Countrywide Financial Corp. today reported a 28 percent decline in its second-quarter profit over the second quarter of 2004 after it sold fewer loans to investors and mortgage banking profit fell by nearly half.

The company reported consolidated net earnings of $566 million, or $0.92 per share, compared to last year’s second-quarter earnings of $786 million, or $1.29 per share.

A group of financial analysts polled by Thomson Financial had predicted earnings of $0.99 a share.

Revenue fell 7 percent to $2.31 billion, while expenses rose 15 percent to $1.37 billion.

Though loan production rose 21 percent to $121.1 billion, Countrywide kept about $9 billion of loans it might otherwise have sold to help provide interest income over time. This decision cost about 15 cents per share of profit.

The company reported that total loan production volume was $121 billion, up 21 percent from the comparable quarter last year. The servicing portfolio has grown by $238 billion, or 33 percent, since June 30, 2004 to a record $964 billion at June 30, 2005.

Countrywide’s Mortgage Banking segment, which includes the Loan Production, Loan Servicing and Loan Closing Services sectors, contributed 56 percent of consolidated pre-tax earnings for the second quarter and 62 percent for the first half of 2005.

Mortgage Banking pre-tax earnings for the second quarter were $526 million, which compares to $1 billion for the second quarter of 2004. For the six months, Mortgage Banking pre-tax earnings were $1.3 billion, which compares to $1.6 billion for the same period last year.

The Loan Production sector is comprised of three distribution channels: prime and nonprime consumer-direct lending through Countrywide Home Loans’ 795-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 Loan Production sector generated $409 million in pre-tax earnings for the 2005 second quarter, which compares to $970 million for the second quarter of 2004. This resulted primarily from a $336 million decrease in gain on sale revenue. Gain on sale includes the effect of pipeline hedging activities, which reflect the market valuations of hedge positions pertaining to the pipeline of loans in process, but may not be fully offset by the change in value of these items.

Countrywide’s stock was trading at $36.43 a share mid-morning, down $0.19 per share, or 0.52 percent.

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