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COUNTRYWIDE REPORTS A LOSS OF $1.2 BILLION FOR 2007 THIRD QUARTER- First Quarterly Loss in 25 years; Company Expects to be Profitable in 2007 4th Quarter and 2008 -
CALABASAS, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Countrywide Financial Corporation (NYSE: CFC) today reported a net loss of $1.2 billion, or a loss of $2.85 per diluted share [($2.12) per diluted share excluding the impact of the below market strike price of the convertible preferred issued in the third quarter of 2007],(1) for the third quarter ended September 30, 2007, compared to net income of $648 million, or $1.03 per diluted share, for the third quarter of 2006. Key results include the following:
Table 1 Quarter Ended
($ in millions, except per share Sept. 30, Jun. 30, Sept. 30,
amounts) 2007 2007 2006
Consolidated Company
Net (Loss) Earnings $(1,201) $485 $648
Diluted (Loss) Earnings per Share $(2.85) $0.81 $1.03
Shareholders' Equity $15,252 $14,386 $15,099
Total Assets $209,236 $216,822 $193,195
Key Segment Pre-tax (Loss) Earnings
Mortgage Banking $(1,314) $320 $424
Banking $(407) $129 $371
Capital Markets $(344) $110 $141
Insurance $150 $99 $91
Key Operating Statistics ($ in
billions)
Total Loan Fundings $96 $133 $118
Ending Loan Servicing Portfolio $1,459 $1,415 $1,244
Ending Assets of Banking
Operations $105 $90 $88
(1) If the strike price of the convertible preferred security is less than the market price at the time of issuance, then the aggregate difference is treated as a dividend in the numerator for the diluted EPS calculation. This increased our loss per fully diluted share by $0.73 from $(2.12) to $(2.85). This information is provided to facilitate the comparison to prior periods' earnings per diluted share. "Countrywide's results for the third quarter of 2007 reflect the impact of unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market," said Angelo R. Mozilo, Chairman and Chief Executive Officer. "However, during the period we also laid the foundation for a return to profitability in the fourth quarter. Countrywide has responded decisively and taken the steps we believe are necessary to address the current challenging market environment. During the quarter, the Company stabilized its liquidity, strengthened its capital position, significantly tightened its loan program and underwriting guidelines, and began the process of right-sizing operations for today's lower volume mortgage market. We have accelerated the integration of our mortgage banking operations into Countrywide Bank, a strategy which we believe provides a more stable and reliable funding model to support our core lending business. We believe the steps which we have taken position the Company with the necessary capital and liquidity for our operating and growth needs, and will allow us to benefit from opportunities that result from industry consolidation. "The successful integration of our mortgage lending operations into Countrywide Bank and the resulting change in the funding strategy for our core business represents an important paradigm change for the Company that will strengthen our business model, and provides the foundation for enhancing our competitiveness and reducing our risks going forward," Mozilo explained. "During September, Bank fundings approached 90 percent of total fundings. The Bank, which is presently the 3rd largest Federal Savings Bank in the nation, is strongly positioned for this transition with $8.9 billion or 7.3 percent of total Tier 1 capital at September 30, 2007. Furthermore, the Bank's efficient and scalable deposit franchise is poised for growth from its current level of $60 billion in total deposits, with 150 financial centers open currently and expectations for total financial centers to exceed 200 by year-end." "The Company's net loss for the third quarter, our first quarterly loss in 25 years, resulted primarily from three factors: inventory valuation adjustments caused by unprecedented disruption in the capital markets and the abrupt loss in demand for non-agency loans and securities; increased credit costs related to continued deterioration in the housing market; and restructuring charges resulting from Countrywide's expense reduction initiatives," said David Sambol, President and Chief Operating Officer. "For the most part, management views these charges to be either non-recurring in nature, or to represent significant increases to valuation adjustments for future losses not yet incurred and to reserves. "We view the third quarter of 2007 as an earnings trough, and anticipate that the Company will be profitable in the fourth quarter and in 2008," Sambol concluded. "Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive." SIGNIFICANT THIRD QUARTER ISSUES Inventory Valuation Adjustments During the quarter, disruption in the capital markets caused a severe lack of liquidity for non-agency loans and mortgage-backed securities which resulted in losses on the sale or writedowns of such loans and securities that aggregated to approximately $1.0 billion. Approximately $12 billion of non- agency loans were moved to the Company's held-for-investment (HFI) portfolio after their writedown. Credit-Related Costs Increased estimates of future defaults and charge-offs resulted in significant increases to credit costs during the third quarter of 2007. Higher estimates for future defaults and related losses were attributable to continued deterioration in housing market conditions, worsening delinquency trends, and the significant tightening of available credit which occurred during the third quarter and which is expected to further adversely impact credit performance. The revised expectations relative to future credit losses impacted third quarter results as follows: -- Increased loan loss provisions on the HFI portfolio of $934 million, compared to $293 million last quarter and $38 million in the third quarter of 2006. The increase in provision during the quarter primarily relates to additional reserves provided for the Company's junior lien home equity and pay option loans in the Banking Operations HFI portfolio. -- Impairment of Credit-Sensitive Residuals of $690 million, compared to impairment of $417 million last quarter and recovery of $27 million in the third quarter of 2006. Third quarter 2007 impairment includes $541 million for prime junior lien home equity residuals and $156 million for subprime and related residuals, offset by a recovery of $7 million on prime residual securities. -- Increased provision for representations and warranties in the amount of $291 million, compared to $79 million last quarter and $41 million in the third quarter of 2006. This increase relates to increased expectations of future representation and warranty claims on loans sold or securitized resulting from higher levels of expected future defaults. Restructuring Charges Weakness in the housing market and tightening in the mortgage credit market are expected to substantially reduce industry and Countrywide origination volume in 2007 and 2008 relative to earlier volumes. As a result, during the third quarter Countrywide announced a plan to reduce headcount by 10,000 to 12,000 people before the end of 2007 in response to the expected decline in volume. The charge taken in the third quarter of 2007 related to the Company's restructuring efforts was $57 million. Approximately $70 million to $90 million of additional restructuring charges will be recorded, primarily in the fourth quarter of 2007. BUSINESS SEGMENT PERFORMANCE Mortgage Banking -- Loan Production The Loan Production sector is comprised of the following distribution channels: consumer-direct lending through Countrywide Home Loans' 921-branch retail system, call center operations and the Internet; wholesale lending through a network of mortgage brokers; and correspondent lending which buys closed loans from other financial institutions such as independent mortgage companies, commercial banks, savings and loans and credit unions. The sector also includes the mortgage banking activities of Countrywide Bank.
Table 2
Loan Production Sector
Results of Operations (1) Quarter Ended
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
(Loss) gain on sale of loans $(438) $1,293 $1,166
Net warehouse spread 116 148 155
Miscellaneous income 47 40 57
Total revenues (276) 1,480 1,378
Operating expenses (913) (943) (945)
Allocated corporate expenses (126) (99) (153)
Total expenses (1,039) (1,042) (1,097)
Total Loan Production sector
pre-tax (loss) earnings $(1,315) $439 $281
Total Mortgage Banking
loan funding volume $90,351 $123,068 $106,252
(1) Numbers may not total exactly due to rounding.
The Loan Production sector incurred a pre-tax loss of $1.3 billion, compared to pre-tax profit of $439 million last quarter and $281 million in the third quarter of 2006. The third quarter loss primarily resulted from the disruption in the secondary markets during the quarter for non-agency loans, and the resulting illiquidity and credit spread widening on such loans. Net inventory valuation and pipeline writedowns approximated $691 million during the quarter. Additionally, anticipated gain-on-sale margins at the time of borrower pricing on these loans was not realized, while origination expenses related to the loans were nevertheless incurred during the quarter. An additional factor impacting third quarter results was a substantial decrease in loan production to $90 billion, compared to $123 billion last quarter and $106 billion in the third quarter of 2006. This decline reflects a smaller origination market in the latter stages of the quarter, which is largely attributable to the tightening of underwriting and loan program guidelines throughout the industry as well as economic conditions. The third quarter volume decline occurred before the benefits of any expense reduction efforts associated with the Company's right-sizing initiatives were realized. Mortgage Banking -- Loan Servicing The Loan Servicing sector reflects the performance of mortgage servicing rights (MSRs) and retained interests associated with Countrywide's owned servicing portfolio. Countrywide also manages a financial hedge within the Loan Servicing sector to mitigate negative valuation changes in MSRs and retained interests. The table below summarizes the Loan Servicing sector results of operations for the third quarter of 2007.
Table 3
Quarter Ended (3)
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
Servicing earnings before valuation
of credit-sensitive retained
interests $681 $270 $97
(Impairment) recovery of credit-
sensitive retained interests, net of
hedge (707) (417) 27
Total Loan Servicing sector pre-tax
(loss) earnings $(27) $(147) $123
Servicing fees and other revenue $1,702 $1,683 $1,470
Realization of expected MSR cash
flows (696) (857) (749)
Operating revenues 1,006 826 721
Direct expenses (223) (203) (182)
Allocated corporate expenses (19) (15) (21)
Total expenses (242) (218) (203)
Operating earnings 764 608 518
Change in fair value of MSRs (1) (858) 1,326 (1,292)
MSR hedge gain (loss) (1) (2) 1,201 (1,373) 1,034
MSR valuation changes, net of MSR
hedge (1) 343 (47) (257)
(Impairment) recovery of credit-
sensitive retained interests
("credit residuals") (690) (417) 27
Hedge (loss) (2) (18) - -
Valuation of credit residuals, net (707) (417) 27
Interest expense (426) (292) (164)
Total Loan Servicing sector pre-
tax (loss) earnings $(27) $(147) $123
Average servicing portfolio ($ in
billions) $1,432 $1,374 $1,209
MSR portfolio capitalization rate 1.51% 1.54% 1.34%
Prepayment speed (CPR) 18.1% 18.5% 20.8%
Carrying value of credit residuals ($
in billions) $0.9 $1.5 $2.1
(1) Includes other non credit-sensitive retained interests, predominately
interest-only securities.
(2) For quarters ended 6/30/07 and 9/30/06, hedge gain (loss) is not
allocated between MSRs and credit sensitive residuals, and as a result,
the entire hedge gain (loss) is reflected in the MSR hedge gain (loss).
(3) Numbers may not total exactly due to rounding.
Before the impact of valuation adjustments to credit-sensitive residuals, Loan Servicing sector pre-tax earnings were $681 million during the third quarter of 2007 compared to $270 million and $97 million in the second quarter of 2007 and third quarter of 2006, respectively. Loan Servicing sector pre-tax earnings, before valuation adjustments of credit-sensitive retained interests, benefited from slower prepayment speeds during the quarter which were largely driven by the same factors that negatively impacted the Loan Production sector: lower levels of housing turnover and lesser refinance activity due to weakening housing market conditions, reduced secondary market liquidity and tighter underwriting guidelines. Slower prepayment speeds positively impacted Loan Servicing sector operating earnings and had a favorable impact on the valuation of the MSR portfolio, net of servicing hedge. Operating earnings for the sector improved to $764 million in the third quarter of 2007 from $608 million in the second quarter of 2007 and $518 million in the third quarter of 2006. Additionally, the valuation change of MSRs, net of servicing hedge performance was a positive $343 million in the quarter, despite a 44 basis point reduction in the 10-year U.S. Treasury yield during the quarter. This compares to valuation changes of MSRs, net of hedge performance, of a negative $47 million and a negative $257 million in the prior quarter and year-over-year quarter, respectively. Absent a material improvement in housing market conditions or a reduction in interest rates, management anticipates that the Loan Servicing sector operating earnings will continue to benefit from slower levels of prepayment speeds. Offsetting improved operating earnings and MSR asset performance, Loan Servicing sector results were negatively impacted by impairment charges of $690 million to the carrying values of the Company's credit-sensitive residual securities. The writedown applicable to home equity residuals during the quarter was $541 million, and the writedown applicable to subprime and related residuals was $156 million, offset by a recovery of $7 million on prime residual securities. These impairment charges resulted from both increases in estimates of future credit losses on the underlying loans as well as increased discount rates reflecting higher market yield requirements on these investments. The aggregate carrying value of the Company's investments in credit-sensitive residuals at September 30, 2007 was $892 million, compared to $1.5 billion at June 30, 2007 and $2.1 billion at September 30, 2006. Banking The Banking segment includes Banking Operations (primarily the fee and investment activities of Countrywide Bank, FSB) and Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers. Countrywide Bank ("Bank") provides Countrywide with expanded product capabilities, a lower cost source of funds, alternate sources of liquidity, and portfolio lending capabilities. The Bank invests primarily in prime-quality residential mortgage loans sourced from the Loan Production sector and the secondary market. It funds these assets through various means including its retail deposit franchise, which is currently comprised of an expanding national financial center network of 150 locations (most of which are located in existing Countrywide retail offices), call centers, and Internet presence. The Bank also supplements its deposit base with a variety of wholesale funding activities.
Table 4
Banking Segment Results of Operations
Quarter Ended
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
Banking Operations $(389) $136 $378
Countrywide Warehouse Lending - 10 12
Allocated corporate expenses (18) (17) (19)
Total Banking segment pre-tax
(loss) earnings $(407) $129 $371
Table 5
Quarter Ended (2)
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
Banking Operations:
Net interest income $530 $463 $476
Provision for credit losses (784) (246) (28)
Non-interest income 27 50 36
Mortgage insurance expense (26) (24) (9)
Other non-interest expense (136) (106) (98)
Banking Operations pre-tax (loss)
earnings $(389) $136 $378
Other statistics:
Total assets $105,177 $89,910 $88,104
Total deposits (1) $59,741 $60,569 $56,094
Loan portfolio, net $79,313 $68,131 $76,304
Net charge-offs $(126) $(109) $(6)
Allowance for credit losses $1,127 $469 $186
(1) Includes intercompany deposits
(2) Numbers may not total exactly due to rounding
During the third quarter of 2007, Banking Operations incurred a pre-tax loss of $389 million, compared to pre-tax income of $136 million last quarter and $378 million in the third quarter of 2006. The loss in the current quarter was primarily driven by a significant addition to loan loss reserves in anticipation of higher future charge-offs. As a result, the provision for credit losses in the third quarter was $784 million, compared to $246 million in the prior sequential quarter and $28 million in the prior year quarter. During the third quarter of 2007, net charge-offs in Banking Operations were $126 million, which compares to $109 million in the second quarter of 2007 and $6 million in the third quarter of 2006. The allowance for credit losses at September 30, 2007 grew to $1.1 billion from $469 million at June 30, 2007. This reserve is supplemented by credit enhancement covering 71 percent of the pay option portfolio and 12 percent of the home equity portfolio as of September 30, 2007. Year-to-date, the Banking Operations sector has reported pre-tax income of $42 million despite unprecedented housing and capital markets disruption, which has required significant provisions to cover increased charge-offs and build reserves by $890 million. Banking Operations grew the HFI loan portfolio by $11.8 billion in the third quarter, driving an increase in net interest income of $67 million, due primarily to additions of approximately $16.2 billion of attractive-yielding loans to the HFI portfolio. Strong retail deposit growth in September 2007 substantially offset outflows experienced in August 2007, while net consumer accounts grew by approximately 9 percent in the third quarter. Retail deposit growth continues to climb to record levels in October 2007 due to the Bank's expanding physical distribution, increased promotion, and competitive pricing, facilitated by a unique, scalable, and efficient operating model. Capital Markets
The Capital Markets segment includes a registered securities
broker-dealer, a distressed-asset manager, a commercial real estate finance
group and related businesses. Financial results for the Capital Markets
segment are noted below with additional operational metrics in the tables at
the end of this release:
Table 6
Quarter Ended
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
(Loss) gain on sale $(300) $181 $181
Pre-tax (loss) earnings $(344) $110 $141
Conduit loans sold $4,907 $7,848 $15,036
The Capital Markets segment incurred a pre-tax loss of $344 million in the third quarter, compared to pre-tax earnings of $110 million last quarter and $141 million in the third quarter of 2006. Third quarter results for the segment were also adversely affected by significant secondary market disruptions during the quarter. These disruptions resulted in volume decreases in each of the segment's trading operations and particularly the non-agency conduit businesses and also resulted in inventory writedowns and losses from sales at depressed prices. Insurance Countrywide's Insurance segment includes Balboa Insurance Group, whose companies are national providers of property, life and casualty insurance; and Balboa Reinsurance Company, a captive mortgage guaranty reinsurance company.
Table 7
Insurance Segment Pre-tax Earnings(1) Quarter Ended
Sept. 30, Jun. 30, Sept. 30,
($ in millions) 2007 2007 2006
Balboa Reinsurance Company $68 $56 $60
Balboa Life & Casualty 89 51 43
Allocated corporate expenses (7) (9) (11)
Total Insurance segment pre-tax
earnings $150 $99 $91
(1) Numbers may not total exactly due to rounding.
For the third quarter of 2007, Insurance segment pre-tax earnings were $150 million, compared to $99 million last quarter and $91 million in the third quarter of 2006. Earnings growth at both the mortgage reinsurance and life and casualty businesses was driven by continued growth in net earned premiums. Growth strategies being pursued in the Insurance segment include expansion of its voluntary auto insurance business and the development of a local agent sales force linked to Countrywide Home Loans' branches as well as continued growth of Balboa's dominant position in the lender placed auto and property businesses. DIVIDEND DECLARATION Countrywide's Board of Directors declared dividends of $785.42 per share on its Series B preferred stock and $0.15 per common share. The preferred stock dividend is payable on November 15, 2007 and the common stock dividend is payable on November 30, 2007 to common stock shareholders of record on November 13, 2007. MANAGEMENT OUTLOOK Management expects continued weakness in the housing markets in the near-term and absent declining interest rates, lower mortgage market origination volumes are anticipated for the remainder of 2007 and for 2008 as a result. Furthermore, the Company expects its credit costs to remain at elevated levels through 2008 as a result of environmental conditions. Despite these expectations of continued industry challenges, management expects the Company to be profitable in the fourth quarter of 2007 and in 2008. Longer term, management believes that changes that it has made in this quarter enhance the stability of the Company and lessen the risks from further environmental disruptions. Management also believes that many opportunities will present themselves to the Company as a result of the market transition taking place, and that the Company is well positioned to capitalize on these opportunities. EARNINGS GUIDANCE Countrywide's consolidated earnings are expected to range between $0.25 and $0.75 per diluted share for the fourth quarter of 2007. The wide range in the guidance is caused by the significant potential volatility related to the following factors: general market conditions; MSR valuation and hedge performance; residual valuation; credit performance; secondary market liquidity; and Lower of Cost or Market adjustment of inventory. For 2008, the Company currently expects its return on equity to range between 10 percent and 15 percent. 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. EARNINGS PRESENTATION WEBCAST Countrywide will host a live webcast to discuss quarterly results today at 12:00 pm EST. Given the depth of the material to be discussed, the Company anticipates the webcast will run for approximately three hours. The webcast will include detailed presentations by various members of Countrywide's senior management team, as well as a question-and-answer session. The link for the live webcast as well as the PowerPoint presentation that will be discussed during the presentation can be accessed from www.countrywide.com; click on "Investor Relations" on the website main page and then click on the link for the 3rd quarter earnings webcast. The webcast will be available for replay through 5:00 pm EST on Friday, November 9, 2007. Management strongly recommends that participants have access to this presentation while listening to the management discussion. Due to the length of the material being discussed during today's webcast, the Company will not hold its previously announced November 12th Investor Forum. 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 residential and commercial 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, financial results, 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: increased cost of debt; reduced access to corporate debt markets or other sources of liquidity; unforeseen cash or capital requirements; a reduction in secondary mortgage market investor demand; increased credit losses due to downward trends in the economy and in the real estate market; increases in the delinquency rates of borrowers; 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; reduction in government support of homeownership; the level and volatility of interest rates; changes in interest rate paths; changes in debt ratings; changes in generally accepted accounting principles or in the legal, regulatory and legislative environments in which Countrywide 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, and the statements made in this press release are current as of the date of this release only.
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarters Ended
September 30, %
(in thousands, except per share
data) 2007 2006 Change
(unaudited)
Revenues
(Loss) gain on sale of loans and
securities $(718,620) $1,373,901 N/M
Interest income 3,255,110 3,288,160 (1%)
Interest expense (2,548,801) (2,489,190) 2%
Net interest income 706,309 798,970 (12%)
Provision for loan losses (934,268) (37,996) 2,359%
Net interest (expense) income
after provision for loan
losses (227,959) 760,974 N/M
Loan servicing fees and other
income from mortgage servicing
rights and retained interests 1,442,279 1,228,541 17%
Realization of expected cash
flows from mortgage servicing
rights (696,361) (749,543) (7%)
Change in fair value of mortgage
servicing rights (830,932) (1,125,133) (26%)
Impairment of retained interests (716,658) (141,857) 405%
Servicing hedge gains (losses) 1,183,543 1,034,353 14%
Net loan servicing fees and
other income from mortgage
servicing rights and retained
interests 381,871 246,361 55%
Net insurance premiums earned 389,921 300,774 30%
Other 124,821 140,485 (11%)
Total revenues (49,966) 2,822,495 N/M
Expenses
Compensation 1,073,754 1,138,901 (6%)
Occupancy and other office 284,474 257,908 10%
Insurance claims 145,136 101,951 42%
Advertising and promotion 88,350 68,955 28%
Other 326,022 218,568 49%
Total expenses 1,917,736 1,786,283 7%
(Loss) earnings before income taxes (1,967,702) 1,036,212 N/M
(Benefit) provision for income
taxes (767,009) 388,648 N/M
NET (LOSS) EARNINGS $(1,200,693) $647,564 N/M
(Loss) Earnings per Share:
Basic $(2.85) $1.06 N/M
Diluted $(2.85) $1.03 N/M
Weighted Average Shares Outstanding:
Basic 575,089 612,168 (6%)
Diluted 575,089 627,572 (8%)
Nine Months Ended
September 30, %
(in thousands, except per share
data) 2007 2006 Change
(unaudited)
Revenues
(Loss) gain on sale of loans and
securities $2,008,942 $4,262,529 (53%)
Interest income 10,106,736 8,727,498 16%
Interest expense (7,941,494) (6,543,619) 21%
Net interest income 2,165,242 2,183,879 (1%)
Provision for loan losses (1,379,154) (163,032) 746%
Net interest (expense) income
after provision for loan
losses 786,088 2,020,847 (61%)
Loan servicing fees and other
income from mortgage servicing
rights and retained interests 4,250,823 3,635,587 17%
Realization of expected cash
flows from mortgage servicing
rights (2,353,368) (2,148,483) 10%
Change in fair value of mortgage
servicing rights 400,581 314,391 27%
Impairment of retained interests (1,414,376) (211,013) 570%
Servicing hedge gains (losses) (303,284) (472,591) (36%)
Net loan servicing fees and
other income from mortgage
servicing rights and
retained interests 580,376 1,117,891 (48%)
Net insurance premiums earned 1,076,482 864,793 24%
Other 452,319 392,599 15%
Total revenues 4,904,207 8,658,659 (43%)
Expenses
Compensation 3,258,178 3,357,426 (3%)
Occupancy and other office 817,704 764,319 7%
Insurance claims 357,210 328,802 9%
Advertising and promotion 237,907 194,871 22%
Other 835,417 663,643 26%
Total expenses 5,506,416 5,309,061 4%
(Loss) earnings before income taxes (602,209) 3,349,598 N/M
(Benefit) provision for income
taxes (320,565) 1,296,333 N/M
NET (LOSS) EARNINGS $(281,644) $2,053,265 N/M
(Loss) Earnings per Share:
Basic $(1.24) $3.38 N/M
Diluted $(1.24) $3.29 N/M
Weighted Average Shares Outstanding:
Basic 582,257 607,233 (4%)
Diluted 582,257 624,709 (7%)
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31, %
(in thousands, except share data) 2007 2006 Change
(unaudited) (audited)
Assets
Cash $4,768,363 $1,407,000 239%
Mortgage loans held for sale 30,857,778 31,272,630 (1%)
Trading securities owned, at fair
value 13,148,722 20,036,668 (34%)
Trading securities pledged as
collateral, at fair value 1,789,450 1,465,517 22%
Securities purchased under
agreements to resell, securities
borrowed and federal funds sold 14,890,965 27,269,897 (45%)
Loans held for investment, net of
allowance for loan losses of
$1,219,963 and $261,054,
respectively 83,558,176 78,085,757 7%
Investments in other financial
instruments, at fair value 27,119,157 12,769,451 112%
Mortgage servicing rights, at fair
value 20,068,153 16,172,064 24%
Premises and equipment, net 1,632,818 1,625,456 0%
Other assets 11,402,883 9,841,790 16%
Total assets $209,236,465 $199,946,230 5%
Liabilities
Deposit liabilities $54,749,389 $55,578,682 (1%)
Securities sold under agreements to
repurchase 16,389,611 42,113,501 (61%)
Trading securities sold, not yet
purchased, at fair value 2,385,048 3,325,249 (28%)
Notes payable 105,794,292 71,487,584 48%
Accounts payable and accrued
liabilities 10,095,489 8,187,605 23%
Income taxes payable 4,570,404 4,935,763 (7%)
Total liabilities 193,984,233 185,628,384 5%
Commitments and contingencies - - -
Shareholders' Equity
Preferred stock, par value $0.05 -
authorized, 1,500,000 shares;
issued and outstanding at
September 30, 2007, 20,000 shares
of 7.25 % Series B non-voting
convertible cumulative shares with
liquidation preference of $100,000
per share 1 - N/M
Common stock - authorized,
1,000,000,000 shares of $0.05 par
value; issued, 576,816,280 shares
and 585,466,719 shares at September
30, 2007 and December 31, 2006,
respectively; outstanding,
576,376,128 shares and 585,182,298
shares at September 30, 2007 and
December 31, 2006, respectively 28,841 29,273 (1%)
Additional paid-in capital 4,110,950 2,154,438 91%
Retained earnings 11,168,990 12,151,691 (8%)
Accumulated other comprehensive
loss (56,550) (17,556) 222%
Total shareholders' equity 15,252,232 14,317,846 7%
Total liabilities and shareholders'
equity $209,236,465 $199,946,230 5%
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND
MORTGAGE SERVICING RIGHTS
September 30, December 31, %
(in thousands) 2007 2006 Change
(unaudited) (audited)
Loans Held for Investment, Net
Mortgage loans $81,857,717 $72,295,979 13%
Defaulted FHA-insured and VA-
guaranteed loans repurchased from
securities 2,141,774 1,761,170 22%
Warehouse lending advances secured
by mortgage loans 567,743 3,185,248 (82%)
84,567,234 77,242,397 9%
Premiums and discounts and
deferred loan origination fees
and costs, net 210,905 1,104,414 (81%)
Allowance for loan losses (1,219,963) (261,054) 367%
Total loans held for
investment, net $83,558,176 $78,085,757 7%
Other Assets
Reimbursable servicing advances,
net $2,883,215 $2,170,891 33%
Investments in Federal Reserve Bank
and Federal Home Loan Bank stock 2,324,862 1,433,070 62%
Interest receivable 889,594 997,854 (11%)
Derivative margin accounts 843,058 118,254 613%
Real estate acquired in settlement
of loans 676,122 251,163 169%
Securities broker-dealer
receivables 538,962 1,605,502 (66%)
Prepaid expenses 419,666 320,597 31%
Capitalized software, net 378,935 367,055 3%
Receivables from custodial accounts 327,087 719,048 (55%)
Cash surrender value of assets held
in trust for deferred compensation
plans 317,068 372,877 (15%)
Cash surrender value of company
owned life insurance 226,872 5,894 N/M
Restricted cash 200,389 238,930 (16%)
Mortgage guaranty insurance tax and
loss bonds 165,066 128,293 29%
Receivables from sale of securities 100,042 284,177 (65%)
Other assets 1,111,945 828,185 34%
Total other assets $11,402,883 $9,841,790 16%
Mortgage Servicing Rights, at Fair
Value
Balance at December 31, 2006 $16,172,064
Additions:
Servicing resulting from
transfers of financial assets 5,653,354
Purchases of servicing assets 195,522
Total additions 5,848,876
Change in fair value:
Due to changes in valuation
inputs or assumptions used in
valuation model (1) 400,581
Other changes in fair value (2) (2,353,368)
Balance at September 30, 2007 $20,068,153
(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.
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
September 30, December 31,
%
(in thousands) 2007 2006 Change
(unaudited) (audited)
Investments in Other Financial
Instruments, at Fair Value
Securities accounted for as
available-for-sale:
Mortgage-backed securities $19,699,030 $7,007,786 181%
Municipal bonds 411,491 412,886 0%
Obligations of U.S. Government-
sponsored enterprises 347,466 776,717 (55%)
U.S. Treasury securities 97,567 168,313 (42%)
Other 72,916 2,858 2,451%
Subtotal 20,628,470 8,368,560 146%
Interests retained in
securitization:
Prime interest-only and principal-
only securities 258,167 279,375 (8%)
Prime residual securities 9,101 1,435 534%
Prime home equity retained
interests 96,133 185,112 (48%)
Prime home equity interest-only
securities 9,594 7,021 37%
Subprime residuals and other
related securities 15,437 152,745 (90%)
Subprime interest-only securities 14,719 3,757 292%
Prepayment penalty bonds 12,920 52,697 (75%)
Subordinated mortgage-backed pass-
through securities 459 1,382 (67%)
Total interests retained in
securitization 416,530 683,524 (39%)
Total securities accounted
for as available-for-sale 21,045,000 9,052,084 132%
Securities accounted for as
trading:
Interests retained in
securitization:
Mortgage-backed pass-through
securities 125,140 - N/M
Prime interest-only and
principal-only securities 785,531 549,635 43%
Prime residual securities 14,042 11,321 24%
Prime home equity retained
interests 493,376 1,291,509 (62%)
Prime home equity interest-only
securities - 22,467 (100%)
Subprime residuals and other
related securities 254,731 388,963 (35%)
Prepayment penalty bonds 89,854 90,666 (1%)
Subordinated mortgage-backed
pass-through securities 281,195 - N/M
Interest rate swaps 3,129 2,490 26%
Total interests retained in
securitization 2,046,998 2,357,051 (13%)
Servicing hedge principal-only
securities 884,181 - N/M
Other 64,173 - N/M
Total securities accounted for as
trading 2,995,352 2,357,051 27%
Hedging and mortgage pipeline
derivatives:
Mortgage loans held for sale and
pipeline related 287,887 78,066 269%
Mortgage servicing related 1,968,643 837,908 135%
Notes payable related 822,275 444,342 85%
Total investments in other
financial instruments $27,119,157 $12,769,451 112%
COUNTRYWIDE FINANCIAL CORPORATION
NOTES PAYABLE
September 30, December 31, %
(in thousands) 2007 2006 Change
(unaudited) (audited)
Notes Payable
Asset-backed commercial paper $170,171 $7,721,278 (98%)
Unsecured commercial paper 907,006 6,717,794 (86%)
Secured revolving lines of credit 2,496,232 2,174,171 15%
Unsecured revolving lines of credit 11,480,000 - N/M
Secured overnight bank loans - 105,049 (100%)
Asset-backed secured financing 10,200,732 241,211 N/M
Unsecured bank loans - 130,000 (100%)
Federal Home Loan Bank advances 51,050,000 28,150,000 81%
Medium-term notes:
Floating-rate 13,124,375 13,155,231 0%
Fixed-rate 9,126,439 9,783,881 (7%)
22,250,814 22,939,112 (3%)
Convertible debentures 4,000,000 - N/M
Junior subordinated debentures 2,175,822 2,232,334 (3%)
Subordinated debt 1,025,964 1,027,797 0%
Other 37,551 48,838 (23%)
$105,794,292 $71,487,584 48%
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Quarters Ended
September 30, %
(dollar amounts in millions) 2007 2006 Change
Production by segment:
Mortgage Banking $90,351 $106,252 (15%)
Banking Operations 3,856 5,982 (36%)
Capital Markets - conduit
acquisitions 424 4,322 (90%)
Total Mortgage Loan Fundings 94,631 116,556 (19%)
Commercial real estate 1,802 1,346 34%
Total Loan Fundings $96,433 $117,902 (18%)
Number of loans produced 528,652 629,239 (16%)
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 7,204,484 5,761,323 25%
Nine Months Ended
September 30, %
(dollar amounts in millions) 2007 2006 Change
Production by segment:
Mortgage Banking $323,986 $303,339 7%
Banking Operations 10,885 22,316 (51%)
Capital Markets - conduit
acquisitions 4,887 14,942 (67%)
Total Mortgage Loan Fundings 339,758 340,597 (0%)
Commercial real estate 6,714 3,309 103%
Total Loan Fundings $346,472 $343,906 1%
Number of loans produced 1,809,556 1,864,193 (3%)
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 20,404,186 17,539,426 16%
September 30, %
2007 2006 Change
Mortgage loan pipeline
(loans-in-process) $41,507 $65,316 (36%)
Loan servicing portfolio (1) $1,459,136 $1,244,311 17%
Number of loans serviced (1) 8,982,308 7,964,033 13%
MSR portfolio (2) $1,331,530 $1,118,117 19%
Assets of Banking Operations
(in billions) $105 $88 19%
(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.
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
Quarter Ended September 30, 2007
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
(Loss) gain on sale of
loans and securities $(438,142) $- $- $(438,142)
Net interest (expense)
income after provision for
loan losses 115,653 (194,117) 3,444 (75,020)
Net loan servicing fees (1) - 416,372 - 416,372
Net insurance premiums earned - - - -
Other revenue (2) 46,654 21,658 88,742 157,054
Total revenues (275,835) 243,913 92,186 60,264
Expenses 1,039,093 270,704 63,988 1,373,785
Earnings (loss) before
income taxes $(1,314,928) $(26,791) $28,198 $(1,313,521)
Capital
(in thousands) Banking Markets Insurance
Revenues
(Loss) gain on sale of loans and
securities $- $(300,202) $-
Net interest (expense) income
after provision for loan losses (248,865) 42,728 25,750
Net loan servicing fees (1) - 2,228 144
Net insurance premiums earned - - 389,921
Other revenue (2) 29,897 5,033 23,521
Total revenues (218,968) (250,213) 439,336
Expenses 187,743 94,189 289,156
Earnings (loss) before income
taxes $(406,711) $(344,402) $150,180
Global
(in thousands) Operations Other Grand Total
Revenues
(Loss) gain on sale of loans and
securities $- $19,724 $(718,620)
Net interest (expense) income after
provision for loan losses 1,902 25,546 (227,959)
Net loan servicing fees (1) - (36,873) 381,871
Net insurance premiums earned - - 389,921
Other revenue (2) 31,289 (121,973) 124,821
Total revenues 33,191 (113,576) (49,966)
Expenses 25,131 (52,268) 1,917,736
Earnings (loss) before income
taxes $8,060 $(61,308) $(1,967,702)
Quarter Ended September 30, 2006
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
Gain on sale of loans and
securities $1,165,716 $(26) $- $1,165,690
Net interest income after
provision for loan losses 155,055 74,032 1,823 230,910
Net loan servicing fees (1) - 256,407 - 256,407
Net insurance premiums earned - - - -
Other revenue (2) 57,321 11,909 72,539 141,769
Total revenues 1,378,092 342,322 74,362 1,794,776
Expenses 1,097,408 218,949 54,492 1,370,849
Earnings before income
taxes $280,684 $123,373 $19,870 $423,927
Capital
(in thousands) Banking Markets Insurance
Revenues
Gain on sale of loans and securities $- $181,096 $-
Net interest income after provision
for loan losses 462,684 55,500 11,478
Net loan servicing fees (1) (372) 1,562 (945)
Net insurance premiums earned - - 300,774
Other revenue (2) 40,209 19,829 15,541
Total revenues 502,521 257,987 326,848
Expenses 131,715 116,888 235,505
Earnings before income taxes $370,806 $141,099 $91,343
Global
(in thousands) Operations Other Grand Total
Revenues
Gain on sale of loans and securities $- $27,115 $1,373,901
Net interest income after provision
for loan losses 922 (520) 760,974
Net loan servicing fees (1) 209 (10,500) 246,361
Net insurance premiums earned - - 300,774
Other revenue (2) 14,305 (91,168) 140,485
Total revenues 15,436 (75,073) 2,822,495
Expenses 11,985 (80,659) 1,786,283
Earnings before income taxes $3,451 $5,586 $1,036,212
(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.
COUNTRYWIDE FINANCIAL CORPORATION
YEAR-TO-DATE SEGMENT ANALYSIS
(Unaudited)
Nine Months Ended September 30, 2007
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
Gain on sale of loans and
securities $1,887,722 $- $- $1,887,722
Net interest income after
provision for loan losses 353,324 (278,134) 9,755 84,945
Net loan servicing fees (1) - 698,318 - 698,318
Net insurance premiums earned - - - -
Other revenue (2) 98,389 68,039 257,166 423,594
Total revenues 2,339,435 488,223 266,921 3,094,579
Expenses 3,076,223 731,465 180,506 3,988,194
Earnings (loss) before
income taxes $(736,788) $(243,242) $86,415 $(893,615)
Capital
(in thousands) Banking Markets Insurance
Revenues
Gain on sale of loans and securities $- $70,236 $-
Net interest income after provision
for loan losses 372,612 159,907 63,760
Net loan servicing fees (1) - 6,029 (563)
Net insurance premiums earned - - 1,076,482
Other revenue (2) 125,452 19,028 58,190
Total revenues 498,064 255,200 1,197,869
Expenses 487,771 357,884 769,310
Earnings (loss) before income
taxes $10,293 $(102,684) $428,559
Global
(in thousands) Operations Other Grand Total
Revenues
Gain on sale of loans and securities $- $50,984 $2,008,942
Net interest income after provision
for loan losses 5,117 99,747 786,088
Net loan servicing fees (1) - (123,408) 580,376
Net insurance premiums earned - - 1,076,482
Other revenue (2) 77,422 (251,367) 452,319
Total revenues 82,539 (224,044) 4,904,207
Expenses 63,785 (160,528) 5,506,416
Earnings (loss) before income
taxes $18,754 $(63,516) $(602,209)
Nine Months Ended September 30, 2006
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
Gain on sale of loans and
securities $3,634,411 $2,635 $- $3,637,046
Net interest income after
provision for loan losses 375,682 159,604 6,484 541,770
Net loan servicing fees (1) - 1,130,633 - 1,130,633
Net insurance premiums earned - - - -
Other revenue (2) 192,042 20,682 218,271 430,995
Total revenues 4,202,135 1,313,554 224,755 5,740,444
Expenses 3,312,738 662,180 156,453 4,131,371
Earnings (loss) before
income taxes $889,397 $651,374 $68,302 $1,609,073
Capital
(in thousands) Banking Markets Insurance
Revenues
Gain on sale of loans and securities $- $576,249 $-
Net interest income after provision
for loan losses 1,273,707 156,252 40,154
Net loan servicing fees (1) 529 4,315 (1,610)
Net insurance premiums earned - - 864,793
Other revenue (2) 123,627 41,976 38,608
Total revenues 1,397,863 778,792 941,945
Expenses 360,600 324,530 696,912
Earnings (loss) before income
taxes $1,037,263 $454,262 $245,033
Global
(in thousands) Operations Other Grand Total
Revenues
Gain on sale of loans and
securities $- $49,234 $4,262,529
Net interest income after
provision for loan losses 2,439 6,525 2,020,847
Net loan servicing fees (1) 12,033 (28,009) 1,117,891
Net insurance premiums earned - - 864,793
Other revenue (2) 51,244 (293,851) 392,599
Total revenues 65,716 (266,101) 8,658,659
Expenses 49,277 (253,629) 5,309,061
Earnings (loss) before income
taxes $16,439 $(12,472) $3,349,598
(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.
COUNTRYWIDE FINANCIAL CORPORATION
LOAN PRODUCTION SECTOR
GAIN ON SALE
(Unaudited)
Quarters Ended
September 30, June 30, September 30,
(dollar amounts in thousands) 2007 2007 2006
Prime
Production $80,766,000 $111,220,000 $87,713,000
Loans sold $82,579,732 $109,425,578 $84,656,067
Gain on sale $223,519 $1,036,271 $847,427
Gain on sale as % of loans
sold 0.27% 0.95% 1.00%
Subprime
Production $3,177,000 $5,069,000 $9,336,000
Loans sold $673,626 $5,164,101 $10,584,928
(Loss) gain on sale $(158,586) $182,685 $143,607
(Loss) gain on sale as % of
loans sold N/M 3.54% 1.36%
Home Equity
Production $6,408,000 $6,779,000 $9,203,000
Initial sale
Loans sold $586,183 $1,998,399 $10,855,628
(Loss) gain on sale $(518,230) $50,723 $137,523
(Loss) gain on sale as % of
loans sold N/M 2.54% 1.27%
Subsequent draws
Loans sold $1,006,072 $1,042,353 $1,022,201
Gain on sale $15,155 $22,976 $37,159
Gain on sale as % of loans
sold 1.51% 2.20% 3.64%
Total production $90,351,000 $123,068,000 $106,252,000
Total loans sold $84,845,613 $117,630,431 $107,118,824
Total (loss) gain on sale $(438,142) $1,292,655 $1,165,716
Total (loss) gain as % of loans
sold (0.52%) 1.10% 1.09%
Total (loss) gain as % of loans
produced (0.48%) 1.05% 1.10%
COUNTRYWIDE FINANCIAL CORPORATION
LOAN SERVICING SECTOR
SERVICING PORTFOLIO DELINQUENCIES
(Unaudited)
Servicing Portfolio
Delinquencies (1) Quarters Ended
September 30, June 30, September 30,
2007 2007 2006
Total 90+ day Total 90+ day Total 90+ day
Conventional 1st liens 4.41% 1.44% 3.35% 1.02% 2.57% 0.56%
Government 1st liens 13.50% 4.72% 12.39% 4.39% 13.42% 4.78%
Prime home equity loans
(including FRS) 5.76% 2.70% 4.56% 2.15% 2.52% 0.98%
Subprime loans 29.08% 12.63% 23.71% 9.45% 18.32% 6.19%
Total servicing portfolio 7.12% 2.67% 5.73% 2.02% 4.55% 1.31%
(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 4.01% at
September 30, 2007; 3.12% at June 30, 2007; and 2.17% at September 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.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
KEY STATISTICS
(Unaudited)
Quarters Ended
September 30, June 30, September 30,
(dollar amounts in thousands) 2007 2007 2006
Banking Operations Key Operating
Statistics
Securities portfolio $18,273,012 $18,328,079 $5,409,333
Total equity $6,375,175 $5,539,521 $6,130,234
Net interest margin 2.33% 2.21% 2.28%
After-tax return on average assets (1.12%) 0.50% 1.08%
After-tax return on average equity (18.6%) 8.3% 16.6%
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
CREDIT QUALITY
(Unaudited)
September 30, June 30,
(dollar amounts in thousands) 2007 2007
Non-performing residential loans: % assets % assets
With third party credit
enhancement (2) $627,165 0.60% $278,934 0.31%
Without third party credit
enhancement 805,336 0.76% 661,848 0.74%
Total non-performing loans 1,432,501 1.36% 940,782 1.05%
Foreclosed real estate 304,386 0.29% 188,483 0.21%
Total non-performing assets $1,736,887 1.65% $1,129,265 1.26%
Allowances for credit losses
Allowances for loan losses $1,106,300 $450,844
Liability for unfunded
loan commitments 20,640 18,222
$1,126,940 $469,066
Allowances for credit losses as
a percentage of:
Total non-performing loans 78.67% 49.86%
Total non-performing loans
without third party credit
enhancements 139.93% 70.87%
Total loans held for
investment 1.40% 0.68%
December 31,
(dollar amounts in thousands) 2006
Non-performing residential loans: % assets
With third party credit enhancement (2) $109,218 0.13%
Without third party credit enhancement 409,865 0.50%
Total non-performing loans 519,083 0.63%
Foreclosed real estate 27,416 0.03%
Total non-performing assets $546,499 0.66%
Allowances for credit losses
Allowances for loan losses $228,692
Liability for unfunded loan commitments 8,104
$236,796
Allowances for credit losses as a
percentage of:
Total non-performing loans 45.62%
Total non-performing loans
without third party credit
enhancements 57.77%
Total loans held for investment 0.32%
Quarters Ended
September 30, 2007 June 30, 2007
Annualized Annualized
net net
charge- charge-
offs offs
as % as %
average average
investment investment
loans loans
Net charge-offs: $126,496 0.72 % $109,067 0.65 %
December 31, 2006
Annualized
net
charge-
offs as %
average
investment
loans
Net charge-offs: $13,585 0.07 %
(2) Third party credit enhancements include borrower-paid mortgage
insurance and pool mortgage insurance acquired by the Banking
Operations.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
AVERAGE BALANCE SHEET AND LOAN QUALITY
(Unaudited)
Quarters Ended
Average Balance Sheet September 30, 2007
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $27,811,588 $488,717 7.03%
Hybrid & other 1st liens 17,033,088 242,801 5.70%
Home equity loans 24,700,135 510,484 8.24%
Commercial real estate loans 312,989 5,599 7.10%
Investment securities 18,637,920 259,905 5.58%
Other assets 3,452,265 50,129 5.76%
Total interest-earning assets $91,947,985 $1,557,635 6.77%
Interest-bearing liabilities
Money market & savings deposits $15,530,928 $198,920 5.08%
Company-controlled custodial deposit
accounts 16,101,203 211,249 5.21%
Time deposits (CDs) 26,129,050 332,877 5.05%
Borrowings 25,278,928 284,641 4.47%
Total interest-bearing
liabilities $83,040,109 $1,027,687 4.91%
Net interest spread 1.86%
Net interest margin 2.33%
Quarters Ended
Average Balance Sheet June 30, 2007
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $30,058,599 $539,564 7.18%
Hybrid & other 1st liens 17,464,852 241,341 5.53%
Home equity loans 19,854,686 407,071 8.21%
Commercial real estate loans 122,215 2,117 6.95%
Investment securities 14,588,289 205,633 5.64%
Other assets 1,619,230 23,663 5.86%
Total interest-earning assets $83,707,871 $1,419,389 6.79%
Interest-bearing liabilities
Money market & savings deposits $15,065,927 $202,950 5.40%
Company-controlled custodial deposit
accounts 16,706,566 216,967 5.21%
Time deposits (CDs) 26,931,005 345,886 5.15%
Borrowings 17,577,543 190,247 4.34%
Total interest-bearing
liabilities $76,281,041 $956,050 5.03%
Net interest spread 1.76%
Net interest margin 2.21%
Quarters Ended
Average Balance Sheet September 30, 2006
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $35,803,653 $624,284 6.97%
Hybrid & other 1st liens 21,021,647 285,065 5.42%
Home equity loans 19,680,202 414,461 8.38%
Commercial real estate loans - - 0.00%
Investment securities 5,681,819 66,882 4.71%
Other assets 2,356,907 31,822 5.36%
Total interest-earning assets $84,544,228 $1,422,514 6.72%
Interest-bearing liabilities
Money market & savings deposits $7,452,742 $96,021 5.11%
Company-controlled custodial deposit
accounts 16,591,425 213,147 5.10%
Time deposits (CDs) 29,550,865 359,323 4.82%
Borrowings 24,078,234 277,681 4.58%
Total interest-bearing
liabilities $77,673,266 $946,172 4.83%
Net interest spread 1.89%
Net interest margin 2.28%
Loan Quality (1)
September 30, 2007 June 30, 2007 September 30, 2006
LTV CLTV FICO LTV CLTV FICO LTV CLTV FICO
Pay-option ARMs 76% 79% 716 76% 79% 717 75% 78% 721
Hybrid & other 1st
liens 74% 79% 732 74% 79% 733 74% 79% 734
Home equity loans 20% 83% 728 20% 82% 730 20% 81% 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
COUNTRYWIDE FINANCIAL CORPORATION
CAPITAL MARKETS SEGMENT
RESULTS OF OPERATIONS AND SECURITIES TRADING VOLUME
(Unaudited)
Quarters Ended
September September
30, June 30, 30,
(in thousands) 2007 2007 2006
Revenues
Commercial real estate $48,074 $39,731 $26,166
Brokering 13,421 14,953 10,293
Securities trading (17,289) 47,241 23,039
Underwriting (32,211) 36,452 71,727
Conduit (239,355) 92,650 121,126
Other (22,853) 13,730 5,636
Total revenues (250,213) 244,757 257,987
Expenses
Operating expenses (88,674) (127,982) (106,953)
Allocated corporate expenses (5,515) (7,265) (9,935)
Total expenses (94,189) (135,247) (116,888)
Total Capital Markets segment
pre-tax (loss) earnings $(344,402) $109,510 $141,099
Quarters Ended
September September
30, June 30, 30,
(in millions) 2007 2007 2006
Securities Trading Volume: (1)
Mortgage-backed securities $604,249 $684,463 $539,165
U.S. Treasury securities 415,570 365,387 300,408
Asset-backed securities 7,224 21,800 63,650
Other 29,598 38,094 29,687
Total securities trading volume $1,056,641 $1,109,744 $932,910
(1) Includes trades with Mortgage Banking Segment.
COUNTRYWIDE FINANCIAL CORPORATION
INSURANCE SEGMENT
KEY STATISTICS
(Unaudited)
Quarters Ended
September September
30, June 30, 30,
(dollar amounts in thousands) 2007 2007 2006
Balboa Life & Casualty:
Lender-placed net premiums earned $213,788 $183,793 $141,495
Voluntary net premiums earned $102,120 $103,157 $102,603
Loss ratio 41% 48% 40%
Combined ratio 75% 83% 81%
Quarters Ended
September September
30, June 30, 30,
2007 2007 2006
Balboa Reinsurance:
(in thousands)
Reinsurance net earned premiums $74,013 $65,434 $56,676
(in billions)
Period end:
Loans in CFC servicing portfolio
covered by Balboa Reinsurance $109 $98 $87
Website: http://www.countrywide.com/ |
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