EX-99 2 a07-20103_1ex99.htm EX-99

NEWS                                                                              

INVESTOR CONTACT:   (818) 225-3550

David Bigelow or Lisa Riordan

MEDIA LINE:  (800) 796-8448

COUNTRYWIDE REPORTS DILUTED EPS OF $0.81 FOR SECOND QUARTER OF 2007
— Strong Loan Production Offset By Higher Credit Costs —
— 2007 Guidance Updated at $2.70 to $3.30 per Diluted Share —
— Board Authorizes $0.15 Dividend —

CALABASAS, CA (July 24, 2007) — Countrywide Financial Corporation (NYSE: CFC) today announced results for the second quarter ended June 30, 2007.  Key results include the following:

Table 1

 

 

Quarter Ended

 

($ in millions, except per share amounts)

 

Jun. 30,
2007

 

Mar. 31,
2007

 

Jun. 30,
2006

 

Consolidated Company

 

 

 

 

 

 

 

Revenues

 

$

2,548

 

$

2,406

 

$

3,000

 

Net Earnings

 

$

485

 

$

434

 

$

722

 

Diluted EPS

 

$

0.81

 

$

0.72

 

$

1.15

 

Total Assets ($ in billions)

 

$

217

 

$

208

 

$

195

 

Key Segment Pre-tax Earnings

 

 

 

 

 

 

 

Mortgage Banking

 

$

320

 

$

100

 

$

630

 

Banking

 

$

129

 

$

288

 

$

325

 

Capital Markets

 

$

110

 

$

132

 

$

158

 

Insurance

 

$

99

 

$

180

 

$

89

 

Key Operating Statistics ($ in billions)

 

 

 

 

 

 

 

Total Loan Fundings

 

$

133

 

$

117

 

$

120

 

Ending Loan Servicing Portfolio

 

$

1,415

 

$

1,352

 

$

1,197

 

Ending Assets of Banking Operations

 

$

90

 

$

84

 

$

84

 

 

“Countrywide’s results for the second quarter of 2007 reflected strength in our core loan production business, but were adversely impacted by continued weakness in the housing market,” said Angelo R. Mozilo, Chairman and Chief Executive Officer.  “During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result.  Due to these adverse conditions, the Company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans.”

Credit-related costs in the second quarter included:

— Impairment on credit-sensitive retained interests.   Impairment charges of $417 million were taken during the quarter on the Company’s investments in credit-sensitive retained interests.  This included $388 million, or approximately $0.40 in earnings per diluted share based on a normalized tax

 

Investor Relations
4500 Park Granada · Calabasas, CA  91302 ·  818-225-3550
http://www.countrywide.com

 Countrywide Home Loans, Inc.  and Countrywide Bank, FSB, are Equal Housing Lenders. ã2007 Countrywide Financial Corporation.
Trade/service marks are the property of Countrywide Financial Corporation and/or its subsidiaries.  All rights reserved.

 

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rate, of impairment on residual securities collateralized by prime home equity loans.  The impairment charges on these residuals were attributable to accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans.

— Held-for-investment (HFI) portfolio.  The provision for losses on HFI loans incurred in the second quarter was $293 million, driven primarily by a loan loss provision of $181 million on prime home equity HFI loans in the Banking segment.

“Partly offsetting increased credit costs, our residential Loan Production sector delivered strong results during the quarter,” said Mozilo.  “Consolidated quarterly funding volume was the third-highest in our history, prime production margins were relatively stable, and subprime production margins substantially improved.  As a result, Loan Production sector pre-tax profit in the quarter was at its highest level since the first quarter of 2005.”

During the quarter, the Company also benefited from a non-recurring reduction in its corporate tax rate to 27.0 percent, which compares to 38.1 percent in the first quarter of 2007.   The benefit from this tax rate change equated to $0.12 per diluted share.  The change in the tax rate is the result of a remeasurement of deferred income taxes precipitated by the relocation of certain operating activities resulting in favorable state income tax consequences.  The Company anticipates a recurring benefit to the tax rate in future quarters of approximately 0.5 percent as a result of these operational changes.

“Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist,” Mozilo concluded.  “Nonetheless, management remains optimistic about the long-term future growth prospects and profitability of the Company as industry consolidation continues.”

BUSINESS SEGMENT PERFORMANCE

Mortgage Banking

Table 2 below highlights the Mortgage Banking segment’s financial performance for the second quarter of 2007:

Table 2

Mortgage Banking Pre-tax Earnings

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30,
2007

 

Mar. 31,
2007

 

Jun. 30,
2006

 

Pre-tax Earnings (Loss)

 

 

 

 

 

 

 

Production

 

$

439

 

$

139

 

$

325

 

Servicing

 

(147

)

(69

)

279

 

Closing Services

 

28

 

30

 

26

 

Total Mortgage Banking

 

$

320

 

$

100

 

$

630

 

% Contribution to total pre-tax earnings

 

48

%

14

%

53

%

 

Loan Production

The Loan Production sector is comprised of the following distribution channels: prime and subprime consumer-direct lending through Countrywide Home Loans’ 986-branch retail system, call center operations and the Internet; wholesale lending through a network of mortgage brokers; and correspondent lending which buys closed loans from other financial institutions such as independent mortgage companies, commercial banks,

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savings and loans and credit unions. The sector also includes the mortgage banking activities of Countrywide Bank.

Overall quarterly Loan Production sector margins on both a sequential and year-over-year basis are detailed below:

Table 3

Loan Production Sector
Pre-tax Earnings(1)

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30,
2007

 

%(2)

 

Mar. 31,
2007

 

%(2)

 

Jun. 30,
2006

 

%(2)

 

Gain on sale of loans

 

$

1,293

 

1.05

%

$

1,033

 

0.93

%

$

1,308

 

1.26

%

Net warehouse spread

 

148

 

0.12

%

90

 

0.08

%

107

 

0.10

%

Miscellaneous income

 

74

 

0.06

%

58

 

0.06

%

67

 

0.07

%

Total revenues

 

1,514

 

1.23

%

1,181

 

1.07

%

1,482

 

1.43

%

Operating expenses

 

(976

)

(0.79

%)

(904

)

(0.82

%)

(1,021

)

(0.99

%)

Allocated corporate expenses

 

(99

)

(0.08

%)

(138

)

(0.12

%)

(137

)

(0.13

%)

Total expenses

 

(1,075

)

(0.87

%)

(1,042

)

(0.94

%)

(1,158

)

(1.12

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loan Production sector pre-tax earnings

 

$

439

 

0.36

%

$

139

 

0.13

%

$

325

 

0.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Mortgage Banking loan funding volume

 

$

123,068

 

 

 

$

110,567

 

 

 

$

103,635

 

 

 

(1)                Numbers may not total exactly due to rounding

(2)                Percentage based on loan funding volume

The sequential quarter increase in overall pre-tax production margins to 36 basis points was driven by increases in gain on sale and net warehouse spread margins as well as lower expense rates.  The increase in gain on sale was primarily related to margin improvements in the subprime channel.  Net warehouse spread showed sequential improvement primarily due to the confluence of higher levels of inventory, long-term rates rising, and short-term rates (which impact the Company’s related borrowing costs) remaining flat.  Operating expense dollars were up only 8 percent sequentially on an 11 percent production volume increase.

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Table 4

Loan Production Sector Gain on Sale

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30,
2007

 

Mar. 31,
2007

 

Jun. 30,
2006

 

Prime

 

 

 

 

 

 

 

Production

 

$

111,220

 

$

93,833

 

$

82,229

 

Loans sold

 

$

109,426

 

$

92,879

 

$

79,175

 

Gain on sale (“GOS”)

 

$

1,036

 

$

901

 

$

972

 

GOS margin (1)

 

0.95

%

0.97

%

1.23

%

 

 

 

 

 

 

 

 

Subprime

 

 

 

 

 

 

 

Production

 

$

5,069

 

$

7,500

 

$

10,171

 

Loans sold

 

$

5,164

 

$

7,890

 

$

9,896

 

GOS (Loss)

 

$

183

 

$

(33

)

$

200

 

GOS (Loss) margin (1)

 

3.54

%

(0.42

%)

2.02

%

 

 

 

 

 

 

 

 

Home Equity

 

 

 

 

 

 

 

Production

 

$

6,779

 

$

9,234

 

$

11,235

 

 

 

 

 

 

 

 

 

Initial sale

 

 

 

 

 

 

 

Loans sold

 

$

1,998

 

$

6,787

 

$

4,702

 

GOS

 

$

51

 

$

138

 

$

92

 

GOS margin(1)

 

2.54

%

2.03

%

1.95

%

 

 

 

 

 

 

 

 

Subsequent draws

 

 

 

 

 

 

 

Loans sold

 

$

1,042

 

$

1,043

 

$

1,199

 

GOS

 

$

23

 

$

27

 

$

44

 

GOS margin (1)

 

2.20

%

2.63

%

3.67

%

 

 

 

 

 

 

 

 

Total production

 

$

123,068

 

$

110,567

 

$

103,635

 

Total loans sold

 

$

117,630

 

$

108,599

 

$

94,972

 

Total GOS

 

$

1,293

 

$

1,033

 

$

1,308

 

Total GOS margin (1)

 

1.10

%

0.95

%

1.38

%

Total GOS as % of loans produced

 

1.05

%

0.93

%

1.26

%

(1)                GOS as a percentage of loans sold

At 95 basis points, prime gain on sale margin for the second quarter of 2007 was relatively stable compared to the first quarter.  Prime margin was down year over year, primarily as a result of increased price competition, a higher percentage of production coming from the lower-margin correspondent channel and a decrease in origination of higher-margin pay-option loans.

Subprime gain on sale margin improved substantially from the first quarter and year over year as a result of improved secondary market execution during the quarter and reduced price competition, especially in the wholesale channel.  In addition, the Company experienced a channel mix shift toward the retail channel, which has traditionally carried greater margins.  Consolidated subprime fundings for the Company were $5.7 billion during the quarter, the lowest level since the third quarter of 2003, and represented 4 percent of overall quarterly production volume.

Home equity gain on sale revenue (excluding subsequent draw-related gains) was down $87 million from the first quarter of 2007 and $41 million from the second quarter of 2006, primarily resulting from fewer sales of prime home equity loans and greater retention of such loans in the HFI portfolio during the second quarter of 2007.  In the second quarter of 2007, the Company retained $3.8 billion in prime home equity loans in the Bank due to

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widening credit spreads on these loans in the securitization markets making portfolio investments in prime home equity loans economically more attractive.  In the first quarter of 2007, $0.3 billion prime home equity loan production was retained by the Bank.

Loan Servicing

The Loan Servicing sector reflects the performance of mortgage servicing rights (MSRs) and retained interests associated with Countrywide’s owned servicing portfolio.  Countrywide also manages a financial hedge within the Loan Servicing sector to mitigate negative valuation changes in MSRs and retained interests.

The Loan Servicing sector’s income statement and key operational metrics are displayed below:

Table 5

Loan Servicing Sector Pre-tax Results of
Operations(1)

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30,
2007

 

%(2)

 

Mar. 31,
2007

 

%(2)

 

Jun. 30,
2006

 

%(2)

 

Servicing fees, net of guarantee fees

 

$

1,145

 

0.333

%

$

1,080

 

0.328

%

$

940

 

0.324

%

Escrow balance income

 

224

 

0.065

%

204

 

0.062

%

207

 

0.071

%

Miscellaneous fees

 

191

 

0.056

%

209

 

0.063

%

135

 

0.046

%

Income from retained interests

 

123

 

0.036

%

148

 

0.045

%

129

 

0.044

%

Realization of expected MSR cash flows

 

(1,007

)

(0.293

%)

(925

)

(0.281

%)

(768

)

(0.264

%)

Operating revenues

 

676

 

0.197

%

715

 

0.217

%

642

 

0.221

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct expenses

 

(203

)

(0.059

%)

(179

)

(0.054

%)

(187

)

(0.065

%)

Allocated corporate expenses

 

(15

)

(0.005

%)

(22

)

(0.007

%)

(21

)

(0.007

%)

Total expenses

 

(218

)

(0.064

%)

(201

)

(0.061

%)

(209

)

(0.072

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

458

 

0.133

%

515

 

0.156

%

433

 

0.149

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(292

)

(0.085

%)

(221

)

(0.067

%)

(153

)

(0.053

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of MSRs

 

1,327

 

0.387

%

179

 

0.054

%

569

 

0.196

%

(Impairment) recovery of retained interests

 

(268

)

(0.078

%)

(429

)

(0.130

%)

52

 

0.018

%

Servicing hedge losses

 

(1,373

)

(0.400

%)

(114

)

(0.034

%)

(621

)

(0.214

%)

Valuation changes, net of servicing hedge

 

(314

)

(0.091

%)

(363

)

(0.110

%)

(1

)

0.000

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loan Servicing sector results of operations

 

$

(147

)

(0.043

%)

$

(69

)

(0.021

%)

$

279

 

0.096

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average servicing portfolio ($ in billions)

 

$

1,374

 

 

 

$

1,316

 

 

 

$

1,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MSR portfolio capitalization rate

 

1.54

%

 

 

1.40

%

 

 

1.44

%

 

 

(1)                Numbers may not total exactly due to rounding

(2)                Percentage based on average servicing portfolio; computation is annualized

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Table 6

Servicing Portfolio Delinquencies (1)

 

 

Quarter Ended

 

 

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

 

 

Total

 

90+ day

 

Total

 

90+ day

 

Total

 

90+ day

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional 1st liens

 

3.35

%

1.02

%

2.85

%

0.82

%

2.05

%

0.49

%

Government 1st liens

 

12.39

%

4.39

%

11.32

%

4.41

%

12.69

%

4.59

%

Prime home equity loans (includes FRS)

 

4.56

%

2.15

%

3.77

%

1.75

%

1.77

%

0.75

%

Subprime loans

 

23.71

%

9.45

%

19.62

%

7.82

%

15.33

%

5.35

%

Total servicing portfolio

 

5.73

%

2.02

%

4.90

%

1.70

%

3.85

%

1.18

%

(1)                   Delinquencies are based on outstanding loan balances and include loans in foreclosure and are calculated using the MBA method.  Using the OTS method, total delinquency ratios would have been 3.12% at June 30, 2007; 2.59% at March 31, 2007; and 1.88% at June 30, 2006.  In the OTS method, a loan increases its delinquency status if a monthly payment is not received by the loan’s due date in the following month.  In the MBA method, a loan increases its delinquency status if a monthly payment is not received by the end of the day immediately preceding the loan’s next due date.

Loan Servicing sector pre-tax earnings were adversely impacted by a $268 million net impairment charge on retained interests. The net impairment charge stemmed from writedowns of credit-sensitive retained interests, partially offset by positive mark-to-market adjustments on non credit-sensitive retained interests.  The charges recorded during the quarter on credit-sensitive retained interests consisted primarily of $388 million of writedowns on prime home equity backed residuals and $25 million on subprime residuals and other related securities.  These charges were primarily attributable to increased delinquencies and related increased projections of future defaults driven by weakening housing market conditions. During the first quarter of 2007, writedowns of prime home equity residuals and of subprime residuals and other related securities were $133 million and $231 million, respectively.  The carrying value of credit-sensitive retained interests backed by prime home equity residuals and subprime residuals and other related securities was $1,012 million and $441 million, respectively, at June 30, 2007.

Partially offsetting the writedowns on credit-sensitive retained interests was a $149 million positive mark-to-market adjustment, primarily on AAA-rated interest-only securities which increased in value due to increasing interest rates during the quarter and lower investor yield requirements.

The servicing hedge performed in line with management’s expectations amidst an increase in fixed mortgage rates of roughly 50 basis points during the quarter.

Additional information and explanation regarding credit-related issues is provided in the “Second Quarter 2007 Supplemental Presentation:  Credit Summary” that is available on Countrywide’s website (www.countrywide.com) in the “Investor Relations” section.

BANKING

The Banking segment includes Banking Operations (primarily the fee and investment activities of Countrywide Bank, FSB) and Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers.  Countrywide Bank (“Bank”) provides Countrywide with expanded product capabilities, a low cost source of funds, liquidity, and portfolio lending capabilities.  The Bank invests primarily in prime-quality

6



residential mortgage loans sourced from the Loan Production sector and the secondary market.  It funds these assets through various means including its retail deposit franchise, which is comprised of an expanding national financial center network of 104 locations (most of which are located in existing Countrywide retail offices), call centers, and Internet presence.  The Bank also supplements its deposit base with a variety of wholesale funding activities.

Key financial and operational results for the Banking segment as well as the Banking Operations sector are noted in the tables below with additional details in tables at the end of this release:

Table 7

Banking Segment Pre-tax Earnings

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

Banking Operations

 

$

136

 

$

294

 

$

329

 

Countrywide Warehouse Lending

 

10

 

10

 

13

 

Allocated corporate expenses

 

(17

)

(16

)

(17

)

Total Banking segment pre-tax earnings

 

$

129

 

$

288

 

$

325

 

 

Table 8

Banking Operations

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

Pre-tax Earnings (1)

 

 

 

 

 

 

 

Net interest income

 

$

463

 

$

497

 

$

421

 

Provision for credit losses

 

(246

)

(129

)

(37

)

Non-interest income

 

50

 

41

 

38

 

Mortgage insurance expense

 

(24

)

(19

)

(8

)

Other non-interest expense

 

(106

)

(95

)

(85

)

Total Banking Operations pre-tax earnings

 

$

136

 

$

294

 

$

329

 

 

 

 

 

 

At Period End

 

 

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

Key Operating Statistics

 

 

 

 

 

 

 

Total assets

 

$

89,910

 

$

84,261

 

$

84,246

 

Loan portfolio, net

 

$

68,131

 

$

69,360

 

$

75,470

 

Securities portfolio

 

$

18,328

 

$

12,505

 

$

5,601

 

Net interest margin (NIM)

 

2.21

%

2.45

%

2.12

%

Total deposits

 

$

60,569

 

$

57,783

 

$

50,658

 

(1)                Numbers may not total exactly due to rounding.

Banking Operations’ quarterly pre-tax earnings were $136 million, a decrease of 54 percent from the prior quarter and 59 percent year over year.  The sequential quarter decrease was driven primarily by increased credit costs, including an increase in the provision for credit losses as well as increased mortgage insurance expense, and a decline in net interest income.  The credit loss provision and related reserves grew due to increased loss expectations driven by weakening housing market conditions.  Mortgage insurance expense also increased as the Bank has continued to acquire credit enhancement in an effort to mitigate future credit losses. As of the end

7



of the 2007 second quarter, 77 percent of the pay option portfolio and 18 percent of the home equity portfolio were covered by credit enhancement.  Net interest income declined principally as a result of a shift in asset mix to include a greater proportion of high-quality mortgage-backed securities.

The year-over-year decrease in pre-tax earnings was primarily driven by higher credit loss provisions, greater mortgage insurance costs, and to a lesser degree, increased operating expenses net of non-interest income.  The increase in net operating expense was largely driven by increased FDIC insurance premiums, together with investments made to support new fee income and deposit generation initiatives.

CAPITAL MARKETS

The Capital Markets segment includes a registered securities broker-dealer, a distressed-asset manager, a commercial real estate finance group and related businesses.  Financial results for the Capital Markets segment are noted below with operational metrics in the tables at the end of this release:

Table 9

Capital Markets Segment
Pre-tax Earnings (1)

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

Revenues

 

 

 

 

 

 

 

Conduit

 

$

93

 

$

69

 

$

104

 

Securities trading

 

47

 

35

 

27

 

Commercial real estate

 

40

 

48

 

28

 

Underwriting

 

36

 

67

 

79

 

Brokering

 

15

 

12

 

9

 

Other

 

14

 

29

 

11

 

Total revenues

 

245

 

261

 

258

 

Expenses

 

 

 

 

 

 

 

Operating expenses

 

(128

)

(122

)

(93

)

Allocated corporate expenses

 

(7

)

(6

)

(7

)

 Total expenses

 

(135

)

(128

)

(100

)

Total Capital Markets segment pre-tax earnings

 

$

110

 

$

132

 

$

158

 

(1)                Numbers may not total exactly due to rounding

Pre-tax earnings for the Capital Markets segment decreased 17 percent from the first quarter of 2007 and 31 percent from the second quarter of 2006.  These declines were primarily driven by an overall reduction in revenues as the business adjusted to weakening market conditions, as well as increased expenses associated with newer business initiatives, particularly the commercial real estate business.

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INSURANCE

Countrywide’s Insurance segment includes Balboa Insurance Group, whose companies are national providers of property, life and casualty insurance; and Balboa Reinsurance Company, a captive mortgage guaranty reinsurance company. Financial results for the Insurance segment are noted below with operational metrics in the tables at the end of this release:

Table 10

Insurance Segment Pre-tax Earnings (1)

 

 

Quarter Ended

 

($ in millions)

 

Jun. 30, 2007

 

Mar. 31, 2007

 

Jun. 30, 2006

 

Balboa Reinsurance Company

 

$

56

 

$

131

 

$

53

 

Balboa Life & Casualty

 

51

 

57

 

45

 

Allocated corporate expenses

 

(9

)

(8

)

(8

)

Total Insurance segment pre-tax earnings

 

$

99

 

$

180

 

$

89

 

(1)                Numbers may not total exactly due to rounding

For the second quarter of 2007, Insurance segment pre-tax results decreased 45 percent from the sequential quarter, but increased 11 percent year over year.  The sequential quarter earnings decrease is primarily attributable to a $74 million reversal of loss reserves in Balboa Reinsurance in the first quarter of 2007 which did not recur in the second quarter.  The year-over-year earnings growth is primarily attributable to net earned premium growth in both Balboa Reinsurance and Balboa Life & Casualty.

DIVIDEND DECLARATION

Countrywide’s Board of Directors declared a dividend of $0.15 per share.  The payable date on the dividend is August 31, 2007 to stockholders of record on August 15, 2007.

2007 OUTLOOK

Management anticipates that the second half of 2007 will be increasingly challenging for the industry and Countrywide.  Absent a reduction in mortgage interest rates, production volumes are expected to fall and competitive pricing pressures are expected to increase.  In addition, volatility in the secondary markets has increased significantly early in the third quarter and liquidity for mortgage securities has been reduced as a result.  These conditions are expected to adversely impact secondary market execution and further pressure gain on sale margins.  Furthermore, additional deterioration in the housing market may further impact credit costs.

Management has taken, and is continuing to take, a number of actions in response to changing market conditions.  These include tightening of credit guidelines, particularly related to subprime and prime home equity loans; further curtailment of subprime product offerings, including the recent elimination of certain adjustable-rate products; risk-based pricing adjustments; use of mortgage insurance for credit enhancement; and expense reduction initiatives.

Notwithstanding current environmental factors and their near-term impact on earnings, management believes that the Company is well positioned to capitalize on opportunities during this transitional period in the mortgage business, which management believes will enhance the Company’s long-term earnings growth prospects. 

9



Countrywide expects to leverage the strength of its capital and liquidity positions, superior business model and best-in-class workforce to emerge in a superior competitive position coming out of the current housing down cycle.  Furthermore, the ongoing integration of the Company’s bank and mortgage company is expected to enhance its business model through operational efficiencies, reduced funding costs, and enhanced liquidity among other competitive advantages.

EARNINGS GUIDANCE

Countrywide’s revised earnings guidance for 2007, which contemplates the foregoing factors, is as follows:

Table 11

 

 

Updated 2007 Guidance

 

Previous 2007 Guidance

 

 

 

July 24, 2007

 

April 26, 2007

 

CFC Consolidated Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

$

2.70

 

to

 

$

3.30

 

$

3.50

 

to

 

$

4.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage market ($ in trillions)

 

$

2.2

 

to

 

$

2.6

 

$

2.2

 

to

 

$

3.0

 

Average 10-year U.S. Treasury yield

 

4.60

%

to

 

5.20

%

4.20

%

to

 

5.20

%

Average 3-month LIBOR

 

5.00

%

to

 

5.70

%

4.80

%

to

 

5.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-wide loan origination volume ($ in billions)(1)

 

$

420

 

to

 

$

500

 

$

450

 

to

 

$

550

 

Loan production sector pre-tax margins (2)

 

5 bps

 

to

 

15 bps

 

10 bps

 

to

 

25 bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loan servicing portfolio ($ in trillions) (3)

 

$

1.375

 

to

 

$

1.425

 

$

1.300

 

to

 

$

1.400

 

Loan servicing sector pre-tax margins, net hedge

 

1 bps

 

to

 

5 bps

 

3 bps

 

to

 

6 bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)                Includes production from the Mortgage Banking, Banking and Capital Markets segments

(2)                Denominator is based on company-wide loan origination volume

(3)                Total portfolio, including retained servicing, inventory, Bank portfolio and subservicing

The earnings estimates and assumptions and other projections provided in this press release should be considered forward-looking statements and readers are directed to the information contained in the disclaimer provided herein.

Conference Call

Countrywide will host a live conference call to discuss quarterly results today at 12:00 pm Eastern.   The dial-in number for the live conference call is (877) 777-1967 (U.S.) or (612) 332-0806 (International).  The management discussion will be available for replay through midnight Pacific on Tuesday, August 7, 2007.  The replay dial-in numbers and access code are (800) 475-6701 (U.S.) / (320) 365-3844 (International) and 877952, respectively.

An accompanying slide presentation will be available on Countrywide’s website (www.countrywide.com), and can be accessed by clicking on “Investor Relations” on the website main page and clicking on the supporting slide show text link for the 2007 second quarter earnings teleconference (Second Quarter 2007 Supplemental Presentation:  Credit Summary).  Management strongly recommends that participants have access to this presentation while listening to the management discussion.

10



About Countrywide

Founded in 1969, Countrywide Financial Corporation is a diversified financial services provider and a member of the S&P 500, Forbes 2000 and Fortune 500.  Through its family of companies, Countrywide originates, purchases, securitizes, sells, and services prime and subprime loans; provides loan closing services such as credit reports, appraisals and flood determinations; offers banking services which include depository and home loan products; conducts fixed income securities underwriting and trading activities; provides property, life and casualty insurance; and manages a captive mortgage reinsurance company. For more information about the Company, visit Countrywide’s website at www.countrywide.com.  This press release does not constitute an offer of any securities for sale.

This Press Release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections, and assumptions with respect to, among other things, the Company’s future operations, business plans and strategies, as well as industry and market conditions, all of which are subject to change. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein.  Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: competitive and general economic conditions in each of our business segments such as slower or negative home price appreciation; changes in general business, economic, market and political conditions in the United States and abroad from those expected; loss of investment grade ratings that may result in an increase in the cost of debt or loss of access to corporate debt markets; reduction in government support of homeownership; the level and volatility of interest rates; changes in interest rate paths; increases in the delinquency rates of borrowers; changes in generally accepted accounting principles or in the legal, regulatory and legislative environments in the markets in which the Company operates; the judgments and assumptions made by management regarding accounting estimates and related matters; the ability of management to effectively implement the Company’s strategies; and other risks noted in documents filed by the Company with the Securities and Exchange Commission from time to time.  Words like “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements.  The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein.

(tables follow)

 

11



12-12-12

COUNTRYWIDE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

 

June 30,

 

 

 

(in thousands, except per share data)

 

 

 

2007

 

2006

 

%
Change

 

2007

 

2006

 

%
Change

 

 

 

(unaudited)

 

 

 

(unaudited)

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

1,493,458

 

$

1,527,450

 

(2

%)

$

2,727,562

 

$

2,888,628

 

(6

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

3,499,644

 

2,845,580

 

23

%

6,851,626

 

5,439,338

 

26

%

Interest expense

 

(2,771,648

)

(2,155,106

)

29

%

(5,392,693

)

(4,054,429

)

33

%

Net interest income

 

727,996

 

690,474

 

5

%

1,458,933

 

1,384,909

 

5

%

Provision for loan losses

 

(292,924

)

(61,898

)

373

%

(444,886

)

(125,036

)

256

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

435,072

 

628,576

 

(31

%)

1,014,047

 

1,259,873

 

(20

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees and other income from mortgage servicing rights and retained interests

 

1,421,255

 

1,207,159

 

18

%

2,808,544

 

2,407,046

 

17

%

Realization of expected cash flows from mortgage servicing rights

 

(1,007,241

)

(768,132

)

31

%

(1,931,947

)

(1,506,699

)

28

%

Change in fair value of mortgage servicing rights

 

1,327,446

 

569,002

 

133

%

1,506,453

 

1,547,283

 

(3

%)

(Impairment) recovery of retained interests

 

(268,117

)

51,498

 

N/M

 

(697,718

)

(69,156

)

909

%

Servicing hedge losses

 

(1,373,089

)

(621,074

)

121

%

(1,486,827

)

(1,506,944

)

(1

%)

Net loan servicing fees and other income from mortgage servicing rights and retained interests

 

100,254

 

438,453

 

(77

%)

198,505

 

871,530

 

(77

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net insurance premiums earned

 

352,384

 

284,226

 

24

%

686,561

 

564,019

 

22

%

Other

 

167,229

 

121,511

 

38

%

327,498

 

252,114

 

30

%

Total revenues

 

2,548,397

 

3,000,216

 

(15

%)

4,954,173

 

5,836,164

 

(15

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

1,109,016

 

1,143,707

 

(3

%)

2,184,424

 

2,218,525

 

(2

%)

Occupancy and other office

 

269,017

 

261,080

 

3

%

533,230

 

506,411

 

5

%

Insurance claims

 

154,769

 

102,809

 

51

%

212,074

 

226,851

 

(7

%)

Advertising and promotion

 

79,540

 

65,686

 

21

%

149,557

 

125,916

 

19

%

Other

 

271,357

 

232,911

 

17

%

509,395

 

445,075

 

14

%

Total expenses

 

1,883,699

 

1,806,193

 

4

%

3,588,680

 

3,522,778

 

2

%

Earnings before income taxes

 

664,698

 

1,194,023

 

(44

%)

1,365,493

 

2,313,386

 

(41

%)

Provision for income taxes

 

179,630

 

471,833

 

(62

%)

446,444

 

907,685

 

(51

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

485,068

 

$

722,190

 

(33

%)

$

919,049

 

$

1,405,701

 

(35

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.83

 

$

1.19

 

(30

%)

$

1.57

 

$

2.32

 

(32

%)

Diluted

 

$

0.81

 

$

1.15

 

(30

%)

$

1.53

 

$

2.25

 

(32

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

583,669

 

607,831

 

(4

%)

585,901

 

604,725

 

(3

%)

Diluted

 

595,540

 

626,610

 

(5

%)

598,864

 

623,473

 

(4

%)

 

(more)



13-13-13

COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS

 

 

June 30,

 

December 31,

 

%

 

(in thousands, except share data)

 

2007

 

2006

 

Change

 

 

 

(unaudited)

 

(audited)

 

 

 

Assets

 

 

 

 

 

 

 

Cash

 

$

1,154,032

 

$

1,407,000

 

(18

%)

Mortgage loans held for sale

 

34,090,154

 

31,272,630

 

9

%

Trading securities owned, at fair value

 

19,271,559

 

20,036,668

 

(4

%)

Trading securities pledged as collateral, at fair value

 

3,521,522

 

1,465,517

 

140

%

Securities purchased under agreements to resell, securities borrowed and federal funds sold

 

26,385,089

 

27,269,897

 

(3

%)

Loans held for investment, net of allowance for loan losses of $512,904 and $261,054, respectively

 

74,056,539

 

78,085,757

 

(5

%)

Investments in other financial instruments, at fair value

 

26,601,298

 

12,769,451

 

108

%

Mortgage servicing rights, at fair value

 

20,087,368

 

16,172,064

 

24

%

Premises and equipment, net

 

1,644,141

 

1,625,456

 

1

%

Other assets

 

10,010,058

 

9,841,790

 

2

%

 

 

 

 

 

 

 

 

Total assets

 

$

216,821,760

 

$

199,946,230

 

8

%

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposit liabilities

 

$

60,292,841

 

$

55,578,682

 

8

%

Securities sold under agreements to repurchase and federal funds purchased

 

46,186,848

 

42,113,501

 

10

%

Trading securities sold, not yet purchased, at fair value

 

4,145,425

 

3,325,249

 

25

%

Notes payable

 

77,669,067

 

71,487,584

 

9

%

Accounts payable and accrued liabilities

 

8,914,175

 

8,187,605

 

9

%

Income taxes payable

 

5,227,509

 

4,935,763

 

6

%

 

 

 

 

 

 

 

 

Total liabilities

 

202,435,865

 

185,628,384

 

9

%

 

 

 

 

 

 

 

 

Commitments and contingencies

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred stock — authorized, 1,500,000 shares of $0.05 par value; none issued and outstanding

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

Common stock — authorized, 1,000,000,000 shares of $0.05 par value; issued, 574,655,984 shares and 585,466,719 shares at June 30, 2007 and December 31, 2006, respectively; outstanding, 574,218,312 shares and 585,182,298 shares at June 30, 2007 and December 31, 2006, respectively

 

28,733

 

29,273

 

(2

%)

Additional paid-in capital

 

1,612,901

 

2,154,438

 

(25

%)

Accumulated other comprehensive loss

 

(136,228

)

(17,556

)

676

%

Retained earnings

 

12,880,489

 

12,151,691

 

6

%

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

14,385,895

 

14,317,846

 

0

%

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

216,821,760

 

$

199,946,230

 

8

%

 

(more)



14-14-14

COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND
 MORTGAGE SERVICING RIGHTS

 

 

June 30,

 

December 31,

 

%

 

(in thousands)

 

 

 

2007

 

2006

 

Change

 

 

 

(unaudited)

 

(audited)

 

 

 

Loans Held for Investment, Net

 

 

 

 

 

 

 

Mortgage loans

 

$

69,684,285

 

$

72,295,979

 

(4

%)

Defaulted FHA-insured and VA-guaranteed loans repurchased from securities

 

1,670,714

 

1,761,170

 

(5

%)

Warehouse lending advances secured by mortgage loans

 

2,457,571

 

3,185,248

 

(23

%)

 

 

73,812,570

 

77,242,397

 

(4

%)

Premiums and discounts, and deferred loan origination fees and costs, net

 

756,873

 

1,104,414

 

(31

%)

Allowance for loan losses

 

(512,904

)

(261,054

)

96

%

 

 

 

 

 

 

 

 

Total loans held for investment, net

 

$

74,056,539

 

$

78,085,757

 

(5

%)

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

Reimbursable servicing advances, net

 

$

2,330,732

 

$

2,121,486

 

10

%

Investments in Federal Reserve Bank and Federal Home Loan Bank stock

 

1,324,737

 

1,433,070

 

(8

%)

Interest receivable

 

1,050,405

 

997,854

 

5

%

Securities broker-dealer receivables

 

937,854

 

1,605,502

 

(42

%)

Real estate acquired in settlement of loans

 

546,585

 

251,163

 

118

%

Receivables from custodial accounts

 

466,531

 

719,048

 

(35

%)

Derivative margin accounts

 

396,815

 

118,254

 

236

%

Cash surrender value of assets held in trust for deferred compensation plans

 

393,018

 

372,877

 

5

%

Prepaid expenses

 

392,557

 

320,597

 

22

%

Capitalized software, net

 

369,933

 

367,055

 

1

%

Cash surrender value of company owned life insurance

 

205,951

 

5,894

 

N/M

 

Restricted cash

 

200,020

 

238,930

 

(16

%)

Mortgage guaranty insurance tax and loss bonds

 

169,067

 

128,293

 

32

%

Receivables from sale of securities

 

140,905

 

284,177

 

(50

%)

Other assets

 

1,084,948

 

877,590

 

24

%

 

 

 

 

 

 

 

 

Total other assets

 

$

10,010,058

 

$

9,841,790

 

2

%

 

 

 

 

 

 

 

 

Mortgage Servicing Rights, at Fair Value

 

 

 

 

 

 

 

Balance at December 31, 2006

 

$

16,172,064

 

 

 

 

 

Additions:

 

 

 

 

 

 

 

Servicing resulting from transfers of financial assets

 

4,156,287

 

 

 

 

 

Purchases of servicing assets

 

184,511

 

 

 

 

 

Total additions

 

4,340,798

 

 

 

 

 

Change in fair value:

 

 

 

 

 

 

 

Due to changes in valuation inputs or assumptions used in valuation model (1)

 

1,506,453

 

 

 

 

 

Other changes in fair value (2)

 

(1,931,947

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2007

 

$

20,087,368

 

 

 

 

 

(1)             Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)             Represents changes due to realization of expected cash flows.

(more)



15-15-15

COUNTRYWIDE FINANCIAL CORPORATION

INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS

 

 

June 30,

 

December 31,

 

%

 

(in thousands)

 

 

 

2007

 

2006

 

Change

 

 

 

(unaudited)

 

(audited)

 

 

 

Investments in Other Financial Instruments, at Fair Value

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

19,495,594

 

$

7,007,786

 

178

%

Obligations of U.S. Government-sponsored enterprises

 

567,096

 

776,717

 

(27

%)

Municipal bonds

 

409,170

 

412,886

 

(1

%)

U.S. Treasury securities

 

199,019

 

168,313

 

18

%

Other

 

2,699

 

2,858

 

(6

%)

 

 

 

 

 

 

 

 

Subtotal

 

20,673,578

 

8,368,560

 

147

%

 

 

 

 

 

 

 

 

Interests retained in securitization accounted for as available-for-sale securities

 

 

 

 

 

 

 

Prime interest-only and principal-only securities

 

253,557

 

279,375

 

(9

%)

Prime home equity line of credit transferor’s interest

 

70,774

 

144,346

 

(51

%)

Prepayment penalty bonds

 

29,225

 

52,697

 

(45

%)

Subprime residuals and other related securities

 

21,797

 

152,745

 

(86

%)

Prime home equity residual securities

 

17,432

 

40,766

 

(57

%)

Subprime interest-only securities

 

13,491

 

3,757

 

259

%

Prime home equity interest-only securities

 

6,627

 

7,021

 

(6

%)

Subordinated mortgage-backed pass-through securities

 

529

 

1,382

 

(62

%)

Prime residual securities

 

154

 

1,435

 

(89

%)

Total interests retained in securitization accounted for as available-for-sale securities

 

413,586

 

683,524

 

(39

%)

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

21,087,164

 

9,052,084

 

133

%

 

 

 

 

 

 

 

 

Interests retained in securitization accounted for as trading securities:

 

 

 

 

 

 

 

Prime interest-only and principal-only securities

 

781,310

 

549,635

 

42

%

Prime home equity line of credit transferor’s interest

 

518,033

 

553,701

 

(6

%)

Subprime residuals and other related securities

 

419,645

 

388,963

 

8

%

Prime home equity residual securities

 

406,210

 

737,808

 

(45

%)

Prepayment penalty bonds

 

117,454

 

90,666

 

30

%

Subordinated mortgage-backed pass-through securities

 

28,260

 

—

 

N/M

 

Prime home equity interest-only securities

 

21,644

 

22,467

 

(4

%)

Interest rate swaps

 

21,588

 

2,490

 

767

%

Prime residual securities

 

7,783

 

11,321

 

(31

%)

 

 

 

 

 

 

 

 

Total interests retained in securitization accounted for as trading securities

 

2,321,927

 

2,357,051

 

(1

%)

 

 

 

 

 

 

 

 

Servicing hedge principal-only securities accounted for as trading securities

 

1,488,435

 

—

 

N/M

 

 

 

 

 

 

 

 

 

Hedging and mortgage pipeline derivatives:

 

 

 

 

 

 

 

Mortgage servicing related

 

661,113

 

837,908

 

(21

%)

Notes payable related

 

543,258

 

444,342

 

22

%

Mortgage loans held for sale and pipeline related

 

499,401

 

78,066

 

540

%

Total investments in other financial instruments

 

$

26,601,298

 

$

12,769,451

 

108

%

 

 

 

 

 

 

 

 

 

(more)



16-16-16

COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

(dollar amounts in millions)

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking

 

$

123,068

 

$

103,635

 

19

%

$

233,635

 

$

197,087

 

19

%

Banking Operations

 

4,461

 

8,261

 

(46

%)

7,029

 

16,334

 

(57

%)

Capital Markets — conduit acquisitions

 

2,634

 

6,613

 

(60

%)

4,463

 

10,620

 

(58

%)

Total Mortgage Loan Fundings

 

130,163

 

118,509

 

10

%

245,127

 

224,041

 

9

%

Commercial real estate

 

2,901

 

997

 

191

%

4,912

 

1,963

 

150

%

Total Loan Fundings

 

$

133,064

 

$

119,506

 

11

%

$

250,039

 

$

226,004

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans produced

 

685,370

 

663,217

 

3

%

1,280,904

 

1,234,954

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan closing services (units):

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of credit reports, flood determinations, appraisals, automated property valuation services, title reports, default title orders, other title and escrow services, and home inspections

 

6,724,897

 

5,975,995

 

13

%

13,199,702

 

11,778,103

 

12

%

 

 

 

June 30,

 

%

 

 

 

2007

 

2006

 

Change

 

Mortgage loan pipeline
(loans-in-process)

 

$

68,533

 

$

64,979

 

5

%

 

 

 

 

 

 

 

 

Loan servicing portfolio (1)

 

$

1,415,472

 

$

1,196,720

 

18

%

 

 

 

 

 

 

 

 

Number of loans serviced (1)

 

8,737,534

 

7,757,724

 

13

%

 

 

 

 

 

 

 

 

MSR portfolio (2)

 

$

1,304,250

 

$

1,063,405

 

23

%

 

 

 

 

 

 

 

 

Assets of Banking Operations
(in billions)

 

$

90

 

$

84

 

7

%

(1)                Includes loans held for sale, loans held for investment and loans serviced for others, including those under subservicing agreements.

(2)                Represents loan servicing portfolio reduced by loans held for sale, loans held for investment and subservicing.

(more)



17-17-17

COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)

 

 

Quarter Ended June 30, 2007

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

1,292,655

 

$

49

 

$

—

 

$

1,292,704

 

$

—

 

$

180,642

 

$

—

 

$

—

 

$

20,112

 

$

1,493,458

 

Net interest income after provision for loan losses

 

147,647

 

(67,333

)

3,119

 

83,433

 

234,829

 

56,555

 

20,998

 

1,606

 

37,651

 

435,072

 

Net loan servicing fees(1)

 

—

 

141,952

 

—

 

141,952

 

—

 

2,224

 

200

 

—

 

(44,122

)

100,254

 

Net insurance premiums earned

 

—

 

—

 

—

 

—

 

—

 

—

 

352,384

 

—

 

—

 

352,384

 

Other revenue(2)

 

73,757

 

19,473

 

86,140

 

179,370

 

52,942

 

5,336

 

15,235

 

27,292

 

(112,946

)

167,229

 

Total revenues

 

1,514,059

 

94,141

 

89,259

 

1,697,459

 

287,771

 

244,757

 

388,817

 

28,898

 

(99,305

)

2,548,397

 

Expenses

 

1,075,360

 

241,499

 

60,998

 

1,377,857

 

158,861

 

135,247

 

290,096

 

22,210

 

(100,572

)

1,883,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Earnings (loss) before income taxes

 

$

438,699

 

$

(147,358

)

$

28,261

 

$

319,602

 

$

128,910

 

$

109,510

 

$

98,721

 

$

6,688

 

$

1,267

 

$

664,698

 

 

 

 

Quarter Ended June 30, 2006

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

1,307,918

 

$

682

 

$

—

 

$

1,308,600

 

$

—

 

$

207,853

 

$

—

 

$

—

 

$

10,997

 

$

1,527,450

 

Net interest income after provision for loan losses

 

107,301

 

53,914

 

3,300

 

164,515

 

400,741

 

42,658

 

14,141

 

975

 

5,546

 

628,576

 

Net loan servicing fees(1)

 

—

 

444,688

 

—

 

444,688

 

619

 

1,421

 

(51

)

502

 

(8,726

)

438,453

 

Net insurance premiums earned

 

—

 

—

 

—

 

—

 

—

 

—

 

284,226

 

—

 

—

 

284,226

 

Other revenue(2)

 

67,225

 

2,112

 

75,465

 

144,802

 

42,350

 

5,750

 

13,634

 

13,725

 

(98,750

)

121,511

 

Total revenues

 

1,482,444

 

501,396

 

78,765

 

2,062,605

 

443,710

 

257,682

 

311,950

 

15,202

 

(90,933

)

3,000,216

 

Expenses

 

1,157,880

 

222,113

 

52,540

 

1,432,533

 

118,339

 

100,092

 

223,203

 

12,382

 

(80,356

)

1,806,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

$

324,564

 

$

279,283

 

$

26,225

 

$

630,072

 

$

325,371

 

$

157,590

 

$

88,747

 

$

2,820

 

$

(10,577

)

$

1,194,023

 

(1)            Consists primarily of fees earned for servicing mortgage loans, related ancillary fees and income from retained interests, change in fair value of mortgage servicing rights, recovery (impairment) of retained interests and servicing hedge gains (losses).

(2)            Consists primarily of revenues from ancillary products and services, including title, escrow, appraisal, credit reporting and home inspection services and insurance agency commissions.

(more)



18-18-18

COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)

 

 

Six Months Ended June 30, 2007

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

2,325,864

 

$

—

 

$

—

 

$

2,325,864

 

$

—

 

$

370,438

 

$

—

 

$

—

 

$

31,260

 

$

2,727,562

 

Net interest income after provision for loan losses

 

237,671

 

(84,017

)

6,311

 

159,965

 

621,477

 

117,179

 

38,010

 

3,215

 

74,201

 

1,014,047

 

Net loan servicing fees (1)

 

—

 

281,946

 

—

 

281,946

 

—

 

3,801

 

(707

)

—

 

(86,535

)

198,505

 

Net insurance premiums earned

 

—

 

—

 

—

 

—

 

—

 

—

 

686,561

 

—

 

—

 

686,561

 

Other revenue (2)

 

131,850

 

46,381

 

168,424

 

346,655

 

95,555

 

13,995

 

34,669

 

46,133

 

(209,509

)

327,498

 

Total revenues

 

2,695,385

 

244,310

 

174,735

 

3,114,430

 

717,032

 

505,413

 

758,533

 

49,348

 

(190,583

)

4,954,173

 

Expenses

 

2,117,245

 

460,761

 

116,518

 

2,694,524

 

300,028

 

263,695

 

480,154

 

38,654

 

(188,375

)

3,588,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

$

578,140

 

$

(216,451

)

$

58,217

 

$

419,906

 

$

417,004

 

$

241,718

 

$

278,379

 

$

10,694

 

$

(2,208

)

$

1,365,493

 

 

 

 

Six Months Ended June 30, 2006

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

2,468,695

 

$

2,661

 

$

—

 

$

2,471,356

 

$

—

 

$

395,153

 

$

—

 

$

—

 

$

22,119

 

$

2,888,628

 

Net interest income after provision for loan losses

 

220,627

 

85,572

 

4,661

 

310,860

 

811,023

 

100,752

 

28,676

 

1,517

 

7,045

 

1,259,873

 

Net loan servicing fees(1)

 

—

 

874,226

 

—

 

874,226

 

901

 

2,753

 

(665

)

11,824

 

(17,509

)

871,530

 

Net insurance premiums earned

 

—

 

—

 

—

 

—

 

—

 

—

 

564,019

 

—

 

—

 

564,019

 

Other revenue(2)

 

134,721

 

8,773

 

145,732

 

289,226

 

83,418

 

22,147

 

23,067

 

36,939

 

(202,683

)

252,114

 

Total revenues

 

2,824,043

 

971,232

 

150,393

 

3,945,668

 

895,342

 

520,805

 

615,097

 

50,280

 

(191,028

)

5,836,164

 

Expenses

 

2,215,330

 

443,231

 

101,961

 

2,760,522

 

228,885

 

207,642

 

461,407

 

37,292

 

(172,970

)

3,522,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

$

608,713

 

$

528,001

 

$

48,432

 

$

1,185,146

 

$

666,457

 

$

313,163

 

$

153,690

 

$

12,988

 

$

(18,058

)

$

2,313,386

 

(1)                    Consists primarily of fees earned for servicing mortgage loans, related ancillary fees and income from retained interests, change in fair value of mortgage servicing rights, recovery (impairment) of retained interests and servicing hedge gains (losses).

(2)                    Consists primarily of revenues from ancillary products and services, including title, escrow, appraisal, credit reporting and home inspection services and insurance agency commissions.

(more)



19-19-19

COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
PAY-OPTION LOANS HELD FOR INVESTMENT,
PRODUCTION AND ACQUISITIONS OF LOANS HELD FOR INVESTMENT AND
CREDIT QUALITY

(Unaudited)

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2007

 

2006

 

 

 

 

 

 

 

Pay-option ARM loans held for investment:

 

 

 

 

 

Total pay-option ARM loan portfolio

 

$

27,778,863

 

$

32,732,581

 

Total principal balance of pay-option ARM loans with accumulated negative amortization

 

$

25,219,735

 

$

28,958,718

 

 

 

 

 

 

 

Accumulated negative amortization (from original loan balance)

 

$

941,980

 

$

653,974

 

 

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

(in thousands)

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest capitalized on loans

 

$

221,395

 

$

156,762

 

41

%

$

455,381

 

$

265,999

 

71

%

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

(in millions)

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production and bulk acquisitions of loans held for investment by channel:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Markets

 

$

1,550

 

$

2

 

N/M

 

$

1,576

 

$

854

 

85

%

Correspondent Lending

 

1,229

 

3,453

 

(64

%)

1,595

 

5,790

 

(72

%)

Purchases (1)

 

1,106

 

1,900

 

(42

%)

3,269

 

4,014

 

(19

%)

Wholesale Lending

 

576

 

2,906

 

(80

%)

589

 

5,676

 

(90

%)

Total production and purchases of loans held for investment

 

$

4,461

 

$

8,261

 

(46

%)

$

7,029

 

$

16,334

 

(57

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)             Acquisitions from third parties

 

 

June 30,

 

December 31,

 

(dollar amounts in thousands)

 

2007

 

2006

 

 

 

 

 

% assets

 

 

 

% assets

 

Non-performing residential loans:

 

 

 

 

 

 

 

 

 

With third party credit enhancement (2)

 

$

278,934

 

0.31

%

$

109,218

 

0.13

%

Without third party credit enhancement

 

661,848

 

0.74

%

409,865

 

0.50

%

Total non-performing loans

 

940,782

 

1.05

%

519,083

 

0.63

%

Foreclosed real estate

 

188,483

 

0.21

%

27,416

 

0.03

%

 

 

 

 

 

 

 

 

 

 

Total non-performing assets

 

$

1,129,265

 

1.26

%

$

546,499

 

0.66

%

 

 

 

 

 

 

 

 

 

 

Allowances for credit losses

 

 

 

 

 

 

 

 

 

Allowances for loan losses

 

$

450,844

 

 

 

$

228,692

 

 

 

Liability for unfunded loan commitments

 

18,222

 

 

 

8,104

 

 

 

 

 

$

469,066

 

 

 

$

236,796

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances for credit losses as a percentage of:

 

 

 

 

 

 

 

 

 

Total non-performing loans

 

 

 

49.86

%

 

 

45.62

%

Total non-performing loans without third party credit enhancements

 

 

 

70.87

%

 

 

57.77

%

Total loans held for investment

 

 

 

0.68

%

 

 

0.32

%

 

 

 

Six Months Ended

 

Six Months Ended

 

 

 

June 30, 2007

 

June 30, 2006

 

 

 

 

 

Annualized net
charge-off as%
average investment
loans

 

 

 

Annualized net
charge-off as%
average
investment loans

 

Net charge-offs: (3)

 

$

142,124

 

0.42

%

$

14,348

 

0.04

%

(2)             Third party credit enhancements include borrower-paid mortgage insurance and pool mortgage insurance acquired by the Banking Operations.

(3)           In the quarter ended June 30, 2007, a change was made in our practices to accelerate the timing of charge-offs of loans held for investment.  This change was made in recognition of increased delinquency and foreclosures.  The impact of this change was to increase charge-offs by approximately $30 million.

(more)



20-20-20

COUNTRYWIDE FINANCIAL CORPORATION

BANKING OPERATIONS

SUMMARY INFORMATION, AVERAGE BALANCE SHEET AND LOAN QUALITY

(Unaudited)

Summary Information

 

 

June 30,

 

 

(dollar amounts in thousands)

 

2007

 

2006

 

 

After-tax return on average assets

 

0.50

%

0.99

%

 

After-tax return on average equity

 

8.3

%

14.6

%

 

 

 

 

 

 

 

 

Period end:

 

 

 

 

 

 

Total assets

 

$

89,910,226

 

$

84,245,600

 

 

Total equity

 

$

5,539,521

 

$

5,601,487

 

 

Total investment loan portfolio, net

 

$

68,130,524

 

$

75,470,133

 

 

 

Average Balance Sheet

 

 

Quarter Ended June 30, 2007

 

Quarter Ended June 30, 2006

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

Average

 

Income/

 

Annualized

 

Average

 

Income/

 

Annualized

 

(dollar amounts in thousands)

 

Balance

 

Expense

 

Yield/Rate

 

Balance

 

Expense

 

Yield/Rate

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Home loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Pay-option ARMs

 

$

30,058,599

 

$

539,564

 

7.18

%

$

33,438,240

 

$

529,721

 

6.34

%

Hybrid & other 1st liens

 

17,464,852

 

241,341

 

5.53

%

22,084,697

 

295,676

 

5.36

%

Home equity loans

 

19,854,686

 

407,071

 

8.21

%

15,255,739

 

310,945

 

8.17

%

Commercial real estate loans

 

122,215

 

2,117

 

6.95

%

—

 

—

 

0.00

%

Investment securities

 

14,588,289

 

205,633

 

5.64

%

5,960,904

 

73,652

 

4.94

%

Other assets

 

1,619,230

 

23,663

 

5.86

%

2,153,699

 

30,811

 

5.39

%

Total interest-earning assets

 

$

83,707,871

 

$

1,419,389

 

6.79

%

$

78,893,279

 

$

1,240,805

 

6.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market & savings deposits

 

$

15,065,927

 

$

202,950

 

5.40

%

$

5,199,192

 

$

61,015

 

4.71

%

Company-controlled custodial deposit accounts

 

16,706,566

 

216,967

 

5.21

%

15,817,734

 

191,521

 

4.86

%

Time deposits (CDs)

 

26,931,005

 

345,886

 

5.15

%

26,490,658

 

298,237

 

4.52

%

Borrowings

 

17,577,543

 

190,247

 

4.34

%

25,030,324

 

268,934

 

4.31

%

Total interest-bearing liabilities

 

$

76,281,041

 

$

956,050

 

5.03

%

$

72,537,908

 

$

819,707

 

4.53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

1.76

%

 

 

 

 

1.76

%

Net interest margin

 

 

 

 

 

2.21

%

 

 

 

 

2.12

%

 

Average Balance Sheet

 

 

Six Months Ended June 30, 2007

 

Six Months Ended June 30, 2006

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

Average

 

Income/

 

Annualized

 

Average

 

Income/

 

Annualized

 

(dollar amounts in thousands)

 

Balance

 

Expense

 

Yield/Rate

 

Balance

 

Expense

 

Yield/Rate

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Home loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Pay-option ARMs

 

$

31,111,712

 

$

1,131,111

 

7.27

%

$

30,940,469

 

$

957,675

 

6.19

%

Hybrid & other 1st liens

 

18,057,827

 

499,518

 

5.53

%

22,160,717

 

586,772

 

5.30

%

Home equity loans

 

19,961,765

 

822,294

 

8.28

%

15,326,303

 

612,895

 

8.05

%

Commercial real estate loans

 

72,132

 

2,534

 

7.08

%

—

 

—

 

0.00

%

Investment securities

 

11,100,939

 

307,083

 

5.53

%

6,104,385

 

154,121

 

5.05

%

Other assets

 

1,541,444

 

45,112

 

5.90

%

1,949,136

 

51,806

 

5.36

%

Total interest-earning assets

 

$

81,845,819

 

$

2,807,652

 

6.87

%

$

76,481,010

 

$

2,363,269

 

6.19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market & savings deposits

 

$

12,883,401

 

$

339,124

 

5.31

%

$

5,016,247

 

$

112,426

 

4.52

%

Company-controlled custodial deposit accounts

 

16,150,567

 

415,379

 

5.19

%

14,649,621

 

337,373

 

4.64

%

Time deposits (CDs)

 

28,122,947

 

715,032

 

5.13

%

24,640,209

 

534,803

 

4.38

%

Borrowings

 

17,629,475

 

378,038

 

4.32

%

25,931,310

 

539,269

 

4.19

%

Total interest-bearing liabilities

 

$

74,786,390

 

$

1,847,573

 

4.98

%

$

70,237,387

 

$

1,523,871

 

4.38

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

1.89

%

 

 

 

 

1.81

%

Net interest margin

 

 

 

 

 

2.32

%

 

 

 

 

2.17

%

 

Loan Quality (1)

 

 

June 30, 2007

 

June 30, 2006

 

 

 

LTV

 

CLTV

 

FICO

 

LTV

 

CLTV

 

FICO

 

Pay-option ARMs

 

76

%

79

%

717

 

75

%

78

%

721

 

Hybrid & other 1st liens

 

74

%

79

%

733

 

74

%

78

%

735

 

Home equity loans

 

20

%

82

%

730

 

20

%

82

%

731

 

(1)             At time of origination; LTV=loan-to-value ratio; CLTV=combined LTV, which included second mortgages at time of origination; FICO is a commonly used credit scoring measure

(more)



21-21-21

COUNTRYWIDE FINANCIAL CORPORATION
OTHER OPERATIONS
CAPITAL MARKETS SECURITIES AND INSURANCE SEGMENT
(Unaudited)

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

(in millions)

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Markets Securities Trading Volume: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

684,463

 

$

570,878

 

20

%

$

1,244,732

 

$

1,099,228

 

13

%

U.S. Treasury securities

 

365,387

 

307,815

 

19

%

730,716

 

664,927

 

10

%

Asset-backed securities

 

21,800

 

29,061

 

(25

%)

55,441

 

61,737

 

(10

%)

Other

 

38,094

 

26,582

 

43

%

76,797

 

86,799

 

(12

%)

Total securities trading volume

 

$

1,109,744

 

$

934,336

 

19

%

$

2,107,686

 

$

1,912,691

 

10

%

(1)             Includes trades with Mortgage Banking Segment.

Insurance Segment

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

(dollar amounts in thousands)

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balboa Life & Casualty:

 

 

 

 

 

 

 

 

 

 

 

 

 

Lender-placed net premiums earned

 

$

183,793

 

$

123,031

 

49

%

$

350,527

 

$

249,083

 

41

%

Voluntary net premiums earned

 

$

103,157

 

$

106,039

 

(3

%)

$

207,340

 

$

207,985

 

(0

%)

Loss ratio

 

48

%

41

%

 

 

46

%

45

%

 

 

Combined ratio

 

83

%

80

%

 

 

82

%

85

%

 

 

 

 

 

Quarters Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

%

 

June 30,

 

%

 

 

 

2007

 

2006

 

Change

 

2007

 

2006

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balboa Reinsurance:

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinsurance net earned premiums

 

$

65,434

 

$

55,156

 

19

%

$

128,694

 

$

106,951

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in billions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Period end:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans in CFC servicing portfolio covered by Balboa Reinsurance

 

$

98

 

$

84

 

17

%