Downey Financial 8-K Earnings Release and Table Listing

EXHIBIT 99.1

Table of Contents

Earnings Release and Table Listing

• Earnings Release Narrative
• Consolidated Balance Sheets
• Consolidated Statements of Income
• Selected Financial Data
  • Net income by business segment
  • Selected financial ratios
  • Asset and liability activity
  • Capital ratios (Bank only)
  • Book value per share
  • Number of branches including in-store locations
  • Average balance sheet data
  • Loan and deposit related fees
  • Loan servicing income (loss), net
  • Net gains (losses) on sales of loans and mortgage-backed securities
  • Mortgage servicing rights activity
  • Mortgage loans serviced for others
  • Loans held for investment
  • Loans held for sale
  • Residential one-to-four unit loans subject to negative amortization
  • Non-performing assets
  • Delinquent loans

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 ANNUAL EARNINGS FOR 2006

          Newport Beach, California - January 18, 2007 - Downey Financial Corp. (NYSE: DSL) reported net income for 2006 of $205.2 million or $7.36 per share on a diluted basis, down 5.6% from the record $217.4 million or $7.80 per share in 2005.

          The decline in net income between years was primarily due to:

• A $76.3 million decrease 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 $24.3 million increase in provision for credit losses; and
• A $9.3 million or 4.0% increase in general and administrative expense.

Those unfavorable items were partially offset by:

• A $82.3 million or 18.9% increase in net interest income, primarily due to a higher effective interest rate spread of 3.09% compared with 2.69% in 2005; and
• A $4.2 million increase in income from real estate held for investment, primarily due to higher gains on sales.

          For the fourth quarter of 2006, net income totaled $53.7 million or $1.93 per share on a diluted basis, up $11.8 million or 28.2% from $41.9 million or $1.50 per share for 2005.

          Daniel D. Rosenthal, President and Chief Executive Officer, commented, "Downey had a good year in 2006, with earnings at their second highest level despite a challenging business environment characterized by a significant softening in the residential housing market. This factor contributed to a drop in loan production and a need to increase our allowance for credit losses, resulting in Downey’s earnings falling below 2005’s record level. While this same challenge confronts us as we enter 2007, we enter the year with a strong capital position which will allow us to take advantage of any opportunities that may arise."

Net Interest Income

          Net interest income totaled $130.2 million in the fourth quarter of 2006, up $19.2 million or 17.3% from a year ago. This increase reflected a higher effective interest rate spread, which more than offset a $226 million or 1.4% decline in average interest-earning assets. The effective interest rate spread averaged 3.22% in the current quarter, up 0.51% from 2.71% a year ago, and up 0.12% from 3.10% in the third quarter of 2006. The increase in the effective interest rate spread between fourth quarters was primarily the result of two factors. First, interest-earning assets in the current quarter were funded with a

Page 1

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, loan prepayment fees covered a higher proportion of the deferred loan costs that were written-off as a result of payoffs.

          For 2006, net interest income totaled $518.7 million, up $82.3 million or 18.9% from 2005.

Provision for Credit Losses

          During the current quarter, the provision for credit losses totaled $0.2 million, down $0.1 million from a year ago. While the California residential real estate market continued to show signs of weakening during the current quarter, a $956 million drop in the single-family residential loan portfolio mitigated the need to increase the allowance for loan losses. At year-end 2006, the allowance for credit losses was $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. That compares with an allowance for credit losses of $36 million at year-end 2005. Net charge-offs totaled $0.3 million in the current quarter, compared with net charge-offs of $0.5 million a year ago.

          For 2006, provision for credit losses totaled $26.6 million and net charge-offs were $0.5 million, compared with a $2.3 million provision for credit losses and net charge-offs of $1.1 million in 2005.

Other Income

          Other income totaled $18.2 million in the current quarter, down $2.0 million from a year ago. Contributing to the decline between fourth quarters was:

• A $2.5 million decline in net gains on sales of loans and mortgage-backed securities due to a lower volume of loans sold. Net gains in the current quarter totaled $8.5 million, including a $0.3 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 1.23% on secondary market sales of $714 million, compared with the year-ago gain of 0.93% on secondary market sales of $1.097 billion.
• A $1.8 million unfavorable change in income from loan servicing activities, as the current quarter reflected a loss of $0.9 million compared to income of $0.9 million a year ago. Two factors primarily explain the change. First, there was a $1.0 million increase in payoff and curtailment interest costs, which represents the difference between the contractual obligation to pay interest to the investor for the 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 a reduction of borrowings costs within net interest income. The second unfavorable change was that the current quarter included a $0.1 million provision for mortgage servicing rights, whereas the year-ago quarter included a $0.7 million recapture of impairment.

Those unfavorable items were partially offset by a $1.7 million increase in income from real estate investment activities, primarily due to higher gains on sales.

          For 2006, other income totaled $93.1 million, down $76.8 million or 45.2% from 2005.

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Operating Expense

          Operating expense totaled $62.0 million in the current quarter, up $3.7 million or 6.3% from 2005. Most of this increase was associated with higher salaries and related costs and, to a lesser extent, deposit insurance premiums and regulatory assessments.

          For 2006, operating expense totaled $243.2 million, up $9.7 million or 4.1% from 2005.

Income Taxes

          The effective tax rate in the current quarter was 37.65% compared to 42.18% in the year-ago quarter. The difference in effective tax rates was due primarily to a $3.8 million decline in the income tax reserves related to management’s assessment of Downey’s income tax exposure as of December 31, 2006.

          For 2006, income taxes totaled $136.8 million for an effective tax rate of 40.01%, compared to $153.1 million or 41.31% a year ago.

Assets, Loan Originations and Deposits

          At December 31, 2006, assets totaled $16.209 billion, down $886 million or 5.2% from year-end 2005. During the current quarter, assets declined $773 million or 4.6% due primarily to a decline of $1.005 billion in loans held for investment, partially offset by an increase of $271 million in securities available for sale. Included within loans held for investment at quarter end were $11.200 billion of one-to-four unit adjustable rate mortgages subject to negative amortization, down $1.127 billion from September 30, 2006. These loans comprised 85% of the one-to-four unit residential portfolio at year end, compared to 91% a year ago. The amount of negative amortization included in loan balances increased $44 million during the current quarter to $320 million or 2.86% of loans subject to negative amortization. During the current quarter, approximately 29% of loan interest income represented negative amortization, up from both 28% in the third quarter of 2006 and 21% in the year-ago fourth quarter.

          Loan originations (including purchases) totaled $1.340 billion in the current quarter, down $1.736 billion or 56.4% from $3.076 billion a year ago. Loans originated for sale declined $289 million or 27.1% to $779 million, while single family loans originated for portfolio declined $1.426 billion or 72.0% to $555 million. In addition to single family loans, $7 million of other loans were originated in the current quarter. For 2006, loan originations totaled $7.829 billion, down 48.2% from $15.102 billion in 2005.

          Deposits totaled $11.785 billion at quarter end, down 0.8% from year-end 2005. At quarter end, the number of branches totaled 172 (168 in California and four in Arizona), up one branch from September 30, 2006. During the current quarter, two in-store branches opened and one in-store branch closed due to the closure of the store in which it was located. At quarter end, the average deposit size of our 81 traditional branches was $115 million, while the average deposit size of our 91 in-store branches was $27 million. Since the end of 2005, borrowings declined $947 million and represented 17.3% of total assets.

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Non-Performing Assets

          Non-performing assets increased during the quarter by $44 million to $110 million and represented 0.68% of total assets, compared with 0.21% at year-end 2005. Included within the current quarter increase was an $11 million commercial real estate loan to develop residential lots. While this loan is deemed collateral dependent and value impaired, no significant loss is anticipated at this time.

Regulatory Capital Ratios

          At December 31, 2006, Downey Financial Corp.’s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 8.82% and a risk-based capital ratio of 17.89%. 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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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
(Dollars in Thousands, Except Per Share Data)		2006			2005
Assets
Cash		$	124,865		$	190,396
Federal funds			1			-
	Cash and cash equivalents		124,866			190,396
U.S. Treasury, government sponsored entities and other investment
	securities available for sale, at fair value		1,433,176			626,313
Loans held for sale, at lower of cost or fair value			363,215			464,488
Mortgage-backed securities available for sale, at fair value			251			277
Loans held for investment			13,868,227			15,391,759
Allowance for loan losses			(60,943	)		(34,601	)
	Loans held for investment, net		13,807,284			15,357,158
Investments in real estate and joint ventures			59,843			49,344
Real estate acquired in settlement of loans			8,524			908
Premises and equipment			114,052			109,574
Federal Home Loan Bank stock, at cost			152,953			179,844
Mortgage servicing rights, net			21,196			20,302
Other assets			124,029			97,059
		$	16,209,389		$	17,095,663
Liabilities and Stockholders’ Equity
Deposits		$	11,784,869		$	11,876,848
Securities sold under agreements to repurchase			469,971			-
Federal Home Loan Bank advances			2,140,785			3,557,515
Senior notes			198,260			198,087
Accounts payable and accrued liabilities			109,797			114,527
Deferred income taxes			103,250			140,467
	Total liabilities		14,806,932			15,887,444
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 both December 31, 2006 and 2005;
	outstanding 27,853,783 shares at both December 31, 2006 and 2005		282			282
Additional paid-in capital			93,792			93,792
Accumulated other comprehensive loss			(5,204	)		(5,408	)
Retained earnings			1,330,379			1,136,345
Treasury stock, at cost, 381,239 shares at both December 31, 2006 and 2005			(16,792	)		(16,792	)
	Total stockholders’ equity		1,402,457			1,208,219
		$	16,209,389		$	17,095,663

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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended						Twelve Months Ended
		December 31,						December 31,
(Dollars in Thousands, Except Per Share Data)		2006			2005			2006			2005
Interest income
Loans		$	272,239		$	229,518		$	1,080,791		$	833,540
U.S. Treasury and government sponsored entities securities			15,775			5,839			43,445			21,037
Mortgage-backed securities			4			3			13			12
Other investment securities			2,615			228			9,556			8,260
	Total interest income		290,633			235,588			1,133,805			862,849
Interest expense
Deposits			115,924			85,177			417,590			270,062
Federal Home Loan Bank advances and other borrowings			41,234			36,124			184,343			143,230
Senior notes			3,300			3,297			13,195			13,184
	Total interest expense		160,458			124,598			615,128			426,476
Net interest income			130,175			110,990			518,677			436,373
Provision for credit losses			245			393			26,604			2,263
	Net interest income after provision for credit losses		129,930			110,597			492,073			434,110
Other income, net
Loan and deposit related fees			9,143			9,077			36,151			36,496
Real estate and joint ventures held for investment, net			780			(881	)		10,953			6,734
Secondary marketing activities:
	Loan servicing income (loss), net		(858	)		938			(594	)		2,059
	Net gains on sales of loans and mortgage-backed securities		8,495			10,999			43,615			119,961
	Net gains on sales of mortgage servicing rights		-			-			-			1,000
Net gains on sales of investment securities			-			-			-			28
Litigation award			608			-			2,233			1,767
Other			66			57			785			1,887
	Total other income, net		18,234			20,190			93,143			169,932
Operating expense
Salaries and related costs			40,464			37,397			161,060			153,749
Premises and equipment costs			9,207			8,301			34,959			32,271
Advertising expense			1,895			1,610			6,227			6,068
Deposit insurance premiums and regulatory assessments			2,193			984			6,439			3,795
Professional fees			297			596			1,793			1,208
Other general and administrative expense			7,920			9,621			32,477			36,556
	Total general and administrative expense		61,976			58,509			242,955			233,647
Net operation of real estate acquired in settlement of loans			65			(172	)		250			(96	)
	Total operating expense		62,041			58,337			243,205			233,551
Income before income taxes			86,123			72,450			342,011			370,491
Income taxes			32,422			30,561			136,837			153,057
	Net income	$	53,701		$	41,889		$	205,174		$	217,434
Per share information
Basic		$	1.94		$	1.50		$	7.37		$	7.80
Diluted		$	1.93		$	1.50		$	7.36		$	7.80
Cash dividends declared and paid		$	0.10		$	0.10		$	0.40		$	0.40
Weighted average shares outstanding
Basic		27,853,783			27,853,783			27,853,783			27,853,783
Diluted		27,884,770			27,882,536			27,883,867			27,883,251

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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA

			Three Months Ended						Twelve Months Ended
			December 31,						December 31,
(Dollars in Thousands)			2006			2005			2006			2005
Net income (loss) by business segment
Banking			$	52,493		$	43,054		$	196,867		$	213,883
Real estate investment				1,208			(1,165	)		8,307			3,551
	Total net income		$	53,701		$	41,889		$	205,174		$	217,434
Selected financial ratios
Effective interest rate spread				3.22	%		2.71	%		3.09	%		2.69	%
Efficiency ratio(a)				42.15			44.30			40.58			39.08
Return on average assets				1.29			1.00			1.19			1.31
Return on average equity				15.60			14.09			15.80			19.56
Asset and liability activity
Loans for investment portfolio:
	Originations:(b)
		Residential one-to-four units	$	554,573		$	1,980,254		$	4,168,402		$	7,081,085
		All other		6,605			27,835			185,078			305,639
	Repayments			(1,661,536	)		(1,596,505	)		(6,215,012	)		(5,716,880	)
Loans originated for sale portfolio(b)				779,002			1,067,861			3,475,552			7,715,200
Loans and mortgage-backed securities sold				(713,974	)		(1,097,238	)		(3,521,410	)		(8,327,799	)
Increase (decrease) in loans and mortgage-backed securities				(964,793	)		477,287			(1,651,173	)		1,277,774
Increase (decrease) in assets				(773,404	)		528,369			(886,274	)		1,445,484
Increase (decrease) in deposits				(160,889	)		124,612			(91,979	)		2,218,870
Increase (decrease) in borrowings				(533,424	)		394,749			(946,586	)		(1,001,944	)

	December 31,			September 30,			December 31,
	2006			2006			2005
Capital ratios (Bank only)
Tangible and core		8.82	%		8.47	%		7.64	%
Risk-based		17.89			17.05			14.93
Book value per share	$	50.35		$	48.55		$	43.38
Number of branches including in-store locations		172			171			173

^(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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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

				Three Months Ended December 31,
				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				$	27,409		0.75	%			$	22,904		0.58	%
		Write-off of deferred costs and
			premiums from loan payoffs				(27,893	)	(0.76	)				(24,366	)	(0.62	)
		All other					272,723		7.42					230,980		5.91
			Total loans	$	14,703,050		272,239		7.41		$	15,633,782		229,518		5.87
	Mortgage-backed securities				254		4		5.60			281		3		4.27
	Investment securities(a)				1,472,000		18,390		4.96			766,808		6,067		3.14
		Total interest-earnings assets			16,175,304	$	290,633		7.19	%		16,400,871	$	235,588		5.75	%
Non-interest-earning assets					450,768							435,809
	Total assets			$	16,626,072						$	16,836,680
Transaction accounts:
	Non-interest-bearing checking			$	776,986	$	-		-	%	$	845,532	$	-		-	%
	Interest-bearing checking(b)				488,383		418		0.34			523,134		456		0.35
	Money market				146,991		384		1.04			164,673		433		1.04
	Regular passbook				1,311,124		3,225		0.98			1,899,085		4,973		1.04
		Total transaction accounts			2,723,484		4,027		0.59			3,432,424		5,862		0.68
Certificates of deposit					9,117,252		111,897		4.87			8,488,817		79,315		3.71
	Total deposits				11,840,736		115,924		3.88			11,921,241		85,177		2.83
FHLB advances and other borrowings(c)					2,867,151		41,234		5.71			3,244,012		36,124		4.42
Senior notes					198,245		3,300		6.66			198,069		3,297		6.66
	Total deposits and borrowings				14,906,132		160,458		4.27			15,363,322		124,598		3.22
Other liabilities					342,885							283,847
Stockholders’ equity					1,377,055							1,189,511
	Total liabilities and stockholders’ equity			$	16,626,072						$	16,836,680
Net interest income/interest rate spread						$	130,175		2.92	%			$	110,990		2.53	%
Excess of interest-earning assets over
	deposits and borrowings			$	1,269,172						$	1,037,549
Effective interest rate spread									3.22							2.71

^(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 London Inter-Bank Offered Rate ("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)

				Twelve Months Ended December 31,
				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				$	101,219		0.64	%			$	70,849		0.46	%
		Write-off of deferred costs and
			premiums from loan payoffs				(102,204	)	(0.65	)				(80,243	)	(0.52	)
		All other					1,081,776		6.90					842,934		5.45
			Total loans	$	15,688,297		1,080,791		6.89		$	15,461,684		833,540		5.39
	Mortgage-backed securities				264		13		5.17			291		12		4.12
	Investment securities(a)				1,113,878		53,001		4.76			762,131		29,297		3.84
		Total interest-earnings assets			16,802,439	$	1,133,805		6.75	%		16,224,106	$	862,849		5.32	%
Non-interest-earning assets					436,958							417,013
	Total assets			$	17,239,397						$	16,641,119
Transaction accounts:
	Non-interest-bearing checking			$	746,401	$	-		-	%	$	748,273	$	-		-	%
	Interest-bearing checking(b)				499,978		1,718		0.34			530,112		1,886		0.36
	Money market				156,629		1,632		1.04			160,550		1,679		1.05
	Regular passbook				1,503,867		15,082		1.00			2,221,129		23,732		1.07
		Total transaction accounts			2,906,875		18,432		0.63			3,660,064		27,297		0.75
Certificates of deposit					9,055,959		399,158		4.41			7,335,869		242,765		3.31
	Total deposits				11,962,834		417,590		3.49			10,995,933		270,062		2.46
FHLB advances and other borrowings(c)					3,457,357		184,343		5.33			4,087,217		143,230		3.50
Senior notes					198,178		13,195		6.66			198,009		13,184		6.66
	Total deposits and borrowings				15,618,369		615,128		3.94			15,281,159		426,476		2.79
Other liabilities					322,205							248,316
Stockholders’ equity					1,298,823							1,111,644
	Total liabilities and stockholders’ equity			$	17,239,397						$	16,641,119
Net interest income/interest rate spread						$	518,677		2.81	%			$	436,373		2.53	%
Excess of interest-earning assets over
	deposits and borrowings			$	1,184,070						$	942,947
Effective interest rate spread									3.09							2.69

^(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)

			Three Months Ended						Twelve Months Ended
			December 31,						December 31,
(Dollars in Thousands)			2006			2005			2006			2005
Loan and deposit related fees
Loan related fees			$	918		$	1,346		$	3,894		$	5,525
Deposit related fees:
	Automated teller machine fees			2,346			2,453			9,324			10,588
	Other fees			5,879			5,278			22,933			20,383
		Total loan and deposit related fees	$	9,143		$	9,077		$	36,151		$	36,496
Loan servicing income (loss), net
Net cash servicing fees			$	1,647		$	1,743		$	6,370		$	7,091
Payoff and curtailment interest cost(a)				(1,269	)		(250	)		(2,533	)		(1,047	)
Amortization of mortgage servicing rights				(1,087	)		(1,252	)		(4,370	)		(5,156	)
(Provision for) reduction of impairment of mortgage servicing rights				(149	)		697			(61	)		1,171
	Total loan servicing income (loss), net		$	(858	)	$	938		$	(594	)	$	2,059
Net gains (losses) on sales of loans and mortgage-backed securities
Mortgage servicing rights			$	2,122		$	1,740		$	5,266		$	6,424
All other components excluding SFAS 133				6,682			8,418			39,457			109,925
SFAS 133				(309	)		841			(1,108	)		3,612
	Total net gains on sales of loans and mortgage-backed securities		$	8,495		$	10,999		$	43,615		$	119,961
Secondary marketing gain excluding SFAS 133 as a
	percentage of associated sales			1.23	%		0.93	%		1.27	%		1.40	%
Mortgage servicing rights activity
Gross balance at beginning of period			$	20,483		$	20,917		$	21,157		$	20,502
Additions(b)				2,122			1,740			5,325			6,424
Amortization				(1,087	)		(1,252	)		(4,370	)		(5,156	)
Sales				-			-			-			(101	)
Impairment write-down				(83	)		(248	)		(677	)		(512	)
	Gross balance at end of period			21,435			21,157			21,435			21,157
Allowance balance at beginning of period				173			1,800			855			2,538
Provision for (reduction of) impairment				149			(697	)		61			(1,171	)
Impairment write-down				(83	)		(248	)		(677	)		(512	)
	Allowance balance at end of period			239			855			239			855
		Total mortgage servicing rights, net	$	21,196		$	20,302		$	21,196		$	20,302
As a percentage of associated mortgage loans				0.89	%		0.86	%		0.89	%		0.86	%
Estimated fair value (c)			$	22,828		$	20,351		$	22,828		$	20,351
Weighted average expected life (in months)				54			47			54			47
Custodial account earnings rate				5.28	%		4.46	%		5.28	%		4.46	%
Weighted average discount rate				10.28			9.32			10.28			9.32

		December 31,			September 30,			December 31,
(Dollars in Thousands)		2006			2006			2005
Mortgage loans serviced for others
Total		$	5,908,233		$	6,595,462		$	5,292,253
With capitalized mortgage servicing rights: (c)
	Amount		2,394,754			2,345,880			2,362,539
	Weighted average interest rate		5.75	%		5.70	%		5.60	%
Total loans sub-serviced without mortgage servicing rights:(d)
	Term – less than six months	$	93,074		$	981,883		$	123,552
	Term – indefinite		3,404,342			3,249,905			2,785,090
Custodial account balances		$	172,462		$	171,481		$	117,451

^(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) Includes minor amounts repurchased.
^(c) 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.
^(d) Servicing is performed for a fixed fee per loan each month.

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DOWNEY FINANCIAL CORP. AND SUBSIDIARIES

SELECTED FINANCIAL DATA – (Continued)

			December 31,			September 30,			December 31,
(Dollars in Thousands)			2006			2006			2005
Loans held for investment
Loans secured by real estate:
	Residential one-to-four units		$	13,227,004		$	14,183,205		$	14,674,690
	Home equity loans and lines of credit			187,939			211,713			274,014
	Residential five or more units			113,488			116,110			69,531
	Commercial real estate			26,700			26,910			28,791
	Construction			52,922			58,157			82,379
	Land			58,910			59,394			23,630
Non-mortgage:
	Commercial			2,400			3,400			3,981
	Automobile			17			23			116
	Other consumer			6,761			6,050			6,577
		Total loans held for investment		13,676,141			14,664,962			15,163,709
Increase (decrease) for:
	Undisbursed loan funds and net deferred costs and premiums			192,086			207,680			228,050
	Allowance for losses			(60,943	)		(60,784	)		(34,601	)
		Total loans held for investment, net	$	13,807,284		$	14,811,858		$	15,357,158
Loans held for sale
Residential one-to-four units			$	358,128		$	318,414		$	459,081
Net deferred costs and premiums				4,789			4,445			5,841
Capitalized basis adjustment(a)				298			569			(434	)
	Total loans held for sale, net		$	363,215		$	323,428		$	464,488
Residential one-to-four unit loans subject to negative amortization
Held for investment:
	Amount		$	11,199,870		$	12,327,000		$	13,419,322
	Negative amortization included in the loan balance			320,466			276,947			133,066
	Negative amortization as a percentage of the associated loan balance			2.86	%		2.25	%		0.99	%
Held for sale:
	Amount		$	228,952		$	213,123		$	248,260
	Negative amortization included in the loan balance			7			17			13
Non-performing assets
Non-accrual loans:
	Residential one-to-four units		$	90,218		$	60,461		$	34,271
	Land			11,345			-			-
	Other			275			306			42
		Total non-accrual loans		101,838			60,767			34,313
Real estate acquired in settlement of loans				8,524			5,761			908
	Total non-performing assets		$	110,362		$	66,528		$	35,221
Non-performing assets as a percentage of total assets				0.68	%		0.39	%		0.21	%
Delinquent loans
30-59 days			$	57,042		$	42,585		$	25,122
60-89 days				24,313			21,055			7,272
90+ days(b)				63,162			37,520			23,850
	Total delinquent loans		$	144,517		$	101,160		$	56,244
Delinquencies as a percentage of total loans				1.03	%		0.68	%		0.36	%

^(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.

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