1995, which
 involve risk and uncertainties.  Downey's actual results may differ
 significantly from the results discussed in such forward-looking statements.
 Factors that might cause such a difference include, but are not limited to,
 economic conditions, competition in the geographic and business areas in which
 Downey conducts its operations, fluctuations in interest rates, credit quality
 and government regulation.
 
 
                      Downey Financial Corp. and Subsidiaries
                            Consolidated Balance Sheets
                  (Dollars in Thousands, Except Per Share Data)
 
                                     Mar. 31,       Dec. 31,     Mar. 31,
                                      2001           2000         2000
     Assets
     Cash                         $   114,316   $   108,202   $   84,459
     Federal funds                      7,601        19,601       20,200
 
      Cash and cash equivalents       121,917       127,803      104,659
 
     U.S. Treasury securities,
      agency obligations and other
      investment securities
      available for sale, at fair
      value                           255,891       305,615      191,085
     Municipal securities held to
      maturity, at amortized cost
      (estimated market value of
      $6,534 at Mar. 31, 2001 and
      Dec. 31, 2000, and $6,709 at
      Mar. 31, 2000)                    6,550         6,550        6,727
     Loans held for sale, at lower
      of cost or market               446,264       251,572      157,717
     Mortgage-backed securities
      available for sale, at fair
      value                             5,842        10,203       18,818
     Loans receivable held for
      investment                    9,820,116     9,822,578    9,104,094
     Investments in real estate
      and joint ventures               18,690        17,641       40,571
     Real estate acquired in
      settlement of loans              11,634         9,942        7,115
     Premises and equipment           104,138       104,178      106,526
     Federal Home Loan Bank stock,
      at cost                         108,223       106,356      107,637
     Mortgage servicing rights,
      net                              35,717        40,731       36,948
     Other assets                      96,120        90,694       77,112
 
                                  $11,031,102   $10,893,863   $9,959,009
                                  ===========   ===========   ===========
 
     Liabilities and Stockholders'
      Equity
     Deposits                     $ 8,708,275   $ 8,082,689   $6,961,378
     Federal Home Loan Bank
      advances                      1,457,046     1,978,348    2,248,964
     Other borrowings                     145           224          329
     Accounts payable and accrued
      liabilities                      64,138        54,236       45,327
     Deferred income taxes             32,906        33,730       26,160
 
      Total liabilities            10,262,510    10,149,227    9,282,158
 
     Company obligated mandatorily
      redeemable capital
      securities of subsidiary
      trust holding solely junior
      subordinated debentures of
      the Company ("Capital
      Securities")                    120,000       120,000      120,000
 
     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;
      outstanding 28,211,048
      shares at Mar. 31, 2001,
      28,205,741 shares at
      Dec. 31, 2000 and 28,148,409
      shares at Mar. 31, 2000             282           282          281
     Additional paid-in capital        93,374        93,239       92,385
     Accumulated other
      comprehensive income (loss)-
      unrealized gains (losses)
      on securities available for
      sale                              1,182           687       (2,038)
     Retained earnings                553,754       530,428      466,223
 
      Total stockholders' equity      648,592       624,636      556,851
 
                                  $11,031,102   $10,893,863   $9,959,009
                                  ===========   ===========   ===========
 
 
                      Downey Financial Corp. and Subsidiaries
                         Consolidated Statements of Income
                  (Dollars in Thousands, Except Per Share Data)
 
                                                    Three Months Ended
                                                          Mar. 31,
 
                                                     2001          2000
     Interest income:
      Loans receivable                             $212,762      $172,470
      U.S. Treasury securities and agency
       obligations                                    4,410         2,914
      Mortgage-backed securities                        128           352
      Other investments                               2,666         1,779
 
       Total interest income                        219,966       177,515
 
     Interest expense:
      Deposits                                      114,801        81,233
      Borrowings                                     25,962        30,478
      Capital securities                              3,041         3,041
 
       Total interest expense                       143,804       114,752
 
      Net interest income                            76,162        62,763
     Provision for loan losses                           52           791
 
      Net interest income after provision for
       loan losses                                   76,110        61,972
 
     Other income, net:
      Loan and deposit related fees                  10,230         5,823
      Real estate and joint ventures held for
       investment, net:
       Operations, net                                1,031         1,624
       Net gains on sales of wholly owned real
        estate                                            2         1,421
       (Provision for) reduction of losses on
        real estate and joint ventures                  (33)           43
      Secondary marketing activities:
       Loan servicing fees                           (8,185)          251
       Net gains on sales of loans and
        mortgage-backed securities                    2,125         1,793
      Net gains on sales of investment securities       125            --
      Gain on sale of subsidiary                         --         9,762
      Other                                             656           760
 
       Total other income, net                        5,951        21,477
 
     Operating expense:
      Salaries and related costs                     23,271        21,525
      Premises and equipment costs                    6,043         5,635
      Advertising expense                             1,176         1,873
      Professional fees                                 577           820
      SAIF insurance premiums and regulatory
       assessments                                      732           620
      Other general and administrative expense        5,339         4,888
 
       Total general and administrative expense      37,138        35,361
 
      Net operation of real estate acquired in
       settlement of loans                               (2)          247
      Amortization of excess of cost over fair
       value of net assets acquired                     114           117
 
       Total operating expense                       37,250        35,725
 
     Income before income taxes                      44,811        47,724
     Income taxes                                    18,983        20,288
 
     Net income before cumulative effect of
      change in accounting principle                 25,828        27,436
     Cumulative effect of change in accounting
      principle, net of income taxes                     36            --
 
      Net income                                   $ 25,864      $ 27,436
                                                   =========     ========
 
     PER SHARE INFORMATION:
      Basic before cumulative effect of change in
       accounting principle                        $   0.92      $   0.97
      Basic after cumulative effect of change in
       accounting principle                            0.92          0.97
      Diluted before cumulative effect of change
       in accounting principle                     $   0.91      $   0.97
      Diluted after cumulative effect of change
       in accounting principle                         0.91          0.97
      Cash dividends declared and paid             $   0.09      $   0.09
      Weighted average diluted shares
       outstanding                               28,275,184    28,173,883
 
 
                      Downey Financial Corp. and Subsidiaries
                           Selected Financial Statistics
                   (Dollars in Thousands, Except Per Share Data)
 
                                                      Three Months Ended
                                                           Mar. 31,
                                                      2001          2000
      Net income by business segment:
       Banking (a)                                  $25,309       $25,767
       Real estate investment                           555         1,669
 
        Total net income                            $25,864       $27,436
                                                    =======       =======
 
      Effective interest rate spread                   2.87%         2.71%
      Return on average assets                         0.94          1.14
      Return on average equity                        16.28         20.21
 
      Loans for portfolio (b):
       Originations:
       One-to-four unit residential mortgages     $ 506,062    $1,041,406
       One-to-four unit residential mortgages-
        subprime                                    135,043        89,449
        All other                                    28,964        72,731
       Repayments                                  (705,116)     (378,211)
      Loans originated for sale (b)                 796,801       367,916
 
      Increase in loans (including mortgage-backed
       securities)                                  187,869       534,566
 
      Increase in assets                            137,239       551,469
 
      Increase in deposits                          625,586       398,617
 
      Increase (decrease) in borrowings            (521,381)      126,513
 
 
                                       Mar. 31,      Dec. 31,      Mar. 31,
                                         2001         2000          2000
      Capital ratios (Bank only):
       Tangible capital                  6.55%         6.42%         6.17%
       Core capital                      6.55          6.42          6.17
       Risk-based capital               13.09         12.94         12.30
 
      Book value per share             $22.99        $22.15        $19.78
 
      Number of branches including
       in-store locations                 121           114           104
 
 
     (a)   In the first quarter of 2000, a $5.6 million after-tax gain
           was recognized from the sale of Downey Auto Finance Corp.
     (b)   Includes minor amounts of loans purchased.
 
     Note: Certain prior period amounts have been reclassified to conform
           to the current period presentation.
 
     Note: On January 1, 2001, Downey adopted as required Statement of
           Financial Accounting Standards No. 133, "Accounting for
           Derivative Instruments and Hedging Activities."  The after-tax
           transition amount associated with implementation was
           immaterial and is reported in the Consolidated Statements of
           Income as "Cumulative effect of change in accounting
           principle."
 
 
                      Downey Financial Corp. and Subsidiaries
                     Selected Financial Statistics - Continued
                               (Dollars in Thousands)
 
                                    Mar. 31,      Dec. 31,      Mar. 31,
                                      2001          2000          2000
      Loans held for investment:
       Loans secured by real
        estate:
        Residential one-to-four
         units                     $7,652,325    $7,655,238    $6,961,984
        Residential one-to-four
         units-subprime             1,765,656     1,743,914     1,699,956
 
         Total one-to-four units    9,417,981     9,399,152     8,661,940
 
        Residential five or more
         units                         18,915        19,460        20,292
        Commercial real estate        162,169       164,604       148,920
        Construction                   96,564       118,165       147,910
        Land                           21,230        26,880        72,139
       Non-mortgage:
        Commercial                     21,312        21,721        26,922
        Automobile                     36,590        39,614        35,469
        Other consumer                 58,610        60,653        52,447
 
         Total loans held for
          investment                9,833,371     9,850,249     9,166,039
 
       Increase (decrease) for:
        Undisbursed loan funds and
         net deferred costs and
         premiums                      20,804         6,781       (29,416)
        Allowance for losses          (34,059)      (34,452)      (32,529)
 
       Total loans held for
        investment, net            $9,820,116    $9,822,578    $9,104,094
                                   ==========    ==========    ==========
 
      Loans held for sale, net:
       One-to-four units           $  445,706    $  251,014    $  131,896
       One-to-four units-subprime          --           558        25,821
       Increase for FAS 133
        capitalized basis
        adjustment                        558            --            --
 
        Total loans held for sale  $  446,264    $  251,572    $  157,717
                                   ==========    ==========    ==========
 
       Loans serviced for others   $4,296,883    $3,964,462    $3,171,829
 
      Delinquent loans:
       30-59 days                     $25,808       $20,191       $21,931
       60-89 days                      13,698        16,324         7,593
       90+ days                        34,122        30,070        20,217
 
        Total delinquent loans        $73,628       $66,585       $49,741
                                      =======       =======       =======
 
      Delinquencies as a percentage
       of total loans                    0.72%         0.66%         0.53%
 
      Non-performing assets:
       Non-accrual loans:
        Residential one-to-four
         units                        $16,965       $20,746       $15,546
        Residential one-to-four
         units-subprime                26,353        22,296        15,426
        Other                           3,367         1,708         1,479
 
         Total non-accrual loans       46,685        44,750        32,451
 
        Troubled debt restructure-
         below market rate (a)            205           206           210
        Real estate acquired in
         settlement of loans           11,634         9,942         7,115
        Repossessed automobiles            15            76            --
 
         Total non-performing
          assets                      $58,539       $54,974       $39,776
                                      =======       =======       =======
 
      Non-performing assets as a
       percentage of total assets        0.53%         0.50%         0.40%
 
 
     (a) Represents a one-to-four unit residential loan.
 
 
                      Downey Financial Corp. and Subsidiaries
                       Selected Financial Statistics-Continued
                               (Dollars in Thousands)
 
                                                 Three Months Ended
                                                    Mar. 31, 2001
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
 
      Interest-earning assets:
       Loans                               $10,180,942   $212,762    8.36%
       Mortgage-backed securities                7,761        128    6.60
       Investment securities                   431,023      7,076    6.66
 
        Total interest-earning assets       10,619,726    219,966    8.29
      Non-interest-earning assets              353,887
 
       Total assets                        $10,973,613
                                           ===========
 
      Transaction accounts:
       Non-interest-bearing checking       $   246,246   $     --      --%
       Interest-bearing checking (a)           396,484        633    0.65
       Money market                             89,259        626    2.84
       Regular passbook                        766,948      6,427    3.40
 
        Total transaction accounts           1,498,937      7,686    2.08
      Certificates of deposit                6,873,614    107,115    6.32
 
       Total deposits                        8,372,551    114,801    5.56
      Borrowings                             1,716,077     25,962    6.14
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                  10,208,628    143,804    5.71
      Other liabilities                        129,588
      Stockholders' equity                     635,397
 
       Total liabilities and stockholders'
        equity                             $10,973,613
                                           ===========
 
      Net interest income/interest rate
       spread                                            $ 76,162    2.58%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                  $   411,098
      Effective interest rate spread                                 2.87
 
 
                                                 Three Months Ended
                                                    Dec. 31, 2000
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
      Interest-earning assets:
       Loans                               $ 9,803,336   $203,336    8.30%
       Mortgage-backed securities               11,282        184    6.52
       Investment securities                   378,359      6,255    6.58
 
        Total interest-earning assets       10,192,977    209,775    8.23
      Non-interest-earning assets              341,736
 
       Total assets                        $10,534,713
                                           ===========
 
      Transaction accounts:
       Non-interest-bearing checking       $   228,353    $    --      --%
       Interest-bearing checking (a)           386,301        778    0.80
       Money market                             88,956        636    2.84
       Regular passbook                        764,511      6,570    3.42
 
        Total transaction accounts           1,468,121      7,984    2.16
      Certificates of deposit                6,394,378    100,910    6.28
 
       Total deposits                        7,862,499    108,894    5.51
      Borrowings                             1,814,189     28,903    6.34
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                   9,796,688    140,838    5.72
      Other liabilities                        124,765
      Stockholders' equity                     613,260
 
       Total liabilities and stockholders'
        equity                             $10,534,713
                                           ===========
 
      Net interest income/interest rate
       spread                                            $ 68,937    2.51%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                  $   396,289
      Effective interest rate spread                                 2.71
 
 
                                                  Three Months Ended
                                                    Mar. 31, 2000
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
      Interest-earning assets:
       Loans                                $8,946,021   $172,470    7.71%
       Mortgage-backed securities               20,877        352    6.74
       Investment securities                   313,481      4,693    6.02
 
        Total interest-earning assets        9,280,379    177,515    7.65
      Non-interest-earning assets              336,592
 
       Total assets                         $9,616,971
                                            ==========
 
      Transaction accounts:
       Non-interest-bearing checking        $  191,192   $     --      --%
       Interest-bearing checking (a)           370,715        937    1.02
       Money market                             92,295        651    2.84
       Regular passbook                        820,498      7,373    3.61
 
        Total transaction accounts           1,474,700      8,961    2.44
      Certificates of deposit                5,275,462     72,272    5.51
 
       Total deposits                        6,750,162     81,233    4.84
      Borrowings                             2,108,736     30,478    5.81
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                   8,978,898    114,752    5.14
      Other liabilities                         94,980
      Stockholders' equity                     543,093
 
       Total liabilities and stockholders'
        equity                              $9,616,971
                                            ==========
 
      Net interest income/interest rate
       spread                                            $ 62,763    2.51%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                   $  301,481
      Effective interest rate spread                                 2.71
 
 
     (a)  Includes amounts swept into money market deposit accounts.
 
 

SOURCE Downey Financial Corporation
    NEWPORT BEACH, Calif., April 16 /PRNewswire/ -- Downey Financial Corp.
 (NYSE:   DSL) reported that net income for the first quarter of 2001 totaled
 $25.9 million or $0.91 per share on a diluted basis.  This represents an
 increase of 18.5% over the $21.8 million or $0.77 per share of first quarter
 2000, if the $5.6 million or $0.20 per share after-tax gain from the sale of
 Downey's indirect automobile finance subsidiary is excluded from the year-ago
 results.  Including the gain, net income in the first quarter of 2000 totaled
 $27.4 million or $0.97 per share.
     Highlights of the first quarter compared to a year ago (excluding the gain
 from the sale of the indirect automobile finance subsidiary) include:
 
     -- a 10.8% increase in assets and a 25.1% increase in deposits;
     -- net income from banking operations of $25.3 million, up $5.2 million or
        25.6%;
     -- an improved efficiency ratio of 45.9%, compared to 49.5%;
     -- a return on average shareholders' equity of 16.28%, up from 16.07%; and
     -- non-performing assets of 0.53% of total assets, compared to 0.40%.
 
     Daniel D. Rosenthal, President and Chief Executive Officer commented, "We
 are pleased with our 2001 first quarter results, although the new year has
 presented us with a challenging business environment.  The decline in interest
 rates has increased borrower preference for fixed rate loans and, as a result,
 we are experiencing increased levels of refinance activity.  This preference
 allowed us to originate more fixed rate loans, which are held for sale in the
 secondary market.  However, this borrower preference makes it more difficult
 to originate a significant volume of adjustable rate loans to offset current
 prepayments.  In addition, the lower interest rates and expectation of higher
 loan prepayments in future periods required us to make further additions this
 quarter to the valuation allowance for mortgage servicing rights associated
 with loans we have sold and currently service for others."
     Net interest income totaled $76.2 million in the first quarter of 2001, up
 $13.4 million or 21.3% between first quarters reflecting increases in both
 average earning assets and the effective interest rate spread.  Average
 earning assets increased by $1.3 billion or 14.4% to $10.6 billion, while the
 effective interest rate spread increased to 2.87% from 2.71%.  Not only was
 the effective interest rate spread above the year-ago quarter, it was also
 above the fourth quarter 2000 level of 2.71%.
     Provision for loan losses was $0.1 million in the current quarter, down
 from $0.8 million in the year-ago quarter.  The allowance for loan losses was
 $34 million at March 31, 2001, essentially unchanged from year-end 2000.  Net
 charge-offs totaled $0.4 million in the first quarter of 2001, down from
 $0.8 million a year ago.
     Total other income was $6.0 million in the first quarter of 2001, down
 $15.5 million from a year ago.  Included in the year-ago amount was a
 $9.8 million gain from the sale of the indirect auto finance subsidiary.
 Excluding that gain, other income in the current quarter would have declined
 by $5.8 million.  The adjusted decline was primarily in the categories of loan
 servicing fees and income from real estate held for investment.  Loan
 servicing fees in the current quarter reflected a loss of $8.2 million
 compared to income of $0.3 million in the year-ago period.  The current
 quarter loss resulted from a $8.3 million addition to the valuation allowance
 for mortgage servicing assets due to the continued drop in interest rates
 during the quarter and an increase in expected prepayments from the levels
 estimated at year end.  Income from real estate held for investment declined
 by $2.1 million, due primarily to lower net gains on sales that totaled
 $0.4 million in the current quarter, compared to $1.7 million in the year-ago
 quarter.  Those declines were partially offset by an increase of $4.4 million
 in loan and deposit related fees reflecting increases of $2.9 million in loan
 prepayment fees and $1.1 million in deposit related fees, and an increase of
 $0.3 million in net gains on sales of loans and mortgage-backed securities due
 to a higher volume of sales in the current quarter.
     Operating expense totaled $37.3 million in the current quarter, up
 $1.5 million from the first quarter of 2000.  The increase was due to a
 $1.8 million or 5.0% increase in general and administrative expense.  The
 increase in general and administrative expense was primarily due to higher
 costs associated with the increased number of branch locations and higher loan
 origination activity.
     At March 31, 2001, assets totaled $11.0 billion, up $1.1 billion or 10.8%
 from a year ago.  Single family loan originations totaled $1.438 billion in
 the first quarter of 2001, down 4.1% from the $1.499 billion originated in the
 first quarter of 2000.  Of the current quarter total, $641 million represented
 originations of loans for portfolio of which $135 million represented subprime
 credits.  At quarter end, the subprime portfolio totaled $1.8 billion, with an
 average loan-to-value ratio at origination of 75% and, of the total, 73%
 represented "A-" credits, up from 71% at year-end 2000.  In addition to single
 family loans, $29 million of other loans were originated in the quarter.
     At March 31, 2001, deposits totaled $8.7 billion, up $1.7 billion or 25.1%
 from a year ago.  During the quarter, seven new in-store branches were opened,
 increasing total branches to 121, of which 56 were in-store.  At quarter end,
 the average deposit size of our traditional branches was $116 million, while
 the average size of our in-store branches was $21 million.
     Non-performing assets increased $4 million during the quarter to
 $59 million or 0.53% of total assets.  During the quarter, single family
 subprime non-performers increased $6 million and a $1 million commercial loan
 was placed on non-accrual.  These increases were partially offset by a
 $4 million decline in single family non-performers.
     At March 31, 2001, Downey Financial Corp.'s primary subsidiary, Downey
 Savings and Loan Association, F.A., had core and tangible capital ratios of
 6.55% and a risk-based capital ratio of 13.09%.  These capital levels were
 well above the "well capitalized" standards of 5% and 10%, respectively, as
 defined by regulation.
 
     Certain statements in this release may constitute "forward looking
 statements" under the Private Securities Litigation Reform Act of 1995, which
 involve risk and uncertainties.  Downey's actual results may differ
 significantly from the results discussed in such forward-looking statements.
 Factors that might cause such a difference include, but are not limited to,
 economic conditions, competition in the geographic and business areas in which
 Downey conducts its operations, fluctuations in interest rates, credit quality
 and government regulation.
 
 
                      Downey Financial Corp. and Subsidiaries
                            Consolidated Balance Sheets
                  (Dollars in Thousands, Except Per Share Data)
 
                                     Mar. 31,       Dec. 31,     Mar. 31,
                                      2001           2000         2000
     Assets
     Cash                         $   114,316   $   108,202   $   84,459
     Federal funds                      7,601        19,601       20,200
 
      Cash and cash equivalents       121,917       127,803      104,659
 
     U.S. Treasury securities,
      agency obligations and other
      investment securities
      available for sale, at fair
      value                           255,891       305,615      191,085
     Municipal securities held to
      maturity, at amortized cost
      (estimated market value of
      $6,534 at Mar. 31, 2001 and
      Dec. 31, 2000, and $6,709 at
      Mar. 31, 2000)                    6,550         6,550        6,727
     Loans held for sale, at lower
      of cost or market               446,264       251,572      157,717
     Mortgage-backed securities
      available for sale, at fair
      value                             5,842        10,203       18,818
     Loans receivable held for
      investment                    9,820,116     9,822,578    9,104,094
     Investments in real estate
      and joint ventures               18,690        17,641       40,571
     Real estate acquired in
      settlement of loans              11,634         9,942        7,115
     Premises and equipment           104,138       104,178      106,526
     Federal Home Loan Bank stock,
      at cost                         108,223       106,356      107,637
     Mortgage servicing rights,
      net                              35,717        40,731       36,948
     Other assets                      96,120        90,694       77,112
 
                                  $11,031,102   $10,893,863   $9,959,009
                                  ===========   ===========   ===========
 
     Liabilities and Stockholders'
      Equity
     Deposits                     $ 8,708,275   $ 8,082,689   $6,961,378
     Federal Home Loan Bank
      advances                      1,457,046     1,978,348    2,248,964
     Other borrowings                     145           224          329
     Accounts payable and accrued
      liabilities                      64,138        54,236       45,327
     Deferred income taxes             32,906        33,730       26,160
 
      Total liabilities            10,262,510    10,149,227    9,282,158
 
     Company obligated mandatorily
      redeemable capital
      securities of subsidiary
      trust holding solely junior
      subordinated debentures of
      the Company ("Capital
      Securities")                    120,000       120,000      120,000
 
     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;
      outstanding 28,211,048
      shares at Mar. 31, 2001,
      28,205,741 shares at
      Dec. 31, 2000 and 28,148,409
      shares at Mar. 31, 2000             282           282          281
     Additional paid-in capital        93,374        93,239       92,385
     Accumulated other
      comprehensive income (loss)-
      unrealized gains (losses)
      on securities available for
      sale                              1,182           687       (2,038)
     Retained earnings                553,754       530,428      466,223
 
      Total stockholders' equity      648,592       624,636      556,851
 
                                  $11,031,102   $10,893,863   $9,959,009
                                  ===========   ===========   ===========
 
 
                      Downey Financial Corp. and Subsidiaries
                         Consolidated Statements of Income
                  (Dollars in Thousands, Except Per Share Data)
 
                                                    Three Months Ended
                                                          Mar. 31,
 
                                                     2001          2000
     Interest income:
      Loans receivable                             $212,762      $172,470
      U.S. Treasury securities and agency
       obligations                                    4,410         2,914
      Mortgage-backed securities                        128           352
      Other investments                               2,666         1,779
 
       Total interest income                        219,966       177,515
 
     Interest expense:
      Deposits                                      114,801        81,233
      Borrowings                                     25,962        30,478
      Capital securities                              3,041         3,041
 
       Total interest expense                       143,804       114,752
 
      Net interest income                            76,162        62,763
     Provision for loan losses                           52           791
 
      Net interest income after provision for
       loan losses                                   76,110        61,972
 
     Other income, net:
      Loan and deposit related fees                  10,230         5,823
      Real estate and joint ventures held for
       investment, net:
       Operations, net                                1,031         1,624
       Net gains on sales of wholly owned real
        estate                                            2         1,421
       (Provision for) reduction of losses on
        real estate and joint ventures                  (33)           43
      Secondary marketing activities:
       Loan servicing fees                           (8,185)          251
       Net gains on sales of loans and
        mortgage-backed securities                    2,125         1,793
      Net gains on sales of investment securities       125            --
      Gain on sale of subsidiary                         --         9,762
      Other                                             656           760
 
       Total other income, net                        5,951        21,477
 
     Operating expense:
      Salaries and related costs                     23,271        21,525
      Premises and equipment costs                    6,043         5,635
      Advertising expense                             1,176         1,873
      Professional fees                                 577           820
      SAIF insurance premiums and regulatory
       assessments                                      732           620
      Other general and administrative expense        5,339         4,888
 
       Total general and administrative expense      37,138        35,361
 
      Net operation of real estate acquired in
       settlement of loans                               (2)          247
      Amortization of excess of cost over fair
       value of net assets acquired                     114           117
 
       Total operating expense                       37,250        35,725
 
     Income before income taxes                      44,811        47,724
     Income taxes                                    18,983        20,288
 
     Net income before cumulative effect of
      change in accounting principle                 25,828        27,436
     Cumulative effect of change in accounting
      principle, net of income taxes                     36            --
 
      Net income                                   $ 25,864      $ 27,436
                                                   =========     ========
 
     PER SHARE INFORMATION:
      Basic before cumulative effect of change in
       accounting principle                        $   0.92      $   0.97
      Basic after cumulative effect of change in
       accounting principle                            0.92          0.97
      Diluted before cumulative effect of change
       in accounting principle                     $   0.91      $   0.97
      Diluted after cumulative effect of change
       in accounting principle                         0.91          0.97
      Cash dividends declared and paid             $   0.09      $   0.09
      Weighted average diluted shares
       outstanding                               28,275,184    28,173,883
 
 
                      Downey Financial Corp. and Subsidiaries
                           Selected Financial Statistics
                   (Dollars in Thousands, Except Per Share Data)
 
                                                      Three Months Ended
                                                           Mar. 31,
                                                      2001          2000
      Net income by business segment:
       Banking (a)                                  $25,309       $25,767
       Real estate investment                           555         1,669
 
        Total net income                            $25,864       $27,436
                                                    =======       =======
 
      Effective interest rate spread                   2.87%         2.71%
      Return on average assets                         0.94          1.14
      Return on average equity                        16.28         20.21
 
      Loans for portfolio (b):
       Originations:
       One-to-four unit residential mortgages     $ 506,062    $1,041,406
       One-to-four unit residential mortgages-
        subprime                                    135,043        89,449
        All other                                    28,964        72,731
       Repayments                                  (705,116)     (378,211)
      Loans originated for sale (b)                 796,801       367,916
 
      Increase in loans (including mortgage-backed
       securities)                                  187,869       534,566
 
      Increase in assets                            137,239       551,469
 
      Increase in deposits                          625,586       398,617
 
      Increase (decrease) in borrowings            (521,381)      126,513
 
 
                                       Mar. 31,      Dec. 31,      Mar. 31,
                                         2001         2000          2000
      Capital ratios (Bank only):
       Tangible capital                  6.55%         6.42%         6.17%
       Core capital                      6.55          6.42          6.17
       Risk-based capital               13.09         12.94         12.30
 
      Book value per share             $22.99        $22.15        $19.78
 
      Number of branches including
       in-store locations                 121           114           104
 
 
     (a)   In the first quarter of 2000, a $5.6 million after-tax gain
           was recognized from the sale of Downey Auto Finance Corp.
     (b)   Includes minor amounts of loans purchased.
 
     Note: Certain prior period amounts have been reclassified to conform
           to the current period presentation.
 
     Note: On January 1, 2001, Downey adopted as required Statement of
           Financial Accounting Standards No. 133, "Accounting for
           Derivative Instruments and Hedging Activities."  The after-tax
           transition amount associated with implementation was
           immaterial and is reported in the Consolidated Statements of
           Income as "Cumulative effect of change in accounting
           principle."
 
 
                      Downey Financial Corp. and Subsidiaries
                     Selected Financial Statistics - Continued
                               (Dollars in Thousands)
 
                                    Mar. 31,      Dec. 31,      Mar. 31,
                                      2001          2000          2000
      Loans held for investment:
       Loans secured by real
        estate:
        Residential one-to-four
         units                     $7,652,325    $7,655,238    $6,961,984
        Residential one-to-four
         units-subprime             1,765,656     1,743,914     1,699,956
 
         Total one-to-four units    9,417,981     9,399,152     8,661,940
 
        Residential five or more
         units                         18,915        19,460        20,292
        Commercial real estate        162,169       164,604       148,920
        Construction                   96,564       118,165       147,910
        Land                           21,230        26,880        72,139
       Non-mortgage:
        Commercial                     21,312        21,721        26,922
        Automobile                     36,590        39,614        35,469
        Other consumer                 58,610        60,653        52,447
 
         Total loans held for
          investment                9,833,371     9,850,249     9,166,039
 
       Increase (decrease) for:
        Undisbursed loan funds and
         net deferred costs and
         premiums                      20,804         6,781       (29,416)
        Allowance for losses          (34,059)      (34,452)      (32,529)
 
       Total loans held for
        investment, net            $9,820,116    $9,822,578    $9,104,094
                                   ==========    ==========    ==========
 
      Loans held for sale, net:
       One-to-four units           $  445,706    $  251,014    $  131,896
       One-to-four units-subprime          --           558        25,821
       Increase for FAS 133
        capitalized basis
        adjustment                        558            --            --
 
        Total loans held for sale  $  446,264    $  251,572    $  157,717
                                   ==========    ==========    ==========
 
       Loans serviced for others   $4,296,883    $3,964,462    $3,171,829
 
      Delinquent loans:
       30-59 days                     $25,808       $20,191       $21,931
       60-89 days                      13,698        16,324         7,593
       90+ days                        34,122        30,070        20,217
 
        Total delinquent loans        $73,628       $66,585       $49,741
                                      =======       =======       =======
 
      Delinquencies as a percentage
       of total loans                    0.72%         0.66%         0.53%
 
      Non-performing assets:
       Non-accrual loans:
        Residential one-to-four
         units                        $16,965       $20,746       $15,546
        Residential one-to-four
         units-subprime                26,353        22,296        15,426
        Other                           3,367         1,708         1,479
 
         Total non-accrual loans       46,685        44,750        32,451
 
        Troubled debt restructure-
         below market rate (a)            205           206           210
        Real estate acquired in
         settlement of loans           11,634         9,942         7,115
        Repossessed automobiles            15            76            --
 
         Total non-performing
          assets                      $58,539       $54,974       $39,776
                                      =======       =======       =======
 
      Non-performing assets as a
       percentage of total assets        0.53%         0.50%         0.40%
 
 
     (a) Represents a one-to-four unit residential loan.
 
 
                      Downey Financial Corp. and Subsidiaries
                       Selected Financial Statistics-Continued
                               (Dollars in Thousands)
 
                                                 Three Months Ended
                                                    Mar. 31, 2001
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
 
      Interest-earning assets:
       Loans                               $10,180,942   $212,762    8.36%
       Mortgage-backed securities                7,761        128    6.60
       Investment securities                   431,023      7,076    6.66
 
        Total interest-earning assets       10,619,726    219,966    8.29
      Non-interest-earning assets              353,887
 
       Total assets                        $10,973,613
                                           ===========
 
      Transaction accounts:
       Non-interest-bearing checking       $   246,246   $     --      --%
       Interest-bearing checking (a)           396,484        633    0.65
       Money market                             89,259        626    2.84
       Regular passbook                        766,948      6,427    3.40
 
        Total transaction accounts           1,498,937      7,686    2.08
      Certificates of deposit                6,873,614    107,115    6.32
 
       Total deposits                        8,372,551    114,801    5.56
      Borrowings                             1,716,077     25,962    6.14
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                  10,208,628    143,804    5.71
      Other liabilities                        129,588
      Stockholders' equity                     635,397
 
       Total liabilities and stockholders'
        equity                             $10,973,613
                                           ===========
 
      Net interest income/interest rate
       spread                                            $ 76,162    2.58%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                  $   411,098
      Effective interest rate spread                                 2.87
 
 
                                                 Three Months Ended
                                                    Dec. 31, 2000
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
      Interest-earning assets:
       Loans                               $ 9,803,336   $203,336    8.30%
       Mortgage-backed securities               11,282        184    6.52
       Investment securities                   378,359      6,255    6.58
 
        Total interest-earning assets       10,192,977    209,775    8.23
      Non-interest-earning assets              341,736
 
       Total assets                        $10,534,713
                                           ===========
 
      Transaction accounts:
       Non-interest-bearing checking       $   228,353    $    --      --%
       Interest-bearing checking (a)           386,301        778    0.80
       Money market                             88,956        636    2.84
       Regular passbook                        764,511      6,570    3.42
 
        Total transaction accounts           1,468,121      7,984    2.16
      Certificates of deposit                6,394,378    100,910    6.28
 
       Total deposits                        7,862,499    108,894    5.51
      Borrowings                             1,814,189     28,903    6.34
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                   9,796,688    140,838    5.72
      Other liabilities                        124,765
      Stockholders' equity                     613,260
 
       Total liabilities and stockholders'
        equity                             $10,534,713
                                           ===========
 
      Net interest income/interest rate
       spread                                            $ 68,937    2.51%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                  $   396,289
      Effective interest rate spread                                 2.71
 
 
                                                  Three Months Ended
                                                    Mar. 31, 2000
                                                                   Average
                                             Average                Yield/
                                             Balance     Interest    Rate
      Interest-earning assets:
       Loans                                $8,946,021   $172,470    7.71%
       Mortgage-backed securities               20,877        352    6.74
       Investment securities                   313,481      4,693    6.02
 
        Total interest-earning assets        9,280,379    177,515    7.65
      Non-interest-earning assets              336,592
 
       Total assets                         $9,616,971
                                            ==========
 
      Transaction accounts:
       Non-interest-bearing checking        $  191,192   $     --      --%
       Interest-bearing checking (a)           370,715        937    1.02
       Money market                             92,295        651    2.84
       Regular passbook                        820,498      7,373    3.61
 
        Total transaction accounts           1,474,700      8,961    2.44
      Certificates of deposit                5,275,462     72,272    5.51
 
       Total deposits                        6,750,162     81,233    4.84
      Borrowings                             2,108,736     30,478    5.81
      Capital securities                       120,000      3,041   10.14
 
       Total deposits, borrowings and
        capital securities                   8,978,898    114,752    5.14
      Other liabilities                         94,980
      Stockholders' equity                     543,093
 
       Total liabilities and stockholders'
        equity                              $9,616,971
                                            ==========
 
      Net interest income/interest rate
       spread                                            $ 62,763    2.51%
      Excess of interest-earning assets
       over deposits, borrowings and
       capital securities                   $  301,481
      Effective interest rate spread                                 2.71
 
 
     (a)  Includes amounts swept into money market deposit accounts.
 
 SOURCE  Downey Financial Corporation