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 $149 million positive mark-to-market adjustment, primarily on AAA-rated interest-only securities which increased in value due to increasing interest rates during the quarter and lower investor yield requirements.
The servicing hedge performed in line with management’s expectations amidst an increase in fixed mortgage rates of roughly 50 basis points during the quarter.
Additional information and explanation regarding credit-related issues is provided in the “Second Quarter 2007 Supplemental Presentation: Credit Summary” that is available on Countrywide’s website (www.countrywide.com) in the “Investor Relations” section.
BANKING
The Banking segment includes Banking Operations (primarily the fee and investment activities of Countrywide Bank, FSB) and Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers. Countrywide Bank (“Bank”) provides Countrywide with expanded product capabilities, a low cost source of funds, liquidity, and portfolio lending capabilities. The Bank invests primarily in prime-quality
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residential mortgage loans sourced from the Loan Production sector and the secondary market. It funds these assets through various means including its retail deposit franchise, which is comprised of an expanding national financial center network of 104 locations (most of which are located in existing Countrywide retail offices), call centers, and Internet presence. The Bank also supplements its deposit base with a variety of wholesale funding activities.
Key financial and operational results for the Banking segment as well as the Banking Operations sector are noted in the tables below with additional details in tables at the end of this release:
Table 7
Banking Segment Pre-tax Earnings
| | Quarter Ended | |
($ 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 $136 million, a decrease of 54 percent from the prior quarter and 59 percent year over year. The sequential quarter decrease was driven primarily by increased credit costs, including an increase in the provision for credit losses as well as increased mortgage insurance expense, and a decline in net interest income. The credit loss provision and related reserves grew due to increased loss expectations driven by weakening housing market conditions. Mortgage insurance expense also increased as the Bank has continued to acquire credit enhancement in an effort to mitigate future credit losses. As of the end
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of the 2007 second quarter, 77 percent of the pay option portfolio and 18 percent of the home equity portfolio were covered by credit enhancement. Net interest income declined principally as a result of a shift in asset mix to include a greater proportion of high-quality mortgage-backed securities.
The year-over-year decrease in pre-tax earnings was primarily driven by higher credit loss provisions, greater mortgage insurance costs, and to a lesser degree, increased operating expenses net of non-interest income. The increase in net operating expense was largely driven by increased FDIC insurance premiums, together with investments made to support new fee income and deposit generation initiatives.
CAPITAL MARKETS
The Capital Markets segment includes a registered securities broker-dealer, a distressed-asset manager, a commercial real estate finance group and related businesses. Financial results for the Capital Markets segment are noted below with operational metrics in the tables at the end of this release:
Table 9
Capital Markets Segment
Pre-tax Earnings (1)
| | Quarter Ended | |
($ 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.
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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.
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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 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
