Downey Financial 8K Earnings Release and Table Listing | SEC 19 Jul 06

EXHIBIT 99.1

Earnings Release and Table Listing

Earnings Release Narrative
Consolidated Balance Sheets
Consolidated Statements of Income
Selected Financial Data

DOWNEY FINANCIAL CORP.
N E W S R E L E A S E		For further information contact: Brian E. Côté Chief Financial Officer (949) 509-4420

DOWNEY ANNOUNCES SECOND QUARTER EARNINGS

Newport Beach, California - July 19, 2006 - Downey Financial Corp. (NYSE: DSL) reported that net income for the second quarter of 2006 totaled $49.5 million or $1.77 per share on a diluted basis, down 22.7% from the $64.1 million or $2.30 per share in the year-ago second quarter.

The decline in net income between second quarters primarily reflected:

A $40.2 million decline in net gains on sales of loans and mortgage-backed securities due to a lower volume of loans sold and a lower gain per dollar of loan sold;
A $6.1 million increase in provision for credit losses;
A $2.6 million or 4.4% increase in general and administrative expense; and
A $1.8 million unfavorable change in income from a litigation award, as the year-ago second quarter included an award associated with an other real estate owned asset that had suffered damage from earth movement.

Those unfavorable items were partially offset by:

A $22.0 million or 19.9% increase in net interest income reflecting both a higher level of average interest-earning assets and effective interest rate spread; and
A $3.0 million favorable change in loan servicing activities due to a favorable change in the valuation allowance for mortgage servicing rights.

For the first six months of 2006, net income totaled $94.3 million or $3.38 per share on a diluted basis, down 18.6% from the $115.8 million or $4.16 per share for the first six months of 2005.

Daniel D. Rosenthal, President and Chief Executive Officer, commented, "As we previously indicated, several months ago we increased the minimum payment or start rate on option ARMs we originate for portfolio to reduce the potential for negative amortization. We also indicated that our future production of option ARMs for portfolio might not offset loan payoffs, as our minimum payment rate was likely to remain higher than most of our competitors. Although we offer other types of adjustable rate loans for portfolio that do not permit negative amortization, there is less consumer demand for these products and, therefore, loan originations for portfolio did indeed fall short of loan payoffs in the second quarter. We will continue to closely monitor trends in the residential housing and lending markets, especially the pricing of our competitors, and we will make pricing adjustments as deemed appropriate and necessary."

Page 1

Net Interest Income

Net interest income totaled $132.3 million in the second quarter of 2006, up $22.0 million or 19.9% from a year ago. This increase reflected both a higher level of average interest-earning assets and effective interest rate spread. Interest-earning assets averaged $17.259 billion in the current quarter, up 4.3% from the same period a year ago. The effective interest rate spread averaged 3.07% in the current quarter, up from 2.67% a year ago and 2.97% in the first quarter of 2006. The increase in the effective interest rate spread between second quarters primarily reflected two items. First, interest-earning assets in the current quarter were funded with a higher proportion of interest free funds (non-interest bearing checking accounts and the excess of interest-earning assets over deposits and borrowings), and the value of those funds was worth more due to the higher interest rate levels prevalent in the quarter. Second, loan prepayment fees covered a higher proportion of the deferred loan costs that were written-off as a result of those payoffs.

For the first six months of 2006, net interest income totaled $258.3 million, up $42.9 million or 19.9% from the year-ago period.

Provision for Credit Losses

Provision for credit losses totaled $6.7 million in the second quarter of 2006, up $6.1 million from a year ago. During the current quarter, California residential real estate markets continued to show signs of slower sales and flattening home values. In addition, the amount of negative amortization associated with option ARM loans continued to increase and may result in certain borrowers reaching their limit of negative amortization permitted under the terms of their loan, thereby resulting in an increase in their minimum monthly loan payment and the potential for higher delinquencies. Although there were virtually no net charge-offs in the current quarter, an increase in the allowance for credit losses was deemed appropriate. The allowance for credit losses was $53 million at June 30, 2006, comprised of $51 million for loan losses and $2 million for unfunded loan commitments which is reported in the category accounts payable and accrued liabilities. That compares to an allowance for credit losses of $36 million at year-end 2005.

For the first six months of 2006, provision for credit losses totaled $16.7 million and net charge-offs were $0.1 million. This compares with a $2.6 million provision for credit losses and net charge-offs of $1.0 million a year ago.

Other Income

Other income totaled $21.0 million in the current quarter, down $38.4 million from a year ago. Contributing to the decline between second quarters was:

A $40.2 million decline in net gains from sales of loans and mortgage-backed securities due to a lower volume of loans sold and a lower gain per dollar of loan sold. The current quarter included a $0.7 million loss due to the SFAS 133 impact of valuing derivatives associated with the sale of loans, compared with a SFAS 133 gain of $1.3 million in the year-ago quarter. Excluding the impact of SFAS 133, a gain was realized equal to 0.91% on secondary market sales of $1.028 billion, compared with the year-ago gain of 1.54% on secondary market sales of $3.093 billion.
A $1.8 million unfavorable change in income from a litigation award, as the year-ago second quarter included an award associated with an other real estate owned asset that had suffered damage from earth movement.

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Those unfavorable items were partially offset by:

A $3.0 million favorable change in loan servicing activities. The primary reason for the favorable change was that the current quarter included a $0.1 million recapture of the valuation allowance for mortgage servicing rights, compared with a $2.6 million addition in the year-ago quarter. At June 30, 2006, mortgage servicing rights, net of a $0.1 million valuation allowance, totaled $20.6 million or 0.87% of the $2.370 billion of associated loans serviced for others. That amount excludes $4.008 billion of loans primarily sub-serviced for others for a fixed fee per loan.
A $0.8 million increase in income from real estate investment activities due primarily to higher gains from sales. Gains totaled $2.6 million in the current quarter.

For the first six months of 2006, other income totaled $44.2 million, down $60.0 million from the same period a year ago.

Operating Expense

Operating expense totaled $60.9 million in the current quarter, up $2.7 million from a year ago due to a 4.4% increase in general and administrative expense, as most major categories were higher. However, compared with the first quarter of 2006, general and administrative expense was down $0.6 million.

For the first six months of 2006, operating expense totaled $122.5 million, up $6.0 million from a year ago.

Assets, Loan Originations and Deposits

At June 30, 2006, assets totaled $17.465 billion, up 5.1% from a year ago and up 2.2% from year-end 2005. During the current quarter, assets declined $338 million due primarily to declines of $347 million in loans held for investment and $144 million in loans held for sale. Those declines were partially offset by a $162 million increase in securities available for sale. Included within loans held for investment at quarter end were $13.222 billion of one-to-four unit adjustable rate mortgages subject to negative amortization, down $644 million from March 31, 2006. The amount of negative amortization included in loan balances increased $47 million during the current quarter to $229 million or 1.73% of loans subject to negative amortization. During the current quarter, approximately 26% of loan interest income represented negative amortization, up from 25% in the first quarter of 2006 and 14% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%.

Loan originations (including purchases) totaled $2.071 billion in the current quarter, down 49.9% from $4.133 billion a year ago. Loans originated for sale declined $1.874 billion to $892 million, while single family loans originated for portfolio declined $143 million to $1.130 billion. Of the current quarter total originated for portfolio, $18 million represented subprime credits. At quarter end, the subprime portfolio totaled $826 million, with an average loan-to-value ratio at origination of 70% and, of the total, 97% represented "Alt. A and A-" credits. In addition to single family loans, $49 million of other loans were originated in the current quarter. For the first six months of 2006, loan originations totaled $4.884 billion, down 41.7% from $8.382 billion in the same period a year ago.

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Deposits totaled $11.888 billion at quarter end, up 7.7% from a year ago but virtually unchanged from year-end 2005. At quarter end, the number of branches totaled 171 (167 in California and four in Arizona), down two from March 31, 2006, as two in-store branches were closed due to the closure of the stores in which they were located. The deposits from the two closed locations have been transferred to nearby branches. At quarter end, the average deposit size of our 80 traditional branches was $117 million, while the average deposit size of our 91 in-store branches was $28 million. Since the end of 2005, borrowings increased $197 million and represent 22.6% of total asset funding.

Non-Performing Assets

Non-performing assets were virtually unchanged during the quarter at $39 million and represented 0.23% of total assets, compared with 0.21% at year-end 2005.

Regulatory Capital Ratios

At June 30, 2006, Downey Financial Corp.’s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 7.91% and a risk-based capital ratio of 15.77%. 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 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.

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Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		June 30,			December 31,			June 30,
(Dollars in Thousands, Except Per Share Data)		2006			2005			2005

Assets
Cash		$	152,957		$	190,396		$	128,670
Federal funds			2			-			30,001

	Cash and cash equivalents		152,959			190,396			158,671
U.S. Treasury, government sponsored entities and other investment
	securities available for sale, at fair value		892,172			626,313			504,965
Loans held for sale, at lower of cost or fair value			417,691			464,488			932,248
Mortgage-backed securities available for sale, at fair value			263			277			292
Loans held for investment			15,571,817			15,391,759			14,510,795
Allowance for loan losses			(51,198	)		(34,601	)		(34,561	)

	Loans held for investment, net		15,520,619			15,357,158			14,476,234
Investments in real estate and joint ventures			49,237			49,344			58,941
Real estate acquired in settlement of loans			1,254			908			2,201
Premises and equipment			110,537			109,574			105,230
Federal Home Loan Bank stock, at cost			184,796			179,844			265,849
Mortgage servicing rights, net			20,561			20,302			16,833
Other assets			114,691			97,059			92,482

		$	17,464,780		$	17,095,663		$	16,613,946

Liabilities and Stockholders’ Equity
Deposits		$	11,887,739		$	11,876,848		$	11,042,072
Securities sold under agreements to repurchase			255,042			-			-
Federal Home Loan Bank advances			3,499,450			3,557,515			4,002,757
Senior notes			198,172			198,087			198,004
Accounts payable and accrued liabilities			201,714			114,527			128,340
Deferred income taxes			132,498			140,467			126,628

	Total liabilities		16,174,615			15,887,444			15,497,801

Stockholders’ equity
Preferred stock, par value of $0.01 per share; authorized 5,000,000 shares;
	outstanding none		-			-			-
Common stock, par value of $0.01 per share; authorized 50,000,000 shares;
	issued 28,235,022 shares at June 30, 2006, December 31, 2005 and
	June 30, 2005; outstanding 27,853,783 shares at June 30, 2006,
	December 31, 2005 and June 30, 2005		282			282			282
Additional paid-in capital			93,792			93,792			93,792
Accumulated other comprehensive loss			(12,189	)		(5,408	)		(1,427	)
Retained earnings			1,225,072			1,136,345			1,040,290
Treasury stock, at cost, 381,239 shares at June 30, 2006,
	December 31, 2005 and June 30, 2005		(16,792	)		(16,792	)		(16,792	)

	Total stockholders’ equity		1,290,165			1,208,219			1,116,145

		$	17,464,780		$	17,095,663		$	16,613,946

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Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended					Six Months Ended
		June 30,					June 30,

(Dollars in Thousands, Except Per Share Data)		2006		2005			2006		2005

Interest income
Loans		$	275,233	$	206,044		$	530,578	$	389,954
U.S. Treasury and government sponsored entities securities			8,930		5,029			16,266		9,867
Mortgage-backed securities			3		3			6		6
Other investment securities			2,243		3,120			4,522		5,658

	Total interest income		286,409		214,196			551,372		405,485

Interest expense
Deposits			99,798		60,962			191,633		109,985
Federal Home Loan Bank advances and other borrowings			50,966		39,572			94,880		73,552
Senior notes			3,298		3,296			6,596		6,591

	Total interest expense		154,062		103,830			293,109		190,128

Net interest income			132,347		110,366			258,263		215,357
Provision for credit losses			6,662		583			16,719		2,621

	Net interest income after provision for credit losses		125,685		109,783			241,544		212,736

Other income, net
Loan and deposit related fees			9,171		9,242			17,729		17,846
Real estate and joint ventures held for investment, net			2,553		1,728			4,842		4,308
Secondary marketing activities:
	Loan servicing income (loss), net		452		(2,529	)		641		(1,045	)
	Net gains on sales of loans and mortgage-backed securities		8,619		48,848			20,273		79,463
	Net gains on sales of mortgage servicing rights		-		-			-		981
Net gains on sales of investment securities			-		1			-		28
Litigation award			-		1,767			-		1,767
Other			235		339			755		859

	Total other income, net		21,030		59,396			44,240		104,207

Operating expense
Salaries and related costs			40,873		39,042			81,653		78,197
Premises and equipment costs			8,410		7,891			16,948		15,891
Advertising expense			1,879		1,551			3,121		2,901
Deposit insurance premiums and regulatory assessments			1,008		927			2,022		1,854
Professional fees			450		345			1,242		681
Other general and administrative expense			8,295		8,605			17,470		16,997

	Total general and administrative expense		60,915		58,361			122,456		116,521
Net operation of real estate acquired in settlement of loans			28		(79	)		19		(15	)

	Total operating expense		60,943		58,282			122,475		116,506

Income before income taxes			85,772		110,897			163,309		200,437
Income taxes			36,232		46,827			69,012		84,628

	Net income	$	49,540	$	64,070		$	94,297	$	115,809

Per share information
Basic		$	1.77	$	2.30		$	3.38	$	4.16
Diluted		$	1.77	$	2.30		$	3.38	$	4.16
Cash dividends declared and paid		$	0.10	$	0.10		$	0.20	$	0.20
Weighted average shares outstanding
Basic		27,853,783		27,853,783			27,853,783		27,853,783
Diluted		27,884,281		27,884,276			27,883,751		27,883,058

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Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA

			Three Months Ended						Six Months Ended
			June 30,						June 30,

(Dollars in Thousands)			2006			2005			2006			2005

Net income by business segment
Banking			$	47,810		$	62,932		$	91,386		$	113,142
Real estate investment				1,730			1,138			2,911			2,667

	Total net income		$	49,540		$	64,070		$	94,297		$	115,809


Selected financial ratios
Effective interest rate spread				3.07	%		2.67	%		3.02	%		2.66	%
Efficiency ratio^(a)				40.39			35.10			41.14			37.17
Return on average assets				1.12			1.51			1.07			1.40
Return on average equity				15.60			23.62			15.10			21.90


Asset and liability activity
Loans for investment portfolio:
	Originations:^(b)
		Residential one-to-four units	$	1,111,486		$	1,139,743		$	2,775,519		$	2,882,750
		Residential one-to-four units – subprime		18,229			132,636			73,564			305,960
		All other		49,059			94,100			162,729			246,184
	Repayments			(1,596,002	)		(1,385,603	)		(2,989,959	)		(2,429,252	)

Loans originated for sale portfolio^(b)				892,314			2,766,047			1,872,478			4,947,439

Loans and mortgage-backed securities sold				(1,027,994	)		(3,092,773	)		(1,904,280	)		(5,122,560	)

Increase (decrease) in loans and mortgage-backed securities				(491,023	)		(321,375	)		116,650			864,625

Increase (decrease) in assets				(337,979	)		(281,032	)		369,117			963,767

Increase (decrease) in deposits				(311,164	)		732,995			10,891			1,384,094

Increase (decrease) in borrowings				(71,276	)		(1,091,077	)		197,062			(556,785	)

Earnings Release and Table Listing

	June 30,			December 31,			June 30,
	2006			2005			2005

Capital ratios (Bank only)
Tangible and core		7.91	%		7.64	%		7.31	%
Risk-based		15.77			14.93			14.11

Book value per share	$	46.32		$	43.38		$	40.07

Number of branches including in-store locations		171			173			172

^(a) The amount of general and administrative expense expressed as a percentage of net interest income plus other income, excluding income associated with real estate held for investment and litigation award.
^(b) Includes loans purchased.

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Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

				Three Months Ended June 30,

				2006							2005

				Average					Average		Average					Average
(Dollars in Thousands)				Balance		Interest			Yield/Rate		Balance		Interest			Yield/Rate

Average balance sheet data
Interest-earning assets:
	Loans:
		Loan prepayment fees				$	25,888		0.64	%			$	15,743		0.40	%
		Write-off of deferred costs and
			premiums from loan payoffs				(26,019	)	(0.64	)				(18,774	)	(0.48	)
		All other					275,364		6.76					209,075		5.31

			Total loans	$	16,283,301		275,233		6.76		$	15,761,341		206,044		5.23
	Mortgage-backed securities				267		3		4.49			294		3		4.08
	Investment securities^(a)				975,373		11,173		4.59			778,672		8,149		4.20

		Total interest-earnings assets			17,258,941	$	286,409		6.64	%		16,540,307	$	214,196		5.18	%
Non-interest-earning assets					426,727							412,604

	Total assets			$	17,685,668						$	16,952,911

Transaction accounts:
	Non-interest-bearing checking			$	744,440	$	-		-	%	$	699,998	$	-		-	%
	Interest-bearing checking^(b)				508,205		439		0.35			537,003		480		0.36
	Money market				161,537		421		1.05			157,761		411		1.04
	Regular passbook				1,563,990		3,940		1.01			2,289,652		6,129		1.07

		Total transaction accounts			2,978,172		4,800		0.65			3,684,414		7,020		0.76
Certificates of deposit					9,033,473		94,998		4.22			6,921,807		53,942		3.13

	Total deposits				12,011,645		99,798		3.33			10,606,221		60,962		2.31
FHLB advances and other borrowings^(c)					3,886,870		50,966		5.26			4,827,696		39,572		3.29
Senior notes					198,157		3,298		6.66			197,988		3,296		6.66

	Total deposits and borrowings				16,096,672		154,062		3.84			15,631,905		103,830		2.66
Other liabilities					319,055							236,109
Stockholders’ equity					1,269,941							1,084,897

	Total liabilities and stockholders’ equity			$	17,685,668						$	16,952,911

Net interest income/interest rate spread						$	132,347		2.80	%			$	110,366		2.52	%
Excess of interest-earning assets over
	deposits and borrowings			$	1,162,269						$	908,402
Effective interest rate spread									3.07							2.67

^(a) Yields for securities available for sale are calculated using historical cost balances and do not give effect to changes in fair value that are reflected as a component of stockholders’ equity.
^(b) Included amounts swept into money market deposit accounts.
^(c) The impact of swap contracts was included, with notional amounts totaling $430 million of receive-fixed, pay-3-month LIBOR variable interest, which contracts serve as a permitted hedge against a portion of our FHLB advances.

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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

				Six Months Ended June 30,

				2006							2005

				Average					Average		Average					Average
(Dollars in Thousands)				Balance		Interest			Yield/Rate		Balance		Interest			Yield/Rate

Average balance sheet data
Interest-earning assets:
	Loans:
		Loan prepayment fees				$	47,359		0.58	%			$	25,998		0.34	%
		Write-off of deferred costs and
			premiums from loan payoffs				(48,063	)	(0.59	)				(31,796	)	(0.41	)
		All other					531,282		6.55					395,752		5.13

			Total loans	$	16,210,406		530,578		6.55		$	15,421,287		389,954		5.06
	Mortgage-backed securities				272		6		4.41			298		6		4.03
	Investment securities^(a)				911,916		20,788		4.60			759,588		15,525		4.12

		Total interest-earnings assets			17,122,594	$	551,372		6.44	%		16,181,173	$	405,485		5.01	%
Non-interest-earning assets					422,893							398,562

	Total assets			$	17,545,487						$	16,579,735

Transaction accounts:
	Non-interest-bearing checking			$	722,205	$	-		-	%	$	656,971	$	-		-	%
	Interest-bearing checking^(b)				511,861		874		0.34			534,710		956		0.36
	Money market				162,875		844		1.04			158,126		821		1.05
	Regular passbook				1,645,512		8,324		1.02			2,462,755		13,295		1.09

		Total transaction accounts			3,042,453		10,042		0.67			3,812,562		15,072		0.80
Certificates of deposit					8,968,856		181,591		4.08			6,469,258		94,913		2.96

	Total deposits				12,011,309		191,633		3.22			10,281,820		109,985		2.16
FHLB advances and other borrowings^(c)					3,788,128		94,880		5.05			4,809,754		73,552		3.08
Senior notes					198,135		6,596		6.66			197,969		6,591		6.66

	Total deposits and borrowings				15,997,572		293,109		3.69			15,289,543		190,128		2.51
Other liabilities					298,948							232,652
Stockholders’ equity					1,248,967							1,057,540

	Total liabilities and stockholders’ equity			$	17,545,487						$	16,579,735

Net interest income/interest rate spread						$	258,263		2.75	%			$	215,357		2.50	%
Excess of interest-earning assets over
	deposits and borrowings			$	1,125,022						$	891,630
Effective interest rate spread									3.02							2.66

Page 9

Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

			Three Months Ended						Six Months Ended
			June 30,						June 30,

(Dollars in Thousands)			2006			2005			2006			2005

Loan and deposit related fees
Loan related fees			$	1,009		$	1,401		$	2,075		$	2,641
Deposit related fees:
	Automated teller machine fees			2,410			2,784			4,559			5,365
	Other fees			5,752			5,057			11,095			9,840

		Total loan and deposit related fees	$	9,171		$	9,242		$	17,729		$	17,846

Loan servicing income (loss), net
Net cash servicing fees			$	1,574		$	1,753		$	3,140		$	3,380
Payoff and curtailment interest cost^(a)				(233	)		(288	)		(451	)		(482	)
Amortization of mortgage servicing rights				(1,029	)		(1,398	)		(2,227	)		(2,558	)
(Provision for) reduction of impairment of mortgage servicing rights				140			(2,596	)		179			(1,385	)

	Total loan servicing income (loss), net		$	452		$	(2,529	)	$	641		$	(1,045	)

Net gains on sales of loans and mortgage-backed securities
Mortgage servicing rights			$	1,285		$	1,217		$	2,307		$	2,826
All other components excluding SFAS 133				8,067			46,373			18,461			72,466
SFAS 133				(733	)		1,258			(495	)		4,171

	Total net gains on sales of loans and mortgage-backed securities		$	8,619		$	48,848		$	20,273		$	79,463

Secondary marketing gain excluding SFAS 133 as a
	percentage of associated sales			0.91	%		1.54	%		1.09	%		1.47	%

Mortgage servicing rights activity
Gross balance at beginning of period			$	20,420		$	20,834		$	21,157		$	20,502
Additions				1,285			1,217			2,307			2,826
Amortization				(1,029	)		(1,398	)		(2,227	)		(2,558	)
Sales				-			-			-			(14	)
Impairment write-down				(11	)		(27	)		(572	)		(130	)

	Gross balance at end of period			20,665			20,626			20,665			20,626

Allowance balance at beginning of period				255			1,224			855			2,538
Provision for (reduction of) impairment				(140	)		2,596			(179	)		1,385
Impairment write-down				(11	)		(27	)		(572	)		(130	)

	Allowance balance at end of period			104			3,793			104			3,793

		Total mortgage servicing rights, net	$	20,561		$	16,833		$	20,561		$	16,833

As a percentage of associated mortgage loans				0.87	%		0.75	%		0.87	%		0.75	%
Estimated fair value^(b)			$	23,644		$	16,863		$	23,644		$	16,863
Weighted average expected life (in months)				56			40			56			40
Custodial account earnings rate				5.39	%		3.45	%		5.39	%		3.45	%
Weighted average discount rate				9.39			9.12			9.39			9.12

Earnings Release and Table Listing

		June 30,			December 31,			June 30,
(Dollars in Thousands)		2006			2005			2005

Mortgage loans serviced for others
Total		$	6,377,737		$	5,292,253		$	10,287,991
With capitalized mortgage servicing rights:^(b)
	Amount		2,369,543			2,362,539			2,249,030
	Weighted average interest rate		5.66	%		5.60	%		5.57	%
Total loans sub-serviced without mortgage servicing rights:^(c)
	Term – less than six months	$	228,455		$	123,552		$	269,165
	Term – indefinite		3,760,642			2,785,090			7,744,459

Custodial account balances		$	147,831		$	117,451		$	237,722

^(a) 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. This does not include the benefit of the use of repaid loan funds to increase net interest income.
^(b) The estimated fair value may exceed book value for certain asset strata and excluded loans sold or securitized prior to 1996 and loans sub-serviced without capitalized mortgage servicing rights.
^(c) Servicing is performed for a fixed fee per loan each month.

Page 10

Earnings Release and Table Listing

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

			June 30,			December 31,			June 30,
(Dollars in Thousands)			2006			2005			2005

Loans held for investment
Loans secured by real estate:
	Residential one-to-four units		$	14,013,816		$	13,615,779		$	12,480,601
	Residential one-to-four units – subprime			825,663			1,058,911			1,261,674

		Total residential one-to-four units		14,839,479			14,674,690			13,742,275
	Home equity loans and lines of credit			232,746			274,014			318,592
	Residential five or more units			118,100			69,531			90,616
	Commercial real estate			27,091			28,791			29,249
	Construction			67,609			82,379			93,016
	Land			59,682			23,630			65,377
Non-mortgage:
	Commercial			3,400			3,981			4,496
	Automobile			41			116			320
	Other consumer			6,262			6,577			6,504

		Total loans held for investment		15,354,410			15,163,709			14,350,445
Increase (decrease) for:
	Undisbursed loan funds and net deferred costs and premiums			217,407			228,050			160,350
	Allowance for losses			(51,198	)		(34,601	)		(34,561	)

		Total loans held for investment, net	$	15,520,619		$	15,357,158		$	14,476,234


Loans held for sale
Residential one-to-four units			$	411,086		$	459,081		$	914,164
Net deferred costs and premiums				6,851			5,841			17,971
Capitalized basis adjustment^(a)				(246	)		(434	)		113

	Total loans held for sale, net		$	417,691		$	464,488		$	932,248


Residential one-to-four unit loans subject to negative amortization
Held for investment:
	Amount		$	13,221,683		$	13,419,322		$	11,965,270
	Negative amortization included in the loan balance			229,052			133,066			71,893
	Negative amortization as a percentage of the associated loan balance			1.73	%		0.99	%		0.60	%
Held for sale:
	Amount		$	299,747		$	248,260		$	736,396
	Negative amortization included in the loan balance			2			13			8


Non-performing assets
Non-accrual loans:
	Residential one-to-four units		$	26,227		$	23,497		$	12,004
	Residential one-to-four units – subprime			11,847			10,774			10,599
	Other			-			42			456

		Total non-accrual loans		38,074			34,313			23,059
Real estate acquired in settlement of loans				1,254			908			2,201

	Total non-performing assets		$	39,328		$	35,221		$	25,260

Non-performing assets as a percentage of total assets				0.23	%		0.21	%		0.15	%


Delinquent loans
30-59 days			$	28,420		$	25,122		$	17,820
60-89 days				11,908			7,272			6,674
90+ days^(b)				23,879			23,850			17,166

	Total delinquent loans		$	64,207		$	56,244		$	41,660

Delinquencies as a percentage of total loans				0.41	%		0.36	%		0.27	%

^(a) Reflected the change in fair value of the interest rate lock derivative from the date of commitment to the date of funding.
^(b) All 90 day or greater delinquencies are on non-accrual status and reported as part of non-performing assets.
^.Note: Certain prior period amounts have been reclassified to conform to the current presentation.

Page 11

Downey Financial Inactive 8-KEarnings Release and Table Listing