Downey Financial Corp., incorporated on October 21, 1994, operates as the bank holding company of Downey Savings and Loan Association (the Bank). The Bank was formed in 1957 as a California-licensed savings and loan association and converted to a federal charter in 1995. As of December 31, 2002, it conducts its business through 165 retail deposit branches, including 93 full-service, in-store branches. Historically, the Company's lending activities have primarily emphasized its origination of first mortgage loans secured by residential properties and retail neighborhood shopping centers. To a lesser extent, its lending activities have emphasized the Company's origination of real estate loans secured by multi-family and commercial properties, including land and other properties with income producing capabilities.

In addition, the Company has provided construction loan financing for single-family and multi-family residential properties and commercial retail neighborhood shopping center projects. These construction loan financings have included loans to joint ventures, which were being engaged in by DSL Service Company, a wholly owned subsidiary of the Bank, with other participants. The Company also originates loans to businesses through its commercial banking operations.

The Company originates automobile loans directly through its branch network. The Company's primary focus continues to be its origination of adjustable-rate single-family mortgage loans for portfolio, including sub-prime loans that carry higher interest rates.

The Company's banking activities focus on attracting funds from the general public and institutions, and originating and investing in loans, primarily residential mortgage loans, investment securities and mortgage-backed securities. These mortgage-backed securities include mortgage pass-through securities issued by other entities and securities issued or guaranteed by government-sponsored enterprises such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. The Company's primary sources of revenue from its banking business are interest it earns on loans, investment securities and mortgage-backed securities; fees it earns in connection with loans and deposits; gains on sales of its loans, investment securities and mortgage-backed securities, and income it earns on loans and mortgage-backed securities it services for investors.