Newport Beach, California - April 21, 2008 - Downey Financial Corp. (NYSE: DSL) reported a net loss for first quarter 2008 of $247.7 million or $8.89 per share on a diluted basis, compared to net income of $42.9 million or $1.54 per share in the year-ago first quarter.

In addition, the Board of Directors has declared a quarterly cash dividend of $0.12 per share payable on May 20, 2008, to shareholders of record on May 6, 2008. The Board also decided to suspend future dividend payments. Maurice McAlister, Chairman of the Board, commented, “Although it was a difficult decision, our Board of Directors believes the suspension of future dividends is in Downey’s best interest, as it will allow us to preserve capital during this difficult operating environment. The Board plans to reassess the dividend when economic conditions normalize.”

A significant factor contributing to the unfavorable change in net income/(loss) between first quarters was the recording of a $111.3 million valuation allowance against deferred tax assets in the current quarter within income taxes due to uncertainty regarding their realization. In addition, the $309.7 million unfavorable change in pre-tax income/(loss) between first quarters was due primarily to:

                A $236.3 million increase in provision for credit losses;

                A $41.4 million or 33.1% decline in net interest income due to a lower level of interest-earning assets and a lower effective interest rate spread;

                A $23.3 million increase in operating expense due to higher costs related to the operation of real estate acquired in settlement of loans, while general and administrative expense was 0.9% lower; and

                A $7.1 million decline in net gains from the sale of loans and mortgage-backed securities due to both a lower level of loans sold and gain per dollar of loan sold.

Rick McGill, President, commented, “As borrowers across the country continue to be adversely impacted by the ongoing weakening of the housing market, we remain focused on keeping our borrowers in their homes and avoiding foreclosures whenever possible. For example, we have had good success to date with our previously announced borrower retention program. Under that program, we modify loans at prevailing interest rates for those borrowers current with their loan payments. We also modify loans for delinquent borrowers in mutually beneficial workout situations. In response to those situations where foreclosure is unavoidable, we have established experienced sales teams in defined geographic regions who begin marketing the properties as soon as they become vacant. As a result, we have recently seen an increase in the rate at which our foreclosed homes are being sold. For example, in the current quarter, we sold 67 homes, approximately 61% of which occurred in March. At the end of the current quarter, about 23% of our inventory of unsold homes was either in escrow to be sold or in negotiation to be sold.”

 Mr. McGill continued, “While we deal with problem loans, we have not lost sight of our long-term future. In lending, we continue to enhance our home loan underwriting guidelines. The favorable results of such changes can be seen in the loans originated in the current quarter, which had an average FICO score of 745 and loan-to-value ratio of 65%, compared with averages of 721 and 67% in the year-ago quarter. The improved quality of our current loan portfolio also is reflected by the significant decline in our concentration of Option ARM loans. Our Option ARM loans declined by $3.1 billion from a year ago and currently represent 65% of our single family loans, compared to 81% a year ago. Financially, we believe our retail branch system and borrowing capacity at the Federal Home Loan Bank provide adequate liquidity. Our focus is on capital management and our capital levels continue to exceed the “well capitalized” levels established by banking regulation.”

Net Interest Income

Net interest income totaled $83.7 million in the first quarter of 2008, down $41.4 million or 33.1% from a year ago, reflecting a $2.513 billion or 16.5% decline in average interest-earning assets to $12.744 billion and a decline in the effective interest rate spread. The average effective interest rate spread was 2.63% in the current quarter, down 0.65% from a year ago and down 0.04% from the fourth quarter of 2007.

Compared to a year ago, the current quarter effective interest rate spread was unfavorably impacted by a higher proportion of non-performing assets and a higher proportion of interest-earning assets comprised of investment securities and hybrid adjustable rate mortgage loans, both of which have lower yields than those of option ARM loans that comprised a larger proportion of interest-earning assets a year ago. In addition, the current quarter effective interest rate spread was unfavorably impacted by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs, which declined to 27% in the current quarter from 84% a year ago. This decline was primarily the result of a higher proportion of loans being repaid that were no longer subject to prepayment fees primarily due to the increasing age of the loan portfolio. 

Provision for Credit Losses

During the current quarter, the provision for credit losses totaled $236.9 million, up $236.3 million from a year ago.

At March 31, 2008, the allowance for credit losses was $547.7 million, comprised of $546.7 million for loan losses and $1.0 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The allowance increased $198.4 million this quarter, of which $24.0 million is related to the specific allowance associated with certain troubled debt restructurings resulting from a borrower retention program which is discussed more fully below in the section entitled “Non-Performing Assets.” The balance of the increase to the allowance reflects further declines in the value of underlying home collateral as well as further increases in delinquent loans. This has been particularly true in certain geographic areas such as the greater Sacramento, Stockton, Modesto and Contra Costa areas of Northern California, the Inland Empire and San Diego County.Net loan charge-offs totaled $37.0 million in the current quarter, compared to $0.7 million a year ago. The current quarter net charge-offs are primarily related to residential one-to-four unit loans, with the annualized net charge-off ratio associated with these loans increasing to 0.97% from 0.02% a year ago. In addition, current quarter net charge-offs included $10.6 million associated with a $29 million residential lot land loan that was foreclosed upon during the quarter.

Other Income

Other income totaled $8.9 million in the current quarter, down $8.8 million or 49.5% from a year ago. Primary contributors to the decline between first quarters were:

                A $7.1 million decline in net gains on sale of loans and mortgage-backed securities, reflecting both a decline in loans sold and a lower gain per dollar of loan sold. Net gains in the current quarter totaled $1.6 million, including a $0.1 million loss due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain was realized equal to 0.75% on secondary market sales of $229 million, compared with the year-ago gain of 1.19% on secondary market sales of $714 million.

                A $1.1 million unfavorable change in income from real estate and joint ventures held for investment, as the current quarter included a writedown of $0.7 million to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago. Gains from sales in the current quarter were less than $0.1 million, compared to $0.5 million a year ago.

Operating Expense

Operating expense totaled $89.0 million in the current quarter, up $23.3 million or 35.6% from a year ago. The increase primarily reflected an increase of $23.9 million in net operations of real estate acquired in the settlement of loans due to a higher number of foreclosed properties, while general and administrative expense declined $0.6 million or 0.9% between first quarters. The decline in general and administrative expense was primarily attributable to a $2.5 million or 6.0% decline in salaries and related costs due to a decline in staff from a year ago and a $1.3 million decline in the other general and administrative expense category. Partially offsetting those declines was a $3.1 million goodwill impairment charge in the current quarter to eliminate the remaining goodwill balance and a $0.9 million increase in deposit insurance premiums and regulatory assessments.

Income Taxes

Due to providing a $111.3 million valuation allowance for deferred tax assets, a $14.5 million tax expense was recorded in the current quarter even though there was a loss before income taxes. In the year-ago quarter, the effective tax rate was 44.0% and reflected $1.6 million of interest expense associated with an underpayment of taxes related to certain loan origination costs. 

Assets, Loan Originations and Deposits

At March 31, 2008, assets totaled $13.131 billion, down $2.107 billion or 13.8% from a year ago. During the current quarter, assets declined $278 million due primarily to a decline of $417 million in loans held for investment, as loan payoffs exceeded originations and the reduction due to the increase in the allowance for loan losses. That decline was partially offset by a $74 million increase in real estate acquired in settlement of loans and a $53 million increase in investment securities available for sale. Included within loans held for investment at quarter end were $7.0 billion of single family adjustable rate mortgages subject to negative amortization, down $567 million from December 31, 2007. These loans comprised 65% of the single family residential loan portfolio held for investment at quarter end, compared to 81% a year ago. The amount of negative amortization included in loan balances declined $3 million during the current quarter to $375 million or 5.39% of loans subject to negative amortization. During the current quarter, approximately 20% of loan interest income represented negative amortization, down from 24% in the fourth quarter of 2007 and 31% in the year-ago first quarter.

 Loan originations (including purchases) totaled $676 million in the current quarter, down $585 million or 46.4% from $1.261 billion a year ago. Loans originated for sale declined $403 million or 63.0% to $237 million, while single family residential loans originated for portfolio declined $168 million or 27.8% to $435 million. In addition to single family residential loans, $3 million of other loans were originated in the current quarter, down from $17 million a year ago.

Not included in the above originations are loans for which we modify the terms of a borrower’s loan. During the current quarter, we modified $280 million of loans associated with the portfolio retention program, wherein the borrower was current with their loan payments and the new interest rate was no less than that afforded new borrowers, and $40 million of loans at below market interest rates in loan workout situations. Most of the modifications related to option ARM loans that were modified into ARMs with interest rates that adjust annually but do not permit negative amortization.

Deposits totaled $10.244 billion at quarter end, down $1.403 billion or 12.0% from a year ago. Although deposits declined from a year ago, the number of checking accounts increased 1.7%. At quarter end, the number of branches totaled 174 (169 in California and five in Arizona). At quarter end, the average deposit size of our 84 traditional branches was $97 million, while the average deposit size of our 90 in-store branches was $23 million. During the current quarter, borrowings increased by $341 million and at quarter end represented 13% of total assets.

Non-Performing Assets

Non-performing assets increased during the quarter by $521 million to $1.562 billion and represented 11.90% of total assets, compared with 7.77% at year-end 2007 and 0.94% a year ago. Of the current quarter increase, $189 million or 36% represented loans modified as part of a borrower retention program initiated at the beginning of the third quarter of 2007 to provide borrowers who are current with their loan payments a cost effective means to change from an option ARM to a less costly financing alternative. Those loans are considered troubled debt restructurings and have been placed on non-accrual status even though the interest rate following modification was no less than that afforded new borrowers. The reason for this is because the modified interest rate was lower than the interest rate on the original loan and the loan was not re-underwritten to prove that the new interest rate was, in fact, a market interest rate for a borrower with similar credit quality. Interest income is recorded as these borrowers make their loan payments and in the current quarter $8.8 million of interest income was recognized. If these borrowers perform pursuant to the modified terms for six consecutive months, the loans will be placed back on accrual status and, while still reported as troubled debt restructurings, they will no longer be classified as non-performing assets because the borrower will have demonstrated an ability to perform in accordance with the loan modification and the interest rate was no less than those afforded new borrowers at the time of modification. At the current quarter end, $49 million met the performance threshold and were removed from non-performing status.

To the extent borrowers whose loans were modified pursuant to the borrower retention program are current with their loan payments and included in non-performing assets, it is relevant to distinguish those from total non-performing assets because, unlike other loans classified as non-performing assets, these loans are paying interest at interest rates no less than those afforded new borrowers. At March 31, 2008, approximately 91% of such borrowers had made all loan payments due. Accordingly, when those performing troubled debt restructurings are excluded from the ratio of non-performing assets to total assets, the adjusted ratio drops to 7.41% compared to the actual ratio of 11.90%.

 At March 31, 2008, real estate acquired in settlement of loans totaled $189 million. Included are 575 single family homes, one property consisting of 113 single family lots and one property consisting of raw land for approximately 545 single family lots. During the quarter, 316 new single family homes were acquired, while 67 were sold. As of quarter end, 62 single family homes were in escrow to be sold and offers were being negotiated on an additional 72 homes.

Regulatory Capital Ratios

At March 31, 2008, Downey Financial Corp.'s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 8.43% and a risk-based capital ratio of 15.04%. 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 risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." 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, the outcome of ongoing audits by taxing authorities and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. Downey is not able to make any assurances, including but not limited to any assurances that the increased rate of sale of foreclosed homes will continue in future periods, the percentage of unsold homes in escrow or under negotiation will be representative of the number or percentage of homes sold in future periods, the improved quality of our loan portfolio will continue in future periods, we will have adequate liquidity in future periods, or capital levels will exceed “well-capitalized” levels in future periods.

For further information, contact: Brian E. Côté, Chief Financial Officer at (949) 509-4420.

Newport Beach, California - January 23, 2008 - Downey Financial Corp. (NYSE: DSL) reported a net loss for 2007 of $56.6 million or $2.03 per share on a diluted basis, compared to net income of $199.7 million or $7.16 per share in 2006.

The $439.8 million unfavorable change in pre-tax income/(loss) between years was due primarily to:

                A $283.5 million increase in provision for credit losses;

                A $94.8 million or 18.3% decline in net interest income due to a lower level of interest-earning assets and a lower effective interest rate spread;

                A $23.3 million or 53.4% decline in net gains on the sale of loans and mortgage-backed securities due to both a lower level of loans sold and gain per dollar of loan sold;

                A $17.8 million unfavorable change in income from real estate and joint ventures held for investment, as the current year included writedowns to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago; and

                A $14.8 million increase in operating expense, of which $9.2 million related to higher costs related to the operation of real estate acquired in settlement of loans.

Rick McGill, President, commented, “We are clearly disappointed with our results. The continued weakening of the housing market and its uncertain future have unfavorably impacted our borrowers and the value of their loan collateral. As a result, single family loan delinquencies, as well as losses from foreclosures, rose significantly during 2007 and led to the large increase to the allowance for loan losses. While we expect the environment to remain challenging in 2008, we enter the year with a strong capital position and stable funding sources from our retail branch franchise. As always, we remain committed to our heritage of providing our customers with excellent service.”

For the fourth quarter of 2007, a net loss of $108.8 million or $3.90 per diluted share was recorded, compared to net income of $52.1 million or $1.87 per share in the fourth quarter of 2006. The $274.4 million unfavorable change in pre-tax income/(loss) between fourth quarters primarily reflected:

                A $218.2 million increase in provision for credit losses;

                A $40.9 million decline in net interest income due to a lower level of interest-earning assets and a lower effective interest rate spread;

                A $8.4 million decline in net gains on sales of loans and mortgage-backed securities due to both a lower level of loans sold and gain per dollar of loan sold; and

                A $5.3 million increase operating expense, of which $4.5 million related to higher costs associated with the operation of real estate acquired in settlement of loans.

Net Interest Income

Net interest income totaled $89.3 million in the fourth quarter of 2007, down $40.9 million or 31.4% from a year ago, reflecting a $2.773 billion or 17.1% decline in average interest-earning assets and a decline in the effective interest rate spread. The average effective interest rate spread was 2.67% in the current quarter, down 0.55% from a year ago and down 0.12% from the third quarter of 2007.

Compared to a year ago, the current quarter effective interest rate spread was unfavorably impacted by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs, which declined to 48% in the current quarter from 98% a year ago. This decline was primarily the result of a higher proportion of loans being repaid that were no longer subject to prepayment fees primarily due to the increasing age of the loan portfolio. In addition, the current quarter effective interest rate spread was unfavorably impacted by a higher proportion of non-performing assets and a higher proportion of interest-earning assets comprised of investment securities and hybrid adjustable rate mortgage loans, both of which have lower yields than those of option ARM loans that comprised a larger proportion of interest-earning assets a year ago.

For 2007, net interest income totaled $423.8 million, down $94.8 million or 18.3% from a year ago.

Provision for Credit Losses

During the current quarter, the provision for credit losses totaled $218.4 million, up $218.2 million from a year ago. Of the current quarter provision for credit losses, $39.5 million is related to the creation of a specific allowance associated with certain troubled debt restructurings resulting from a borrower retention program which is discussed more fully below in the section entitled “Non-Performing Assets.”

At December 31, 2007, the allowance for credit losses was $349 million, comprised of $348 million for loan losses and $1 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The increase to the allowance this quarter reflected further increases in delinquent loans and declines in the value of underlying home collateral due to the continued weakening and uncertainty relative to the housing market. This has been particularly true in certain geographic areas such as the greater Sacramento, Stockton, Modesto and Monterey areas of Northern California, the Inland Empire and San Diego County. Net loan charge-offs totaled $12.2 million in the current quarter, compared to $0.3 million a year ago. The current quarter net charge-offs are primarily related to residential one-to-four unit loans, with the annualized net charge-off ratio associated with these loans increasing to 0.43% from 0.01% a year ago.

For 2007, the provision for credit losses totaled $310.1 million and net charge-offs were $22.3 million. This compares with a $26.6 million provision for credit losses and net charge-offs of $0.5 million a year ago.

Other Income

Other income totaled $8.2 million in the current quarter, down $10.0 million or 54.9% from a year ago. The primary factor contributing to the decline between fourth quarters was a $8.4 million decline in net gains on sale of loans and mortgage-backed securities, reflecting both a decline in loans sold and a lower gain per dollar of loan sold. Net gains in the current quarter totaled $0.1 million, including a $0.5 million loss due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain was realized equal to 0.31% on secondary market sales of $176 million, compared with the year-ago gain of 1.23% on secondary market sales of $714 million.

For 2007, other income totaled $46.5 million, down $46.7 million or 50.1% from a year ago.

Operating Expense

Operating expense totaled $67.3 million in the current quarter, up $5.3 million or 8.5% from a year ago.The increase primarily reflected an increase of $4.5 million in net operations of real estate acquired in the settlement of loans due to a higher number of foreclosed properties. In addition to one property comprising 113 single family lots, the inventory of single family homes available for sale totaled 326 at year end, up from 33 a year ago. General and administrative expense increased $0.8 million or 1.2%. All major categories of general and administrative expense were above year-ago levels except for salaries and related costs, down $1.6 million or 3.9% and advertising expense, down $0.5 million.

For 2007, operating expense totaled $258.0 million, up $14.8 million or 6.1% from a year ago.

Income Taxes

The effective tax rate was a benefit of 42.18% in the current quarter and 42.14% for the current year, compared to an expense of 39.49% in the prior fourth quarter and 41.62% in the prior year.

Assets, Loan Originations and Deposits

At December 31, 2007, assets totaled $13.409 billion, down $2.798 billion or 17.3% from a year ago. During the current quarter, assets declined $1.009 billion due primarily to declines of $592 million in securities available for sale and $569 million in loans held for investment, as loan payoffs exceeded originations. Included within loans held for investment at quarter end were $7.531 billion of single family adjustable rate mortgages subject to negative amortization, down $725 million from September 30, 2007. These loans comprised 69% of the single family residential loan portfolio held for investment at quarter end, compared to 85% a year ago. The amount of negative amortization included in loan balances declined $9 million during the current quarter to $379 million or 5.03% of loans subject to negative amortization. During the current quarter, approximately 24% of loan interest income represented negative amortization, down from 26% in the third quarter of 2007 and 29% in the year-ago fourth quarter.

Loan originations (including purchases) totaled $618 million in the current quarter, down $722 million or 53.9% from $1.340 billion a year ago. Loans originated for sale declined $587 million or 75.3% to $192 million, while single family residential loans originated for portfolio declined $160 million or 28.9% to $394 million. In addition to single family residential loans, $32 million of other loans were originated in the current quarter, up from $7 million a year ago. For 2007, loan originations totaled $3.782 billion, down 51.7% from $7.829 billion in the same period a year ago.

 Not included in the above originations are loans in which we modify the terms of the note for borrowers. During the current quarter, we modified $322 million of loans associated with the portfolio retention program, wherein the borrower was current with their loan payments and the new interest rate was no less than that afforded new borrowers, and $9 million of loans at below market interest rates in loan workout situations. For 2007, we modified $421 million associated with the portfolio retention program and $12 million in loan workout situations. Most of the modifications related to option ARM loans were modified into hybrid ARMs where the interest rate is fixed for the first five years or ARMs with interest rates that adjust annually. Both of these products do not permit negative amortization.

Deposits totaled $10.496 billion at quarter end, down $1.289 billion or 10.9% from a year ago. Although deposits declined during the year, the number of checking accounts increased 5.7%. At quarter end, the number of branches totaled 172 (168 in California and four in Arizona). At quarter end, the average deposit size of our 82 traditional branches was $102 million, while the average deposit size of our 90 in-store branches was $24 million. During the year, borrowings declined by $1.413 billion and at year end represented 10.4% of total assets.

Non-Performing Assets

Non-performing assets increased during the quarter by $618 million to $1.042 billion and represented 7.77% of total assets, compared with 0.68% at year-end 2006. Of the increase, $321 million or about half represented loans modified as part of a borrower retention program initiated at the beginning of the third quarter of 2007 to provide borrowers who are current with their loan payments a cost effective means to change from an option ARM to a less costly financing alternative. Those loans are considered troubled debt restructurings and have been placed on non-accrual status even though the interest rate following modification was no less than that afforded new borrowers. The reason for this is because the modified interest rate was lower than the interest rate on the original loan and the loan was not re-underwritten to prove that the new interest rate was, in fact, a market interest rate for a borrower with similar credit quality. Interest income will be recorded as these borrowers make their loan payments. If these borrowers perform pursuant to the modified terms for six months, the loans will be placed back on accrual status and, while still reported as troubled debt restructurings, they will no longer be classified as non-performing assets because the borrower will have demonstrated an ability to perform in accordance with the loan modification and the interest rate was no less than those afforded new borrowers at the time of modification.

To the extent borrowers whose loans were modified pursuant to the borrower retention program are current with their loan payments, it is relevant to distinguish those from total non-performing assets because, unlike other loans classified as non-performing assets, these loans are paying interest at interest rates no less than those afforded new borrowers. At year-end 2007, approximately 95% of such borrowers had made all loan payments due. Accordingly, when those performing troubled debt restructurings are excluded from the ratio of non-performing assets to total assets, the adjusted ratio drops to 4.78% compared to the actual ratio of 7.77%.

Regulatory Capital Ratios

At December 31, 2007, Downey Financial Corp.'s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 10.18% and a risk-based capital ratio of 19.01%. 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 risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." 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, the outcome of ongoing audits by taxing authorities and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

For further information, contact: Brian E. Côté, Chief Financial Officer at (949) 509-4420.

Newport Beach, California - October 17, 2007 - Downey Financial Corp. (NYSE: DSL) reported a net loss for the third quarter of 2007 of $23.4 million or $0.84 per share on a diluted basis, compared to net income of $55.6 million or $1.99 per share in the third quarter of 2006.

The $135.8 million unfavorable change in pre-tax income /(loss) between third quarters was due primarily to:

                A $71.9 million increase in provision for credit losses;

                A $32.3 million or 24.8% decline in net interest income due to a lower level of interest-earning assets and, to a lesser extent, a lower effective interest rate spread;

                A $13.2 million unfavorable change in income from real estate and joint ventures held for investment, as the current quarter included a writedown of $9.0 million to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago; and

                A $12.3 million or 83.1% decline in net gains on sales of loans and mortgage-backed securities due to both a lower level of loans sold and gain per dollar of loan sold.

For the first nine months of 2007, net income totaled $52.2 million or $1.87 per share on a diluted basis, down 64.6% from the $147.5 million or $5.29 per share for the first nine months of 2006.

Daniel D. Rosenthal, President and Chief Executive Officer, “We are clearly disappointed with our third quarter results. The continued weakening and uncertainty relative to the housing market, coupled with the third-quarter disruption in the secondary mortgage markets, unfavorably impacted our borrowers and the value of their loan collateral. As a result, single family loan delinquencies, as well as losses from foreclosures, rose significantly during the third quarter and led to this quarter’s large increase to the allowance for loan losses. However, despite this quarter’s unfavorable results, Downey remains well positioned to continue funding quality loans because of our strong capital position and stable source of funds from our retail branch franchise.” 

Net Interest Income

Net interest income totaled $98.0 million in the third quarter of 2007, down $32.3 million or 24.8% from a year ago, reflecting a $2.747 billion or 16.4% decline in average interest-earning assets and a decline in the effective interest rate spread. The average effective interest rate spread was 2.79% in the current quarter, down 0.31% from a year ago and down 0.28% from the second quarter of 2007. Compared to a year ago, the current quarter effective interest rate spread was unfavorably impacted by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs, which declined to 52.4% in the current quarter from 100.8% a year ago. This decline was the result of a higher proportion of loans being repaid that were no longer subject to prepayment fees primarily due to the increasing age of the loan portfolio. In addition, the current quarter effective interest rate spread was unfavorably impacted by a higher proportion of earning assets being comprised of investment securities and hybrid adjustable rate mortgage loans, both of which have lower yields than those of option ARM loans that comprised a larger proportion of interest-earning assets a year ago. However, these unfavorable items were partially offset by a higher proportion of interest-earning assets being funded with interest free funds (the excess of interest-earning assets over interest-bearing deposits and borrowings).

For the first nine months of 2007, net interest income totaled $334.5 million, down $54.0 million or 13.9% from the year-ago period.

Provision for Credit Losses

During the current quarter, the provision for credit losses totaled $81.6 million, up $71.9 million from a year ago. At September 30, 2007, the allowance for credit losses was $143.6 million, comprised of $142.2 million for loan losses and $1.4 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The increase to the allowance this quarter reflected the unfavorable impact to our borrowers and the value of their loan collateral from the continued weakening and uncertainty relative to the housing market, coupled with the current quarter disruption in the secondary mortgage markets. This has been particularly true in certain geographic areas such as the greater Sacramento and Stockton areas of Northern California and San Diego County. Net charge-offs of loans totaled $8.3 million in the current quarter, compared to $0.2 million a year ago. Included was a $4.0 million net charge-off associated with a $11.3 million land loan that was foreclosed upon during the quarter. The balance of the net charge-offs in the current quarter are primarily related to residential one-to-four unit loans, with the annualized net charge-off ratio associated with these loans increasing to 0.15% from less 0.01% a year ago.

For the first nine months of 2007, the provision for credit losses totaled $91.7 million and net charge-offs were $10.0 million. This compares with a $26.4 million provision for credit losses and net charge-offs of $0.3 million a year ago.

Other Income

Other income totaled $3.0 million in the current quarter, down $27.6 million or 90.1% from a year ago. Contributing to the decline between third quarters was:

                A $13.2 million unfavorable change in income from real estate and joint ventures held for investment, as the current quarter included a writedown of $9.0 million to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago. Gains from sales in the current quarter totaled $0.7 million, compared to $5.7 million a year ago; and

                A $12.3 million decline in net gains on sales of loansand mortgage-backed securities, reflecting both a decline in loans sold and a lower gain per dollar of loan sold. Net gains in the current quarter totaled $2.5 million, including a $0.6 million loss due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain was realized equal to 0.91% on secondary market sales of $337 million, compared with the year-ago gain of 1.68% on secondary market sales of $903 million.

For the first nine months of 2007, other income totaled $38.2 million, down $36.7 million or 48.9% from a year ago.

Operating Expense

Operating expense totaled $62.7 million in the current quarter, up $4.0 million or 6.8% from a year ago.The increase primarily reflected an increase of $3.5 million in net operations of real estate acquired in the settlement of loans due to a higher number of foreclosed properties, including 113 single family lots acquired through foreclosure of a land loan during the quarter. In addition, general and administrative expense increased $0.5 million or 0.8%. All major categories of general and administrative expense were above year-ago levels except for salaries and related costs, which were $2.2 million or 5.8% below the prior year. The decline in salaries and related costs primarily reflected the reversal in the current quarter of certain management incentive plan accruals.

For the first nine months of 2007, operating expense totaled $190.7 million, up $9.5 million or 5.3% from a year ago.

Income Taxes

The effective tax rate in the current quarter was 45.96%, compared to 39.92% in the year-ago quarter. The increase in the effective tax rate between third quarters primarily reflected a reduction in tax expense in the year-ago quarter related to a settlement of prior-year tax returns. For the first nine months of 2007, the effective tax rate was 42.22%, compared to 42.34% a year ago.

Assets, Loan Originations and Deposits

At September 30, 2007, assets totaled $14.418 billion, down $2.564 billion or 15.1% from a year ago and down $1.790 billion or 11.0% from year-end 2006. During the current quarter, assets declined $485 million due primarily to declines of $602 million in loans held for investment and $98 million in loans held for sale. Those declines were partially offset by an increase of $225 million in securities available for sale. Included within loans held for investment at quarter end were $8.255 billion of single family adjustable rate mortgages subject to negative amortization, down $659 million from June 30, 2007. These loans comprised 74% of the single family residential loan portfolio held for investment at quarter end, compared to 87% a year ago. The amount of negative amortization included in loan balances increased $11 million during the current quarter to $388 million or 4.70% of loans subject to negative amortization. During the current quarter, approximately 26% of loan interest income represented negative amortization, down from 29% in the second quarter of 2007 and 28% in the year-ago third quarter.

Loan originations (including purchases) totaled $694 million in the current quarter, down $911 million or 56.8% from $1.605 billion a year ago. Loans originated for sale declined $579 million or 70.3% to $245 million, while single family residential loans originated for portfolio declined $332 million or 43.5% to $432 million. In addition to single family residential loans, $17 million of other loans were originated in the current quarter, similar to the amount a year ago. For the first nine months of 2007, loan originations totaled $3.164 billion, down 51.2% from $6.489 billion in the same period a year ago.

Deposits totaled $10.663 billion at quarter end, down $1.283 billion or 10.7% from a year ago and down $1.122 billion or 9.5% from year-end 2006. At quarter end, the number of branches totaled 172 (168 in California and four in Arizona). At quarter end, the average deposit size of our 82 traditional branches was $103 million, while the average deposit size of our 90 in-store branches was $25 million. Since the end of 2006, borrowings have declined by $735 million and at the end of the current quarter represented 14.4% of total assets.

Non-Performing Assets

Non-performing assets increased during the quarter by $97 million or 42.5% to $324 million and represented 2.25% of total assets, compared with 0.68% at year-end 2006 and 0.39% a year ago. Virtually all of the increase in the current quarter was related to single family residential loans. 

Regulatory Capital Ratios

At September 30, 2007, Downey Financial Corp's primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 10.21% and a risk-based capital ratio of 21.34%. 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 risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." 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, the outcome of ongoing audits by taxing authorities and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

For further information, contact: Brian E. Côté, Chief Financial Officer at (949) 509-4420.

Newport Beach, California - July 18, 2007 - Downey Financial Corp. (NYSE: DSL) reported net income for the second quarter of 2007 of $32.7 million or $1.17 per share on a diluted basis, down 32.1% from $48.2 million or $1.73 per share in the second quarter of 2006.

The decline in net income between second quarters was due primarily to:

                A $20.9 million decline in net interest income due to a lower level of interest-earning assets;

                A $2.8 million increase in the provision for credit losses;

                A $2.7 million decline in income from real estate and joint ventures held for investment;

                A $1.2 million decline in income from loan servicing activities; and

                A $0.9 million increase in the net operation of real estate acquired in settlement of loans.

For the first six months of 2007, net income totaled $75.6 million or $2.71 per share on a diluted basis, down 17.7% from the $91.9 million or $3.30 per share for the first six months of 2006.

Daniel D. Rosenthal, President and Chief Executive Officer, commented, “The ongoing softening of the housing market, coupled with a challenging interest rate environment, have contributed to continued declines in our loan portfolio and increases in our non-performing loans. However, we continue to have a very strong capital position which will allow us to take advantage of opportunities as they arise.”

Net Interest Income

Net interest income totaled $111.5 million in the second quarter of 2007, down $20.9 million or 15.8% from a year ago. The decline reflected a $2.725 billion or 15.8% decline in average interest-earning assets. However, the effective interest rate spread of 3.07% in the current quarter remained unchanged from a year ago. 

Compared to a year ago, the current quarter effective interest rate spread was unfavorably impacted by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs, which declined to 72.3% in the current quarter from 99.5% a year ago. This decline was the result of a higher proportion of loans being repaid that were no longer subject to a prepayment fee primarily due to the increasing age of the loan portfolio. In addition, current quarter effective interest rate spread was unfavorably impacted by a higher proportion of earning assets being comprised of investment securities and hybrid adjustable rate mortgage loans, both of which have lower yields than those of option ARM loans that comprised a larger proportion of interest-earning assets a year ago. However, these unfavorable items were essentially offset by a higher proportion of interest-earning assets being funded with interest free funds (the excess of interest-earning assets over interest-bearing deposits and borrowings) and the value of those funds was worth more than a year ago due to the higher interest rates prevalent during the current quarter.

For the first six months of 2007, net interest income totaled $236.6 million, down $21.7 million or 8.4% from the year-ago period.

Provision for Credit Losses

During the current quarter, the provision for credit losses totaled $9.5 million, up $2.8 million from a year ago. At June 30, 2007, the allowance for credit losses was $70.4 million, comprised of $69.1 million for loan losses and $1.3 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The increase to the allowance this quarter reflected the continued weakness of the California residential real estate market. In addition, a shift in the yield curve has resulted in higher mortgage interest rates which negatively affects the ability of certain borrowers to refinance which, in turn, increases their probability of default. Net charge-offs totaled $1.0 million in the current quarter, compared to virtually none a year ago.

For the first six months of 2007, the provision for credit losses totaled $10.1 million and net charge-offs were $1.7 million. This compares with a $16.7 million provision for credit losses and net charge-offs of $0.1 million a year ago.

Other Income

Other income totaled $17.5 million in the current quarter, down $3.5 million or 16.7% from a year ago. Contributing to the decline between second quarters was:

                A $2.7 million decline in income from real estate and joint ventures held for investment, primarily due to lower gains from sales as well as a $0.4 million provision for losses on real estate and joint ventures. Gains from sales totaled $0.4 million in the current quarter, compared to $2.6 million a year ago; and

                A $1.2 million unfavorable change in income from loan servicing activities, as the current quarter reflected a loss of $0.8 million compared to income of $0.4 million a year ago. The unfavorable change primarily reflected a $1.2 million increase in payoff and curtailment interest costs, which represents the difference between the contractual obligation to pay interest to the investor for an entire month and the actual interest received when a loan prepays prior to the end of the month. It should be noted that this cost does not include the benefit derived from the use of repaid loan funds until remitted to the investor which results in an increase in net interest income.

For the first six months of 2007, other income totaled $35.2 million, down $9.0 million or 20.4% from a year ago.

Operating Expense

Operating expense totaled $62.4 million in the current quarter, up $1.4 million or 2.3% from a year ago. The increase reflected increases of $0.9 million in net operations of real estate owned due to a higher number of foreclosed properties and $0.5 million in general and administrative expense. All major categories of general and administrative expense were unchanged or above a year ago except for the other general and administrative expense category, with the largest increases being $1.5 million in deposit insurance premiums and regulatory assessments and $0.7 million in premises and equipment costs. The other general and administrative expense category was $2.1 million below a year ago, primarily due to an adjustment to reserves associated with workers’ compensation insurance claims.

For the first six months of 2007, operating expense totaled $128.0 million, up $5.5 million or 4.5% from a year ago.

Income Taxes

The effective tax rate in the current quarter was 42.67%, compared to 43.78% in the year-ago quarter. For the first six months of 2007, the effective tax rate was 43.43%, compared to 43.71% a year ago.

Assets, Loan Originations and Deposits

At June 30, 2007, assets totaled $14.903 billion, down $2.562 billion or 14.7% from a year ago and down $1.304 billion or 8.0% from year-end 2006. During the current quarter, assets declined $335 million due primarily to declines of $738 million in loans held for investment and $80 million in loans held for sale. Those declines were partially offset by an increase of $506 million in securities available for sale. Included within loans held for investment at quarter end were $8.914 billion of single family adjustable rate mortgages subject to negative amortization, down $1.140 billion from March 31, 2007. These loans comprised 76% of the single family residential loan portfolio at quarter end, compared to 89% a year ago. The amount of negative amortization included in loan balances increased $20 million during the current quarter to $377 million or 4.23% of loans subject to negative amortization. During the current quarter, approximately 29% of loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter.

Loan originations (including purchases) totaled $1.209 billion in the current quarter, down $862 million or 41.6% from $2.071 billion a year ago. Loans originated for sale declined $397 million or 44.5% to $495 million, while single family residential loans originated for portfolio declined $431 million or 38.1% to $699 million. In addition to single family residential loans, $15 million of other loans were originated in the current quarter. For the first six months of 2007, loan originations totaled $2.470 billion, down 49.4% from $4.884 billion in the same period a year ago.

Deposits totaled $11.247 billion at quarter end, down $641 million or 5.4% from a year ago and down $538 million or 4.6% from year-end 2006. At quarter end, the number of branches totaled 172 (168 in California and four in Arizona), down one branch from March 31, 2007 due to the closure of the store in which it was located. At quarter end, the average deposit size of our 82 traditional branches was $108 million, while the average deposit size of our 90 in-store branches was $26 million. Since the end of 2006, borrowings have declined by $919 million and represented at the end of the current quarter 12.7% of total assets.

Non-Performing Assets

Non-performing assets increased during the quarter by $84 million or 58.5% to $227 million and represented 1.53% of total assets, compared with 0.68% at year-end 2006 and 0.23% a year ago. Of the increase in the current quarter, $76 million was related to single family residential loans, while $7 million represented a construction loan to build single family homes on which no significant loss is expected at this time. 

Regulatory Capital Ratios

At June 30, 2007, Downey Financial Corp.'s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 10.08% and a risk-based capital ratio of 20.86%. 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 risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." 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, the outcome of ongoing audits by taxing authorities and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

For further information, contact: Brian E. Côté, Chief Financial Officer at (949)509-4420.

Newport Beach, California - April 18, 2007 - Downey Financial Corp. (NYSE: DSL) reported net income for the first quarter of 2007 of $42.9 million or $1.54 per share on a diluted basis, down 1.9% from $43.7 million or $1.57 per share in the first quarter of 2006. (Please refer to Income Taxes below for a discussion regarding revisions to prior period results.)

The decline in net income between first quarters was primarily due to:

                A $3.8 million or 6.2% increase in general and administrative expense;

                A $2.9 million decline in net gains on sales of loans and mortgage-backed securities, primarily due to a lower volume of loans sold and, to a lesser extent, a lower gain per dollar of loan sold;

                A $1.8 million decline in income from real estate and joint ventures held for investment;

                A $0.8 million decline in net interest income due to a lower level of interest-earning assets; and

                A $0.6 million unfavorable change in income from loan servicing activities.

Those unfavorable items were partially offset by a $9.4 million decline in provision for credit losses.

Daniel D. Rosenthal, President and Chief Executive Officer, commented, “Last year’s challenging business environment, characterized by a softening in the residential housing market and an inverted yield curve, has carried into 2007 and contributed to further declines in our loan portfolio. In addition, there has been much publicity this year about credit quality issues associated with subprime lending that has lead to the closing of numerous subprime lenders and the declaring of bankruptcy by others. Downey has historically been involved in subprime lending and has had very few losses. Our subprime portfolio has declined and represents less than 6% of our loan portfolio. We continue to have a strong capital position which will allow us to take advantage of any opportunities that may arise.”

Net Interest Income

Net interest income totaled $125.1 million in the first quarter of 2007, down $0.8 million or 0.6% from a year ago, reflecting a $1.7 billion or 10.2% decline in average interest-earning assets. The effective interest rate spread averaged 3.28% in the current quarter, up 0.31% from 2.97% a year ago, and up 0.06% from 3.22% in the fourth quarter of 2006. The increase in the effective interest rate spread between first quarters was primarily the result of two factors. First, interest-earning assets in the current quarter were funded with a higher proportion of interest free funds (the excess of interest-earning assets over interest-bearing deposits and borrowings), and the value of those funds was worth more due to the higher interest rate levels prevalent in the current quarter. Second, the yield on interest-earning assets rose more between first quarters than did the cost of interest-bearing liabilities. Those two favorable items were partially offset by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs. Loan prepayment fees in the first quarter of 2007 represented 84.5% of deferred loan origination costs written-off, compared to 97.4% a year ago. The decline was the result of a higher proportion of loans being repaid that were no longer subject to a prepayment fee.

Provision for Credit Losses

During the current quarter, the provision for credit losses totaled $0.6 million, down $9.4 million from a year ago. At March 31, 2007, the allowance for credit losses was the same as at year-end 2006, $62 million, comprised of $61 million for loan losses and $1 million for unfunded loan commitments which is reported in the category accounts payable and accrued liabilities. Although the California residential real estate market continued to show signs of weakening during the current quarter, a $823 million or 6.2% drop in the single-family residential loan portfolio mitigated the need to increase the associated allowance for loan losses. Net charge-offs totaled $0.7 million in the current quarter, up from $0.1 million a year ago.

Other Income

Other income totaled $17.7 million in the current quarter, down $5.5 million from a year ago. Contributing to the decline between first quarters was:

                A $2.9 million decline in net gains on sales of loans and mortgage-backed securities, primarily due to a lower volume of loans sold. Net gains in the current quarter totaled $8.7 million, including a $0.3 million gain due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain was realized equal to 1.19% on secondary market sales of $714 million, compared with the year-ago gain of 1.30% on secondary market sales of $876 million.

                A $1.8 million decline in income from real estate and joint ventures held for investment, primarily due to higher operating charges from investments in joint ventures and lower gains from sales. Gains from sales totaled $0.5 million in the current quarter, compared to $1.0 million a year ago.

                A $0.6 million unfavorable change in income from loan servicing activities, as the current quarter reflected a loss of $0.4 million compared to income of $0.2 million a year ago. The unfavorable change primarily reflected a $0.8 million increase in payoff and curtailment interest costs, which represents the difference between the contractual obligation to pay interest to the investor for an entire month and the actual interest received when a loan prepays prior to the end of the month. It should be noted that this cost does not include the benefit derived from the use of repaid loan funds until remitted to the investor which results in an increase in net interest income. 

Operating Expense

Operating expense totaled $65.6 million in the current quarter, up $4.1 million or 6.7% from a year ago. The increase primarily reflected a $1.8 million increase associated with higher deposit insurance premiums and regulatory assessments and a $1.5 million or 3.6% increase in salaries and related costs.

Income Taxes

The effective tax rate in the current quarter was 44.00%, compared to 43.64% in the year-ago quarter. The difference in effective tax rates was due primarily to interest associated with a potential underpayment of taxes, as discussed in more detail below.

The IRS is currently auditing Downey’s 2004 tax return, including its treatment of certain loan origination costs. As a result, Downey has determined there is substantial ambiguity surrounding the treatment of certain loan origination costs on its tax returns for 2003 through 2005. Since year-end 2006, Downey has made payments of taxes (previously accrued for in prior period financial statements) and interest to federal and state taxing authorities in the amount of $88.9 million for the purpose of avoiding penalties and further interest pending resolution of this ambiguity. The potential after-tax interest assessment related to Downey’s tax returns for 2003 through 2005 totals $10.8 million. Of that amount, $1.6 million was accrued for 2007 and has been recorded as additional income taxes in the current quarter, and $9.2 million was accrued for 2004 through 2006 and will be reflected in income taxes in those prior periods in future SEC filings. (The impact of these prior period adjustments on net income and earnings per share is shown below in Supplemental Information, Tax Deduction of Loan Origination Costs. A comprehensive footnote describing this situation and its impact on previously filed financial statements will be included in Downey’s first quarter Form 10-Q. However, previously filed financial statements on Form 10-K and Form 10-Q will not be amended as the impact on all prior periods is considered immaterial.) 

While the IRS may assert a $9.2 million penalty (including penalty interest) against Downey related to its 2004 tax return, Downey has determined it is unlikely any such penalty would be sustained, and it would vigorously contest any penalty that would be proposed.

Assets, Loan Originations and Deposits

At March 31, 2007, assets totaled $15.238 billion, down $2.565 billion or 14.4% from a year ago. During the current quarter, assets declined $970 million or 6.0 % due primarily to declines of $865 million in loans held for investment and $95 million in loans held for sale. Included within loans held for investment at quarter end were $10.055 billion of one-to-four unit adjustable rate mortgages subject to negative amortization, down $1.145 billion from year-end 2006. These loans comprised 81% of the one-to-four unit residential portfolio at quarter end, compared to 92% a year ago. The amount of negative amortization included in loan balances increased $37 million during the current quarter to $358 million or 3.56% of loans subject to negative amortization. During the current quarter, approximately 31% of loan interest income represented negative amortization, up from both 29% in the fourth quarter of 2006 and 25% in the year-ago first quarter.

Loan originations (including purchases) totaled $1.261 billion in the current quarter, down $1.552 billion or 55.2% from $2.813 billion a year ago. Loans originated for sale declined $339 million or 34.6% to $641 million, while single family loans originated for portfolio declined $1.116 billion or 64.9% to $603 million. In addition to single family loans, $17 million of other loans were originated in the current quarter. 

 Deposits totaled $11.647 billion at quarter end, down 4.5% from a year ago and down $137 million or 1.2% from year-end 2006. At quarter end, the number of branches totaled 173 (169 in California and four in Arizona), up one branch from December 31, 2006. During the current quarter, one traditional branch was opened. At quarter end, the average deposit size of our 82 traditional branches was $112 million, while the average deposit size of our 91 in-store branches was $27 million. Since the end of 2006, borrowings declined $766 million and represented 13.4% of total assets.

Non-Performing Assets

Non-performing assets increased during the quarter by $33 million to $143 million and represented 0.94% of total assets, compared with 0.68% at year-end 2006 and 0.22% a year ago. 

Regulatory Capital Ratios

At March 31, 2007, Downey Financial Corp.'s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 9.64% and a risk-based capital ratio of 19.57%. 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 risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." 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, the outcome of the IRS audit currently underway, and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

For further information, contact: Brian E. Côté, Chief Financial Officer at (949)509-4420.