Exhibit 99
NEWS | | 
|
INVESTOR CONTACT: (818) 225-3550
David Bigelow or Lisa Riordan
COUNTRYWIDE REPORTS 2006 SECOND QUARTER RESULTS
– Quarterly Diluted Earnings Per Share Increased 25% Over Last Year To $1.15 –
– 2006 Guidance Revised to $4.00 to $4.80 per Diluted Share –
CALABASAS, CA (July 25, 2006) – Countrywide Financial Corporation (NYSE: CFC) today announced results for the quarter and six months ended June 30, 2006. Highlights include the following:
Table 1
| | Quarter Ended | | | | Six Months Ended | | | |
($ in millions, except per share amounts) | | June 30,
2006 | | June 30,
2005 | | %
Change | | June 30,
2006 | | June 30,
2005 | | %
Change | |
Consolidated Company | | | | | | | | | | | | | |
Revenues | | $ | 3,000 | | $ | 2,308 | | 30 | % | $ | 5,836 | | $ | 4,713 | | 24 | % |
Net Earnings | | $ | 722 | | $ | 566 | | 27 | % | $ | 1,406 | | $ | 1,255 | | 12 | % |
Diluted EPS | | $ | 1.15 | | $ | 0.92 | | 25 | % | $ | 2.25 | | $ | 2.05 | | 10 | % |
Total Assets ($ in billions) | | $ | 195 | | $ | 159 | | 23 | % | | | | | | |
Key Segment Pre-tax Earnings | | | | | | | | | | | | | |
Mortgage Banking | | $ | 630 | | $ | 526 | | 20 | % | $ | 1,185 | | $ | 1,298 | | -9 | % |
Banking | | $ | 325 | | $ | 251 | | 30 | % | $ | 666 | | $ | 467 | | 43 | % |
Capital Markets | | $ | 158 | | $ | 105 | | 50 | % | $ | 313 | | $ | 227 | | 38 | % |
Insurance | | $ | 89 | | $ | 58 | | 54 | % | $ | 154 | | $ | 112 | | 37 | % |
Key Operating Statistics ($ in billions) | | | | | | | | | | | | | |
Total Loan Fundings | | $ | 118 | | $ | 121 | | -3 | % | $ | 222 | | $ | 213 | | 4 | % |
Loan Servicing Portfolio | | $ | 1,197 | | $ | 964 | | 24 | % | | | | | | |
Assets of Banking Operations | | $ | 84 | | $ | 66 | | 29 | % | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
“Countrywide delivered strong results in the second quarter and first half of 2006,” said Angelo R. Mozilo, Chairman and Chief Executive Officer. “The Company achieved a 25 percent year-over-year growth in diluted earnings per share for the second quarter despite a 121 basis point rise in the 10-Year U.S. Treasury yield and a 3 percent decline in our total loan funding volume. This demonstrated the power of our business model, as the strategic counterbalancing of our Production and Servicing sectors fueled positive results in our Mortgage Banking segment. The ongoing growth initiatives in our other businesses are providing significant value to the consolidated franchise. Together, these activities help position the Company as a strong performer over the long term in a wide range of interest rate environments.
Investor Relations
4500 Park Granada • Calabasas, CA 91302 • 818-225-3550
http://www.countrywide.com
Countrywide Home Loans, Inc. and Countrywide Bank, NA, are Equal Housing Lenders.
©2002 Countrywide Financial Corporation.
Trade/service marks are the property of Countrywide Financial Corporation and/or its subsidiaries. All rights reserved.
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“Looking forward, we begin the second half of 2006 with a $65 billion pipeline of mortgage loan applications, and an assemblage of new products targeted for introduction before year-end including reverse mortgages; enhanced refinance programs; and a production salesforce of over 16,000. Our Bank’s new SavingsLink deposit product and its initiatives targeting small business customers are expected to fuel growth in liability generation, enhancing the Company’s overall funding capability. Capital Markets is progressing on the implementation of its new business initiatives in the derivatives, commercial real estate finance, and asset management sectors as well as continued global expansion. Our Insurance division continues to focus on profitable growth by refining its operations and reducing its catastrophic risk exposure. In addition, even as Countrywide seeks to sustain market share growth, the Company is implementing an efficiency project designed to identify redundancies and reduce costs as we move toward a more normalized market. With a proven time-tested management team, a $195 billion balance sheet and high investment grade credit ratings, we are well positioned to be a beneficiary over the long term in this consolidating market.”
BUSINESS SEGMENT PERFORMANCE
Mortgage Banking
The table below highlights the Mortgage Banking segment’s financial performance for the second quarter and first half of 2006:
Table 2
| | Quarter Ended | | | | Six Months Ended | | | |
($ in millions) | | June 30,
2006 | | June 30,
2005 | | %
Change | | June 30,
2006 | | June 30,
2005 | | %
Change | |
Pre-tax Earnings | | | | | | | | | | | | | |
Production | | $ | 325 | | $ | 409 | | -21 | % | $ | 609 | | $ | 1,144 | | -47 | % |
Servicing | | 279 | | 89 | | 213 | % | 528 | | 106 | | 397 | % |
Closing Services | | 26 | | 28 | | -7 | % | 48 | | 48 | | 1 | % |
Total Mortgage Banking | | $ | 630 | | $ | 526 | | 20 | % | $ | 1,185 | | $ | 1,298 | | -9 | % |
% Contribution to total pre-tax earnings | | 53 | % | 56 | % | | | 51 | % | 62 | % | | |
Loan Production
The Loan Production sector is comprised of the following distribution channels: prime and nonprime consumer-direct lending through Countrywide Home Loans’ 960-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, savings and loans and credit unions. In addition, the Loan Production sector encompasses loans originated through Countrywide Bank sold into the secondary mortgage market.
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Overall quarterly production margins on both a sequential and year-over-year basis are highlighted below:
Table 3
Loan Production Sector(1)
| | Quarter Ended | |
($ in millions) | | June 30,
2006 | | %(2) | | March 31,
2006 | | %(2) | | June 30,
2005 | | %(2) | |
Gain on sale of loans | | $ | 1,308 | | 1.26 | % | $ | 1,161 | | 1.24 | % | $ | 1,014 | | 1.00 | % |
Net warehouse spread | | 107 | | 0.10 | % | 113 | | 0.12 | % | 156 | | 0.15 | % |
Miscellaneous income | | 67 | | 0.07 | % | 67 | | 0.08 | % | 68 | | 0.07 | % |
Total revenues | | 1,482 | | 1.43 | % | 1,342 | | 1.44 | % | 1,237 | | 1.22 | % |
Operating expenses | | (1,021 | ) | (0.99 | %) | (915 | ) | (0.98 | %) | (740 | ) | (0.73 | %) |
Allocated corporate expenses | | (137 | ) | (0.13 | %) | (143 | ) | (0.16 | %) | (88 | ) | (0.09 | %) |
Total expenses | | (1,158 | ) | (1.12 | %) | (1,057 | ) | (1.14 | %) | (828 | ) | (0.82 | %) |
| | | | | | | | | | | | | |
Total pre-tax earnings | | $ | 325 | | 0.31 | % | $ | 284 | | 0.30 | % | $ | 409 | | 0.40 | % |
(1) Numbers may not total exactly due to rounding
(2) Percentage based on loan production volume
Pre-tax earnings for the Loan Production sector advanced from the first quarter of 2006 primarily as a result of an increase in gain on sale, which is detailed in Table 4 below. Similarly, total Loan Production sector pre-tax earnings as a percentage of production for the second quarter increased 1 basis point from the first quarter of 2006. Compared to the prior year, second quarter revenues grew as a result of an increase in gain on sale. Net warehouse spread, however, decreased as higher short-term rates drove funding costs upward, more than offsetting the benefit of a higher average inventory balance. Total expenses, both in dollars and as a percentage of loans produced, increased from the second quarter of the prior year primarily as a result of ongoing strategic initiatives to increase the Company’s market share as well as a decrease in the SFAS 91 deferral rate. As a result, total Loan Production sector pre-tax margins for the second quarter decreased 9 basis points from the second quarter of 2005.
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Table 4
Loan Production Sector (1)
| | Quarter Ended | |
($ in millions) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Prime | | | | | | | |
Production | | $ | 82,229 | | $ | 75,825 | | $ | 84,609 | |
Loans sold | | $ | 79,175 | | $ | 76,177 | | $ | 84,935 | |
Gain on sale (“GOS”) | | $ | 972 | | $ | 898 | | $ | 674 | |
GOS as % of loans sold | | 1.23 | % | 1.18 | % | 0.79 | % |
| | | | | | | |
Nonprime | | | | | | | |
Production | | $ | 10,171 | | $ | 8,099 | | $ | 9,670 | |
Loans sold | | $ | 9,896 | | $ | 9,090 | | $ | 11,481 | |
GOS | | $ | 200 | | $ | 149 | | $ | 218 | |
GOS as % of loans sold | | 2.02 | % | 1.64 | % | 1.90 | % |
| | | | | | | |
Home Equity | | | | | | | |
Production | | $ | 11,235 | | $ | 9,528 | | $ | 6,875 | |
Loans sold: | | | | | | | |
Initial securitization | | $ | 4,702 | | $ | 4,443 | | $ | 3,020 | |
Subsequent draws | | $ | 1,199 | | $ | 975 | | $ | 881 | |
GOS | | $ | 136 | | $ | 114 | | $ | 122 | |
GOS as % of loans sold | | 2.30 | % | 2.10 | % | 3.12 | % |
| | | | | | | |
Total production | | $ | 103,635 | | $ | 93,452 | | $ | 101,154 | |
Total loans sold | | $ | 94,972 | | $ | 90,685 | | $ | 100,317 | |
Total GOS | | $ | 1,308 | | $ | 1,161 | | $ | 1,014 | |
Total GOS as % of loans sold | | 1.38 | % | 1.28 | % | 1.01 | % |
Total GOS as % of loans produced | | 1.26 | % | 1.24 | % | 1.00 | % |
(1) Numbers may not be exact due to rounding
Overall gain-on-sale margins as a percentage of loans sold rose 10 basis points from the prior quarter to 138 basis points as a result of increases in margins across all three product categories. Compared to the first quarter of 2006, second quarter prime gain on sale margins were up 5 basis points. This sequential quarter increase was fueled by a slight improvement in pricing margins, which varied by product type, with pay-options playing a significant role. For both nonprime and home equity, margins increased primarily as a result of improved secondary market execution.
Loan Servicing
The Loan Servicing sector reflects the performance of mortgage servicing rights (MSRs) and other retained interests associated with Countrywide’s owned-servicing portfolio. Since MSRs generally perform best in higher interest rate environments, management expects that earnings from these assets will, over the long term, act as a natural counter-balance against earnings from the Loan Production sector, which typically performs best in lower interest rate environments. Over time, Loan Production operations in a low interest rate environment will generally provide substantial incremental earnings to offset the effect of faster prepayment speeds and corresponding downward valuation
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changes in MSRs. Countrywide also manages a financial hedge within the Loan Servicing sector to further counteract MSR valuation changes.
The Loan Servicing sector’s income statement and key operational metrics are displayed below:
Table 5
Loan Servicing Sector (1)
| | Quarter Ended | |
($ in millions) | | June 30,
2006 | | % (2) | | March 31,
2006 | | % (2) | | June 30,
2005 | | % (2) | |
Servicing fees, net of guarantee fees | | $ | 940 | | 0.324 | % | $ | 913 | | 0.326 | % | $ | 761 | | 0.333 | % |
Miscellaneous fees | | 135 | | 0.046 | % | 144 | | 0.052 | % | 117 | | 0.051 | % |
Income from retained interests | | 129 | | 0.044 | % | 134 | | 0.048 | % | 108 | | 0.047 | % |
Escrow balance income | | 207 | | 0.071 | % | 160 | | 0.057 | % | 77 | | 0.034 | % |
Realization of expected MSR cash flows | | (768 | ) | (0.264 | %) | (738 | ) | (0.264 | %) | — | | — | |
Amortization of MSRs | | — | | — | | — | | — | | (482 | ) | (0.211 | %) |
Operating revenues | | 642 | | 0.221 | % | 614 | | 0.219 | % | 582 | | 0.254 | % |
| | | | | | | | | | | | | |
Change in fair value of MSRs | | 569 | | 0.196 | % | 978 | | 0.349 | % | — | | — | |
Impairment of MSRs | | — | | — | | — | | — | | (1,281 | ) | (0.560 | %) |
Recovery (impairment) of retained interests | | 52 | | 0.018 | % | (120 | ) | (0.043 | %) | (97 | ) | (0.042 | %) |
Servicing hedge (losses) gains | | (621 | ) | (0.214 | %) | (886 | ) | (0.316 | %) | 1,147 | | 0.501 | % |
Valuation changes, net of servicing hedge | | (1 | ) | 0.000 | % | (28 | ) | (0.010 | %) | (232 | ) | (0.101 | %) |
| | | | | | | | | | | | | |
Total revenues | | 641 | | 0.221 | % | 586 | | 0.209 | % | 350 | | 0.153 | % |
| | | | | | | | | | | | | |
Operating expenses | | (187 | ) | 0.065 | % | (185 | ) | 0.066 | % | (161 | ) | 0.070 | % |
Allocated corporate expenses | | (21 | ) | 0.007 | % | (23 | ) | 0.008 | % | (15 | ) | 0.007 | % |
Interest expense | | (153 | ) | 0.053 | % | (128 | ) | 0.046 | % | (84 | ) | 0.037 | % |
Total expenses | | (362 | ) | 0.125 | % | (337 | ) | 0.120 | % | (261 | ) | 0.114 | % |
| | | | | | | | | | | | | |
Total Loan Servicing sector pre-tax earnings | | $ | 279 | | 0.096 | % | $ | 249 | | 0.089 | % | $ | 89 | | 0.039 | % |
| | | | | | | | | | | | | |
Average servicing portfolio volume ($ in billions) | | $ | 1,162 | | | | $ | 1,120 | | | | $ | 916 | | | |
| | | | | | | | | | | | | |
MSR portfolio capitalization rate | | 1.44 | % | | | 1.38 | % | | | 1.10 | % | | |
Weighted average coupon | | 6.3 | % | | | 6.2 | % | | | 5.9 | % | | |
(1) Numbers may not total exactly due to rounding
(2) Percentage based on average servicing portfolio; computation is annualized
Quarterly Loan Servicing sector pre-tax earnings increased both sequentially and year over year. The increase from the first quarter of 2006 was primarily a result of outperformance of the servicing hedge, as well as increased operating revenues. The year-over-year increase was primarily the result of a $231 million improvement in valuation changes (MSRs, retained interests, and servicing hedge) and a $60 million improvement in operating revenues. These improvements were partially offset by an increase in interest expense resulting from growth in servicing assets combined with an increase in the
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cost of debt. The net result was a pre-tax Loan Servicing margin of 10 basis points for the second quarter of 2006, which compares to 4 basis points for the same period a year ago.
Loan Closing Services
Loan Closing Services are offered through Countrywide’s LandSafe companies, which primarily provide credit reports, appraisals and flood determinations. The LandSafe companies’ quarterly pre-tax earnings of $26 million decreased modestly from $28 million in the second quarter last year, but were up $4 million from the first quarter of 2006.
BANKING
The Banking segment includes the fee and investment activities of Countrywide Bank (“Banking Operations”) and Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers. The Bank continues to leverage its relationship with the Mortgage Banking segment by originating high-quality mortgage assets through existing production distribution channels. Assets are funded by the Bank’s liability base, where growth is driven by the continued expansion of its core retail deposit franchise. The Bank raises retail deposits through the Internet, call centers and 90 financial centers, most of which are located in existing Countrywide retail lending offices. In turn, the Bank provides Countrywide with an expanded product menu, lower cost funding sources and portfolio lending capability.
Key financial and operational results for the Banking segment as well as the Banking Operations sector are noted in Tables 6 through 10 below:
Table 6
Banking Segment Pre-tax Earnings
| | Quarter Ended | |
($ in thousands) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Banking Operations | | $ | 328,742 | | $ | 330,731 | | $ | 238,195 | |
Countrywide Warehouse Lending | | 13,406 | | 18,126 | | 20,965 | |
Allocated corporate expenses | | (16,777 | ) | (7,771 | ) | (7,999 | ) |
Total Banking segment pre-tax earnings | | $ | 325,371 | | $ | 341,086 | | $ | 251,161 | |
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Table 7
Banking Operations
| | Quarter Ended | |
($ in thousands) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Net interest income | | $ | 421,098 | | $ | 418,300 | | $ | 301,338 | |
Provision for loan losses | | (35,807 | ) | (27,626 | ) | (20,265 | ) |
Non-interest income | | 37,670 | | 35,813 | | 37,397 | |
Non-interest expense | | (94,219 | ) | (95,756 | ) | (80,275 | ) |
Total Banking Operations pre-tax earnings | | $ | 328,742 | | $ | 330,731 | | $ | 238,195 | |
| | | | | | | |
Total assets ($ in billions) | | $ | 84 | | $ | 78 | | $ | 66 | |
Total equity ($ in millions) | | $ | 5,601 | | $ | 5,360 | | $ | 4,000 | |
Total investment loan portfolio, net ($ in millions) | | $ | 75,470 | | $ | 69,055 | | $ | 56,610 | |
New retail deposits produced ($ in millions) | | $ | 2,970 | | $ | 3,186 | | $ | 2,475 | |
After-tax return on average assets | | 0.99 | % | 1.08 | % | 0.99 | % |
After-tax return on average equity | | 14.6 | % | 15.4 | % | 16.0 | % |
Non-performing assets as % of total loans | | 0.32 | % | 0.28 | % | 0.07 | % |
| | | | | | | |
Total pay-option loan portfolio ($ in millions) | | $ | 34,226 | | $ | 30,965 | | $ | 15,706 | |
Pay-option loans with accumulated negative amortization: | | | | | | | |
Principal | | $ | 25,016 | | $ | 20,756 | | $ | 3,050 | |
Accumulated negative amortization (from original loan balance) | | $ | 301 | | $ | 169 | | $ | 6 | |
Table 8
Banking Operations Fundings By Channel
| | Quarter Ended | |
($ in millions) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Correspondent Lending | | $ | 3,453 | | $ | 2,346 | | $ | 5,361 | |
Wholesale Lending | | 2,906 | | 2,766 | | 7,638 | |
Consumer Markets | | 2 | | 847 | | 3,068 | |
Total Banking Operations fundings | | $ | 6,361 | | $ | 5,959 | | $ | 16,067 | |
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Table 9
Banking Operations
Average Balance Sheet
| | Quarter Ended June 30, 2006 | | Quarter Ended June 30, 2005 | |
($ in millions) | | Average
Balance | | Interest
Income/
Expense | | Annualized
Yield/Rate | | Average
Balance | | Interest
Income/
Expense | | Annualized
Yield/Rate | |
Interest-earning assets | | | | | | | | | | | | | |
Home loans | | | | | | | | | | | | | |
Pay-option ARMs | | $ | 33,438 | | $ | 530 | | 6.36 | % | $ | 12,379 | | $ | 98 | | 3.15 | % |
Hybrid & other 1st liens | | 22,085 | | 296 | | 5.33 | % | 23,084 | | 311 | | 5.39 | % |
Home equity loans | | 15,256 | | 311 | | 8.16 | % | 14,063 | | 236 | | 6.74 | % |
Other assets | | 8,114 | | 104 | | 5.06 | % | 8,159 | | 90 | | 4.42 | % |
Total interest-earning assets | | $ | 78,893 | | $ | 1,241 | | 6.29 | % | $ | 57,685 | | $ | 735 | | 5.10 | % |
| | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | |
Money market & savings deposits | | $ | 5,199 | | $ | 61 | | 4.71 | % | $ | 2,190 | | $ | 18 | | 3.30 | % |
Escrow deposits | | 15,818 | | 192 | | 4.86 | % | 10,447 | | 74 | | 2.86 | % |
Time deposits (CDs) | | 26,491 | | 298 | | 4.52 | % | 15,185 | | 130 | | 3.44 | % |
FHLB advances | | 23,122 | | 245 | | 4.25 | % | 20,457 | | 171 | | 3.33 | % |
Other borrowings | | 1,908 | | 24 | | 5.05 | % | 5,289 | | 41 | | 3.11 | % |
Total interest-bearing liabilities | | $ | 72,538 | | $ | 820 | | 4.53 | % | $ | 53,568 | | $ | 434 | | 3.25 | % |
| | | | | | | | | | | | | |
Net interest spread | | | | | | 1.76 | % | | | | | 1.85 | % |
Net interest margin | | | | | | 2.12 | % | | | | | 2.09 | % |
Table 10
Banking Operations
Loan Quality (1)
| | At June 30, 2006 | | At June 30, 2005 | |
| | LTV | | CLTV | | FICO | | LTV | | CLTV | | FICO | |
Pay-option ARMs | | 75 | % | 78 | % | 721 | | 74 | % | 77 | % | 721 | |
Hybrid & other 1st liens | | 74 | % | 78 | % | 735 | | 75 | % | 79 | % | 735 | |
Home equity loans | | 20 | % | 82 | % | 731 | | 19 | % | 81 | % | 728 | |
(1) | | At time of origination; LTV = loan-to-value ratio; CLTV = combined LTV, which includes second mortgages at time of origination; FICO is a commonly used credit scoring metric |
Banking segment quarterly pre-tax earnings increased 30 percent year over year, driven by a 38 percent increase in Banking Operations’ earnings. Earnings for Banking Operations were driven by a 37 percent increase in average earning assets at the Bank as well as a 3 basis point increase in net interest margin. On a sequential-quarter basis, Banking segment pre-tax earnings declined by $16 million primarily as a result of an increase in corporate overhead allocation as well as a $5 million decrease in earnings from Countrywide Warehouse Lending (CWL) and a $2 million decline in earnings from Banking Operations. Banking Operations’ earnings were down primarily due to the interest rate lag effect of the investment in pay-option ARM loans, which has compressed net interest margins, as well as an $8 million increase in the Bank’s loan loss provision. The loan loss provision was increased
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due to higher originations and to portfolio seasoning. Delinquencies (90+ days) at June 30, 2006 were 0.31 percent, a slight increase from 0.28 percent at March 31, 2006 and 0.07 percent at June 30, 2005. As shown in Table 10, the quality at origination of the Bank’s loan portfolio was sustained across all product categories.
CAPITAL MARKETS
The Capital Markets segment includes a registered securities broker-dealer, a distressed-asset manager and a commercial real estate finance group. Key financial and operational metrics for the Capital Markets segment are noted below:
Table 11
Capital Markets Segment
| | Quarter Ended | |
($ in thousands) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Revenues | | | | | | | |
Conduit | | $ | 104,239 | | $ | 122,601 | | $ | 72,361 | |
Underwriting | | 78,958 | | 71,212 | | 56,713 | |
Commercial real estate | | 27,850 | | 16,263 | | 9,584 | |
Securities trading | | 26,619 | | 34,664 | | 24,353 | |
Brokering | | 9,485 | | 6,657 | | 9,037 | |
Other | | 10,531 | | 11,726 | | 6,066 | |
Total revenues | | 257,682 | | 263,123 | | 178,114 | |
Expenses | | | | | | | |
Operating expenses | | 92,942 | | 103,471 | | 69,617 | |
Allocated corporate expenses | | 7,150 | | 4,079 | | 3,646 | |
Total expenses | | 100,092 | | 107,550 | | 73,263 | |
| | | | | | | |
Pre-tax earnings | | $ | 157,590 | | $ | 155,573 | | $ | 104,851 | |
Table 12
Capital Markets Securities Trading Volume
| | Quarter Ended | |
($ in millions) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
| | | | | | | |
Mortgage-backed securities | | $ | 570,878 | | $ | 528,350 | | $ | 467,375 | |
U.S. Treasury securities | | 307,815 | | 357,112 | | 369,430 | |
Asset-backed securities | | 29,061 | | 32,676 | | 35,535 | |
Other | | 26,582 | | 60,217 | | 15,154 | |
Total securities trading volume | | $ | 934,336 | | $ | 978,355 | | $ | 887,494 | |
Quarterly pre-tax earnings for the Capital Markets segment advanced 50 percent from the second quarter last year, driven by increases in all revenue categories, including 44 percent and 39 percent year-over-year increases in conduit and underwriting revenues, respectively. Conduit and underwriting revenues were higher as a result of an increase in gain-on-sale margins as well as an increase in
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volume. This was partially offset by a decline in net interest income due to the flattening of the yield curve. The Commercial Real Estate Finance group continues to perform well, selling $1.0 billion in loans for the second quarter of 2006, which compares to $0.5 billion in the comparable period a year ago.
INSURANCE
Countrywide’s Insurance segment includes Balboa Insurance Group, whose companies are national providers of property, life and casualty insurance; and Balboa Reinsurance Company, a captive mortgage reinsurance company. Key financial and operational results for the Insurance segment are noted below:
Table 13
Insurance Segment Pre-tax Earnings
| | Quarter Ended | |
($ in thousands) | | June 30,
2006 | | March 31,
2006 | | June 30,
2005 | |
Balboa Reinsurance Company | | $ | 52,661 | | $ | 46,497 | | $ | 36,940 | |
Balboa Life & Casualty | | 44,569 | | 22,779 | | 25,490 | |
Allocated corporate expenses | | (8,483 | ) | (4,333 | ) | (4,722 | ) |
Total Insurance segment pre-tax earnings | | $ | 88,747 | | $ | 64,943 | | $ | 57,708 | |
| | | | | | | |
Balboa Life & Casualty | | | | | | | |
| | | | | | | |
($ in millions) | | | | | | | |
Lender-placed net premiums earned | | $ | 117 | | $ | 120 | | $ | 108 | |
Voluntary net premiums earned | | $ | 112 | | $ | 108 | | $ | 64 | |
Loss ratio | | 41 | % | 50 | % | 44 | % |
Combined ratio | | 78.5 | % | 89.6 | % | 89.7 | % |
| | | | | | | |
Balboa Reinsurance | | | | | | | |
| | | | | | | |
($ in billions) | | | | | | | |
Loans in CFC servicing portfolio covered by Balboa Re | | $ | 84 | | $ | 81 | | $ | 72 | |
For the second quarter of 2006, Insurance segment pre-tax earnings grew 54 percent year over year due to increases at both Balboa Reinsurance and Balboa Life & Casualty. The increase at Balboa Reinsurance was primarily the result of an increase in average mortgage insurance rates, growth in policies in force, and an increase in the average premium ceded. The increase at Balboa Life & Casualty was primarily the result of premium growth in voluntary homeowners and auto insurance, fueled by new strategic distribution partnerships initiated in 2005. Partially offsetting this increase was a one-time capital gain of $9.8 million in the second quarter of 2005 that did not recur this year, slightly dampening the year-over-year comparisons.
DIVIDEND DECLARATION
Countrywide’s Board of Directors declared a dividend of $0.15 per share. The payable date on the dividend is August 31, 2006 to stockholders of record on August 15, 2006.
10
OUTLOOK
Performance in the first half of 2006 benefited from positive Loan Servicing sector performance, which at 9 basis points approached the upper end of the range within previous earnings guidance. The primary driver was outperformance of the servicing hedge. Loan Production sector margins for the first half were close to the mid-point of the range contemplated in previous guidance, reflecting moderate front-end pricing competition and an improvement in credit spreads compared to the end of 2005.
Management’s outlook for the second half of 2006 contemplates potential changes in the operating environment compared to the first half of the year. These potential changes include returns closer to the midpoint of expected performance levels for the Servicing sector, a modest decline in the size of the purchase mortgage market and the possibility of a more competitive front-end pricing paradigm for mortgage products.
EARNINGS GUIDANCE
Countrywide’s guidance for 2006 has been revised. Details, as well as prior guidance, are as follows:
Table 14
| | Revised Guidance
July 25, 2006 | | Previous Guidance
May 31, 2006 | |
CFC Consolidated Earnings | | | | | | | | | | | | | |
Diluted EPS | | $ | 4.00 | | to | | $ | 4.80 | | $ | 3.90 | | to | | $ | 4.80 | |
| | | | | | | | | | | | | |
Market | | | | | | | | | | | | | |
Total mortgage market | | $ | 2.4 | Tr | to | | $ | 2.8 | Tr | $ | 2.2 | Tr | to | | $ | 2.9 | Tr |
Average 10-year U.S. Treasury yield | | 4.70 | % | to | | 5.20 | % | 4.50 | % | to | | 5.30 | % |
| | | | | | | | | | | | | |
| | | | | | | | April 27, 2006 | |
CFC Segments | | | | | | | | | | | | | |
Mortgage Banking pre-tax earnings | | $ | 2.0 | Bn | to | | $ | 2.6 | Bn | $ | 1.95 | Bn | to | | $ | 2.55 | Bn |
Other Businesses’ pre-tax earnings (1) | | $ | 2.10 | Bn | to | | $ | 2.35 | Bn | $ | 2.05 | Bn | to | | $ | 2.35 | Bn |
| | | | | | | | | | | | | |
Production | | | | | | | | | | | | | |
Company-wide loan production market share (2) | | 16.7 | % | to | | 17.0 | % | 18.0 | % | to | | 18.5 | % |
Company-wide loan origination volume (2) | | $ | 400 | Bn | to | | $ | 475 | Bn | $ | 400 | Bn | to | | $ | 550 | Bn |
Loan production sector pre-tax margins (3) | | 20 | bps | to | | 40 | bps | 20 | bps | to | | 40 | bps |
| | | | | | | | | | | | | |
Servicing | | | | | | | | | | | | | |
Average loan servicing portfolio (4) | | $ | 1.2 | Tr | to | | $ | 1.25 | Tr | $ | 1.20 | Tr | to | | $ | 1.25 | Tr |
Loan servicing sector pre-tax margins | | 5.0 | bps | to | | 9.0 | bps | 2 | bps | to | | 10 | bps |
(1) Includes the Banking segment, Capital Markets, Insurance and Global Operations
(2) Includes production from the Mortgage Banking, Banking and Capital Markets segments
(3) Denominator is based on company-wide loan origination volume
(4) Total portfolio, including retained servicing, inventory, Bank portfolio and subservicing
11
The guidance revisions reflect actual results for the first half of 2006. 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
Please note that the Company will not be providing a presentation to accompany the conference call as it has done in the past. Instead, the Company has embedded tables within the press release itself, which contain information previously disclosed in the slide presentation. Therefore, management strongly recommends that conference call participants have a copy of the press release when listening to the conference call, as management will be referring to the various tables contained within the release.
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) 209-9919 (U.S.) or (612) 234-9959 (International). The management discussion will be available for replay through midnight Eastern on Tuesday, August 8, 2006. The replay dial-in numbers and access code are (800) 475-6701 (U.S.) / (320) 365-3844 (International) and 835850, respectively.
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 nonprime 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 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; 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; changes in generally accepted accounting principles or in the legal, regulatory and legislative environments in the markets in which the Company operates; 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.
(tables follow)
12
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
| | Quarters Ended | | | | Six Months Ended | | | |
| | June 30, | | % | | June 30, | | % | |
(in thousands, except per share data) | | 2006 | | 2005 | | Change | | 2006 | | 2005 | | Change | |
| | (unaudited) | | | | (unaudited) | | | |
| | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | |
Gain on sale of loans and securities | | $ | 1,527,450 | | $ | 1,145,409 | | 33% | | $ | 2,888,628 | | $ | 2,507,160 | | 15% | |
| | | | | | | | | | | | | |
Interest income | | 2,845,580 | | 1,770,642 | | 61% | | 5,439,338 | | 3,257,572 | | 67% | |
Interest expense | | (2,155,106 | ) | (1,229,234 | ) | 75% | | (4,054,429 | ) | (2,225,171 | ) | 82% | |
Net interest income | | 690,474 | | 541,408 | | 28% | | 1,384,909 | | 1,032,401 | | 34% | |
Provision for loan losses | | (61,898 | ) | (17,101 | ) | 262% | | (125,036 | ) | (36,723 | ) | 240% | |
Net interest income after provision for loan losses | | 628,576 | | 524,307 | | 20% | | 1,259,873 | | 995,678 | | 27% | |
| | | | | | | | | | | | | |
Loan servicing fees and other income from mortgage servicing rights and retained interests | | 1,207,159 | | 1,019,149 | | 18% | | 2,407,046 | | 1,991,507 | | 21% | |
Realization of expected cash flows from mortgage servicing rights | | (768,132 | ) | — | | N/M | | (1,506,699 | ) | — | | N/M | |
Amortization of mortgage servicing rights | | — | | (482,373 | ) | N/M | | — | | (954,560 | ) | N/M | |
Change in fair value of mortgage servicing rights | | 569,002 | | — | | N/M | | 1,547,283 | | — | | N/M | |
Impairment of mortgage servicing rights | | — | | (1,281,340 | ) | N/M | | — | | (828,906 | ) | N/M | |
Recovery (impairment) of retained interests | | 51,498 | | (97,629 | ) | N/M | | (69,156 | ) | (234,699 | ) | (71%) | |
Servicing hedge (losses) gains | | (621,074 | ) | 1,147,158 | | N/M | | (1,506,944 | ) | 594,866 | | N/M | |
Net loan servicing fees and other income from mortgage servicing rights and retained interests | | 438,453 | | 304,965 | | 44% | | 871,530 | | 568,208 | | 53% | |
| | | | | | | | | | | | | |
Net insurance premiums earned | | 284,226 | | 215,478 | | 32% | | 564,019 | | 414,996 | | 36% | |
Other | | 121,511 | | 117,784 | | 3% | | 252,114 | | 226,786 | | 11% | |
Total revenues | | 3,000,216 | | 2,307,943 | | 30% | | 5,836,164 | | 4,712,828 | | 24% | |
| | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | |
Compensation | | 1,143,707 | | 850,143 | | 35% | | 2,218,525 | | 1,636,622 | | 36% | |
Occupancy and other office | | 261,080 | | 225,137 | | 16% | | 506,411 | | 413,793 | | 22% | |
Insurance claims | | 102,809 | | 88,786 | | 16% | | 226,851 | | 164,721 | | 38% | |
Advertising and promotion | | 65,686 | | 53,615 | | 23% | | 125,916 | | 108,794 | | 16% | |
Other | | 232,911 | | 155,381 | | 50% | | 445,075 | | 305,020 | | 46% | |
Total expenses | | 1,806,193 | | 1,373,062 | | 32% | | 3,522,778 | | 2,628,950 | | 34% | |
| | | | | | | | | | | | | |
Earnings before income taxes | | 1,194,023 | | 934,881 | | 28% | | 2,313,386 | | 2,083,878 | | 11% | |
Provision for income taxes | | 471,833 | | 368,423 | | 28% | | 907,685 | | 828,568 | | 10% | |
| | | | | | | | | | | | | |
NET EARNINGS | | $ | 722,190 | | $ | 566,458 | | 27% | | $ | 1,405,701 | | $ | 1,255,310 | | 12% | |
| | | | | | | | | | | | | |
Earnings per Share: | | | | | | | | | | | | | |
Basic | | $ | 1.19 | | $ | 0.96 | | 24% | | $ | 2.32 | | $ | 2.14 | | 8% | |
Diluted | | $ | 1.15 | | $ | 0.92 | | 25% | | $ | 2.25 | | $ | 2.05 | | 10% | |
| | | | | | | | | | | | | |
Weighted Average Shares Outstanding: | | | | | | | | | | | | | |
Basic | | 607,831 | | 588,538 | | 3% | | 604,725 | | 585,884 | | 3% | |
Diluted | | 626,610 | | 614,988 | | 2% | | 623,473 | | 613,467 | | 2% | |
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
| | June 30, | | December 31, | | % | |
(in thousands, except share data) | | 2006 | | 2005 | | Change | |
| | (unaudited) | | | |
Assets | | | | | | | |
Cash | | $ | 2,369,346 | | $ | 1,031,108 | | 130% | |
Mortgage loans held for sale | | 35,390,972 | | 36,808,185 | | (4% | ) |
Trading securities owned, at fair value | | 14,212,594 | | 10,314,384 | | 38% | |
Trading securities pledged as collateral, at fair value | | 1,143,122 | | 668,189 | | 71% | |
Securities purchased under agreements to resell, securities borrowed and federal funds sold | | 25,285,191 | | 23,317,361 | | 8% | |
Loans held for investment, net of allowance for loan losses of $183,581 and $189,201, respectively | | 79,807,599 | | 69,865,447 | | 14% | |
Investments in other financial instruments, at fair value | | 11,596,534 | | 11,260,725 | | 3% | |
Mortgage servicing rights, at fair value | | 15,320,575 | | — | | N/M | |
Mortgage servicing rights, net | | — | | 12,610,839 | | N/M | |
Premises and equipment, net | | 1,469,203 | | 1,279,659 | | 15% | |
Other assets | | 8,389,327 | | 7,929,473 | | 6% | |
| | | | | | | |
Total assets | | $ | 194,984,463 | | $ | 175,085,370 | | 11% | |
| | | | | | | |
Liabilities | | | | | | | |
Notes payable | | $ | 76,527,368 | | $ | 76,187,886 | | 0% | |
Securities sold under agreements to repurchase and federal funds purchased | | 38,161,225 | | 34,153,205 | | 12% | |
Deposit liabilities | | 50,552,049 | | 39,438,916 | | 28% | |
Accounts payable and accrued liabilities | | 7,742,575 | | 6,358,158 | | 22% | |
Trading securities sold, not yet purchased, at fair value | | 3,077,327 | | 2,285,171 | | 35% | |
Income taxes payable | | 4,626,962 | | 3,846,174 | | 20% | |
| | | | | | | |
Total liabilities | | 180,687,506 | | 162,269,510 | | 11% | |
| | | | | | | |
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, 611,020,036 shares and 600,169,268 shares at June 30, 2006 and December 31, 2005, respectively; outstanding, 610,744,980 shares and 600,030,686 shares at June 30, 2006 and December 31, 2005, respectively | | 30,551 | | 30,008 | | 2% | |
Additional paid-in capital | | 3,268,420 | | 2,954,019 | | 11% | |
Accumulated other comprehensive (loss) income | | (63,840 | ) | 61,114 | | N/M | |
Retained earnings | | 11,061,826 | | 9,770,719 | | 13% | |
| | | | | | | |
Total shareholders' equity | | 14,296,957 | | 12,815,860 | | 12% | |
| | | | | | | |
Total liabilities and shareholders' equity | | $ | 194,984,463 | | $ | 175,085,370 | | 11% | |
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET AND OTHER ASSETS
| | June 30, | | December 31, | | % | |
(in thousands) | | 2006 | | 2005 | | Change | |
| | (unaudited) | | | |
Loans Held for Investment, Net | | | | | | | |
Mortgage loans | | $ | 74,587,688 | | $ | 63,803,209 | | 17 | % |
Warehouse lending advances secured by mortgage loans | | 2,871,511 | | 3,943,046 | | (27 | %) |
Defaulted mortgage loans repurchased from securitizations | | 1,361,242 | | 1,370,169 | | (1 | %) |
| | 78,820,441 | | 69,116,424 | | 14 | % |
Purchase premium and deferred loan origination costs, net | | 1,170,739 | | 938,224 | | 25 | % |
Allowance for loan losses | | (183,581 | ) | (189,201 | ) | (3 | %) |
| | | | | | | |
Total loans held for investment, net | | $ | 79,807,599 | | $ | 69,865,447 | | 14 | % |
| | | | | | | |
Other Assets | | | | | | | |
Investments in Federal Reserve Bank and Federal Home Loan Bank stock | | $ | 1,498,398 | | $ | 1,334,100 | | 12 | % |
Reimbursable servicing advances, net | | 1,486,602 | | 1,947,046 | | (24 | %) |
Securities broker-dealer receivables | | 1,140,355 | | 392,847 | | 190 | % |
Interest receivable | | 889,706 | | 777,966 | | 14 | % |
Receivables from custodial accounts | | 743,618 | | 629,075 | | 18 | % |
Restricted cash | | 406,973 | | 429,556 | | (5 | %) |
Capitalized software, net | | 315,569 | | 331,454 | | (5 | %) |
Cash surrender value of assets held in trust for deferred compensation plan | | 299,375 | | 224,884 | | 33 | % |
Prepaid expenses | | 255,804 | | 187,377 | | 37 | % |
Real estate acquired in settlement of loans | | 146,027 | | 110,499 | | 32 | % |
Receivables from sale of securities | | 87,675 | | 325,327 | | (73 | %) |
Derivative margin accounts | | 51,854 | | 296,005 | | (82 | %) |
Other assets | | 1,067,371 | | 943,337 | | 13 | % |
| | | | | | | |
Total other assets | | $ | 8,389,327 | | $ | 7,929,473 | | 6 | % |
| | | | | | | |
Mortgage Servicing Rights | | | | | | | |
Balance at December 31, 2005, net of impairment reserve | | $ | 12,610,839 | | | | | |
Remeasurement to fair value upon adoption of SFAS 156 | | 109,916 | | | | | |
Balance at January 1, 2006, at fair value | | 12,720,755 | | | | | |
Purchases of servicing assets | | 8,067 | | | | | |
Servicing resulting from transfers of financial assets | | 2,551,169 | | | | | |
Changes in fair value: | | | | | | | |
Due to changes in valuation inputs or assumptions used in valuation model (1) | | 1,547,283 | | | | | |
Other changes in fair value (2) | | (1,506,699 | ) | | | | |
| | | | | | | |
Balance at June 30, 2006, at fair value | | $ | 15,320,575 | | | | | |
(1) | | Mostly reflects changes in discount rates and prepayment speed assumptions, mostly due to changes in interest rates. |
(2) | | Represents changes due to realization of expected cash flows. |
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
| | June 30, | | December 31, | | % | |
(in thousands) | | 2006 | | 2005 | | Change | |
| | (unaudited) | | | |
Investments in Other Financial Instruments, at Fair Value | | | | | | | |
Available-for-sale securities: | | | | | | | |
Mortgage-backed securities | | $ | 6,284,875 | | $ | 6,866,520 | | (8% | ) |
Obligations of U.S. Government-sponsored enterprises | | 654,121 | | 547,715 | | 19% | |
Municipal bonds | | 370,000 | | 369,748 | | 0% | |
U.S. Treasury securities | | 184,290 | | 144,951 | | 27% | |
Other | | 2,858 | | 3,109 | | (8% | ) |
| | | | | | | |
Subtotal | | 7,496,144 | | 7,932,043 | | (5% | ) |
| | | | | | | |
Interests retained in securitization accounted for as available-for-sale securities: | | | | | | | |
Prime interest-only and principal-only securities | | 301,439 | | 323,368 | | (7% | ) |
Nonprime residual securities | | 158,993 | | 206,033 | | (23% | ) |
Prime home equity line of credit transferor's interest | | 154,632 | | 158,416 | | (2% | ) |
Prepayment penalty bonds | | 87,463 | | 112,492 | | (22% | ) |
Prime home equity residual securities | | 73,772 | | 124,377 | | (41% | ) |
Prime home equity interest-only securities | | 12,610 | | 15,136 | | (17% | ) |
Prime residual securities | | 11,590 | | 21,383 | | (46% | ) |
Nonprime interest-only securities | | 5,860 | | 9,455 | | (38% | ) |
Subordinated mortgage-backed pass-through securities | | 1,846 | | 2,059 | | (10% | ) |
Total interests retained in securitization accounted for as available-for-sale securities | | 808,205 | | 972,719 | | (17% | ) |
| | | | | | | |
Total available-for-sale securities | | 8,304,349 | | 8,904,762 | | (7% | ) |
| | | | | | | |
Interests retained in securitization accounted for as trading securities: | | | | | | | |
Prime home equity residual securities | | 731,262 | | 757,762 | | (3% | ) |
Prime interest-only and principal-only securities | | 455,759 | | 180,216 | | 153% | |
Prime home equity line of credit transferor's interest | | 337,156 | | 95,514 | | 253% | |
Nonprime residual securities | | 304,734 | | 341,106 | | (11% | ) |
Prepayment penalty bonds | | 45,955 | | — | | N/M | |
Prime residual securities | | 32,848 | | 43,244 | | (24% | ) |
Prime home equity interest-only securities | | 20,665 | | — | | N/M | |
Interest rate swaps | | 14,434 | | 782 | | N/M | |
Total interests retained in securitization accounted for as trading securities | | 1,942,813 | | 1,418,624 | | 37% | |
| | | | | | | |
Hedging instruments and mortgage pipeline derivatives: | | | | | | | |
Mortgage servicing related | | 912,268 | | 741,156 | | 23% | |
Notes payable related | | 252,828 | | 107,085 | | 136% | |
Mortgage loans held for sale and pipeline related | | 184,276 | | 89,098 | | 107% | |
Total investments in other financial instruments | | $ | 11,596,534 | | $ | 11,260,725 | | 3% | |
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
| | Quarters Ended | | | | Six Months Ended | | | |
| | June 30, | | % | | June 30, | | % | |
(dollar amounts in millions) | | 2006 | | 2005 | | Change | | 2006 | | 2005 | | Change | |
| | | | | | | | | | | | | |
Production by segment: | | | | | | | | | | | | | |
Mortgage Banking | | $ | 103,635 | | $ | 101,154 | | 2 | % | $ | 197,087 | | $ | 179,903 | | 10 | % |
Capital Markets - conduit acquisitions | | 6,613 | | 3,126 | | 112 | % | 10,620 | | 7,316 | | 45 | % |
Banking Operations | | 6,361 | | 16,067 | | (60 | %) | 12,320 | | 24,588 | | (50 | %) |
Total Mortgage Loan Fundings | | 116,609 | | 120,347 | | (3 | %) | 220,027 | | 211,807 | | 4 | % |
Commercial real estate | | 997 | | 732 | | 36 | % | 1,963 | | 1,296 | | 51 | % |
Total Loan Fundings | | $ | 117,606 | | $ | 121,079 | | (3 | %) | $ | 221,990 | | $ | 213,103 | | 4 | % |
| | | | | | | | | | | | | |
Number of loans produced | | 629,237 | | 668,106 | | (6 | %) | 1,194,525 | | 1,206,445 | | (1 | %) |
| | | | | | | | | | | | | |
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 | | 5,975,995 | | 5,600,967 | | 7 | % | 11,778,103 | | 10,608,134 | | 11 | % |
| | | | | | | | | | | | | |
Capital Markets | | | | | | | | | | | | | |
Securities trading volume(1) | | $ | 934,336 | | $ | 887,494 | | 5 | % | $ | 1,912,691 | | $ | 1,716,115 | | 11 | % |
| | | | | | | | | | | | | |
Insurance | | | | | | | | | | | | | |
Net premiums earned: | | | | | | | | | | | | | |
Carrier | | $ | 229 | | $ | 172 | | 33 | % | $ | 457 | | $ | 328 | | 39 | % |
Reinsurance | | 55 | | 43 | | 28 | % | 107 | | 87 | | 23 | % |
Total net premiums earned | | $ | 284 | | $ | 215 | | 32 | % | $ | 564 | | $ | 415 | | 36 | % |
| | June 30, | | % | |
| | 2006 | | 2005 | | Change | |
Mortgage loan pipeline | | | | | | | |
(loans-in-process) | | $ | 64,979 | | $ | 77,009 | | (16 | %) |
| | | | | | | |
Loan servicing portfolio(2) | | $ | 1,196,720 | | $ | 964,444 | | 24 | % |
| | | | | | | |
Number of loans serviced(2) | | 7,757,724 | | 6,843,218 | | 13 | % |
| | | | | | | |
MSR portfolio(3) | | $ | 1,063,405 | | $ | 849,057 | | 25 | % |
| | | | | | | |
Assets of Banking Operations
(in billions) | | $ | 84 | | $ | 66 | | 29 | % |
(1) | | Includes trades with Mortgage Banking Segment. |
(2) | | Includes loans held for sale, loans held for investment and loans serviced for others, including those under subservicing agreements. |
(3) | | Represents loan servicing portfolio reduced by loans held for sale, loans held for investment and subservicing. |
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
| | 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 | |
| | Quarter Ended June 30, 2005 | |
| | 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 | | $ | 1,013,619 | | $ | 7,337 | | $ | — | | $ | 1,020,956 | | $ | (771 | ) | $ | 105,547 | | $ | — | | $ | — | | $ | 19,677 | | $ | 1,145,409 | |
Net interest income after provision for loan losses | | 155,688 | | (7,224 | ) | 786 | | 149,250 | | 297,970 | | 63,224 | | 11,044 | | 962 | | 1,857 | | 524,307 | |
Net loan servicing fees (3) | | — | | 280,739 | | — | | 280,739 | | — | | 1,135 | | 2,977 | | 27,203 | | (7,089 | ) | 304,965 | |
Net insurance premiums earned | | — | | — | | — | | — | | — | | — | | 215,478 | | — | | — | | 215,478 | |
Other revenue (2) | | 67,938 | | (5,446 | ) | 68,447 | | 130,939 | | 47,827 | | 8,208 | | 19,473 | | 28,038 | | (116,701 | ) | 117,784 | |
Total revenues | | 1,237,245 | | 275,406 | | 69,233 | | 1,581,884 | | 345,026 | | 178,114 | | 248,972 | | 56,203 | | (102,256 | ) | 2,307,943 | |
Expenses | | 828,110 | | 186,303 | | 41,022 | | 1,055,435 | | 93,865 | | 73,263 | | 191,264 | | 50,882 | | (91,647 | ) | 1,373,062 | |
| | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) before income taxes | | $ | 409,135 | | $ | 89,103 | | $ | 28,211 | | $ | 526,449 | | $ | 251,161 | | $ | 104,851 | | $ | 57,708 | | $ | 5,321 | | $ | (10,609 | ) | $ | 934,881 | |
(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. |
(3) | | Consists primarily of fees earned for servicing mortgage loans, related ancillary fees and income from retained interests, net of amortization of mortgage servicing rights, recovery (impairment) of retained interests and servicing hedge gains (losses) |
COUNTRYWIDE FINANCIAL CORPORATION
YEAR-TO-DATE SEGMENT ANALYSIS
(Unaudited)
| | 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 | | |
| | Six Months Ended June 30, 2005 | | |
| | 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 | | $ | 2,250,849 | | $ | 22,903 | | $ | — | | $ | 2,273,752 | | $ | (808 | ) | $ | 223,395 | | $ | — | | $ | — | | $ | 10,821 | | $ | 2,507,160 | | |
Net interest income after provision for loan losses | | 332,019 | | (68,932 | ) | 1,448 | | 264,535 | | 558,924 | | 140,887 | | 23,123 | | 1,833 | | 6,376 | | 995,678 | | |
Net loan servicing fees (3) | | — | | 517,339 | | — | | 517,339 | | — | | 2,181 | | 5,881 | | 55,730 | | (12,923 | ) | 568,208 | | |
Net insurance premiums earned | | — | | — | | — | | — | | — | | — | | 414,996 | | — | | — | | 414,996 | | |
Other revenue (2) | | 105,923 | | (6,419 | ) | 128,377 | | 227,881 | | 83,208 | | 15,560 | | 28,441 | | 53,754 | | (182,058 | ) | 226,786 | | |
Total revenues | | 2,688,791 | | 464,891 | | 129,825 | | 3,283,507 | | 641,324 | | 382,023 | | 472,441 | | 111,317 | | (177,784 | ) | 4,712,828 | | |
Expenses | | 1,544,999 | | 358,599 | | 81,829 | | 1,985,427 | | 174,223 | | 155,125 | | 360,156 | | 101,957 | | (147,938 | ) | 2,628,950 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) before income taxes | | $ | 1,143,792 | | $ | 106,292 | | $ | 47,996 | | $ | 1,298,080 | | $ | 467,101 | | $ | 226,898 | | $ | 112,285 | | $ | 9,360 | | $ | (29,846 | ) | $ | 2,083,878 | | |
(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. |
(3) | | Consists primarily of fees earned for servicing mortgage loans, related ancillary fees and income from retained interests, net of amortization of mortgage servicing rights, recovery (impairment) of retained interests and servicing hedge gains (losses) |
