UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 1-8422

Countrywide Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware	13-2641992
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
4500 Park Granada, Calabasas, California (Address of principal executive offices)	91302 (Zip Code)

(Registrant’s telephone number, including area code)

(818) 225-3000

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 2, 2005
Common Stock $.05 par value	597,943,899

COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q

September 30, 2005

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION			1
Item 1.	Financial Statements:
	Consolidated Balance Sheets — September 30, 2005 and December 31, 2004		1
	Consolidated Statements of Earnings — Three and Nine Months Ended September 30, 2005 and 2004		2
	Consolidated Statement of Changes in Shareholders’ Equity — Nine Months Ended September 30, 2005 and 2004		3
	Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2005 and 2004		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
	Overview		33
	Results of Operations Comparison — Quarters Ended September 30, 2005 and 2004		36
	Results of Operations Comparison — Nine Months Ended September 30, 2005 and 2004		56
	Quantitative and Qualitative Disclosure About Market Risk		71
	Credit Risk		74
	Loan Servicing		77
	Liquidity and Capital Resources		78
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations		79
	Prospective Trends		80
	Regulatory Trends		81
	Recently Issued Accounting Standards		81
	Factors That May Affect Our Future Results		81
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		82
Item 4.	Controls and Procedures		83
PART II. OTHER INFORMATION			84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		84
Item 6.	Exhibits		84
EX-10.108
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30,		December 31,
		2005		2004
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash		$	1,488,581	$	751,237
Mortgage loans and mortgage-backed securities held for sale			35,217,353		37,350,149
Trading securities owned, at market value			11,883,408		10,558,387
Trading securities pledged as collateral, at market value			965,062		1,303,007
Securities purchased under agreements to resell, federal funds sold and securities borrowed			23,215,276		13,456,448
Loans held for investment, net			67,775,774		39,661,191
Investments in other financial instruments			10,706,071		10,091,057
Mortgage servicing rights, net			11,428,404		8,729,929
Premises and equipment, net			1,218,559		985,350
Other assets			7,394,547		5,608,950
	Total assets	$	171,293,035	$	128,495,705
LIABILITIES
Notes payable		$	75,139,971	$	66,613,671
Securities sold under agreements to repurchase and federal funds purchased			34,204,928		20,465,123
Deposit liabilities			37,798,722		20,013,208
Accounts payable and accrued liabilities			8,389,148		8,507,384
Income taxes payable			3,521,150		2,586,243
	Total liabilities		159,053,919		118,185,629
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, 597,311,402 shares and 581,706,836 shares at September 30, 2005 and December 31, 2004, respectively; outstanding, 597,181,258 shares and 581,648,881 shares at September 30, 2005 and December 31, 2004, respectively			29,865		29,085
Additional paid-in capital			2,887,658		2,570,402
Accumulated other comprehensive income			100,050		118,943
Retained earnings			9,221,543		7,591,646
	Total shareholders’ equity		12,239,116		10,310,076
	Total liabilities and shareholders’ equity	$	171,293,035	$	128,495,705

The accompanying notes are an integral part of these consolidated financial statements.

1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2005			2004			2005			2004
			(Unaudited)
			(In thousands, except per share data)
Revenues
	Gain on sale of loans and securities		$	1,284,992		$	1,020,861		$	3,792,152		$	3,559,751
	Interest income			2,225,098			1,225,206			5,467,663			3,349,282
	Interest expense			(1,588,994	)		(671,969	)		(3,814,165	)		(1,765,302	)
		Net interest income		636,104			553,237			1,653,498			1,583,980
	Provision for loan losses			(54,834	)		(8,360	)		(91,557	)		(48,888	)
		Net interest income after provision for loan losses		581,270			544,877			1,561,941			1,535,092
	Loan servicing fees and other income from retained interests			1,103,533			812,940			3,095,040			2,372,353
	Amortization of mortgage servicing rights			(653,351	)		(394,069	)		(1,607,911	)		(1,377,728	)
	Recovery (impairment) of retained interests			853,667			(795,614	)		(209,938	)		(612,132	)
	Servicing hedge (losses) gains			(837,241	)		590,967			(242,375	)		114,312
		Net loan servicing fees and other income from retained interests		466,608			214,224			1,034,816			496,805
	Net insurance premiums earned			240,079			194,778			655,075			577,413
	Commissions and other revenue			138,669			134,763			380,462			380,406
		Total revenues		2,711,618			2,109,503			7,424,446			6,549,467
Expenses
	Compensation			988,614			850,384			2,625,236			2,301,138
	Occupancy and other office			228,263			155,608			642,056			454,481
	Insurance claims			183,758			106,721			348,479			275,148
	Advertising and promotion			56,412			47,586			165,206			121,381
	Other operating			202,893			162,027			507,913			442,983
		Total expenses		1,659,940			1,322,326			4,288,890			3,595,131
Earnings before income taxes				1,051,678			787,177			3,135,556			2,954,336
	Provision for income taxes			417,793			289,106			1,246,361			1,126,597
		NET EARNINGS	$	633,885		$	498,071		$	1,889,195		$	1,827,739
Earnings per share
	Basic		$	1.07		$	0.88		$	3.21		$	3.27
	Diluted		$	1.03		$	0.81		$	3.07		$	3.02

The accompanying notes are an integral part of these consolidated financial statements.

2

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

											Accumulated
								Additional			Other
				Number of		Common		Paid-in-			Comprehensive			Retained
				Shares		Stock		Capital			Income (Loss)			Earnings			Total
				(Unaudited)
				(In thousands, except share data)
Balance at December 31, 2003					184,479,342	$	9,225	$	2,307,531		$	164,526		$	5,603,434		$	8,084,716
Comprehensive income:
	Net earnings for the period				—		—		—			—			1,827,739			1,827,739
	Other comprehensive income (loss), net of tax:
		Net unrealized losses from available-for-sale securities			—		—		—			(121,905	)		—			(121,905	)
		Net unrealized gains from cash flow hedging instruments			—		—		—			17,110			—			17,110
		Net change in foreign currency translation adjustment			—		—		—			1,448			—			1,448
			Total comprehensive income															1,724,392
3-for-2 stock split, effected April 12, 2004					92,915,124		4,646		(4,646	)		—			—			—
2-for-1 stock split, effected August 30, 2004					282,010,434		14,101		(14,101	)		—			—			—
Stock options exercised					4,813,877		239		90,062			—			—			90,301
Tax benefit of stock options exercised					—		—		76,248			—			—			76,248
Issuance of common stock, net of treasury stock					378,201		20		13,417			—			—			13,437
Issuance of common stock for conversion of LYONs convertible debentures					334,626		17		6,410			—			—			6,427
Contribution of common stock to 401(k) Plan					304,954		15		20,920			—			—			20,935
Cash dividends paid — $0.25 per common share					—		—		—			—			(139,690	)		(139,690	)
Balance at September 30, 2004					565,236,558	$	28,263	$	2,495,841		$	61,179		$	7,291,483		$	9,876,766
Balance at December 31, 2004					581,648,881	$	29,085	$	2,570,402		$	118,943		$	7,591,646		$	10,310,076
Comprehensive income:
	Net earnings for the period				—		—		—			—			1,889,195			1,889,195
	Other comprehensive income (loss), net of tax:
		Net unrealized losses from available-for-sale securities			—		—		—			(589	)		—			(589	)
		Net unrealized losses from cash flow hedging instruments			—		—		—			(556	)		—			(556	)
		Net change in foreign currency translation adjustment			—		—		—			(17,748	)		—			(17,748	)
			Total comprehensive income															1,870,302
Stock options exercised					10,770,954		543		128,065			—			—			128,608
Tax benefit of stock options exercised					—		—		93,897			—			—			93,897
Issuance of common stock, net of treasury stock					1,954,198		97		56,584			—			—			56,681
Issuance of common stock for conversion of convertible debt					2,100,550		105		9,008			—			—			9,113
Tax benefit of interest on conversion of convertible debt					—		—		4,796			—			—			4,796
Contribution of common stock to 401(k) Plan					706,675		35		24,906			—			—			24,941
Cash dividends paid — $0.44 per common share					—		—		—			—			(259,298	)		(259,298	)
Balance at September 30, 2005					597,181,258	$	29,865	$	2,887,658		$	100,050		$	9,221,543		$	12,239,116

The accompanying notes are an integral part of these consolidated financial statements.

3

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

						Nine Months Ended
						September 30,
						2005			2004
						(Unaudited)
						(In thousands)
Cash flows from operating activities:
	Net earnings					$	1,889,195		$	1,827,739
		Adjustments to reconcile net earnings to net cash used by operating activities:
			Gain on sale of available-for-sale securities				(9,156	)		(276,922	)
			Accretion of discount on securities				(316,115	)		(287,641	)
			Accretion of discount on notes payable				657			2,283
			Provision for loan losses				91,557			48,888
			Amortization of mortgage servicing rights				1,607,911			1,377,728
			(Recovery) impairment of mortgage servicing rights				(332,113	)		340,455
			Change in fair value of mortgage servicing rights attributable to hedged risk				245,655			—
			Impairment of other retained interests				271,868			320,301
			Depreciation and other amortization				180,837			109,679
			Provision for deferred income taxes				957,669			382,108
			Tax benefit of stock options exercised				93,897			76,248
			Loans and mortgage-backed securities held for sale:
				Origination and purchase			(322,914,742	)		(247,028,170	)
				Sale and principal repayments			311,561,468			242,632,347
					Increase in mortgage loans and mortgage-backed securities held for sale		(11,353,274	)		(4,395,823	)
			Increase in trading securities				(951,277	)		(1,011,607	)
			Decrease in investments in other financial instruments				58,026			285,372
			Increase in other assets				(1,829,616	)		(1,792,880	)
			(Decrease) increase in accounts payable and accrued liabilities				(93,295	)		2,219,978
			(Decrease) increase in income taxes payable				(6,602	)		114,686
				Net cash used by operating activities			(9,494,176	)		(659,408	)
Cash flows from investing activities:
	Increase in securities purchased under agreements to resell, federal funds sold and securities borrowed						(9,758,828	)		(2,776,572	)
	Additions to loans held for investment, net						(25,283,369	)		(8,602,568	)
	Additions to investments in other financial instruments						(6,129,668	)		(7,185,126	)
	Proceeds from sale and repayment of investments in other financial instruments						4,964,343			13,161,655
	Additions to mortgage servicing rights						(4,219,928	)		(3,015,677	)
	Purchase of premises and equipment, net						(370,027	)		(242,829	)
		Net cash used by investing activities					(40,797,477	)		(8,661,117	)
Cash flows from financing activities:
	Net increase in short-term borrowings						8,639,563			3,731,215
	Issuance of long-term debt						17,747,957			12,234,310
	Repayment of long-term debt						(6,809,833	)		(5,065,117	)
	Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased						13,739,805			(10,889,083	)
	Net increase in deposit liabilities						17,785,514			9,405,027
	Issuance of common stock						185,289			103,738
	Payment of dividends						(259,298	)		(139,690	)
		Net cash provided by financing activities					51,028,997			9,380,400
Net increase in cash							737,344			59,875
Cash at beginning of period							751,237			626,183
		Cash at end of period				$	1,488,581		$	686,058

The accompanying notes are an integral part of these consolidated financial statements.

4

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

      Countrywide Financial Corporation (“Countrywide”) is a holding company which, through its principal subsidiary, Countrywide Home Loans, Inc. (“CHL”) and other subsidiaries (collectively, the “Company”), is engaged in diversified financial services including mortgage banking, banking and other mortgage finance-related businesses. The Company’s business activities fall into the following general categories: residential mortgage banking, retail banking and mortgage warehouse lending, dealing in securities, insurance underwriting and operating an insurance agency and international mortgage loan processing and subservicing.

      The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

      In preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that materially affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

      In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, including a description of the Company’s significant accounting policies, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Annual Report”) for the Company.

      On April 12, 2004, the Company completed a 3-for-2 stock split effected as a stock dividend. On August 30, 2004, the Company completed a 2-for-1 stock split effected as a stock dividend. As more fully discussed in Note 2 to the 2004 Annual Report, in the fourth quarter of 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share,” (“EITF 04-8”). EITF 04-8 requires the Company to include the assumed conversion of its convertible debentures in diluted earnings per share (if dilutive), regardless of whether the market conditions have been met. Countrywide’s Liquid Yield Option Notes and Convertible Securities meet the criteria of EITF 04-8. All references in the accompanying consolidated balance sheets, consolidated statements of earnings and notes to consolidated financial statements to the number of common shares and earnings per share amounts have been restated to reflect these stock splits and the implementation of EITF 04-8.

      Certain amounts reflected in the prior year consolidated financial statements have been reclassified to conform to current year presentation.

Note 2 — Earnings Per Share

      Basic earnings per share is determined using net earnings divided by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average shares outstanding, assuming all potentially dilutive common shares were issued.

5

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      The following table summarizes the basic and diluted earnings per share calculations for the periods indicated:

		Three Months Ended September 30,
		2005						2004
		Net				Per-Share		Net				Per-Share
		Earnings		Shares		Amount		Earnings		Shares		Amount
		(In thousands, except per share data)
Net earnings and basic earnings per share		$	633,885		594,130	$	1.07	$	498,071		563,460	$	0.88
Effect of dilutive securities:
	Convertible debentures		56		1,470				796		20,772
	Dilutive stock options		—		21,392				—		28,484
Diluted earnings and earnings per share		$	633,941		616,992	$	1.03	$	498,867		612,716	$	0.81

		Nine Months Ended September 30,
		2005						2004
		Net				Per-Share		Net				Per-Share
		Earnings		Shares		Amount		Earnings		Shares		Amount
		(In thousands, except per share data)
Net earnings and basic earnings per share		$	1,889,195		588,663	$	3.21	$	1,827,739		559,749	$	3.27
Effect of dilutive securities:
	Convertible debentures		247		2,050				2,387		17,528
	Dilutive stock options		—		24,069				—		28,384
Diluted earnings and earnings per share		$	1,889,442		614,782	$	3.07	$	1,830,126		605,661	$	3.02

      During the three months ended September 30, 2005 and 2004, stock options to purchase 128,274 shares and 13,500 shares, respectively, were outstanding but not included in the computation of earnings per share because they were anti-dilutive. During the nine months ended September 30, 2005 and 2004, stock options to purchase 120,934 shares and 141,856 shares, respectively, were outstanding but not included in the computation of earnings per share because they were anti-dilutive.

Stock-Based Compensation

      The Company generally grants stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to eligible employees. The Company recognizes compensation expense related to its stock option plans only to the extent that the fair value of the shares at the grant date exceeds the exercise price.

      The Company recognizes compensation expense relating to its restricted stock grants based on the fair value of the shares awarded as of the grant date. Compensation expense for restricted stock grants, including those awarded to retirement-eligible employees, is recognized over the shares’ nominal vesting period.

      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), an amendment of FASB Statement No 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” The Company will adopt SFAS 123R beginning in 2006. As a result of adopting SFAS 123R, the Company will charge to expense the value of employee stock options as well as

6

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

restricted stock and any other stock-based compensation. The Company will also be required, for awards made beginning on the adoption of SFAS 123R, to immediately expense awards made to retirement-eligible employees and will be required to amortize grants to other employees over the lesser of the nominal vesting period or the period until the grantee becomes retirement-eligible. The Company will adopt SFAS 123R, using the modified prospective application approach effective January 1, 2006. The Company will utilize a variant of the Black-Scholes-Merton option-pricing model that takes into account employee tenure and exercise experience. We expect the charge to earnings for 2006 related to unamortized grants made before the effective date will be less than $40.0 million, net of tax. The effect of amortization of the value of any grants awarded after December 31, 2005 will increase this earnings charge.

      Had the estimated fair value of the options granted been included in compensation expense, the Company’s net earnings and earnings per share would have been as follows:

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2005			2004			2005			2004
			(In thousands, except per share data)
Net Earnings:
	As reported		$	633,885		$	498,071		$	1,889,195		$	1,827,739
		Add: Stock-based compensation included in net earnings, net of taxes		492			988			2,528			1,953
		Deduct: Stock-based employee compensation, net of taxes		(11,744	)		(12,482	)		(91,957	)		(29,497	)
	Pro forma		$	622,633		$	486,577		$	1,799,766		$	1,800,195
Basic Earnings Per Share:
	As reported		$	1.07		$	0.88		$	3.21		$	3.27
	Pro forma		$	1.05		$	0.86		$	3.06		$	3.22
Diluted Earnings Per Share:
	As reported		$	1.03		$	0.81		$	3.07		$	3.02
	Pro forma		$	1.01		$	0.80		$	2.93		$	2.98

      Beginning in the second quarter of 2005, the Company utilized a variant of the Black-Scholes-Merton option-pricing model that takes into account enhanced estimates of employee tenure and exercise experience to estimate the fair value of the options. For purposes of this pro-forma disclosure, the fair value of each option grant is amortized to periodic compensation expense over the options’ vesting period.

      On April 1, 2005 the Company granted eligible employees options to purchase 13.3 million shares of its common stock at the average market price on the grant date. These options fully vest when granted and became exercisable on May 1, 2005. As a result of this vesting provision, the expense associated with the entire stock option grant amounting to $55.7 million, net of tax, is included in the above stock-based compensation pro-forma disclosure for the nine months ended September 30, 2005.

7

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      The weighted-average assumptions used to value the option grants and the resulting average estimated values were as follows:

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2005			2004			2005			2004
Weighted Average Assumptions:
	Dividend yield		1.65	%		0.75	%		1.70	%		0.85	%
	Expected volatility		32.50	%		35.43	%		32.50	%		36.02	%
	Risk-free interest rate		3.91	%		3.55	%		4.15	%		2.90	%
	Term(1)		5.00			—			3.15			—
	Expected life (in years)		—			5.00			—			5.59
Per-share fair value of options		$	6.28		$	12.03		$	6.95		$	11.09
Weighted-average exercise price		$	36.54		$	34.94		$	32.63		$	31.85

(1)  Beginning in the second quarter of 2005, expected employee tenure and exercise experience are determined by option pricing model.

Note 3  — Supplemental Cash Flow Information

      The following table presents supplemental cash flow information:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Cash used to pay interest		$	3,628,334		$	1,729,970
Cash used to pay income taxes			213,646			563,410
Non-cash investing and finance activities:
	Unrealized loss on available-for-sale securities, foreign currency translation adjustments and cash flow hedges, net of tax		(18,893	)		(103,347	)
	Net (decrease) increase in fair value of medium-term notes due to application of fair value hedge accounting		(479,632	)		33,670
	Contribution of common stock to 401(k) plan		24,941			20,935
	(Decrease) increase in Mortgage Loans Held in SPEs and asset-backed secured financings		(10,563,299	)		6,865,764
	Transfer of mortgage loans from held for investment to held for sale		(2,922,771	)		—
	Issuance of common stock for conversion of convertible debt		9,113			6,427
	Tax effect of interest on conversion of convertible debt		4,796			—
	Exchange of LYONs convertible debentures for convertible securities		—			637,177
	Securitization of interest-only strips		—			56,038

Note 4 — Estimated Hurricane Losses

      During the periods presented, the Company incurred losses across several of its business units due to hurricanes that struck the gulf coast states. Hurricane Katrina was responsible for most of the losses during the nine months ended September 30, 2005. Hurricane Katrina differed from other hurricanes because it caused

8

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

flooding that resulted in losses against which many borrowers were not insured. Therefore, the Company has incurred losses related to Hurricane Katrina in its loans held for investment and Mortgage Banking activities in addition to the losses insured by its Insurance operations.

      The estimated hurricane losses are summarized in the following table:

		Nine Months Ended
		September 30,
Income Statement Line	Description	2005		2004
		(In thousands)
Gain on sale of loans and securities	Impairment of loans held for sale	$	22,055	$	—
Provision for loan losses	Estimated credit losses relating to loans held for investment		12,284		—
Recovery (impairment) of retained interests	Impairment of MSRs and other retained interests		24,724		—
Insurance claims expense	Estimated losses insured by Balboa Insurance Group		98,395		23,167
Other operating expenses	Provision for losses related to servicing advances for loans insured by the FHA and guaranteed by the VA		26,359		—
Total estimated hurricane losses		$	183,817	$	23,167

We continue to assess the impact of the hurricanes on our businesses, assets and operations. While our estimates are based on our best available information, they could ultimately be affected by many factors, including, but not limited to, the short-term and long-term impact on the economies of the affected communities; the conduct of borrowers in the affected areas; the actions of various third parties, including government agencies and government-sponsored entities that support housing, insurance companies, lenders and mortgage insurance companies; the apportionment of liability among insurers; the availability of catastrophic reinsurance proceeds; factors impacting property values in the affected areas, including any environmental factors such as the presence of toxic chemicals; and subsequent storm activity.

Note 5  — Mortgage Loans and Mortgage-Backed Securities Held for Sale

      The Company’s broker-dealer subsidiary, Countrywide Securities Corporation (“CSC”), may reacquire beneficial interests previously sold to outside third parties in the Company’s securitization transactions. In the event that such securities include protection by a derivative financial instrument held by a special purpose entity (“SPE”), that SPE no longer meets the conditions as a qualifying special purpose entity (“QSPE”) under Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” (“SFAS 140”). As a result, the related mortgage loans held for sale and asset-backed secured financings are included on the Company’s consolidated balance sheets and are initially recorded at fair value. Such mortgage loans, net of related retained interests, (“Mortgage Loans Held in SPEs”) are included with mortgage loans and mortgage-backed securities held for sale on the Company’s consolidated balance sheet.

9

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      Mortgage loans and mortgage-backed securities held for sale include the following:

		September 30,		December 31,
		2005		2004
		(In thousands)
Prime		$	25,005,703	$	15,561,822
Nonprime			7,250,521		9,878,661
Prime home equity			1,851,137		1,046,075
Commercial real estate			1,109,992		300,292
	Mortgage loans originated or purchased for resale		35,217,353		26,786,850
Mortgage Loans Held in SPEs			—		10,563,299
		$	35,217,353	$	37,350,149

      At September 30, 2005, the Company had pledged $14.5 billion and $2.7 billion in mortgage loan inventory to secure asset-backed commercial paper and a secured revolving line of credit, respectively.

      At December 31, 2004, the Company had pledged $7.6 billion in mortgage loan inventory to secure asset-backed commercial paper.

      At December 31, 2004, the Company had pledged $6.7 billion of mortgage loans originated or purchased for resale and $10.6 billion of Mortgage Loans Held in SPEs as collateral for asset-backed secured financings.

Note 6 — Trading Securities

      Trading securities, which consist of trading securities owned and trading securities pledged as collateral, include the following:

		September 30,		December 31,
		2005		2004
		(In thousands)
Mortgage pass-through securities:
	Fixed-rate	$	7,178,640	$	6,768,864
	Adjustable-rate		761,807		717,194
			7,940,447		7,486,058
Collateralized mortgage obligations			2,554,064		2,067,066
U.S. Treasury securities			1,123,774		971,438
Obligations of U.S. Government-sponsored enterprises			439,939		560,163
Interest-only stripped securities			420,977		318,110
Mark-to-market on TBA securities			158,163		58,676
Asset-backed securities			126,492		340,684
Negotiable certificates of deposit			77,967		30,871
Corporate debt securities			—		21,659
Other			6,647		6,669
		$	12,848,470	$	11,861,394

      As of September 30, 2005, $10.8 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $1.0 billion.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      As of December 31, 2004, $10.0 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $1.3 billion.

Note 7 — Securities Purchased Under Agreements to Resell, Federal Funds Sold and Securities Borrowed

      The following table summarizes securities purchased under agreements to resell, federal funds sold and securities borrowed:

	September 30,		December 31,
	2005		2004
	(In thousands)
Securities purchased under agreements to resell	$	18,399,730	$	12,112,824
Securities borrowed		4,365,546		1,118,624
Federal funds sold		450,000		225,000
	$	23,215,276	$	13,456,448

      As of September 30, 2005, the Company had accepted collateral with a fair value of $31.2 billion that it had the contractual ability to sell or re-pledge, including $6.9 billion related to amounts offset against securities purchased under agreements to resell under master netting arrangements. As of September 30, 2005, the Company had re-pledged $27.5 billion of such collateral for financing purposes.

      As of December 31, 2004, the Company had accepted collateral with a fair value of $22.2 billion that it had the contractual ability to sell or re-pledge, including $8.2 billion related to amounts offset against securities purchased under agreements to resell under master netting arrangements. As of December 31, 2004, the Company had re-pledged $18.7 billion of such collateral for financing purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 8 — Mortgage Servicing Rights, Net

      The activity in Mortgage Servicing Rights (“MSRs”) is as follows:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Mortgage Servicing Rights
	Balance at beginning of period	$	9,820,511		$	8,065,174
	Additions		4,219,928			3,015,677
	Securitization of MSRs		—			(56,038	)
	Amortization		(1,607,911	)		(1,377,728	)
	Change in fair value attributable to hedged risk		(245,655	)		—
	Application of valuation allowance to write down impaired MSRs		(69,045	)		(378,642	)
	Balance before valuation allowance at end of period		12,117,828			9,268,443
Valuation Allowance for Impairment of Mortgage Servicing Rights
	Balance at beginning of period		(1,090,582	)		(1,201,549	)
	Recoveries (additions)		332,113			(340,455	)
	Application of valuation allowance to write down impaired MSRs		69,045			378,642
	Balance at end of period		(689,424	)		(1,163,362	)
Mortgage Servicing Rights, Net		$	11,428,404		$	8,105,081

      The estimated fair values of mortgage servicing rights were $11.5 billion, $8.9 billion and $8.2 billion as of September 30, 2005, December 31, 2004 and September 30, 2004, respectively.

      The following table summarizes the Company’s estimate of amortization of its existing MSRs for the five-year period ending September 30, 2010. This projection was developed using the assumptions made by management in its September 30, 2005 valuation of MSRs. The assumptions underlying the following estimate will be affected as market conditions, portfolio composition and behavior change, causing both actual and projected amortization levels to vary over time. Therefore, the following estimates will change in a manner and amount not presently determinable by management.

		Estimated MSR
Year Ending September 30,		Amortization
		(In thousands)
2006		$	2,379,944
2007			1,832,295
2008			1,427,644
2009			1,125,491
2010			897,338
	Five-year total	$	7,662,712

12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 9 — Investments in Other Financial Instruments

      Investments in other financial instruments include the following:

			September 30,		December 31,
			2005		2004
			(In thousands)
Available-for-sale securities:
	Mortgage-backed securities		$	6,667,730	$	6,009,819
	Obligations of U.S. Government-sponsored enterprises			409,423		279,991
	Municipal bonds			347,434		208,239
	U.S. Treasury securities			137,995		66,030
	Other			2,344		3,685
		Subtotal		7,564,926		6,567,764
Other interests retained in securitization classified as available-for-sale securities:
	Nonconforming interest-only and principal-only securities			303,072		191,502
	Prime home equity line of credit transferor’s interest			223,280		273,639
	Nonprime residual securities			214,249		237,695
	Prime home equity residual securities			158,252		275,598
	Prepayment penalty bonds			103,351		61,483
	Prime home equity interest-only securities			16,025		27,950
	Nonprime interest-only securities			9,657		84,834
	Nonconforming residual securities			3,380		11,462
	Subordinated mortgage-backed pass-through securities			2,213		2,306
		Total other interests retained in securitization classified as available-for-sale securities		1,033,479		1,166,469
Total available-for-sale securities				8,598,405		7,734,233
Other interests retained in securitization classified as trading securities:
	Prime home equity residual securities			708,532		533,554
	Nonprime residual securities			335,596		187,926
	Prime home equity line of credit transferor’s interest			232,709		—
	Nonconforming residual securities			11,800		20,555
		Total other interests retained in securitization classified as trading securities		1,288,637		742,035
Hedging instruments:
	Servicing			632,534		1,024,977
	Debt			186,495		589,812
		Total investments in other financial instruments	$	10,706,071	$	10,091,057

13

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      At September 30, 2005, the Company had pledged $1.3 billion and $1.1 billion of mortgage-backed securities to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge, and to secure an unused borrowing facility, respectively.

      At December 31, 2004, the Company had pledged $1.8 billion of mortgage-backed securities to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge.

      Amortized cost and fair value of available-for-sale securities are as follows:

	September 30, 2005
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Mortgage-backed securities	$	6,747,926	$	1,971	$	(82,167	)	$	6,667,730
Municipal bonds		348,276		1,399		(2,241	)		347,434
Obligations of U.S. Government-sponsored enterprises		415,689		8		(6,274	)		409,423
U.S. Treasury securities		137,545		1,461		(1,011	)		137,995
Other interests retained in securitization		846,262		193,678		(6,461	)		1,033,479
Other		2,344		—		—			2,344
	$	8,498,042	$	198,517	$	(98,154	)	$	8,598,405

	December 31, 2004
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(In thousands)
Mortgage-backed securities	$	6,034,293	$	6,347	$	(30,821	)	$	6,009,819
Municipal bonds		205,726		2,669		(156	)		208,239
Obligations of U.S. Government-sponsored enterprises		281,430		233		(1,672	)		279,991
U.S. Treasury securities		63,977		2,237		(184	)		66,030
Other interests retained in securitization		1,045,011		123,766		(2,308	)		1,166,469
Other		4,370		15		(700	)		3,685
	$	7,634,807	$	135,267	$	(35,841	)	$	7,734,233

14

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      The Company’s available-for-sale securities in an unrealized loss position are as follows:

	September 30, 2005
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
Mortgage-backed securities	$	5,161,265	$	(57,045	)	$	1,060,116	$	(25,122	)	$	6,221,381	$	(82,167	)
Municipal bonds		215,108		(1,846	)		23,529		(395	)		238,637		(2,241	)
Obligations of U.S. Government-sponsored enterprises		437,028		(2,449	)		145,523		(3,825	)		582,551		(6,274	)
U.S. Treasury securities		97,445		(883	)		—		(128	)		97,445		(1,011	)
Other interests retained in securitization		76,857		(6,049	)		4,586		(412	)		81,443		(6,461	)
Total impaired securities	$	5,987,703	$	(68,272	)	$	1,233,754	$	(29,882	)	$	7,221,457	$	(98,154	)

	December 31, 2004
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
Mortgage-backed securities	$	3,656,167	$	(18,725	)	$	823,916	$	(12,096	)	$	4,480,083	$	(30,821	)
Municipal bonds		65,587		(156	)		—		—			65,587		(156	)
Obligations of U.S. Government-sponsored enterprises		185,983		(1,283	)		28,648		(389	)		214,631		(1,672	)
U.S. Treasury securities		27,288		(184	)		—		—			27,288		(184	)
Other interests retained in securitization		27,970		(1,753	)		5,256		(555	)		33,226		(2,308	)
Other		3,620		(700	)		—		—			3,620		(700	)
Total impaired securities	$	3,966,615	$	(22,801	)	$	857,820	$	(13,040	)	$	4,824,435	$	(35,841	)

      The impairment reflected in these securities is a result of a change in market interest rates and management believes that such impairment is not indicative of the Company’s ability to recover the securities’ amortized cost in the reasonably foreseeable future. Accordingly, other-than-temporary impairment related to these securities has not been recognized as of September 30, 2005 or December 31, 2004.

15

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      Gross gains and losses realized on the sales of available-for-sale securities are as follows:

			Nine Months Ended
			September 30,
			2005			2004
			(In thousands)
Mortgage-backed securities:
	Gross realized gains		$	31		$	3,406
	Gross realized losses			(116	)		(523	)
		Net		(85	)		2,883
Home equity asset-backed senior securities:
	Gross realized gains			—			185,330
	Gross realized losses			—			—
		Net		—			185,330
U.S. Treasury securities:
	Gross realized gains			—			33,405
	Gross realized losses			—			(224	)
		Net		—			33,181
Municipal bonds:
	Gross realized gains			—			126
	Gross realized losses			(104	)		(15	)
		Net		(104	)		111
Obligations of U.S. Government-sponsored enterprises:
	Gross realized gains			14			324
	Gross realized losses			—			—
		Net		14			324
Other interests retained in securitization:
	Gross realized gains			12,462			85,469
	Gross realized losses			(4,383	)		(30,376	)
		Net		8,079			55,093
Other:
	Gross realized gains			1,252			—
	Gross realized losses			—			—
		Net		1,252			—
Total gains and losses on available-for-sale securities:
	Gross realized gains			13,759			308,060
	Gross realized losses			(4,603	)		(31,138	)
		Net	$	9,156		$	276,922

16

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 10 — Loans Held for Investment, Net

      Loans held for investment include the following:

			September 30,			December 31,
			2005			2004
			(In thousands)
Mortgage loans:
	Prime		$	45,664,924		$	22,588,351
	Prime home equity			15,314,508			11,435,792
	Nonprime			263,973			171,592
		Total mortgage loans		61,243,405			34,195,735
Warehouse lending advances secured by mortgage loans				4,546,137			3,681,830
Defaulted FHA-insured and VA-guaranteed mortgage loans repurchased from securities				1,262,551			1,518,642
				67,052,093			39,396,207
Purchase premium/discount and deferred loan origination costs				908,465			390,030
Allowance for loan losses				(184,784	)		(125,046	)
		Loans held for investment, net	$	67,775,774		$	39,661,191

      At September 30, 2005, mortgage loans held for investment totaling $47.1 billion were pledged to secure Federal Home Loan Bank advances.

      At September 30, 2005, the Company had accepted collateral of $4.7 billion securing warehouse-lending advances that it had the contractual ability to re-pledge. As of September 30, 2005, no such mortgage loan collateral had been re-pledged.

      At December 31, 2004, mortgage loans held for investment totaling $28.8 billion were pledged to secure Federal Home Loan Bank advances.

      At December 31, 2004, the Company had accepted collateral of $3.8 billion securing warehouse-lending advances that it had the contractual ability to re-pledge. As of December 31, 2004, no such mortgage loan collateral had been re-pledged.

      Changes in the allowance for loan losses were as follows:

	Nine Months Ended
	September 30,
	2005			2004
	(In thousands)
Balance, beginning of the period	$	125,046		$	78,449
Provision for loan losses		91,557			48,888
Net charge-offs		(21,694	)		(19,572	)
Reduction of allowance due to sale of loans held for investment		(10,125	)		—
Balance, end of the period	$	184,784		$	107,765

17

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 11 — Other Assets

      Other assets include the following:

	September 30,		December 31,
	2005		2004
	(In thousands)
Securities broker-dealer receivables	$	1,895,306	$	818,299
Investments in Federal Reserve Bank and Federal Home Loan Bank stock		1,329,975		795,894
Reimbursable servicing advances		816,947		1,355,584
Interest receivable		724,464		426,962
Receivables from custodial accounts		567,305		391,898
Capitalized software, net		326,449		286,504
Cash surrender value of assets held in trust for deferred compensation plan		220,854		184,569
Prepaid expenses		203,877		212,310
Restricted cash		190,717		200,142
Receivables from sale of securities		107,338		143,874
Derivative margin accounts		83,303		99,795
Other assets		928,012		693,119
	$	7,394,547	$	5,608,950

      At September 30, 2005, the Company had pledged $1.4 billion of other assets to secure securities sold under agreements to repurchase.

      At December 31, 2004, the Company had pledged $0.3 billion of other assets to secure securities sold under agreements to repurchase.

18

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 12 — Notes Payable

      Notes payable consists of the following:

		September 30,		December 31,
		2005		2004
		(In thousands)
Federal Home Loan Bank advances		$	26,525,000	$	15,475,000
Medium-term notes:
	Fixed rate		12,270,182		13,519,494
	Floating rate		12,051,876		11,846,268
			24,322,058		25,365,762
Asset-backed commercial paper			13,086,975		7,372,138
Unsecured commercial paper			6,218,358		—
Secured revolving line of credit			2,531,768		—
Junior subordinated debentures			1,028,112		1,028,013
Unsecured bank loans			863,000		—
Subordinated debt			500,000		—
Convertible securities			17,700		65,026
LYONs convertible debentures			3,594		12,626
Asset-backed secured financings			—		17,258,543
Other			43,406		36,563
		$	75,139,971	$	66,613,671

Federal Home Loan Bank Advances

      During the nine months ended September 30, 2005, the Company obtained $11.7 billion of advances from the Federal Home Loan Bank (“FHLB”). Of these advances, $2.8 billion were fixed-rate and $8.9 billion were adjustable-rate. At September 30, 2005, the Company had pledged $47.1 billion of mortgage loans to secure its outstanding FHLB advances.

      At December 31, 2004, the Company had pledged $28.8 billion of mortgage loans to secure its outstanding FHLB advances.

Medium-Term Notes

      During the nine months ended September 30, 2005, the Company issued the following medium-term notes:

	Outstanding Balance						Interest Rate				Maturity Date
	Floating-Rate		Fixed-Rate		Total		From		To		From	To
	(In thousands)
CHL Series M	$	585,000	$	—	$	585,000		3.77%		3.77%	January, 2006	January, 2006
CFC Series A		3,920,000		562,732		4,482,732		3.71%		6.03%	March, 2006	August, 2020
CHL Euro		183,100		—		183,100		3.37%		3.99%	May, 2006	November, 2006
CFC Australian		272,125		—		272,125		3.89%		3.89%	July, 2008	July, 2008
Total	$	4,960,225	$	562,732	$	5,522,957

19

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      Of the $0.6 billion of fixed-rate medium-term notes issued by the Company during the period, $0.2 billion were effectively converted to floating rate debt using interest rate swaps.

      During the nine months ended September 30, 2005, the Company redeemed $6.1 billion of maturing medium-term notes.

      As of September 30, 2005, $3.8 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Japanese Yen, Pounds Sterling, Canadian Dollars, Australian Dollars and Euros. These notes have been effectively converted to U.S. dollars through currency swaps.

Asset-Backed Commercial Paper

      The Company has formed two special purpose entities to finance certain of its mortgage loan inventory using commercial paper.

      These entities issue commercial paper in the form of short-term secured liquidity notes (“SLNs”) with initial maturities of up to 180 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. The SLN programs’ capacities, based on aggregate commitments from underlying credit enhancers, totaled $30.9 billion at September 30, 2005. For the nine months ended September 30, 2005, the average borrowings under these facilities totaled $17.9 billion and the weighted-average interest rate borne by the SLNs was 3.14%. At September 30, 2005, the weighted-average interest rate borne by the SLNs was 3.82% and the Company had pledged $14.5 billion in mortgage loan inventory to secure the SLNs.

Secured Revolving Line of Credit

      The Company has formed a special purpose entity for the purpose of financing inventory with funding provided by a group of bank-sponsored conduits that are financed through the issuance of asset-backed commercial paper. The entity incurs an interest charge based on prevailing money market rates approximating the cost of asset-backed commercial paper. At September 30, 2005, the entity had aggregate commitments from the bank-sponsored conduits totaling $8.4 billion and had $2.5 billion outstanding borrowings. For the nine months ended September 30, 2005, the average borrowings under this facility totaled $1.1 billion and the weighted-average interest rate borne was 3.57%. At September 30, 2005, the weighted-average interest rate borne was 3.93%.

Junior Subordinated Debentures

      As more fully discussed in Note 16 — “Notes Payable,” included in the consolidated financial statements of the 2004 Annual Report, the Company has issued junior subordinated debentures to non-consolidated subsidiary trusts. The trusts finance their holdings of the junior subordinated debentures by issuing Company-guaranteed capital securities.

20

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      The Company guarantees CHL’s indebtedness to two of the subsidiary trusts, Countrywide Capital I and Countrywide Capital III, which are excluded from the Company’s consolidated financial statements. Following is summarized information for those trusts:

			September 30, 2005
			Countrywide		Countrywide
			Capital I		Capital III
			(In thousands)
Balance Sheet:
	Junior subordinated debentures receivable		$	307,390	$	205,258
	Other assets			7,216		20,942
		Total assets	$	314,606	$	226,200
	Notes payable		$	9,222	$	6,172
	Other liabilities			7,216		20,941
	Company-guaranteed mandatorily redeemable capital trust pass-through securities			298,168		199,087
	Shareholder’s equity			—		—
		Total liabilities and shareholder’s equity	$	314,606	$	226,200

			Nine Months Ended
			September 30, 2005
			Countrywide			Countrywide
			Capital I			Capital III
			(In thousands)
Statement of Earnings:
	Revenues		$	18,624		$	12,482
	Expenses			(18,624	)		(12,482	)
	Provision for income taxes			—			—
		Net earnings	$	—		$	—

			December 31, 2004
			Countrywide		Countrywide
			Capital I		Capital III
			(In thousands)
Balance Sheet:
	Junior subordinated debentures receivable		$	307,323	$	205,226
	Other assets			1,031		691
		Total assets	$	308,354	$	205,917
	Notes payable		$	9,220	$	6,171
	Other liabilities			1,031		691
	Company-guaranteed mandatorily redeemable capital trust pass-through securities			298,103		199,055
	Shareholder’s equity			—		—
		Total liabilities and shareholder’s equity	$	308,354	$	205,917

21

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

			Nine Months Ended
			September 30, 2004
			Countrywide			Countrywide
			Capital I			Capital III
			(In thousands)
Statement of Earnings:
	Revenues		$	18,624		$	12,482
	Expenses			(18,624	)		(12,482	)
	Provision for income taxes			—			—
		Net earnings	$	—		$	—

Subordinated Debt

      During the quarter ended September 30, 2005, the Company issued $0.5 billion of unsecured subordinated notes maturing April 1, 2011. The notes pay interest quarterly at a floating rate equal to the three-month LIBOR rate plus 73 basis points, and are callable on or after April 1, 2006. The notes are unsecured obligations of the Company and rank subordinated and junior to all of Countrywide’s senior indebtedness. None of these notes were converted to fixed rate debt using interest rate swaps.

Asset-Backed Secured Financings

      During the periods presented, the Company has recorded certain securitization transactions as secured borrowings because they do not qualify for sales treatment under SFAS 140 as a result of the retention of securities that include protection by a derivative. At September 30, 2005, no such secured borrowings were outstanding.

      In addition, CSC may reacquire beneficial interests previously sold to outside third parties in the Company’s securitization transactions. In the event that such securities include protection by a derivative financial instrument held by a SPE, that SPE no longer meets the conditions as a QSPE under SFAS 140. As a result, the underlying mortgage loans held for sale and asset-backed secured financings are included on the Company’s consolidated balance sheets and are initially recorded at fair value. Once the securities that include protection by a derivative financial instrument are sold, typically in less than 90 days, the conditions necessary for QSPE status under SFAS 140 are again met and the related assets and liabilities are removed from the Company’s consolidated balance sheet. At September 30, 2005, no such asset-backed secured financings had been recorded.

Note 13 — Securities Sold Under Agreements to Repurchase and Federal Funds Purchased

      The following table summarizes securities sold under agreements to repurchase and federal funds purchased:

	September 30,		December 31,
	2005		2004
	(In thousands)
Securities sold under agreements to repurchase	$	33,754,928	$	20,440,123
Federal funds purchased		450,000		25,000
	$	34,204,928	$	20,465,123

      The Company routinely enters short-term financing arrangements to sell securities under agreements to repurchase (“repurchase agreements”). The repurchase agreements are collateralized by mortgage loans and

22

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

securities. All securities underlying repurchase agreements are held in safekeeping by broker-dealers or banks. All agreements are to repurchase the same or substantially identical securities.

      At September 30, 2005, repurchase agreements were secured by $10.8 billion of trading securities, $27.5 billion of securities purchased under agreements to resell and securities borrowed, $1.3 billion in investments in other financial instruments and $1.4 billion of other assets. As of September 30, 2005, $6.9 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

Note 14 — Deposit Liabilities

      The following table summarizes deposit balances:

	September 30,		December 31,
	2005		2004
	(In thousands)
Time deposits	$	19,142,370	$	10,369,763
Company-controlled custodial deposit accounts		14,150,667		7,900,900
Interest-bearing checking accounts		3,399,297		1,673,517
Non-interest-bearing checking accounts		1,105,577		66,983
Savings accounts		811		2,045
	$	37,798,722	$	20,013,208

Note 15 — Derivative Instruments and Risk Management Activities

      The primary market risk facing the Company is interest rate risk. From an enterprise perspective, the Company manages interest rate risk through the natural counterbalance of its loan production and servicing businesses. The Company also uses derivatives and other financial instruments to manage the interest rate risk related specifically to its interest rate lock commitments, mortgage loan inventory and MBS held for sale, MSRs and other retained interests, trading securities and its long-term debt. The primary objective of the Company’s interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

      The Company uses a variety of derivative financial instruments to manage interest rate risk. These instruments include MBS mandatory forward sale and purchase commitments, options to sell or buy MBS, Treasury and Eurodollar rate futures and options thereon, interest rate floors, interest rate caps, capped swaps, swaptions, interest rate swaps and mortgage forward rate agreements. These instruments involve, to varying degrees, elements of interest rate and credit risk.

      The Company manages foreign currency exchange rate risk, which arises from the issuance of foreign currency-denominated debt, with foreign currency swaps.

Risk Management Activities Related to Mortgage Loan Inventory and Interest Rate Lock Commitments

      The Company is exposed to interest rate risk from the time an interest rate lock commitment (“IRLC”) is made to a mortgage applicant (or financial intermediary) to the time the related mortgage loan is sold. During this period, the Company is exposed to losses if mortgage interest rates rise, because the value of the IRLC or mortgage loan declines. To manage this interest rate risk, the Company utilizes derivatives, primarily forward sales of MBS and options to buy and sell MBS, as well as options on Treasury futures contracts. Certain of these instruments qualify as fair value hedges of mortgage loans under Statement of Financial

23

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”).

      During the nine months ended September 30, 2005, the risk management activities connected with 78% of the fixed-rate mortgage loan inventory and 34% of the adjustable-rate mortgage loan inventory were accounted for as fair value hedges. The Company recognized pre-tax losses of $37.6 million and $121.0 million, representing the ineffective portion of such fair value hedges of its mortgage inventory, for the nine months ended September 30, 2005 and 2004, respectively. These amounts, along with the change in the fair value of the derivative instruments that were not designated as hedge instruments, are included in gain on sale of loans and securities in the consolidated statements of earnings.

      IRLCs are derivative instruments and are recorded at fair value with changes in fair value recognized in current period earnings (as a component of gain on sale of loans and securities). Because IRLCs are derivatives under SFAS 133, the risk management activities related to the IRLCs do not qualify for hedge accounting under SFAS 133. The freestanding derivative instruments that are used to manage the interest rate risk associated with the IRLCs are carried at fair value with changes in fair value recorded as a component of gain on sale of loans in the consolidated statements of earnings.

Risk Management Activities Related to Mortgage Servicing Rights and Other Retained Interests

      MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value, or impairment, when mortgage interest rates decline. To moderate the effect of impairment on earnings, the Company maintains a portfolio of financial instruments, including derivatives, which generally increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to as the “Servicing Hedge.”

      Effective April 1, 2005, a portion of the Servicing Hedge was qualified as a fair value hedge under SFAS 133. During the six months ended September 30, 2005, the portion of the Servicing Hedge that qualified as a fair value hedge covered approximately 26% of the risk associated with a change in fair value of the MSRs attributable to changes in interest rates of up to 50 basis points. At no other time during the nine months ended September 30, 2005 and 2004 has any portion of the Servicing Hedge qualified as a hedge under SFAS 133.

      Application of fair value hedge accounting under SFAS 133 results in the cost basis of the MSRs being adjusted for the change in fair value of the MSRs attributable to the hedged risk, with a corresponding amount included as a component of impairment or recovery of retained interests in the statement of earnings. The change in the fair value of the derivatives is included as a component of servicing hedge gains or losses in the statement of earnings. For the six months ended September 30, 2005, the Company recognized a gain of $24.5 million in earnings, which represents the amount of hedge ineffectiveness for the portion of the Servicing Hedge that qualified as a fair value hedge under SFAS 133. There was no portion of the related hedge instruments’ gain or loss that was excluded from the assessment of hedge effectiveness.

      The financial instruments that currently comprise the Servicing Hedge include options on interest rate futures, interest rate swaps, interest rate caps, interest rate swaptions, interest rate futures and mortgage forward rate agreements.

      Mortgage forward rate agreements represent mutual agreements to exchange a single cash flow at a forward settlement date, based on the basis point difference between the forward fixed-rate and a floating-rate set equal to the 30-day forward current coupon mortgage rate, known as the CMM index, on the settlement date. For use in the Servicing Hedge, the Company generally receives the fixed-rate and pays the floating-rate. Such agreements increase in value as the spread between the current coupon mortgage rate and the swap curves tightens, or when interest rates decline.

24

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      With respect to the options on interest rate swaps and futures and interest rate caps, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments and any unrealized gains recognized to date.

      The following table summarizes the Company’s estimate of its maximum exposure to loss on Servicing Hedge instruments over the instruments’ contractual terms:

	September 30,
	2005
	(In millions)
Mortgage forward rate agreements	$	333
Interest rate futures contracts		28
Interest rate swaps		19

      Although these estimates could be exceeded, the Company derives its estimates of loss exposure based upon observed volatilities in the interest rate options market. Using the currently observed volatilities, management estimates, to a 95% confidence level, the maximum potential rate changes over a one-year time horizon. Management then estimates the Company’s exposure to loss based on the estimated maximum adverse rate change as of the measurement date.

      The following table summarizes the notional amounts of derivative contracts included in the Servicing Hedge:

	Balance,							Balance,
	December 31,				Dispositions/			September 30,
	2004		Additions		Expirations			2005
	(In millions)
Interest rate swaps	$	—	$	101,000	$	(54,750	)	$	46,250
Mortgage forward rate agreements		—		80,425		(40,675	)		39,750
Interest rate swaptions		41,250		56,800		(62,250	)		35,800
Long call options on interest rate futures		15,250		51,200		(46,700	)		19,750
Interest rate caps		300		2,434		(1,164	)		1,570
Long treasury futures		2,850		1,310		(3,000	)		1,160
Long put options on interest rate futures		2,000		—		(2,000	)		—
Interest rate floors		1,000		—		(1,000	)		—

Risk Management Activities Related to Issuance of Long-Term Debt

      The Company acquires interest rate swap contracts which enable it to convert a portion of its fixed-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt and to enable the Company to convert a portion of its foreign currency-denominated fixed and floating-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt. These transactions are designated as fair value hedges under SFAS 133. For the nine months ended September 30, 2005, the Company recognized a pre-tax gain of $0.4 million, representing the ineffective portion of such fair value hedges of debt. For the nine months ended September 30, 2004, the Company also recognized a pre-tax gain of $2.0 million, representing the ineffective portion of such fair value hedges of debt. These amounts are included in interest expense in the consolidated statements of earnings.

      The Company acquires interest rate swap contracts which enable it to convert a portion of its floating-rate, long-term debt to fixed-rate, long-term debt and to convert a portion of its foreign currency-denominated fixed-rate, long-term debt to U.S. dollar fixed-rate debt. These transactions are designated as cash flow hedges. For the nine months ended September 30, 2005, the Company recognized no pre-tax gain or loss on the ineffective portion of cash flow hedges. For the nine months ended September 30, 2004, the Company

25

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

recognized a pre-tax gain of $0.1 million, representing the ineffective portion of such cash flow hedges. As of September 30, 2005, deferred net gains or losses on derivative instruments included in other comprehensive income that are expected to be reclassified to earnings during the next 12 months are not material.

Risk Management Activities Related to Deposit Liabilities

      The Company acquires interest rate swap contracts that have the effect of converting a portion of its fixed-rate deposit liabilities to variable-rate deposit liabilities. Effective January 1, 2005, these transactions were designated as fair value hedges under SFAS 133. For the nine months ended September 30, 2005, the Company recognized a pre-tax loss of $0.6 million representing the ineffective portion of such fair value hedges. This amount is included in interest expense in the consolidated statement of earnings.

Risk Management Activities Related to the Broker-Dealer Securities Trading Portfolio

      In connection with its broker-dealer activities, the Company maintains a trading portfolio of fixed income securities, primarily MBS. The Company is exposed to the risk of price changes in this portfolio arising from changes in interest rates during the period it holds the securities. The Company utilizes derivative financial instruments to manage this risk. These instruments include MBS mandatory forward sale and purchase commitments as well as short sales of cash market U.S. Treasury securities, futures contracts, interest rate swap contracts and swaptions. All such derivatives are accounted for as freestanding and as such are carried at fair value with changes in fair value recorded in current period earnings as a component of gain on sale of loans and securities.

Note 16 — Regulatory and Agency Capital Requirements

      The Company is a bank holding company as a result of the acquisition of Countrywide Bank (the “Bank”) (formerly Treasury Bank). Both the Company and the Bank are subject to regulatory capital requirements imposed by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Government National Mortgage Association (“Ginnie Mae”) net worth requirements, which are lower than those of the Federal Reserve.

      Regulatory capital is assessed for adequacy by three measures: Tier 1 Leverage Capital, Tier 1 Risk-Based Capital and Total Risk-Based Capital. Tier 1 Leverage Capital includes common shareholders’ equity; preferred stock and capital securities that meet certain guidelines detailed in the capital regulations, less goodwill; the portion of MSRs not includable in regulatory capital (MSRs includable in regulatory capital are limited to the lesser of the carrying value of MSRs, 100% of Tier 1 capital, or 90% of the fair value of the MSRs, net of associated deferred taxes) and other adjustments. Tier 1 Leverage Capital is measured with respect to average assets during the quarter. The Company and the Bank are required to have a Tier 1 Leverage Capital ratio of 4.0% to be considered adequately capitalized and 5.0% to be considered well capitalized.

      The Tier 1 Risk-Based Capital ratio is calculated as a percent of risk-weighted assets at the end of the quarter. The Company and the Bank are required to have a Tier 1 Risk-Based Capital ratio of 4.0% to be considered adequately capitalized and 6.0% to be considered well capitalized.

      Total Risk-Based Capital includes preferred stock and capital securities excluded from Tier 1 Capital, mandatory convertible debt and subordinated debt that meets certain regulatory criteria. The Total Risk-Based Capital ratio is calculated as a percent of risk-weighted assets at the end of the quarter. The Company and the Bank are required to have a Total Risk-Based Capital ratio of 8.0% to be considered adequately capitalized and 10.0% to be considered well capitalized.

26

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      At September 30, 2005 and December 31, 2004, the Company and the Bank’s regulatory capital ratios and amounts and minimum required capital ratios for the Company and the Bank to maintain a “well capitalized” status were as follows:

		September 30, 2005
				Countrywide
				Financial Corporation				Countrywide Bank
		Minimum
		Required(1)		Ratio		Amount		Ratio		Amount
		(Dollar amounts in thousands)
Tier 1 Leverage Capital			5.0%		6.4%	$	11,982,092		7.2%	$	5,062,278
Risk-Based Capital:
	Tier 1		6.0%		10.0%	$	11,982,092		11.4%	$	5,062,278
	Total		10.0%		11.0%	$	13,153,213		11.6%	$	5,168,804

(1)  Minimum required to qualify as “well capitalized.”

		December 31, 2004
				Countrywide
				Financial Corporation				Countrywide Bank
		Minimum
		Required(1)		Ratio		Amount		Ratio		Amount
		(Dollar amounts in thousands)
Tier 1 Leverage Capital			5.0%		7.9%	$	10,332,383		7.8%	$	2,939,144
Risk-Based Capital:
	Tier 1		6.0%		11.1%	$	10,332,383		11.8%	$	2,939,144
	Total		10.0%		11.7%	$	10,928,223		12.0%	$	2,988,116

(1)  Minimum required to qualify as “well capitalized.”

Note 17 — Segments and Related Information

      The Company has five business segments: Mortgage Banking, Banking, Capital Markets, Insurance and Global Operations.

      The Mortgage Banking Segment is comprised of three distinct sectors: Loan Production, Loan Servicing and Loan Closing Services.

      The Loan Production Sector originates prime and nonprime loans through a variety of channels on a national scale. The Loan Production Sector is comprised of four lending divisions and includes the certain mortgage banking activities of Countrywide Bank such as loan sales. The four production divisions are: Consumer Markets Lending Division, the Full Spectrum Lending Division, the Wholesale Lending Division and the Correspondent Lending Division. The Consumer Markets and Full Spectrum Lending Divisions source mortgage loans directly from consumers through the Company’s retail branch network, as well as through real estate agents and homebuilders. The Wholesale Lending Division sources mortgage loans primarily from mortgage brokers. The Correspondent Lending Division acquires mortgage loans from other mortgage lenders, including financial institutions.

      The Loan Servicing Sector includes investments in MSRs and other retained interests, as well as the Company’s loan servicing operations and subservicing for other domestic financial institutions. The Loan Closing Services Sector is comprised of the LandSafe companies, which provide credit reports, appraisals, title reports and flood determinations to the Company’s Loan Production Sector, as well as to third parties.

27

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      The Banking Segment’s operations includes the investment and fee-based activities of Countrywide Bank together with the activities of Countrywide Warehouse Lending. Countrywide Bank invests primarily in mortgage loans sourced from the Loan Production Sector. Countrywide Warehouse Lending provides to third-party mortgage lenders temporary financing secured by mortgage loans.

      The Capital Markets Segment primarily includes the operations of Countrywide Securities Corporation, a registered broker-dealer specializing in the mortgage securities market. In addition, it includes the operations of Countrywide Asset Management Corporation, Countrywide Commercial Real Estate Finance Corporation, Countrywide Servicing Exchange and CCM International Ltd.

      The Insurance Segment includes Balboa Life and Casualty Group, a national provider of property, life and liability insurance; Balboa Reinsurance Company, a primary mortgage reinsurance company; and Countrywide Insurance Services, Inc., a national insurance agency offering a specialized menu of insurance products directly to consumers.

      The Global Operations Segment includes Global Home Loans Limited, a provider of loan origination processing and loan subservicing in the United Kingdom; UKValuation Limited, a provider of property valuation services in the UK; Countrywide International Technology Holdings Limited, a licensor of loan origination processing, servicing and residential real estate value assessment technology; and CFC India Private Limited, a provider of call center, data processing and information technology related services.

      In general, intercompany transactions are recorded on an arms-length basis. However, the fulfillment fees paid by Countrywide Bank to the Production Sector for origination costs incurred on mortgage loans funded by Countrywide Bank are determined on an incremental cost basis, which is less than the fees that Countrywide Bank would pay to a third party.

      Included in the tables below labeled “Other” are the holding company activities and certain reclassifications to conform management reporting to the consolidated financial statements:

		Quarter Ended September 30, 2005
		Mortgage Banking
		Loan			Loan		Closing		Total					Capital					Global					Total
		Production			Servicing		Services		Mortgage		Banking			Markets		Insurance			Operations		Other			Consolidated
		(In thousands)
Revenues:
	External	$	1,396,958		$	347,509	$	76,017	$	1,820,484	$	482,940		$	113,353	$	263,894		$	58,141	$	(27,194	)	$	2,711,618
	Intersegment		(12,700	)		122,849		—		110,149		(101,759	)		65,610		—			—		(74,000	)		—
Total Revenues		$	1,384,258		$	470,358	$	76,017	$	1,930,633	$	381,181		$	178,963	$	263,894		$	58,141	$	(101,194	)	$	2,711,618
Pre-tax Earnings (Loss)		$	413,731		$	257,666	$	31,139	$	702,536	$	278,264		$	92,042	$	(32,119	)	$	8,153	$	2,802		$	1,051,678
Total Assets		$	31,685,000		$	16,996,000	$	78,000	$	48,759,000	$	75,320,000		$	44,454,000	$	2,274,000		$	274,000	$	212,000		$	171,293,000

28

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

		Quarter Ended September 30, 2004
		Mortgage Banking
		Loan			Loan			Closing		Total						Capital				Global					Total
		Production			Servicing			Services		Mortgage			Banking			Markets		Insurance		Operations		Other			Consolidated
		(In thousands)
Revenues:
	External	$	1,365,512		$	98,191		$	58,347	$	1,522,050		$	233,746		$	104,089	$	220,882	$	57,038	$	(28,302	)	$	2,109,503
	Intersegment		(52,882	)		37,037			—		(15,845	)		(15,675	)		62,770		—		—		(31,250	)		—
Total Revenues		$	1,312,630		$	135,228		$	58,347	$	1,506,205		$	218,071		$	166,859	$	220,882	$	57,038	$	(59,552	)	$	2,109,503
Pre-tax Earnings (Loss)		$	496,551		$	(22,667	)	$	22,545	$	496,429		$	163,171		$	90,135	$	29,620	$	9,811	$	(1,989	)	$	787,177
Total Assets		$	31,149,000		$	14,507,000		$	73,000	$	45,729,000		$	37,007,000		$	33,789,000	$	1,653,000	$	246,000	$	288,000		$	118,712,000

		Nine Months Ended September 30, 2005
		Mortgage Banking
		Loan			Loan		Closing		Total					Capital				Global					Total
		Production			Servicing		Services		Mortgage		Banking			Markets		Insurance		Operations		Other			Consolidated
		(In thousands)
Revenues:
	External	$	4,092,271		$	668,294	$	205,842	$	4,966,407	$	1,225,559		$	423,145	$	736,335	$	169,458	$	(96,458	)	$	7,424,446
	Intersegment		(19,222	)		266,955		—		247,733		(203,054	)		137,841		—		—		(182,520	)		—
Total Revenues		$	4,073,049		$	935,249	$	205,842	$	5,214,140	$	1,022,505		$	560,986	$	736,335	$	169,458	$	(278,978	)	$	7,424,446
Pre-tax Earnings (Loss)		$	1,557,523		$	363,958	$	79,135	$	2,000,616	$	745,365		$	318,940	$	80,166	$	17,513	$	(27,044	)	$	3,135,556
Total Assets		$	31,685,000		$	16,996,000	$	78,000	$	48,759,000	$	75,320,000		$	44,454,000	$	2,274,000	$	274,000	$	212,000		$	171,293,000

		Nine Months Ended September 30, 2004
		Mortgage Banking
		Loan			Loan			Closing		Total						Capital				Global					Total
		Production			Servicing			Services		Mortgage			Banking			Markets		Insurance		Operations		Other			Consolidated
		(In thousands)
Revenues:
	External	$	4,462,808		$	199,460		$	162,813	$	4,825,081		$	552,695		$	404,356	$	656,922	$	168,453	$	(58,040	)	$	6,549,467
	Intersegment		(135,352	)		87,826			—		(47,526	)		(25,003	)		147,584		—		—		(75,055	)		—
Total Revenues		$	4,327,456		$	287,286		$	162,813	$	4,777,555		$	527,692		$	551,940	$	656,922	$	168,453	$	(133,095	)	$	6,549,467
Pre-tax Earnings (Loss)		$	2,166,986		$	(155,693	)	$	64,146	$	2,075,439		$	387,862		$	332,917	$	130,152	$	31,225	$	(3,259	)	$	2,954,336
Total Assets		$	31,149,000		$	14,507,000		$	73,000	$	45,729,000		$	37,007,000		$	33,789,000	$	1,653,000	$	246,000	$	288,000		$	118,712,000

29

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Note 18 — Summarized Financial Information

      Summarized financial information for Countrywide Financial Corporation (parent only) and subsidiaries is as follows:

			September 30, 2005
			Countrywide
			Financial		Countrywide
			Corporation		Home		Other
			(Parent Only)		Loans, Inc.		Subsidiaries		Eliminations			Consolidated
			(In thousands)
Balance Sheets:
	Mortgage loans and mortgage-backed securities held for sale		$	—	$	33,805,475	$	1,439,610	$	(27,732	)	$	35,217,353
	Trading securities			—		420,977		12,431,160		(3,667	)		12,848,470
	Securities purchased under agreements to resell and securities borrowed			—		—		24,128,085		(912,809	)		23,215,276
	Loans held for investment, net			—		6,125,137		61,653,102		(2,465	)		67,775,774
	Investments in other financial instruments			—		1,936,326		8,769,745		—			10,706,071
	Mortgage servicing rights, net			—		11,428,404		—		—			11,428,404
	Other assets			24,740,043		5,090,565		17,276,455		(37,005,376	)		10,101,687
		Total assets	$	24,740,043	$	58,806,884	$	125,698,157	$	(37,952,049	)	$	171,293,035
	Notes payable		$	12,238,424	$	40,186,972	$	38,453,807	$	(15,739,232	)	$	75,139,971
	Securities sold under agreements to repurchase and federal funds purchased			—		238,122		34,879,511		(912,705	)		34,204,928
	Deposit liabilities			—		—		37,921,990		(123,268	)		37,798,722
	Other liabilities			262,503		14,764,717		5,932,932		(9,049,854	)		11,910,298
	Equity			12,239,116		3,617,073		8,509,917		(12,126,990	)		12,239,116
		Total liabilities and equity	$	24,740,043	$	58,806,884	$	125,698,157	$	(37,952,049	)	$	171,293,035

			Nine Months Ended September 30, 2005
			Countrywide
			Financial			Countrywide
			Corporation			Home		Other
			(Parent Only)			Loans, Inc.		Subsidiaries		Eliminations			Consolidated
			(In thousands)
Statements of Earnings
	Revenues		$	2,450		$	4,870,145	$	2,899,834	$	(347,983	)	$	7,424,446
	Expenses			17,728			3,050,831		1,554,803		(334,472	)		4,288,890
	Provision for income taxes			(6,701	)		734,322		524,356		(5,616	)		1,246,361
	Equity in net earnings of subsidiaries			1,897,772			—		—		(1,897,772	)		—
		Net earnings	$	1,889,195		$	1,084,992	$	820,675	$	(1,905,667	)	$	1,889,195

30

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

			December 31, 2004
			Countrywide
			Financial		Countrywide
			Corporation		Home		Other
			(Parent Only)		Loans, Inc.		Subsidiaries		Eliminations			Consolidated
			(In thousands)
Balance Sheets:
	Mortgage loans and mortgage-backed securities held for sale		$	—	$	36,937,845	$	412,304	$	—		$	37,350,149
	Trading securities			—		318,110		11,543,284		—			11,861,394
	Securities purchased under agreements to resell and securities borrowed			—		2,550,127		13,579,254		(2,672,933	)		13,456,448
	Loans held for investment, net			—		5,431,321		34,230,360		(490	)		39,661,191
	Investments in other financial instruments			—		2,301,416		7,789,641		—			10,091,057
	Mortgage servicing rights, net			—		8,729,929		—		—			8,729,929
	Other assets			11,308,342		4,759,535		10,227,379		(18,949,719	)		7,345,537
		Total assets	$	11,308,342	$	61,028,283	$	77,782,222	$	(21,623,142	)	$	128,495,705
	Notes payable		$	829,030	$	51,532,883	$	22,856,613	$	(8,604,855	)	$	66,613,671
	Securities sold under agreements to repurchase and federal funds purchased			—		—		23,137,028		(2,671,905	)		20,465,123
	Deposit liabilities			—		—		20,013,208		—			20,013,208
	Other liabilities			169,236		5,451,663		5,736,987		(264,259	)		11,093,627
	Equity			10,310,076		4,043,737		6,038,386		(10,082,123	)		10,310,076
		Total liabilities and equity	$	11,308,342	$	61,028,283	$	77,782,222	$	(21,623,142	)	$	128,495,705

			Nine Months Ended September 30, 2004
			Countrywide
			Financial			Countrywide
			Corporation			Home		Other
			(Parent Only)			Loans, Inc.		Subsidiaries		Eliminations			Consolidated
			(In thousands)
Statements of Earnings:
	Revenues		$	7,684		$	3,681,918	$	3,099,160	$	(239,295	)	$	6,549,467
	Expenses			11,320			2,163,459		1,659,268		(238,916	)		3,595,131
	Provision for income taxes			(1,398	)		583,847		544,294		(146	)		1,126,597
	Equity in net earnings of subsidiaries			1,829,977			—		—		(1,829,977	)		—
		Net earnings	$	1,827,739		$	934,612	$	895,598	$	(1,830,210	)	$	1,827,739

Note 19 — Legal Proceedings

      Countrywide and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their businesses. Although it is difficult to predict the ultimate outcome of these

31

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

proceedings, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations or liquidity of the Company.

Note 20 — Borrower and Investor Custodial Accounts

      As of September 30, 2005 and December 31, 2004, the Company managed $25.8 billion and $20.6 billion, respectively, of off-balance sheet borrower and investor custodial cash accounts as well as related liabilities to those borrowers and investors. Of these amounts, $14.2 billion and $7.9 billion, respectively, were deposited at the Bank and were included in the Company’s deposit liabilities, with the remaining balances held by other depository institutions. These custodial accounts arise in connection with the Company’s mortgage servicing activities.

Note 21 — Loan Commitments

      As of September 30, 2005 and December 31, 2004, the Company had undisbursed home equity lines of credit commitments of $10.1 billion and $5.4 billion, respectively, as well as undisbursed construction loan commitments of $1.5 billion and $0.9 billion, respectively. As of September 30, 2005, outstanding commitments to fund mortgage loans totaled $49.6 billion.

Note 22 — Pension Plan

      The Company has a defined benefit pension plan (the “Plan”) covering substantially all of its employees. The Company’s policy is to contribute the amount actuarially determined to be necessary to pay the benefits under the Plan, and in no event to pay less than the amount necessary to meet the minimum funding standards of ERISA.

      On September 14, 2005, the Company made the maximum tax deductible pension plan contribution of $53.7 million for the plan year 2004.

Note 23 — Subsequent Events

      On October 27, 2005, the Board of Directors declared a dividend of $0.15 per common share payable November 30, 2005, to shareholders of record on November 10, 2005.

Note 24 — Recently Issued Accounting Standards

      In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Changes in Interim Financial Statements. The Statement changes the accounting for, and reporting of, a change in accounting principle. SFAS 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impracticable to do so. SFAS 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005 and will only affect the Company’s financial statements upon adoption of a voluntary change in accounting principle by the Company.

32

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      Countrywide is a diversified financial services company engaged in mortgage-finance related businesses. We presently organize our businesses into five business segments — Mortgage Banking, Banking, Capital Markets, Insurance and Global Operations. Our goal is to continue as a leader in the mortgage banking business and to use this leadership position to take advantage of meaningful opportunities that leverage this business and provide sources of earnings that tend to be sustainable in various interest rate environments.

Significant Third Quarter Developments

      Hurricane Katrina and other hurricanes that occurred during the third quarter significantly affected the financial results of several of our business segments. The estimated losses from these hurricanes, primarily Hurricane Katrina, consist of a charge to our insurance operations as well as uninsured losses associated with flood damage on properties that collateralize mortgage loans and loans underlying mortgage servicing rights (“MSRs”) and residuals. The effect on pre-tax and after-tax earnings is summarized below:

Segment	Pre-Tax Effect			After-Tax Effect			Source
	(In thousands)			(In thousands)
Mortgage Banking	$	(70,174	)	$	(42,245	)	Estimated credit losses relating to loans held for sale and to credit-subordinated retained interests; impairment of MSRs and provision for servicing advances relating to government-insured loans
Banking		(12,036	)		(7,246	)	Estimated credit losses relating to loans held for investment
Capital Markets		(3,212	)		(1,882	)	Estimated losses relating to conduit activities
Insurance		(98,395	)		(63,957	)	Estimated insured losses
	$	(183,817	)	$	(115,330	)

      We continue to assess the impact of the hurricanes on our businesses, assets and operations. While our estimates are based on our best available information, they could ultimately be affected by many factors, including, but not limited to, the short-term and long-term impact on the economies of the affected communities; the conduct of borrowers in the affected areas; the actions of various third parties, including government agencies and government-sponsored entities that support housing, insurance companies, lenders and mortgage insurance companies; the apportionment of liability among insurers; the availability of catastrophic reinsurance proceeds; factors impacting property values in the affected areas, including any environmental factors such as the presence of toxic chemicals; and subsequent storm activity.

      Countrywide Bank (“Bank”) (formerly Treasury Bank) produces loans as part of our mortgage banking operations. We report the production and sale of these loans as part of our Mortgage Banking Segment. The Bank produced $4.9 billion of such loans during the quarter. In addition to these mortgage banking activities, we plan to continue increasing our investment in mortgage loans through Countrywide Bank. We continually evaluate the benefits of selling or retaining loans and consider, among other factors, capital availability, earnings growth and current market and economic conditions. Sales of loans generate current period gains on sale, while the retention of loans is designed to provide a stream of net interest income over the life of such loans and create a greater base of future earnings. Our decisions will result in changes, which may be significant, in loan retention levels and the size of our loan portfolio, as well as current period earnings and Production sector margins.

33

Third Quarter Results

      Our consolidated net earnings for the third quarter of 2005 were $633.9 million, an increase of 27% from 2004’s third quarter net earnings of $498.1 million. This increase was realized due to increased profitability in our Loan Servicing Sector arising from increases in values of our retained interests (MSRs and other retained interests), net of Servicing Hedge losses, along with increases in the profitability of our Banking Segment resulting from 135% growth in average interest-earning assets from the third quarter of 2004. Offsetting the increase in earnings were the hurricane-related losses previously discussed.

Mortgage Market

      The mortgage banking business continues to be the primary source of our revenues and earnings. As a result, the dominant external influence on our operating results is the aggregate demand for mortgage loans in the U.S., which is affected by such factors as prevailing mortgage interest rates and the strength of the U.S. housing market.

      For the quarter and nine months ended September 30, 2005, total U.S. residential mortgage production was estimated at $838 billion and $2,219 billion, respectively, compared to $616 billion and $1,980 billion for the quarter and nine months ended September 30, 2004, respectively. We increased our market share to 17.5% for the current quarter from 14.9% in the year-ago period. (Mortgage Market Source: Mortgage Bankers Association). Third party forecasters predict total U.S. mortgage production for 2005 to be between $2.6 trillion and $2.9 trillion, compared to $2.6 trillion in 2004. Due to differences in products represented and model estimation logic, mortgage market estimates vary. We estimate the mortgage market for 2005 to be $3.2 trillion compared to $2.9 trillion in 2004.

Loan Production

      Our total loan production volume increased during the third quarter because we increased our share of a larger mortgage market. The composition of our loan production has changed from last year as a result of increased homeowner preference for adjustable-rate mortgages. During the quarter ended September 30, 2005, our adjustable-rate loan production, including pay-option loans, has increased in prominence and was 51% of total loan production.

      Pay-option loans — which provide borrowers with the option to make fully-amortizing, interest-only, or “negative-amortizing” payments — have increased from approximately 7% of our loan production during the quarter ended September 30, 2004, to approximately 20% of our production during the quarter ended September 30, 2005. These loans provide our Production Sector with greater pricing margins; our Servicing Sector with increased servicing complexity during their option period; and, to the extent these loans are retained in the Bank’s portfolio, our Banking Segment with lower initial net interest income during the period of the loans’ reduced introductory interest rate. Approximately 80% of the pay-option loans produced in the current quarter was originated for sale without recourse. The remainder of these loans were retained in the Bank’s portfolio of loans held for investment.

      Our pay-option loan portfolio has very high initial loan quality, with original average credit rating (expressed in terms of FICO scores) of 720 and original loan-to-value and combined loan-to-values of 74% and 78%, respectively. We only originate pay-option loans to borrowers who can qualify at the loan’s fully-indexed interest rates. This high credit quality notwithstanding, lower initial payment requirements of pay-option loans may increase the credit risk inherent in our loans held for investment. This is because when the required monthly payments for pay-option loans eventually increase (in a period not to exceed 60 months), borrowers may be less able to pay the increased amounts and, therefore, more likely to default on the loan, than a borrower using an amortizing loan. Our exposure to this higher credit risk is increased by any negative amortization that has been added to the principal balance.

34

Interest Rate Risk and Credit Risk

      The principal market risk we face is interest rate risk — the risk that the value of our assets or liabilities or our net interest income will change due to changes in interest rates. Market risk is most directly reflected in the value of our interest rate lock commitments, inventory of loans held for sale, trading securities, investment in other financial instruments and mortgage servicing rights. We manage market risk primarily through the natural counterbalance of our loan production operations and our investment in MSRs, as well as with various financial instruments including derivatives. The primary objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

      We also face credit risk, primarily related to our residential mortgage production activities in both the Mortgage Banking and Banking Segments. Credit risk is the potential for financial loss resulting from the failure of a borrower or an institution to honor its contractual obligations to us. Credit risk most directly affects our other financial instruments that are credit subordinated to other securities and our mortgage loans held for investment. We manage mortgage credit risk principally by selling most of the mortgage loans that we produce, limiting credit recourse to Countrywide in those transactions, and by retaining high credit quality mortgages in our loan portfolio.

Liquidity

      Our liquidity and financing requirements are significant. We meet these requirements in a variety of ways, including use of the public corporate debt and equity markets, mortgage- and asset-backed securities markets, and, through the financing activities of our Bank. The objective of our liquidity management is to ensure that adequate, diverse and reliable sources of cash are available to meet our funding needs on a cost-effective basis. Our ability to raise financing at the level and cost required to compete effectively is dependent on maintaining our high credit standing.

Competition

      The mortgage industry has undergone rapid consolidation in recent years, and we expect this trend to continue in the future. Today the industry is dominated by large, sophisticated financial institutions. To compete effectively in the future, we will be required to maintain a high level of operational, technological and managerial expertise, as well as an ability to attract capital at a competitive cost. We believe that we will benefit from industry consolidation through increased market share.

      As used in this Report, references to “we,” “our,” “the Company” or “Countrywide” refer to Countrywide Financial Corporation and its consolidated subsidiaries unless otherwise indicated.

Critical Accounting Policies

      The accounting policies with the greatest impact on our financial condition and results of operations and which require the most judgment pertain to our mortgage securitization activities, our investments in MSRs and other retained interests and our use of derivatives to manage interest rate risk. Our critical accounting policies involve the following three areas: 1) accounting for gains on sales of loans and securities; 2) accounting for MSRs and other retained interests, including valuation of these retained interests; and 3) accounting for derivatives and our related interest rate risk management activities.

      On April 1, 2005, we implemented hedge accounting for a portion of our interest rate risk management activities related to our MSRs in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). See Note 15 — “Derivative Instruments and Risk Management Activities” for a description of our accounting for the portion of our interest rate risk management activities related to our retained interests that qualify as a hedge under SFAS 133.

Stock Split Effected as Stock Dividends and Earnings per Share Calculations

      In April 2004 and August 2004, respectively, we completed a 3-for-2 and a 2-for-1 stock split, both of which were effected as stock dividends. In the fourth quarter of 2004, the Emerging Issues Task Force reached a consensus on Issue No. 04-8, which required the Company to include the assumed conversion of its

35

convertible debentures in diluted earnings per share for all periods presented. All references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to the number of common shares and earnings per share amounts have been adjusted accordingly.

Results of Operations Comparison — Quarters Ended September 30, 2005 and 2004

Consolidated Earnings Performance

      Our diluted earnings per share for the quarter ended September 30, 2005 were $1.03, including an after-tax charge of $0.19 per diluted shares for losses related to hurricanes. Diluted earnings per share increased 27% from diluted earnings per share for the quarter ended September 30, 2004. Net earnings were $633.9 million for the quarter ended September 30, 2005, a 27% increase from the year-ago period.

      The increase in our earnings resulted primarily from an increase in the profitability of our Mortgage Banking Segment. The Mortgage Banking Segment produced pre-tax earnings of $702.5 million for the quarter ended September 30, 2005, an increase of 42% from the same period last year. The increase in the profitability of our Mortgage Banking Segment was primarily due to an increase in the value of our retained interests, net of Servicing Hedge losses. The Banking Segment produced pre-tax earnings of $278.3 million, an increase of 71% from the year-ago period. The increase in profitability of our Banking Segment was primarily due to a 135% increase in average interest-earning assets at Countrywide Bank from the year-ago period.

Operating Segment Results

      Pre-tax earnings (loss) by segment are summarized below:

			Quarter Ended
			September 30,
			2005			2004
			(In thousands)
Mortgage Banking:
	Loan Production		$	413,731		$	496,551
	Loan Servicing			257,666			(22,667	)
	Loan Closing Services			31,139			22,545
		Total Mortgage Banking		702,536			496,429
Banking				278,264			163,171
Capital Markets				92,042			90,135
Insurance				(32,119	)		29,620
Global Operations				8,153			9,811
Other				2,802			(1,989	)
	Total		$	1,051,678		$	787,177

      The pre-tax earnings (loss) of each segment include intercompany transactions, which are eliminated in the “other” category above.

36

      Mortgage loan production by segment and product, net of intercompany sales, is summarized below:

			Quarter Ended
			September 30,
			2005		2004
			(In millions)
Segment:
	Mortgage Banking		$	131,126	$	77,019
	Banking			9,801		8,694
	Capital Markets:
		Conduit acquisitions		5,083		6,111
		Commercial real estate		1,113		3
			$	147,123	$	91,827
Product:
	Prime Mortgage		$	122,228	$	70,812
	Nonprime Mortgage			12,201		11,954
	Prime Home Equity			11,581		9,058
	Commercial real estate			1,113		3
			$	147,123	$	91,827

      The following table summarizes loan production by purpose and by interest rate type:

		Quarter Ended
		September 30,
		2005		2004
		(In millions)
Purpose:
	Non-purchase	$	77,342	$	39,488
	Purchase		69,781		52,339
		$	147,123	$	91,827
Interest Rate Type:
	Adjustable Rate	$	74,647	$	56,325
	Fixed Rate		72,476		35,502
		$	147,123	$	91,827

Mortgage Banking Segment

      The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors. The Loan Production and Loan Closing Services Sectors generally perform at their best when mortgage interest rates are relatively low and loan origination volume is high. Conversely, the Loan Servicing Sector generally performs well when mortgage interest rates are relatively high and loan prepayments are low. We expect the natural counterbalance of these sectors to reduce the impact of changes in mortgage interest rates on our earnings.

      During the current quarter, the Mortgage Banking Segment incurred $70.2 million in pre-tax losses relating to the hurricanes that struck the Gulf Coast states. Specifically, Hurricane Katrina differed from other hurricanes because it caused losses as a result of flooding that many borrowers had not insured against. Therefore we have incurred credit losses related to loan inventory secured by real estate in areas affected by Hurricane Katrina.

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      Industry-standard underwriting requirements require borrowers to maintain property hazard insurance for damage to property securing a loan. Most homeowner insurance policies exclude flood loss coverage. Flood loss coverage is generally provided through the National Flood Insurance Program — an insurance program underwritten and administered by the U.S. Government. Banks are required by law and regulation to require flood insurance for loans secured by properties in zip codes identified as a “Special Flood Hazard Area” by the Federal Emergency Management Agency (“FEMA”). This requirement has become an industry standard for lenders to determine whether a borrower is required to maintain flood insurance.

      Hurricane Katrina caused extensive flood damage in areas outside of the FEMA-identified Special Flood Hazard Areas. As a result, many borrowers did not have flood insurance. This lack of insurance is a significant contributor to the $70.2 million of hurricane-related losses recorded in the Mortgage Banking segment during the current quarter. Specifically, the losses recorded in the Mortgage Banking segment were:

Sector	Description	Pre-Tax Amount		Recorded As
		(In thousands)
Production	Impairment of loans held for sale	$	18,843	Gain-on-Sale of loans and securities
Servicing	Provision for losses related to servicing advances for loans insured by the FHA and guaranteed by the VA		26,359	Other operating expenses
	Impairment of retained interests arising from estimated losses to be absorbed by credit-subordinated retained interests		17,024	Recovery (impairment) of retained interests
	Impairment of MSRs		7,700	Recovery (impairment) of retained interests
	Estimated credit losses related to loans held for investment		248	Provision for loan losses
	Total Servicing		51,331
	Total Mortgage Banking	$	70,174

Loan Production Sector

      The Loan Production Sector produces mortgage loans through the four production divisions of Countrywide Home Loans (“CHL”) — Consumer Markets, Wholesale Lending, Correspondent Lending and Full Spectrum Lending, and, beginning in the third quarter of 2005, through Countrywide Bank.

38

      The pre-tax earnings of the Loan Production Sector are summarized below:

			Quarter Ended September 30,
			2005					2004
					Percentage of					Percentage of
					Loan					Loan
					Production					Production
			Amount		Volume			Amount		Volume
			(Dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	861,108				$	720,616
	Prime Home Equity			300,532					404,530
	Nonprime Mortgage			222,618					187,484
		Total revenues		1,384,258		1.06	%		1,312,630		1.70	%
Expenses:
	Compensation			598,427		0.45	%		531,667		0.69	%
	Other operating			260,629		0.20	%		185,169		0.24	%
	Allocated corporate			111,471		0.09	%		99,243		0.13	%
		Total expenses		970,527		0.74	%		816,079		1.06	%
Pre-tax earnings			$	413,731		0.32	%	$	496,551		0.64	%

      Revenues increased from the year-ago period due primarily to increased production and sales of Prime Mortgage Loans. The increased revenues were partially offset by a decline in gain on sale margin of Prime Mortgage and Prime Home Equity Loans combined with lower net interest income. The lower margins resulted in a reduction in revenues as a percentage of mortgage loan production. In the quarter ended September 30, 2005, $120.9 billion of mortgage loans, or 92% of Mortgage Banking loan production, was sold compared to $83.8 billion of mortgage loans, or 109% of Mortgage Banking loan production, in the quarter ended September 30, 2004.

      Expenses increased from the year-ago period, primarily due to increased compensation and occupancy costs incurred to accommodate growth in loan production partially offset by changes in our compensation structure. However, high levels of productivity helped reduce expenses expressed as a percentage of production from the prior year. We continued to expand our loan production operations in the quarter ended September 30, 2005 to continue support for our long-term objective of market share growth.

      Mortgage Banking loan production volume for the quarter ended September 30, 2005 increased 70% from a year-ago. Purchase and non-purchase loan production grew 38% and 114%, respectively, resulting from an increase in market share and an increase in the mortgage market. The increase in purchase loans is significant because this component of the mortgage market has historically offered relatively stable growth, averaging 11% per year over the last 10 years. The non-purchase, or refinance, component of the mortgage market is highly volatile because it is driven almost exclusively by prevailing mortgage interest rates.

39

      The following table summarizes Mortgage Banking loan production by purpose and by interest rate type:

		Quarter Ended
		September 30,
		2005		2004
		(In millions)
Purpose:
	Non-purchase	$	69,446	$	32,426
	Purchase		61,680		44,593
		$	131,126	$	77,019
Interest Rate Type:
	Fixed Rate	$	68,480	$	32,861
	Adjustable Rate		62,646		44,158
		$	131,126	$	77,019

      In the quarter ended September 30, 2005, 48% of our loan production was adjustable-rate in comparison to 57% in the year-ago period. The decrease in adjustable-rate production reflects the increase in short-term interest rates during the current period and the relatively flat yield curve, increasing the relative attractiveness of fixed-rate financing.

      The volume of Nonprime Mortgage and Prime Home Equity Loans produced (which is included in our total volume of loans produced) increased 36% during the quarter ended September 30, 2005 compared to the year-ago period. Details are shown in the following table:

	Quarter Ended
	September 30,
	2005			2004
	(Dollar amounts in
	millions)
Nonprime Mortgage Loans	$	11,399		$	9,591
Prime Home Equity Loans		10,344			6,421
	$	21,743		$	16,012
Percent of total Mortgage Banking loan production		16.6	%		20.8	%

      Nonprime Mortgage and Prime Home Equity Loans generally provide higher profit margins than Prime Mortgage Loans and the demand for such loans, particularly Nonprime Mortgage Loans, is believed to be less interest rate sensitive than the demand for Prime Mortgage Loans. Consequently, we believe these loans will be a significant component of the Loan Production Sector’s future profitability, especially if mortgage interest rates rise.

      During the quarter ended September 30, 2005, the Loan Production Sector operated at approximately 115% of planned operational capacity, compared to 111% during the year-ago period. The primary capacity constraint in our loan origination activities is the number of loan operations personnel we have on staff. Therefore, we measure planned capacity by multiplying the number of our loan operations personnel by the number of loans we expect each loan operations staff person to process under normal conditions. Management adjusts staffing levels to account for changes in the current and projected near-term mortgage market. We plan to continue building our sales staff as a primary means to increase our market share, particularly for purchase loans.

40

      The following table summarizes the number of people included in the Loan Production Sector workforce:

			Workforce at
			September 30,
			2005		2004
Sales				15,958		12,316
Operations:
	Regular employees			9,377		7,813
	Temporary staff			2,227		953
				11,604		8,766
Production technology				1,077		1,022
Administration and support				2,679		2,230
		Total Loan Production Sector workforce		31,318		24,334

      The following table shows total Mortgage Banking loan production volume by division:

	Quarter Ended
	September 30,
	2005		2004
	(In millions)
Correspondent Lending	$	62,731	$	32,367
Consumer Markets		32,967		22,864
Wholesale Lending		23,060		17,359
Full Spectrum Lending		7,422		4,429
Countrywide Bank(1)		4,946		—
	$	131,126	$	77,019

(1)  Countrywide Bank funds loans for both investment purposes and for sale. Bank production included in the Mortgage Banking Segment includes loans originated for sale at the Bank together with bulk sales of loans from the Bank to the Mortgage Banking Segment.

      The Correspondent Lending division increased its overall loan production volume due primarily to an increase in the mortgage market combined with increased market share resulting from a shift in the market towards products where we have traditionally been competitive.

      The Consumer Markets Division continues to expand its commissioned sales force, which emphasizes purchase loan production, to 5,764 at September 30, 2005, an increase of 933, or 19%, over the year-ago period. This Division’s branch network has grown to 631 branch offices at September 30, 2005, an increase of 75 offices from September 30, 2004.

      The Consumer Markets Division’s commissioned sales force contributed $13.8 billion in purchase originations during the quarter ended September 30, 2005, a 31% increase over the year-ago period. Such purchase production generated by the commissioned sales force represented 76% of the Consumer Markets Division’s total purchase production for the quarter ended September 30, 2005.

      The Wholesale Lending and Full Spectrum Lending Divisions also continue to increase their sales forces as a means to increase market share. At September 30, 2005, the sales force in the Wholesale Lending Division numbered 1,233, an increase of 21% compared to September 30, 2004.

      The Full Spectrum Lending Division expanded its sales force to 4,494, an increase of 39%, compared to September 30, 2004 and has expanded its branch network to 187 branch offices at September 30, 2005, an increase of 42 offices over the year-ago period.

41

Loan Servicing Sector

      The Loan Servicing Sector includes a significant processing operation, consisting of approximately 7,600 employees who service our 7.2 million mortgage loans. Also included in the Loan Servicing Sector’s results is the performance of our investments in MSRs and other retained interests and associated risk management activities, as well as profits from subservicing activities in the United States. The long-term performance of this sector is affected primarily by the level of interest rates, the corresponding effect on the level of projected and actual prepayments in our servicing portfolio, and our ability to effectively manage interest rate risk as well as the activities of our loan servicing personnel.

      The following table summarizes the results for the Loan Servicing Sector:

		Quarter Ended September 30,
		2005						2004
					Percentage of						Percentage of
					Average						Average
					Servicing						Servicing
		Amount			Portfolio(1)			Amount			Portfolio(1)
		(Dollar amounts in thousands)
Servicing fees, net of guarantee fees		$	826,189			0.333	%	$	597,800			0.319	%
Miscellaneous fees			135,391			0.054	%		115,910			0.062	%
Income from other retained interests			108,181			0.043	%		90,778			0.048	%
Escrow balance income (expense)			119,211			0.048	%		(15,120	)		(0.008	)%
Amortization of mortgage servicing rights			(653,351	)		(0.263	)%		(394,069	)		(0.210	)%
Recovery (impairment) of retained interests			853,667			0.344	%		(795,614	)		(0.424	)%
Servicing hedge (losses) gains			(837,241	)		(0.337	)%		590,967			0.315	%
	Total servicing revenues		552,047			0.222	%		190,652			0.102	%
Operating expenses			184,629			0.074	%		122,748			0.066	%
Allocated corporate expenses			17,471			0.007	%		19,324			0.010	%
	Total servicing expenses		202,100			0.081	%		142,072			0.076	%
Interest expense			92,281			0.037	%		71,247			0.038	%
Pre-tax earnings (loss)		$	257,666			0.104	%	$	(22,667	)		(0.012	)%
Average servicing portfolio		$	993,296,000					$	750,193,000

(1)  Annualized

      Our servicing portfolio grew to $1,047.6 billion at September 30, 2005, a 33% increase from September 30, 2004. At the same time, the overall weighted-average note rate of loans in our servicing portfolio increased to 6.0% from 5.9% at September 30, 2004.

      Pre-tax earnings in the Loan Servicing Sector were $257.7 million during the quarter ended September 30, 2005, an improvement of $280.3 million from the year-ago period. The average servicing portfolio grew 32% resulting in an increase in servicing fees. Amortization expense increased by $259 million due to the low interest rate environment at the beginning of the third quarter of 2005 combined with the larger servicing portfolio. During the quarter ended September 30, 2005, the recorded increase in the value of retained interests exceeded the decline in the value of the Servicing Hedge, including the cost of the hedge (option time value decay), by $16 million. In the year-ago quarter impairment net of Servicing Hedge gains was an expense of $205 million. The change in the performance of the Servicing Hedge largely offset the increase in amortization. In addition the escrow balance benefit improved by $134.3 million resulting primarily from an increase in short-term interest rates. The servicing sector was negatively impacted in the current quarter by hurricane losses of $51 million.

42

      Mortgage interest rates increased during the quarter ended September 30, 2005 which resulted in a lower projected prepayment rate at the end of the period than at the beginning. This in turn resulted in the reversal of previously recognized impairment in the current period. In contrast, interest rates declined during the quarter ended September 30, 2004, which resulted in a higher projected prepayment rate at the end of the period than at the beginning and impairment being recorded during the year-ago period. The reversal of previously recognized impairment, net of amortization was $200.3 million during the quarter ended September 30, 2005 compared to amortization and impairment of $1,189.7 million during the quarter ended September 30, 2004.

      The Servicing Hedge is designed so that the income or loss it generates offsets the impairment or recovery of MSRs and other retained interests. The values of the derivatives that constitute the primary components of the Servicing Hedge are tied to long-term Treasury, mortgage and swap rate indices. The increase in these rates during the quarter ended September 30, 2005 combined with option time value decay of $139 million on the options included in the Servicing Hedge resulted in a Servicing Hedge loss of $837.2 million. During the quarter ended September 30, 2004, the Servicing Hedge generated a gain of $591.0 million resulting from a decline in long-term Treasury and swap rates offset by time value decay on options of $125 million. In a stable interest rate environment, we expect to incur no significant impairment charges; however, we expect to incur expenses related to the Servicing Hedge driven primarily by time value decay on options used in the hedge. The level of Servicing Hedge losses in any period depends on various factors such as the size and composition of the hedge, the shape of the yield curve and the level of implied interest rate volatility.

Loan Closing Services Sector

      This sector is comprised of the LandSafe companies, which provide credit reports, flood determinations, appraisals, property valuation services and title reports primarily to the Loan Production Sector but to third parties as well.

      The LandSafe companies produced $31.1 million in pre-tax earnings in the quarter ended September 30, 2005, representing an increase of 38% from the year-ago period. The increase in LandSafe’s pre-tax earnings was primarily due to the increase in our loan origination activity.

Banking Segment

      The Banking Segment includes the investment and fee-based activities of Countrywide Bank, along with the activities of Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers. Part of our banking strategy is to hold loans in portfolio rather than immediately selling them into the secondary mortgage market. Management believes this strategy will provide a stream of earnings over the life of such loans and create a greater base of future earnings. In the short term, reported consolidated profits will be impacted by the reduction in gains that would have been recognizable had the loans been sold.

      Countrywide Bank (“Bank”) produces loans for sale through our Mortgage Banking Segment. As this activity is a Mortgage Banking activity, the mortgage loan production and the income relating to the sale of these loans is included in the Mortgage Banking Segment. The production of loans by Countrywide Bank for our Mortgage Banking operations assists in optimizing our funding operations while complying with regulatory requirements.

43

      The Banking Segment achieved pre-tax earnings of $278.3 million during the quarter ended September 30, 2005, as compared to $163.2 million for the year-ago period. Following is the composition of pre-tax earnings by component:

		Quarter Ended
		September 30,
		2005			2004
		(In thousands)
Countrywide Bank investment and fee-based activities (“Banking Operations”)		$	259,325		$	150,627
Countrywide Warehouse Lending (“CWL”)			27,303			18,449
Allocated corporate expenses			(8,364	)		(5,905	)
	Total Banking Segment pre-tax earnings	$	278,264		$	163,171

      The revenues and expenses of Banking Operations are summarized in the following table:

		Quarter Ended
		September 30,
		2005			2004
		(Dollar amounts in
		thousands)
Interest income		$	925,974		$	353,922
Interest expense			(573,670	)		(164,732	)
	Net interest income		352,304			189,190
Provision for loan losses			(44,792	)		(12,100	)
	Net interest income after provision for loan losses		307,512			177,090
Non-interest income			40,169			18,469
Non-interest expense			(88,356	)		(44,932	)
	Pre-tax earnings	$	259,325		$	150,627
Efficiency ratio(1)			21	%		20	%
After-tax return on average assets			0.88	%		1.25	%

(1)  Non-interest expense reduced by mortgage insurance divided by the sum of net interest income plus non-interest income.

      The increase in net interest income is primarily due to a $40.1 billion, or 135%, increase in average interest-earning assets, as summarized below:

				Quarter Ended September 30,
				2005							2004
							Interest		Annualized					Interest		Annualized
				Average			Income/		Yield/		Average			Income/		Yield/
				Balance			Expense		Rate		Balance			Expense		Rate
				(Dollar amounts in thousands)
Interest-earning assets:
	Mortgage loans(1)			$	61,573,048		$	835,380		5.41%	$	26,112,218		$	321,152		4.91%
	Securities available for sale(2)				6,389,697			74,976		4.69%		2,514,395			25,602		4.07%
	Short-term investments				489,367			4,345		3.47%		459,612			1,666		1.42%
	Other investments				1,289,353			11,273		3.47%		587,624			5,502		3.73%
		Total interest-earning assets			69,741,465			925,974		5.30%		29,673,849			353,922		4.76%
	Allowance for loan losses				(85,175	)						(32,994	)
	Other assets				613,141							155,171
		Total non interest-earning assets			527,966							122,177
			Total assets	$	70,269,431						$	29,796,026

44

			Quarter Ended September 30,
			2005						2004
					Interest		Annualized				Interest		Annualized
			Average		Income/		Yield/		Average		Income/		Yield/
			Balance		Expense		Rate		Balance		Expense		Rate
			(Dollar amounts in thousands)
Interest-bearing liabilities:
	Money market deposits		$	2,959,540		28,474		3.82%	$	1,038,431		5,847		2.24%
	Savings			879		3		1.33%		2,053		9		1.74%
	Escrow deposits			13,797,445		114,785		3.30%		8,401,590		27,942		1.32%
	Time deposits			17,875,852		165,013		3.66%		7,231,363		55,259		3.04%
		Total interest-bearing deposits		34,633,716		308,275		3.53%		16,673,437		89,057		2.12%
	FHLB advances			25,587,856		227,668		3.48%		10,572,307		75,388		2.79%
	Other borrowed funds			4,285,210		37,727		3.44%		70,067		287		1.60%
		Total borrowed funds		29,873,066		265,395		3.48%		10,642,374		75,675		2.78%
		Total interest-bearing liabilities		64,506,782		573,670		3.51%		27,315,811		164,732		2.38%
		Non interest-bearing liabilities and equity
	Non interest-bearing checking			672,792						60,788
	Other liabilities			819,097						292,733
	Shareholders’ equity			4,270,760						2,126,694
		Total non interest-bearing liabilities and equity		5,762,649						2,480,215
		Total liabilities and shareholders’ equity	$	70,269,431					$	29,796,026
Net interest income					$	352,304					$	189,190
Net interest spread(3)								1.79%						2.38%
Net interest margin(4)								2.00%						2.54%

(1)	Average balances include nonaccrual loans.
(2)	Average balances and yields for securities available for sale are based on average amortized cost computed on the settlement date basis.
(3)	Calculated as yield on total average interest-earning assets less rate on total average interest-bearing liabilities.
(4)	Calculated as net interest income divided by total average interest-earning assets.

      Net interest margin experienced compression during the quarter ended September 30, 2005 from the year-ago period mainly as a result of a lag in the re-pricing of the Bank’s loan portfolio compared to the increase in the cost of its interest-bearing liabilities and to the large volume of loans held by the Bank that are earning interest at their reduced introductory interest rates.

      Countrywide Bank increased its investment in pay-option loans during 2005. These loans have interest rates that adjust monthly and contain features that allow the borrower to defer making the full interest payment for at least the first year of the loan. Thereafter, minimum monthly payments increase by no more than 7¹/2% per year unless the unpaid balance increases to 115% of the original loan amount, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established. To ensure that contractual loan payments are adequate to repay a loan, the fully amortizing loan payment amount is recalculated every five years. Our underwriting standards for these loans include a requirement that the borrower meet secondary market debt service ratio tests based on the borrower making the fully amortizing loan payment assuming the note rate is fully indexed. (A fully indexed note rate equals the sum of the current index rate plus the margin applicable to the loan.) Our underwriting standards conform to those required to make the pay-option loans salable into the secondary market at the date of funding.

45

      Following is a summary of pay-option loans held for investment by Countrywide Bank:

				September 30,			December 31,
				2005			2004
				(In thousands)
Total pay-option loan portfolio				$	21,996,706		$	4,477,247
	Pay-option loans with accumulated negative amortization:
		Principal		$	7,893,817		$	32,818
			Accumulated negative amortization (from original loan balance)	$	25,487		$	29
Original loan-to-value ratio(1)					74	%		73	%
Original combined loan-to-value ratio(2)					78	%		75	%
FICO					720			730
Delinquencies(3)					0.08	%		0.09	%

(1)	The ratio of the lower of the appraised value or purchase price of the property to the amount of the loan that is secured by the property.
(2)	The ratio of the lower of the appraised value or purchase price of the property to the amount of all loans secured by the property.
(3)	Loans delinquent more than 60 days.

      The provision for loan losses increased by $32.7 million during the quarter ended September 30, 2005 compared to the quarter ended September 30, 2004. This increase includes the $12.0 million effect of the hurricane losses on Banking Operations. The remaining increase in the provision for loan losses reflects current portfolio growth, along with providing for seasoning of loans acquired during the past years of rapid portfolio growth. We expect our provision for loan losses and the related allowance for loan losses to increase as a percentage of our portfolio of loans held for investment as our portfolio continues to season. The impact of the increase in the allowance for loan losses as a percentage of loans receivable is moderated by the addition of new loans to our portfolio.

46

      The composition of the Bank’s balance sheets was as follows:

			September 30, 2005					December 31, 2004
			Amount			Rate		Amount			Rate
			(Dollar amounts in millions)
Assets
	Cash		$	456			0.00%	$	50			0.00%
	Short-term investments			799			3.89%		315			2.15%
	Mortgage loans			61,742			5.74%		34,230			5.25%
	Securities available for sale			6,025			4.68%		4,796			5.02%
	FHLB securities & FRB stock			1,329			3.48%		795			3.96%
		Total interest-earning assets		70,351			5.50%		40,186			5.07%
	Other assets			662					778
		Total assets	$	71,013				$	40,964
Liabilities and Equity
	Deposits:(1)
		Customer	$	23,711			3.58%	$	12,112			3.04%
		Company-controlled escrow deposit accounts		14,211			3.79%		7,901			2.19%
	FHLB advances			26,525			3.59%		15,475			2.97%
	Other borrowings			804			3.65%		1,811			2.37%
		Total interest-bearing liabilities		65,251			3.59%		37,299			2.74%
	Other liabilities			742					740
	Shareholders’ equity			5,020					2,925
		Total liabilities and equity	$	71,013				$	40,964
Primary spread(2)							1.91%					2.33%
Nonaccrual loans			$	68.8				$	21.8
Capital ratios:
	Tier 1 Leverage capital			7.2	%				7.8	%
	Tier 1 Risk-based capital			11.4	%				11.8	%
	Total Risk-based capital			11.6	%				12.0	%

(1)	Includes inter-company deposits.
(2)	Calculated as rate on total interest-earning assets less rate on total interest-bearing liabilities.

      The Banking Segment also includes the operation of CWL. CWL’s pre-tax earnings increased by $8.9 million during the quarter ended September 30, 2005 in comparison to the year-ago period, primarily due to an 85% increase in average mortgage warehouse advances, partially offset by a decrease in the net interest margin due to increasing competition in the warehouse lending market. The increase in warehouse mortgage advances was due primarily to increased activity with Mortgage Banking Segment customers.

Capital Markets Segment

      Our Capital Markets Segment achieved pre-tax earnings of $92.0 million for the quarter ended September 30, 2005, an increase of $1.9 million, or 2%, from the year-ago period. This increase is net of a $3.2 million provision for estimated hurricane-related losses associated with our conduit activities. Total revenues were $179.0 million, an increase of $12.1 million, or 7%, compared to the year-ago period. The Capital Markets Segment has expanded its staffing and infrastructure to invest in the development of new lines of business such as commercial real estate finance and broker-dealer operations in Japan.

47

      The following table shows revenues, expenses and pre-tax earnings of the Capital Markets Segment:

			Quarter Ended
			September 30,
			2005		2004
			(In thousands)
Revenues:
	Underwriting		$	82,363	$	95,330
	Conduit			53,093		48,986
	Securities trading			23,593		13,530
	Brokering			6,611		6,132
	Commercial real estate			5,994		330
	Other			7,309		2,551
		Total revenues		178,963		166,859
Expenses:
	Operating expenses			83,929		74,018
	Allocated corporate expenses			2,992		2,706
		Total expenses		86,921		76,724
Pre-tax earnings			$	92,042	$	90,135

      Underwriting revenues decreased $13.0 million over the year-ago period because of decreased underwriting of CHL securitizations by Capital Markets combined with a reduction in margins as a result of price competition.

      Conduit revenues for the quarter ended September 30, 2005 increased 8% in comparison to the year-ago period, primarily because of an increase in conduit loans sale volume, partially offset by a decrease in margins resulting from a change in mix toward lower-margin ARM loans.

      Securities trading revenues increased 74% due primarily to an increase in conforming mortgage securities trading margins and volume. Excluding U.S. Treasury securities, trading volumes increased 20% from the year-ago period. Including U.S. Treasury securities, the total securities volume traded increased 22% over the year-ago period.

      During the quarter ended September 30, 2005, the Capital Markets Segment generated revenues totaling $6.0 million from sales of commercial real estate loans. Our commercial real estate activities were in their startup period during the third quarter of 2004.

      The following table shows the composition of CSC securities trading volume, which includes intersegment trades with the mortgage banking operations, by instrument:

		Quarter Ended
		September 30,
		2005		2004
		(In millions)
Mortgage-backed securities		$	515,819	$	423,981
Asset-backed securities			43,144		57,161
Other			32,052		12,415
	Subtotal(1)		591,015		493,557
U.S. Treasury securities			380,358		301,239
	Total securities trading volume	$	971,373	$	794,796

(1)  Approximately 16% of the segment’s non-U.S. Treasury securities trading volume was with CHL during each of the quarters ended September 30, 2005 and 2004.

48

Insurance Segment

      The Insurance Segment’s pre-tax earnings decreased by $61.7 million over the year-ago period, to a loss of $32.1 million. Balboa Life and Casualty’s results for the quarter ended September 30, 2005 include a $98.4 million provision for insured losses and reinsurance reinstatement fees arising from the hurricanes in the third quarter of this year. The following table shows pre-tax results of operations by business line:

		Quarter Ended
		September 30,
		2005			2004
		(In thousands)
Balboa Reinsurance Company		$	40,387		$	33,045
Balboa Life and Casualty Operations(1)			(68,353	)		3,246
Allocated corporate expenses			(4,153	)		(6,671	)
	Total Insurance Segment pre-tax (loss) earnings	$	(32,119	)	$	29,620

(1)  Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

      The following table shows net insurance premiums earned:

		Quarter Ended
		September 30,
		2005		2004
		(In thousands)
Balboa Reinsurance Company		$	44,682	$	39,694
Balboa Life and Casualty Operations			195,397		155,084
	Total net insurance premiums earned	$	240,079	$	194,778

      The following table shows insurance claim expenses:

		Quarter Ended September 30,
		2005				2004
				As Percentage				As Percentage
				of Net				of Net
				Earned				Earned
		Amount		Premiums		Amount		Premiums
		(Dollar amounts in thousands)
Balboa Reinsurance Company		$	11,348		25%	$	10,999		28%
Balboa Life and Casualty Operations			172,410		88%		95,722		62%
	Total insurance claim expenses	$	183,758			$	106,721

      Our mortgage reinsurance business produced $40.4 million in pre-tax earnings, an increase of 22% over the year-ago period, driven primarily by growth of 5% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts along with a reduced provision, as a percentage of premiums earned, for insured losses resulting from faster than expected prepayments of older pools of reinsured loans.

      Our Life and Casualty insurance business produced pre-tax loss of $68.4 million, a decrease of $71.6 million from the year-ago period. The decrease in earnings was driven by $98.4 million in catastrophic hurricane losses in comparison to $23.2 million of such losses incurred in the year-ago period, partially offset by a $40.3 million, or 26% increase in net earned premiums during the quarter ended September 30, 2005 in comparison to the year-ago period. The increase in net earned premiums was primarily attributable to an increase in voluntary homeowners and auto insurance and includes a reduction of $9.2 million relating to a catastrophic reinsurance reinstatement fee paid to reinsurers as a result of the current period hurricane losses.

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      Our Life and Casualty insurance operations manage insurance risk by reinsuring portions of such risk. Balboa seeks to earn profits by capitalizing on Countrywide’s customer base and institutional relationships, as well as through operating efficiencies and sound underwriting.

Global Operations Segment

      Global Operations’ pre-tax earnings totaled $8.2 million, a decrease of $1.7 million from the year-ago period. The decrease in earnings was due to a 27% decline in the number of new mortgage loans processed.

Detailed Line Item Discussion of Consolidated Revenue and Expense Items

Gain on Sale of Loans and Securities

      Gain on sale of loans and securities is summarized below:

			Quarter Ended September 30,
			2005								2004
					Gain on Sale								Gain on Sale
								As Percentage								As Percentage
			Loans Sold		Amount			of Loans Sold			Loans Sold		Amount			of Loans Sold
			(Dollar amounts in thousands)
Mortgage Banking:
	Prime Mortgage Loans		$	103,117,925	$	777,810			0.75	%	$	66,367,092	$	543,919			0.82	%
	Prime Home Equity Loans			10,188,168		223,221			2.19	%		9,870,640		290,649			2.94	%
	Nonprime Mortgage Loans			7,556,295		172,656			2.28	%		7,601,946		92,063			1.21	%
		Production Sector		120,862,388		1,173,687			0.97	%		83,839,678		926,631			1.11	%
	Reperforming loans			318,327		6,572			2.06	%		338,163		15,495			4.58	%
			$	121,180,715		1,180,259					$	84,177,841		942,126
Capital Markets:
	Underwriting			N/A		71,777			N/A			N/A		79,353			N/A
	Conduit activities(1)		$	17,466,210		41,475			0.24	%	$	12,066,450		44,457			0.37	%
	Commercial real estate		$	436,740		5,200			1.19	%		N/A		77			N/A
	Securities trading and other			N/A		(21,279	)		N/A			N/A		(55,354	)		N/A
						97,173								68,533
Other				N/A		7,560			N/A			N/A		10,202			N/A
					$	1,284,992							$	1,020,861

(1)  Includes intercompany sales

      Gain on sale of Prime Mortgage Loans increased in the quarter ended September 30, 2005 as compared to the quarter ended September 30, 2004 due primarily to increased sales of such loans combined with a shift in mix of Prime Mortgage Loans sold towards higher margin adjustable-rate products. These positive results were partially offset by lower margins resulting from increased pricing competition.

      Gain on sale of Prime Home Equity Loans decreased in the quarter ended September 30, 2005 as compared to the year-ago period due primarily to reduced margins on such loans.

      Gain on sale of Nonprime Mortgage Loans increased in the quarter ended September 30, 2005 as compared to the quarter ended September 30, 2004 due to interest rate risk management activities that resulted in losses recognized in the third quarter of 2004 related to loans that were sold in the fourth quarter of 2004.

      Reperforming loans are reinstated loans that had previously defaulted and were repurchased from mortgage securities we issued. The note rate on these loans is typically higher than the currently offered mortgage interest rates and therefore, the margin on these loans is typically higher than margins on Prime

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Mortgage Loans. A change in Ginnie Mae rules in 2003 related to the purchase of defaulted loans from Ginnie Mae securities has resulted in fewer loans available for repurchase, which has contributed to a lower margin on sale related to these loans.

      The increase in Capital Markets’ gain on sale related to its commercial real estate activities was due to increased sales of such loans. Capital Markets’ revenues from its securities trading activities consist of gain on sale of loans and securities and interest income. In a steep yield curve environment, net interest income will comprise a larger percentage of total securities trading revenues. As the yield curve flattens, the mix of revenues will generally shift toward gain on sale of securities. During the quarter ended September 30, 2005 the yield curve was flatter than in the year-ago period, which resulted in a shift in trading revenues from interest income to gain on sale.

      In general, gain on sale of loans and securities is affected by numerous factors, including the volume, mix and timing of loans sold, production channel mix, the level of price competition, the level of investor demand for mortgage securities, the slope of the yield curve and the effectiveness of our associated interest rate risk management activities.

Net Interest Income

      Net interest income is summarized below:

			Quarter Ended
			September 30,
			2005			2004
			(In thousands)
Net interest income (expense):
	Banking Segment loans and securities		$	370,725		$	202,514
	Mortgage Banking Segment loans and securities			140,697			337,054
	Loan Servicing Sector interest expense			(95,750	)		(88,145	)
	Interest income (expense) on custodial balances			119,211			(15,120	)
	Reperforming loans			14,537			21,753
	Capital Markets Segment securities portfolio			68,311			83,364
	Other			18,373			11,817
		Net interest income		636,104			553,237
	Provision for loan losses related to loans held for investment			(54,834	)		(8,360	)
		Net interest income after provision for loan losses	$	581,270		$	544,877

      The increase in net interest income from the Banking Segment was primarily attributable to growth in the average investment in mortgage loans in the Bank and CWL. Average assets in the Banking Segment increased to $77.3 billion during the quarter ended September 30, 2005, an increase of $43.5 billion, or 129% over the year-ago period. Partially offsetting this increase, the net interest margin decreased to 1.99% during the quarter ended September 30, 2005 from 2.45% during the year-ago period. Net interest margin experienced compression during the quarter ended September 30, 2005 from the year-ago period mainly as a result of a lag in the re-pricing of the Bank’s loan portfolio compared to the increase in the cost of its interest-bearing liabilities, and to the large volume of loans held by the Bank that are earning interest at their reduced introductory interest rates.

      The decrease in net interest income from Mortgage Banking Segment loans and securities reflects a decrease in net interest margin from the year-ago period. The Mortgage Banking Segment loan and securities inventory is primarily financed with borrowings tied to short-term indices. Short-term interest rates rose while long-term mortgage interest rates remained flat between the year-ago period and the quarter ended September 30, 2005, reducing the net interest margin.

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      Interest expense allocated to the Loan Servicing Sector increased primarily due to a higher cost of funds driven by an increase in interest rates combined with an increase in total Servicing Sector assets.

      Net interest income from custodial balances increased in the current period due to an increase in the earnings rate from 1.29% during the quarter ended September 30, 2004 to 3.48% during the quarter ended September 30, 2005, and due to an increase of $9.2 billion in average custodial balances over the year-ago period. The increased earnings on custodial balances were partially offset by an increase in the interest that we pass through to security holders. We are required to pass through monthly interest to security holders on paid-off loans at the underlying security rates, which were substantially higher than the short-term rates earned by us on the payoff float. The amount of such interest passed through to the security holders was $98.9 million and $66.2 million in the quarters ended September 30, 2005 and 2004, respectively.

      The decrease in interest income related to reperforming loans is a result of a decrease in the average balance of such loans held.

      The decrease in net interest income from the Capital Markets securities portfolio is attributable to a decrease in the net interest margin from 0.86% in the quarter ended September 30, 2004 to 0.52% in the quarter ended September 30, 2005, partially offset by an increase of 36% in the average inventory of securities held. The decrease in the net interest margin earned on the securities portfolio is primarily due to a larger increase in short-term financing rates versus the increase in rates in the longer-term securities held by the Capital Markets Segment. The decline in net interest income was partially offset by an increase in gain on sale.

Loan Servicing Fees and Other Income from Retained Interests

      Loan servicing fees and other income from retained interests are summarized below:

		Quarter Ended
		September 30,
		2005		2004
		(In thousands)
Servicing fees, net of guarantee fees		$	826,189	$	597,800
Income from other retained interests			108,181		90,778
Prepayment penalties			62,519		39,304
Late charges			61,583		45,677
Global Operations Segment subservicing fees			26,655		26,232
Ancillary fees			18,406		13,149
	Total loan servicing fees and other income from retained interests	$	1,103,533	$	812,940

      The increase in servicing fees, net of guarantee fees, was principally due to a 32% increase in the average servicing portfolio, plus an increase in the overall annualized net service fee earned from 0.319% of the average portfolio balance during the quarter ended September 30, 2004 to 0.333% during the quarter ended September 30, 2005.

      The increase in income from other retained interests was due primarily to a 21% increase in the average investment in these assets from the quarter ended September 30, 2004 to quarter ended September 30, 2005. The yield excludes any impairment charges, which are included in recovery (impairment) of retained interests in the consolidated statement of earnings. These investments include interest-only and principal-only securities as well as residual interests that arise from the securitization of mortgage loans, particularly Nonprime Mortgage and Prime Home Equity Loans.

Amortization of Mortgage Servicing Rights

      We recorded amortization of MSRs of $653.4 million, or an annual rate of 23.6%, during the quarter ended September 30, 2005 as compared to $394.1 million, or an annual rate of 17.5%, during the quarter ended September 30, 2004. The amortization rate of MSRs is dependent on the forecasted prepayment speeds

52

at the beginning of the period. Mortgage interest rates at the beginning of the current quarter were lower than the year-ago period and as a result, the forecasted prepayment speeds were higher in the current quarter. This resulted in a higher amortization rate in the quarter ended September 30, 2005 than in the year-ago period. The increase in amortization in the current quarter is the result of the higher amortization rate combined with a larger MSR asset.

Recovery (Impairment) of Retained Interests and Servicing Hedge (Losses) Gains

      Recovery (impairment) of retained interests and Servicing Hedge (losses) gains are detailed below:

				Quarter Ended
				September 30,
				2005			2004
				(In thousands)
Recovery (impairment) of retained interests:
	MSRs:
		Recovery (impairment)		$	667,589		$	(795,776	)
		Increase in MSR cost basis through application of hedge accounting:
			Change in fair value attributable to hedged risk		247,775			—
		Total recovery (impairment) of MSRs			915,364			(795,776	)
	Other retained interests				(61,697	)		162
				$	853,667		$	(795,614	)
Servicing Hedge (losses) gains recorded in earnings				$	(837,241	)	$	590,967

      Recovery of previously recorded MSR impairment and the increase in the MSR cost basis through the application of hedge accounting during the quarter ended September 30, 2005 resulted from an increase in the estimated fair value of MSRs, primarily driven by the increase in mortgage interest rates during the period. MSR impairment in the quarter ended September 30, 2004 resulted generally from a decrease in the MSR’s estimated fair value, driven by a decrease in mortgage interest rates during that period. In the quarter ended September 30, 2005, we recognized impairment of other retained interests, primarily as a result of a decline in the value of such securities. The collateral underlying certain of these residuals is fixed-rate while the pass-through rate is floating. An increase in projected short-term interest rates during both periods caused compression of the spread on such residuals, which resulted in a decline in their value.

      Long-term Treasury and swap rates increased during the quarter ended September 30, 2005. The increase resulted in a Servicing Hedge loss. In addition time value decay on the options included in the Servicing Hedge amounted to $139 million during the period. The net result is a loss of $837.2 million in the quarter ended September 30, 2005. During the quarter ended September 30, 2004, the Servicing Hedge generated a gain of $591.0 million. This gain resulted from a decrease in long-term Treasury and swap rates during the quarter ended September 30, 2004, offset by time value decay of $125 million.

Net Insurance Premiums Earned

      The increase in net insurance premiums earned of $45.3 million is due to an increase in premiums earned on the voluntary homeowners and auto lines of business and an increase in reinsurance premiums earned and includes a reduction of $9.2 million relating to an adjustment to a catastrophic reinsurance reinstatement fee paid to reinsurers as a result of the current period hurricane losses.

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Commissions and Other Revenue

      Commissions and other revenue consisted of the following:

		Quarter Ended
		September 30,
		2005		2004
		(In thousands)
Appraisal fees, net		$	31,100	$	20,538
Credit report fees, net			20,425		18,652
Global Operations Segment processing fees			18,236		20,208
Title services			12,024		11,449
Insurance agency commissions			8,338		14,959
Increase in cash surrender value of life insurance			4,708		13,184
Other			43,838		35,773
	Total commissions and other revenue	$	138,669	$	134,763

Compensation Expenses

      Our average workforce by segment is summarized below:

		Quarter Ended
		September 30,
		2005		2004
Mortgage Banking			39,408		30,713
Banking			1,911		1,087
Capital Markets			644		551
Insurance			2,065		1,860
Global Operations			2,708		2,163
Corporate Administration			4,500		3,901
	Average workforce, including temporary staff		51,236		40,275

      Compensation expenses are summarized below:

		Quarter Ended
		September 30,
		2005			2004
		(In thousands)
Base salaries		$	524,533		$	430,835
Incentive bonus and commissions			564,296			450,760
Payroll taxes and benefits			173,167			106,473
Deferral of loan origination costs			(273,382	)		(137,684	)
	Total compensation expenses	$	988,614		$	850,384

      Compensation expenses increased $138.2 million, or 16%, during the quarter ended September 30, 2005 as compared to the year-ago period. In the Loan Production Sector, compensation expenses, prior to the deferral of loan origination costs, increased $178.6 million, or 27%, because of a 30% increase in average staff. In the Loan Servicing Sector, compensation expense rose $19.0 million, or 27%, to accommodate a 22% increase in the number of loans serviced. Compensation expenses increased in most other business segments and corporate areas, reflecting growth in the Company.

      Incremental direct costs associated with the origination of loans are deferred when incurred. Subsequent treatment of these costs is based on whether the loans are held for sale or held for investment. If the related

54

loan is sold, the costs deferred are included as a component of gain on sale; if the loan is held for investment, the costs are amortized to interest income over the life of the loan.

Occupancy and Other Office Expenses

      Occupancy and other office expenses are summarized below:

		Quarter Ended
		September 30,
		2005		2004
		(In thousands)
Office and equipment rentals		$	47,289	$	37,730
Utilities			40,040		33,087
Depreciation expense			38,875		28,393
Postage and courier service			26,595		21,624
Office supplies			20,546		15,072
Dues and subscriptions			15,247		12,818
Repairs and maintenance			13,471		10,717
Other			26,200		(3,833	)
	Total occupancy and other office expenses	$	228,263	$	155,608

      Occupancy and other office expenses for the quarter ended September 30, 2005 increased by $72.7 million primarily to accommodate a 27% increase in the average workforce.

Insurance Claim Expenses

      Insurance claim expenses were $183.8 million for the quarter ended September 30, 2005 as compared to $106.7 million for the year-ago period. The increase in insurance claim expenses was due mainly to growth in our insured risk and recognition of $98.4 million of hurricane losses during the current quarter, compared to $23.2 million in the year-ago period.

Advertising and Promotion Expenses

      Advertising and promotion expenses increased 19% from the quarter ended September 30, 2004, because of a shift in the mortgage loan production market towards purchase activity. These expenses are customarily lower when low interest rates drive increased consumer demand for mortgages.

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Other Operating Expenses

      Other operating expenses are summarized below:

		Quarter Ended
		September 30,
		2005			2004
		(In thousands)
Insurance commission expense		$	46,673		$	29,288
Legal, consulting, accounting and auditing fees			37,936			32,416
Losses on servicing-related advances			33,637			23,161
Travel and entertainment			30,329			22,286
Software amortization and impairment			19,421			10,649
Insurance			17,005			9,285
Taxes and licenses			11,776			10,107
Other			48,131			42,719
Deferral of loan origination costs			(42,015	)		(17,884	)
	Total other operating expenses	$	202,893		$	162,027

      Losses on servicing-related advances include a $26.4 million provision for losses relating to FHA-insured and VA-guaranteed loans secured by properties damaged by Hurricane Katrina.

Results of Operations Comparison — Nine Months Ended September 30, 2005 and 2004

Consolidated Earnings Performance

      Our diluted earnings per share for the nine months ended September 30, 2005 were $3.07, a 2% increase from diluted earnings per share for the nine months ended September 30, 2004. Net earnings were $1,889.2 million for the nine months ended September 30, 2005, a 3% increase from the year-ago period.

      The increase in our earnings was primarily the result of an increase in the profitability of our Banking Segment which produced pre-tax earnings of $745.4 million, up 92% from the year-ago period. This increase was primarily due to a 127% increase in average interest-earning assets at Countrywide Bank from the year-ago period. The increase in profitability of our Banking Segment was partially offset by a 4 percent decline in Mortgage Banking earnings, which produced pre-tax earnings of $2,000.6 million for the nine months ended September 30, 2005. The decrease in the profitability of our Mortgage Banking Segment was due to reduced production margins, partially offset by improved profitability in loan servicing. Loan servicing earnings increased primarily from higher revenues resulting from a 32% increase in the size of the Company’s average loan servicing portfolio.

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Operating Segment Results

      Pre-tax earnings (loss) by segment are summarized below:

			Nine Months Ended
			September 30,
			2005			2004
			(In thousands)
Mortgage Banking:
	Loan Production		$	1,557,523		$	2,166,986
	Loan Servicing			363,958			(155,693	)
	Loan Closing Services			79,135			64,146
		Total Mortgage Banking		2,000,616			2,075,439
	Banking			745,365			387,862
	Capital Markets			318,940			332,917
	Insurance			80,166			130,152
	Global Operations			17,513			31,225
	Other			(27,044	)		(3,259	)
		Total	$	3,135,556		$	2,954,336

      The pre-tax earnings (loss) of each segment include intercompany transactions, which are eliminated in the “other” category above.

      Mortgage loan production by segment and product, net of intercompany sales, is summarized below:

			Nine Months Ended
			September 30,
			2005		2004
			(In millions)
Segment:
	Mortgage Banking		$	311,029	$	232,993
	Banking			34,389		20,664
	Capital Markets:
		Conduit acquisitions		12,399		14,034
		Commercial real estate		2,409		3
			$	360,226	$	267,694
Product:
	Prime Mortgage		$	293,957	$	217,643
	Nonprime Mortgage			32,457		28,400
	Prime Home Equity			31,403		21,648
	Commercial real estate			2,409		3
			$	360,226	$	267,694

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      The following table summarizes loan production by purpose and by interest rate type:

		Nine Months Ended
		September 30,
		2005		2004
		(In millions)
Purpose:
	Non-purchase	$	187,793	$	137,779
	Purchase		172,433		129,915
		$	360,226	$	267,694
Interest Rate Type:
	Adjustable Rate	$	190,644	$	138,711
	Fixed Rate		169,582		128,983
		$	360,226	$	267,694

Mortgage Banking Segment

      The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors.

Loan Production Sector

      The pre-tax earnings of the Loan Production Sector are summarized below:

			Nine Months Ended September 30,
			2005					2004
					Percentage of					Percentage of
					Loan					Loan
					Production					Production
			Amount		Volume			Amount		Volume
			(Dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	2,535,384				$	2,457,822
	Nonprime Mortgage			887,646					993,738
	Prime Home Equity			650,019					875,896
		Total revenues		4,073,049		1.31	%		4,327,456		1.86	%
Expenses:
	Compensation			1,527,442		0.49	%		1,368,623		0.59	%
	Other operating			702,102		0.23	%		495,633		0.21	%
	Allocated corporate			285,982		0.09	%		296,214		0.13	%
		Total expenses		2,515,526		0.81	%		2,160,470		0.93	%
Pre-tax earnings			$	1,557,523		0.50	%	$	2,166,986		0.93	%

      Despite an increase in loan production and sales, revenues decreased over the year-ago period due primarily to decreased gain on sale margins combined with lower net interest income. In the nine months ended September 30, 2005, $295.7 billion of mortgage loans, or 95% of loan production, was sold compared to $241.0 billion of mortgage loans, or 103% of loan production, in the nine months ended September 30, 2004. This decline in sales as a percentage of production contributed to the decline in revenues as a percentage of mortgage loan production in the current nine months.

      Expenses increased from the year-ago period, primarily due to an increase in loan production. High levels of productivity helped reduce expenses expressed as a percentage of production compared to the prior year.

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We continued to expand our loan production operations in the nine months ended September 30, 2005 to continue support of our long-term objective of market share growth.

      Mortgage Banking loan production volume for the nine months ended September 30, 2005 increased 33% from the year-ago period. The increase was due to a rise in purchase and non-purchase loan production of 31% and 36%, respectively, reflecting an increase in market share.

      The following table summarizes Mortgage Banking loan production by purpose and by interest rate type:

		Nine Months Ended
		September 30,
		2005		2004
		(In millions)
Purpose:
	Non-purchase	$	162,878	$	119,610
	Purchase		148,151		113,383
		$	311,029	$	232,993
Interest Rate Type:
	Fixed rate	$	159,130	$	121,665
	Adjustable rate		151,899		111,328
		$	311,029	$	232,993

      While virtually unchanged as a percentage of total loans funded, the volume of Mortgage Banking Nonprime Mortgage and Prime Home Equity Loans produced (which is included in our total volume of loans produced) increased 36% during the nine months ended September 30, 2005 compared to the year-ago period. Details are shown in the following table:

	Nine Months Ended
	September 30,
	2005			2004
	(Dollar amounts in
	millions)
Nonprime Mortgage Loans	$	29,256		$	23,771
Prime Home Equity Loans		23,838			15,389
	$	53,094		$	39,160
Percent of total Mortgage Banking loan production		17.1	%		16.8	%

      During the nine months ended September 30, 2005, the Loan Production Sector operated at approximately 112% of planned operational capacity, compared to 111% during the year-ago period.

      The following table shows total Mortgage Banking loan production volume by division:

	Nine Months Ended
	September 30,
	2005		2004
	(In millions)
Correspondent Lending	$	141,157	$	99,062
Consumer Markets		87,173		70,198
Wholesale Lending		60,030		52,845
Full Spectrum Lending		17,723		10,888
Countrywide Bank		4,946		—
	$	311,029	$	232,993

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Loan Servicing Sector

      The following table summarizes the results for the Loan Servicing Sector:

		Nine Months Ended September 30,
		2005						2004
					Percentage of						Percentage of
					Average						Average
					Servicing						Servicing
		Amount			Portfolio(1)			Amount			Portfolio(1)
					(Dollar amounts in thousands)
Servicing fees, net of guarantee fees		$	2,307,775			0.333	%	$	1,722,152			0.327	%
Miscellaneous fees			367,250			0.053	%		409,834			0.078	%
Income from other retained interests			333,296			0.048	%		279,972			0.053	%
Escrow balance income (expense)			226,999			0.033	%		(95,084	)		(0.018	)%
Amortization of mortgage servicing rights			(1,607,911	)		(0.232	)%		(1,377,728	)		(0.262	)%
Impairment of retained interests			(211,333	)		(0.031	)%		(612,132	)		(0.116	)%
Servicing hedge (losses) gains			(242,375	)		(0.034	)%		114,312			0.022	%
	Total servicing revenues		1,173,701			0.170	%		441,326			0.084	%
Operating expenses			494,056			0.071	%		334,454			0.064	%
Allocated corporate expenses			46,686			0.007	%		56,678			0.011	%
	Total servicing expenses		540,742			0.078	%		391,132			0.075	%
Interest expense			269,001			0.039	%		205,887			0.039	%
Pre-tax earnings (loss)		$	363,958			0.053	%	$	(155,693	)		(0.030	)%
Average servicing portfolio		$	922,747,000					$	701,309,000

(1)  Annualized

      Our servicing portfolio grew to $1,047.6 billion at September 30, 2005, a 33% increase from September 30, 2004. At the same time, the overall weighted-average note rate of loans in our servicing portfolio increased to 6.0% from 5.9% at September 30, 2004.

      Pre-tax earnings in the Loan Servicing Sector were $364.0 million during the nine months ended September 30, 2005, an improvement of $519.7 million from the year-ago period. Pre-tax earnings in the Loan Servicing Sector increased primarily due to a $585.6 million increase in the net servicing fees, which was caused by a 32% increase in the average servicing portfolio. In addition, escrow balance benefit increased by $322.1 million due to an increase in short-term interest rates. Partially offsetting these increases was an increase in amortization and impairment, net of Servicing Hedge, of $186.1 million to $2,061.6 million during the current period.

Loan Closing Services Sector

      The LandSafe companies produced $79.1 million in pre-tax earnings, an increase of 23% from the year-ago period. The increase in LandSafe’s pre-tax earnings was primarily due to the increase in our loan origination activity.

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Banking Segment

      The Banking Segment achieved pre-tax earnings of $745.4 million during the nine months ended September 30, 2005, as compared to $387.9 million for the year-ago period. Following is the composition of pre-tax earnings by component:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Banking Operations		$	703,393		$	352,922
Countrywide Warehouse Lending (“CWL”)			65,560			51,489
Allocated corporate expenses			(23,588	)		(16,549	)
	Total Banking Segment pre-tax earnings	$	745,365		$	387,862

      The revenues and expenses of Banking Operations are summarized in the following table:

		Nine Months Ended
		September 30,
		2005			2004
		(Dollar amounts in
		thousands)
Interest income		$	2,211,265		$	850,223
Interest expense			(1,307,624	)		(405,230	)
	Net interest income		903,641			444,993
Provision for loan losses			(71,463	)		(29,438	)
	Net interest income after provision for loan losses		832,178			415,555
Non-interest income			107,806			50,509
Non-interest expense			(236,591	)		(113,142	)
	Pre-tax earnings	$	703,393		$	352,922
Efficiency ratio(1)			22	%		21	%
After-tax return on average assets			0.98			1.14	%

(1)  Non-interest expense reduced by mortgage insurance divided by the sum of net interest income plus non-interest income.

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      The increase in net interest income is primarily due to a $32.0 billion or 127% increase in average interest-earning assets, as summarized below:

				Nine Months Ended September 30,
				2005							2004
							Interest		Annualized					Interest		Annualized
				Average			Income/		Yield/		Average			Income/		Yield/
				Balance			Expense		Rate		Balance			Expense		Rate
				(Dollar amounts in thousands)
Interest-earning assets:
	Mortgage loans(1)			$	49,539,769		$	1,957,245		5.27%	$	21,183,950		$	743,501		4.68%
	Securities available for sale(2)				6,123,269			210,533		4.58%		2,910,392			87,197		3.99%
	Short-term investments				495,642			10,996		2.93%		638,066			5,357		1.10%
	Other investments				1,061,780			32,491		4.09%		505,866			14,168		3.74%
		Total interest-earning assets			57,220,460			2,211,265		5.16%		25,238,274			850,223		4.49%
	Allowance for loan losses				(65,383	)						(24,139	)
	Other assets				679,545							345,701
		Total non interest-earning assets			614,162							321,562
			Total assets	$	57,834,622						$	25,559,836
Interest-bearing liabilities:
	Money market deposits			$	2,323,968			59,808		3.44%	$	566,521			8,847		2.09%
	Savings				1,207			13		1.47%		1,761			23		1.74%
	Escrow deposits				10,835,877			237,543		2.93%		7,588,982			61,939		1.09%
	Time deposits				14,943,793			387,925		3.47%		5,454,897			125,337		3.07%
		Total interest-bearing deposits			28,104,845			685,289		3.26%		13,612,161			196,146		1.92%
	FHLB advances				20,976,798			529,183		3.33%		9,099,735			204,220		2.95%
	Other borrowed funds				3,951,381			93,152		3.11%		571,845			4,864		1.12%
		Total borrowed funds			24,928,179			622,335		3.29%		9,671,580			209,084		2.84%
		Total interest-bearing liabilities			53,033,024			1,307,624		3.28%		23,283,741			405,230		2.31%
		Non interest-bearing liabilities and equity
	Non interest-bearing checking				340,283							106,994
	Other liabilities				834,149							241,859
	Shareholders’ equity				3,627,166							1,927,242
		Total non interest-bearing liabilities and equity			4,801,598							2,276,095
		Total liabilities and shareholders’ equity		$	57,834,622						$	25,559,836
Net interest income							$	903,641						$	444,993
Net interest spread(3)										1.88%							2.18%
Net interest margin(4)										2.11%							2.36%

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(1)	Average balances include nonaccrual loans.
(2)	Average balances and yields for securities available for sale are based on average amortized cost computed on the settlement date basis.
(3)	Calculated as yield on total average interest-earning assets less rate on total average interest-bearing liabilities.
(4)	Calculated as net interest income divided by total average interest-earning assets.

      The provision for loan losses increased during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 due to the increase in mortgage loans held for investment along with the continued seasoning of the loans we have added during the past years. We expect our provision for loan losses and the related allowance for loan losses to increase as a percentage of our portfolio of loans held for investment as our portfolio continues to season. The impact of the increase in the allowance for loan losses will be partially mitigated by the addition of new loans to our portfolio.

      The Banking Segment also includes the operation of CWL. CWL’s pre-tax earnings increased by $14.1 million during the nine months ended September 30, 2005 in comparison to the year-ago period, primarily due to a 61% increase in average mortgage warehouse advances, which resulted primarily from an overall increase in activity with Mortgage Banking Segment customers.

Capital Markets Segment

      Our Capital Markets Segment achieved pre-tax earnings of $318.9 million for the nine months ended September 30, 2005, a decrease of $14.0 million, or 4%, from the year-ago period. Total revenues were $561.0 million, an increase of $9.0 million, or 2%, compared to the year-ago period. During the nine months ended September 30, 2005, market conditions caused by rising short-term interest rates and a flattening of the yield curve have resulted in lower revenue from conduit and securities trading operations. Partially offsetting this decline, Capital Markets began to realize revenue from its commercial real estate finance activities. The Capital Markets Segment has expanded its capacity to invest in the development of new lines of business such as commercial real estate finance and broker-dealer operations in Japan, which largely contributed to an increase in expenses of $23.0 million, or 11%, compared to the year-ago period.

      The following table shows revenues, expenses and pre-tax earnings of the Capital Markets Segment:

			Nine Months Ended
			September 30,
			2005		2004
			(In thousands)
Revenues:
	Conduit		$	221,442	$	225,896
	Underwriting			190,633		224,272
	Securities trading			67,360		89,554
	Commercial real estate			44,585		345
	Brokering			21,857		13,346
	Other			15,109		(1,473	)
		Total revenues		560,986		551,940
Expenses:
	Operating expenses			231,282		211,522
	Allocated corporate expenses			10,764		7,501
		Total expenses		242,046		219,023
Pre-tax earnings			$	318,940	$	332,917

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      During the nine months ended September 30, 2005, the Capital Markets Segment generated revenues totaling $221.4 million from its conduit activities, which includes managing the acquisition and sale or securitization of whole loans on behalf of CHL. Conduit revenues for the nine months ended September 30, 2005 decreased 2% in comparison to the year-ago period, primarily because of a decrease in margins, driven by flattening of yield curve and increased competition.

      Underwriting revenues decreased $33.6 million over the year-ago period because of decreased underwriting of CHL securitizations by Capital Markets and a decrease in margins.

      Securities trading revenues declined 25% due to a decline in conforming mortgage securities trading margins and volume. Trading volumes declined 4% from the year-ago period excluding U.S. Treasury securities. Including U.S. Treasury securities, the total securities volume traded increased 14% over the year-ago period.

      During the nine months ended September 30, 2005, the commercial real estate finance activities of the Capital Markets Segment generated revenues totaling $44.6 million primarily from sales of commercial real estate loans. Our commercial real estate finance activities were in their startup period during the first nine months of 2004.

      The following table shows the composition of CSC securities trading volume, which includes intersegment trades with the mortgage banking operations, by instrument:

		Nine Months Ended
		September 30,
		2005		2004
		(In millions)
Mortgage-backed securities		$	1,403,555	$	1,449,809
Asset-backed securities			113,044		138,092
Other			66,598		62,191
	Subtotal(1)		1,583,197		1,650,092
U.S. Treasury securities			1,104,291		716,720
	Total securities trading volume	$	2,687,488	$	2,366,812

(1)  Approximately 16% and 15% of the segment’s non-U.S. Treasury securities trading volume was with CHL during the nine months ended September 30, 2005 and 2004, respectively.

Insurance Segment

      The Insurance Segment’s pre-tax earnings decreased 38% over the year-ago period, to $80.2 million. The following table shows pre-tax earnings by business line:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Balboa Reinsurance Company		$	120,447		$	97,180
Balboa Life and Casualty Operations(1)			(25,546	)		51,739
Allocated corporate expenses			(14,735	)		(18,767	)
	Total Insurance Segment pre-tax earnings	$	80,166		$	130,152

(1)  Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

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      The following table shows net insurance premiums earned:

		Nine Months Ended
		September 30,
		2005		2004
		(In thousands)
Balboa Reinsurance Company		$	131,526	$	115,508
Balboa Life and Casualty Operations			523,549		461,905
	Total net insurance premiums earned	$	655,075	$	577,413

      The following table shows insurance claim expenses:

		Nine Months Ended September 30,
		2005				2004
				As Percentage				As Percentage
				of Net				of Net
				Earned				Earned
		Amount		Premiums		Amount		Premiums
		(Dollar amounts in thousands)
Balboa Reinsurance Company		$	31,144		24%	$	29,584		26%
Balboa Life and Casualty Operations			317,335		61%		245,564		53%
	Total insurance claim expenses	$	348,479			$	275,148

      Our mortgage reinsurance business produced $120.4 million in pre-tax earnings, an increase of 24% over the year-ago period, driven primarily by growth of 5% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts, along with a reduced provision, as a percentage of premiums earned, for insured losses due to faster-than expected prepayments of older pools of reinsured loans.

      Our Life and Casualty insurance business produced pre-tax loss of $25.5 million, a decrease of $77.3 million from the year-ago period. The decline in earnings was driven by $104.3 million in catastrophe losses, including $98.4 million relating to the hurricanes that struck the Gulf Coast states in the third quarter, in comparison to $23.2 million incurred in the year-ago period. The impact of these losses was partially offset by a $61.6 million, or 13%, increase in net earned premiums during the nine months ended September 30, 2005 in comparison to the year-ago period. The increase in net earned premiums was primarily attributable to an increase in voluntary homeowners and auto insurance and includes a reduction of $9.2 million relating to a catastrophic reinsurance reinstatement fee paid to reinsurers relating to the hurricane losses in the current period.

Global Operations Segment

      Global Operations pre-tax earnings totaled $17.5 million, a decrease of $13.7 million from the year-ago period. The decrease in earnings was due to a 40% decline in the number of new mortgage loans processed.

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Detailed Line Item Discussion of Consolidated Revenue and Expense Items

Gain on Sale of Loans and Securities

      Gain on sale of loans and securities is summarized below:

			Nine Months Ended September 30,
			2005								2004
					Gain on Sale								Gain on Sale
								As Percentage								As Percentage
			Loans Sold		Amount			of Loans Sold			Loans Sold		Amount			of Loans Sold
			(Dollar amounts in thousands)
Mortgage Banking:
	Prime Mortgage Loans		$	246,974,065	$	2,181,008			0.88	%	$	200,483,749	$	1,883,934			0.94	%
	Nonprime Mortgage Loans			31,523,425		742,391			2.36	%		21,771,622		793,117			3.64	%
	Prime Home Equity Loans			17,233,196		501,137			2.91	%		18,737,801		556,451			2.97	%
		Production Sector		295,730,686		3,424,536			1.16	%		240,993,172		3,233,502			1.34	%
	Reperforming loans			1,001,989		29,475			2.94	%		2,395,139		116,019			4.84	%
			$	296,732,675		3,454,011					$	243,388,311		3,349,521
Capital Markets:
	Conduit activities(1)		$	42,134,334		184,750			0.44	%	$	32,911,505		197,614			0.60	%
	Underwriting			N/A		157,490			N/A			N/A		174,782			N/A
	Commercial real estate		$	1,568,656		42,800			2.73	%		N/A		77			N/A
	Securities trading and other			N/A		(64,472	)		N/A			N/A		(187,139	)		N/A
						320,568								185,334
Other				N/A		17,573			N/A			N/A		24,896			N/A
					$	3,792,152							$	3,559,751

(1)  Includes intercompany sales

      Gain on sale of Prime Mortgage Loans increased in the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 due primarily to an increase in the volume of loans sold partially offset by lower margins resulting from increased pricing competition.

      Gain on sale of Nonprime Mortgage Loans decreased in the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 due primarily to lower margins resulting from increased pricing competition, partially offset by increased sales of Nonprime Mortgage Loans.

      Gain on sale of Prime Home Equity Loans decreased in the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 due primarily to a decrease in the volume of loans sold.

      Gain on sale of Reperforming Loans decreased in the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 due primarily to a decrease in the volume of loans sold combined with lower margins.

      A change in Ginnie Mae rules related to the repurchase of defaulted loans from Ginnie Mae securities has reduced the amount of loans available for repurchase, which has contributed to a lower gain on sale related to these items.

      The decrease in Capital Markets’ gain on sale related to its conduit activities was due to a decline in margins partially offset by increased sales of mortgage loans. Capital Markets’ revenues from its securities

66

trading activities consist of gain on sale and interest income. In a steep yield curve environment, net interest income will comprise a larger percentage of total securities trading revenue. As the yield curve flattens, the mix of revenues will naturally shift toward gain on sale of securities. During the nine months ended September 30, 2005 the yield curve was flatter than in the year-ago period, which resulted in a shift in trading revenues from interest income to gain on sale. The decrease in loss on sale of the trading securities was more than offset by a decline in net interest income due to the overall decline in trading margins.

Net Interest Income

      Net interest income is summarized below:

			Nine Months Ended
			September 30,
			2005			2004
			(In thousands)
Net interest income (expense):
	Banking Segment loans and securities		$	941,312		$	481,468
	Mortgage Banking Segment loans and securities			472,716			1,026,760
	Loan Servicing Sector interest expense			(292,309	)		(254,561	)
	Interest income (expense) on custodial balances			226,999			(95,084	)
	Reperforming loans			62,700			78,997
	Capital Markets Segment securities portfolio			190,116			312,206
	Other			51,964			34,194
		Net interest income		1,653,498			1,583,980
	Provision for loan losses related to loans held for investment			(91,557	)		(48,888	)
		Net interest income after provision for loan losses	$	1,561,941		$	1,535,092

      The increase in net interest income from the Banking Segment was primarily attributable to growth in the average investment in mortgage loans in the Bank and CWL. Average assets in the Banking Segment increased to $63.0 billion during the nine months ended September 30, 2005, an increase of $34.2 billion over the year-ago period. The net interest margin decreased to 2.05% during the nine months ended September 30, 2005 from 2.29% during the year-ago period.

      The decrease in net interest income from Mortgage Banking loans and securities reflects primarily a flattening of the yield curve during the nine months ended September 30, 2005 as compared to the year-ago period. The Mortgage Banking Segment loan and securities inventory is primarily financed with borrowings tied to short-term indices. Short-term interest rates rose while long-term mortgage interest rates declined slightly between the year-ago period and the nine months ended September 30, 2005, reducing the net interest income relating to outstanding balances. The decline in net interest margin was not offset by an increase in gain on sale due to price competition.

      Interest expense allocated to the Loan Servicing Sector increased primarily due to an increase in total Servicing Sector assets combined with an increase in cost of funds.

      Net interest income from custodial balances increased in the current period due to an increase in the earnings rate on the custodial balances from 0.98% during the nine months ended September 30, 2004 to 2.97% during the nine months ended September 30, 2005, resulting from an increase in short-term interest rates and to an increase in average custodial balances of $4.3 billion or 25% over the year-ago period. We are required to pass through monthly interest to security holders on paid-off loans at the underlying security rates, which were substantially higher than the short-term rates earned by us on the payoff float. The amount of such interest passed through to the security holders was $248.3 million and $220.2 million in the nine months ended September 30, 2005 and 2004, respectively.

67

      The decrease in interest income related to reperforming loans is a result of a decrease in the average balance of such loans held.

      The decrease in net interest income from the Capital Markets securities portfolio is attributable to a decrease in the net interest margin from 1.00% in the nine months ended September 30, 2004 to 0.50% in the nine months ended September 30, 2005, partially offset by an increase of 23% in the average inventory of securities held. The decrease in net interest margin on the securities portfolio is primarily due to a larger increase in short-term financing rates versus the increase in rates in the longer-term securities held by the Capital Markets Segment. The decline in net interest income was partially offset by an increase in gain on sale of securities.

Loan Servicing Fees and Other Income from Retained Interests

      Loan servicing fees and other income from retained interests are summarized below:

		Nine Months Ended
		September 30,
		2005		2004
		(In thousands)
Servicing fees, net of guarantee fees		$	2,307,775	$	1,722,152
Income from other retained interests			333,296		279,972
Late charges			174,302		130,948
Prepayment penalties			142,032		119,281
Global Operations Segment subservicing fees			82,385		79,209
Ancillary fees			55,250		40,791
	Total loan servicing fees and other income from retained interests	$	3,095,040	$	2,372,353

      The increase in servicing fees, net of guarantee fees, was principally due to a 32% increase in the average servicing portfolio, plus an increase in the overall annualized net service fee earned from 0.327% of the average portfolio balance during the nine months ended September 30, 2004 to 0.333% during the nine months ended September 30, 2005.

      The increase in income from other retained interests was due primarily to a 19% increase in the average investment in these assets.

Amortization of Mortgage Servicing Rights

      We recorded amortization of MSRs of $1,607.9 million, or an annual rate of 20.5%, during the nine months ended September 30, 2005 as compared to $1,377.7 million, or an annual rate of 21.4%, during the nine months ended September 30, 2004. The amortization rate of MSRs is dependent on the forecasted prepayment speeds at the beginning of each quarter during the period. On average mortgage rates at the beginning of the quarterly periods during the current period were lower than the year-ago period, however the average of the portfolio note rates was lower over the same period and as a result, the average forecasted prepayment speeds were lower in the current period. This resulted in a lower amortization rate for the nine months ended September 30, 2005 than in the year-ago period. Dollar amortization was higher primarily due to the higher MSR asset balance during the period.

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(Impairment) Recovery of Retained Interests and Servicing Hedge (Losses) Gains

      (Impairment) recovery of retained interests and Servicing Hedge (losses) gains are detailed below:

				Nine Months Ended
				September 30,
				2005			2004
				(In thousands)
(Impairment) recovery of retained interests:
	MSRs:
		Recovery (impairment)		$	332,113		$	(340,455	)
		Reduction of MSR cost basis through application of hedge accounting:
			Change in fair value attributable to hedged risk		(245,655	)		—
		Total recovery (impairment) of MSRs			86,458			(340,455	)
	Other retained interests				(296,396	)		(271,677	)
				$	(209,938	)	$	(612,132	)
Servicing Hedge (losses) gains recorded in earnings				$	(242,375	)	$	114,312

      Total recovery of MSRs during the nine months ended September 30, 2005 resulted from an increase in the estimated fair value of MSRs resulting primarily from the increase in mortgage interest rates during the period. MSR impairment in the nine months ended September 30, 2004 resulted generally from a decrease in their estimated fair value driven by a slight decrease in mortgage rates during the period. In the nine months ended September 30, 2005 and 2004, we recognized impairment of other retained interests, primarily as a result of a decline in the value of such securities. The collateral underlying certain of these residuals is fixed-rate while the pass-through rate is floating. An increase in projected short-term interest rates during both periods caused compression of the spread on such residuals, which resulted in a decline in their value.

      Long-term Treasury and swap interest rates increased during the nine months ended September 30, 2005. The increase resulted in a Servicing Hedge loss of $242.4 million. During the nine months ended September 30, 2004, the Servicing Hedge generated a gain of $114.3 million. This gain resulted from a decrease in long-term Treasury and swap rates during the nine months ended September 30, 2004.

Net Insurance Premiums Earned

      The increase in net insurance premiums earned of $77.7 million is due to an increase in premiums earned on the voluntary homeowners and auto lines of business and in reinsurance premiums earned.

Commissions and Other Revenue

      Commissions and other revenue consisted of the following:

		Nine Months Ended
		September 30,
		2005		2004
		(In thousands)
Appraisal fees, net		$	78,857	$	53,975
Credit report fees, net			59,441		53,904
Global Operations Segment processing fees			46,915		59,717
Title services			34,676		34,203
Insurance agency commissions			19,995		46,932
Increase in cash surrender value of life insurance			5,897		13,970
Other			134,681		117,705
	Total commissions and other revenue	$	380,462	$	380,406

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Compensation Expenses

      Average workforce by segment is summarized below:

		Nine Months Ended
		September 30,
		2005		2004
Mortgage Banking			35,839		28,803
Banking			1,708		952
Capital Markets			608		520
Insurance			1,994		1,816
Global Operations			2,511		2,066
Corporate Administration			4,264		3,605
	Average workforce, including temporary staff		46,924		37,762

      Compensation expenses are summarized below:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Base salaries		$	1,442,419		$	1,172,582
Incentive bonus and commissions			1,427,527			1,193,222
Payroll taxes and benefits			461,222			347,317
Deferral of loan origination costs			(705,932	)		(411,983	)
	Total compensation expenses	$	2,625,236		$	2,301,138

      Compensation expenses increased $324.1 million, or 14%, during the nine months ended September 30, 2005 as compared to the year-ago period. In the Loan Production Sector, compensation expenses, increased $405.4 million, or 23%, prior to the deferral of loan origination costs, because of a 27% increase in average staff.

      In the Loan Servicing Sector, compensation expense rose $44.1 million, or 22%, to accommodate a 22% increase in the number of loans serviced. Compensation expenses increased in most other business segments and corporate areas, reflecting growth in the Company.

Occupancy and Other Office Expenses

      Occupancy and other office expenses are summarized below:

		Nine Months Ended
		September 30,
		2005		2004
		(In thousands)
Depreciation expense		$	136,818	$	80,925
Office and equipment rentals			133,956		108,213
Utilities			109,150		90,403
Postage and courier service			74,125		65,844
Office supplies			54,682		42,674
Dues and subscriptions			38,823		32,053
Repairs and maintenance			35,630		32,650
Other			58,872		1,719
	Total occupancy and other office expenses	$	642,056	$	454,481

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      Occupancy and other office expenses for the nine months ended September 30, 2005 increased by $187.6 million primarily to accommodate a 24% increase in the average workforce.

Insurance Claim Expenses

      Insurance claim expenses were $348.5 million for the nine months ended September 30, 2005 as compared to $275.1 million for the year-ago period. The increase in insurance claim expenses was due mainly to growth in our insured risk and an $81.1 million increase in hurricane losses over the year-ago period, partially offset by a decrease in the non-catastrophe related loss ratio experienced on lender-placed property and voluntary homeowners lines of business.

Advertising and Promotion Expenses

      Advertising and promotion expenses increased 36% from the nine months ended September 30, 2004, as a result of a shift in the mortgage loan production market towards purchase activity.

Other Operating Expenses

      Other operating expenses are summarized below:

		Nine Months Ended
		September 30,
		2005			2004
		(In thousands)
Insurance commission expense		$	114,942		$	92,652
Legal, consulting, accounting and auditing fees			91,374			75,969
Losses on servicing-related advances			78,620			39,524
Travel and entertainment			78,453			58,817
Software amortization and impairment			48,087			29,948
Insurance			39,755			38,362
Taxes and licenses			33,685			27,168
Other			132,849			131,672
Deferral of loan origination costs			(109,852	)		(51,129	)
	Total other operating expenses	$	507,913		$	442,983

      Losses on servicing-related advances consist primarily of losses arising from unreimbursed servicing advances on defaulted loans and credit losses arising from defaulted VA-guaranteed loans. (See the “Credit Risk Management” section of this Report for a further discussion of credit risk.) The increase in losses on servicing-related advances is primarily due to recognition of a provision for losses on guaranteed loans of $26.4 million as a result of Hurricane Katrina.

Quantitative and Qualitative Disclosures About Market Risk

      The primary market risk we face is interest rate risk. Interest rate risk includes the risk that the value of our assets and liabilities will change due to changes in interest rates. Interest rate risk also includes the risk that the net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. From an enterprise perspective, we manage interest rate risk through the natural counterbalance of our loan production and servicing businesses. We also use various financial instruments, including derivatives, to manage the interest rate risk related specifically to the values of our interest rate lock commitments, Mortgage Loan Inventory and MBS held for sale, MSRs and other retained interests and trading securities, as well as a portion of our debt. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

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Impact of Changes in Interest Rates on the Net Value of the Company’s Interest Rate-Sensitive Financial Instruments

      We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment, including selected hypothetical, instantaneous parallel shifts in the yield curve.

      We employ various commonly used modeling techniques to value our financial instruments in connection with these sensitivity analyses. For mortgage loans, MBS, MBS forward contracts, collateralized mortgage obligations and MSRs, option-adjusted spread (“OAS”) models are used. The primary assumptions used in these models for purpose of these sensitivity analyses are the implied market volatility of interest rates and prepayment speeds. For options and interest rate floors, an option-pricing model is used. The primary assumption used in this model is implied market volatility of interest rates. Other retained interests are valued using zero volatility discounted cash flow models. The primary assumptions used in these models are prepayment rates, discount rates and credit losses. All relevant cash flows associated with the financial instruments are incorporated in the various models.

      The following table summarizes the estimated change in fair value of our interest rate-sensitive assets, liabilities and commitments as of September 30, 2005, given several hypothetical, instantaneous, parallel shifts in the yield curve:

				Change in Fair Value
Change in Interest Rate (Basis Points)				-100			-50			+50			+100
				(In millions)
MSRs and other financial instruments:
	MSR and other retained interests			$	(2,721	)	$	(1,282	)	$	1,017		$	1,726
	Impact of Servicing Hedge:
		Mortgage-based			337			168			(168	)		(335	)
		Swap-based			1,940			784			(388	)		(532	)
		Treasury-based			84			19			—			—
			MSRs and other retained interests, net		(360	)		(311	)		461			859
	Committed Pipeline				368			256			(388	)		(853	)
	Mortgage Loan Inventory				1,212			740			(935	)		(1,986	)
	Impact of associated derivative instruments:
		Mortgage-based			(1,608	)		(982	)		1,291			2,773
		Treasury-based			209			41			45			118
		Eurodollar-based			(130	)		(78	)		102			214
			Committed Pipeline and Mortgage Loan Inventory, net		51			(23	)		115			266
	Countrywide Bank:
		Securities portfolio			89			58			(86	)		(190	)
		Mortgage loans			570			311			(380	)		(757	)
		Deposit liabilities			(261	)		(134	)		137			275
		Federal Home Loan Bank Advances			(288	)		(142	)		168			301
			Countrywide Bank, net		110			93			(161	)		(371	)

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				Change in Fair Value
Change in Interest Rate (Basis Points)				-100			-50			+50			+100
				(In millions)
	Notes payable and capital securities				(800	)		(398	)		392			761
	Impact of associated derivative instruments:
		Swap-based			93			46			(45	)		(88	)
			Notes payable and capital securities, net		(707	)		(352	)		347			673
	Insurance company investment portfolios				51			27			(28	)		(55	)
Net change in fair value related to MSRs and other financial instruments				$	(855	)	$	(566	)	$	734		$	1,372
Net change in fair value related to broker-dealer trading securities				$	(19	)	$	(7	)	$	(1	)	$	(10	)

      The following table summarizes the estimated change in fair value of the Company’s interest rate-sensitive assets, liabilities and commitments as of December 31, 2004, given several hypothetical (instantaneous) parallel shifts in the yield curve:

	Change in Fair Value
Change in Interest Rate (Basis Points)	-100			-50			+50			+100
	(In millions)
Net change in fair value related to MSRs and other financial Instruments	$	(285	)	$	(492	)	$	787		$	1,765
Net change in fair value related to broker-dealer trading securities	$	(11	)	$	(3	)	$	(8	)	$	(24	)

      These sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate certain movements in interest rates; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact the Company’s overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. In addition, not all of the changes in fair value would affect current period earnings. For example, MSRs are carried by impairment stratum at the lower of amortized cost or market value. Consequently, absent hedge accounting, any increase in the value of a particular MSR stratum above its amortized cost basis would not be reflected in current-period earnings. The total impairment valuation allowance was $689.4 million as of September 30, 2005. On April 1, 2005, we implemented hedge accounting in accordance with SFAS 133 for a portion of our interest rate risk management activities related to our MSRs. In addition, our debt is carried at its unpaid principal balance net of issuance discount or premium; therefore, absent hedge accounting, changes in the market value of our debt are not recorded in current-period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

Foreign Currency Risk

      In order to diversify our funding sources globally, we occasionally issue medium-term notes denominated in a foreign currency. We manage the foreign currency risk associated with these medium-term notes through cross-currency swap transactions. The terms of the cross-currency swaps effectively convert all foreign currency-denominated medium-term notes into U.S. dollar obligations, thereby eliminating the associated foreign currency risk. As a result, potential changes in the exchange rates of foreign currencies denominating such medium-term notes would not have a net financial impact on future earnings, fair values or cash flows.

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Credit Risk

Securitization

      We have historically sold most of our mortgage loans shortly after production, generally through securitizations. When we securitize our mortgage loans, we retain limited credit risk. As described in our 2004 Annual Report, the degree to which credit risk on the underlying loans is transferred through the securitization process depends on the structure of the securitization. Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity Loans and Nonprime Mortgage Loans generally are securitized with limited recourse for credit losses.

      Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. These amounts at September 30, 2005 are as follows:

		September 30,
		2005
		(In thousands)
Subordinated Interests:
	Prime home equity residual securities	$	866,784
	Nonprime residual securities		549,845
	Prime home equity transferor’s interests		455,989
	Nonconforming residual securities		15,180
	Subordinated mortgage-backed pass-through securities		2,213
		$	1,890,011
Corporate guarantees in excess of recorded liability		$	339,711

      The carrying value of the residual securities is net of expected future credit losses. The total credit losses incurred for the periods indicated related to all of our mortgage securitization activities are summarized as follows:

	Nine Months Ended
	September 30,
	2005		2004
	(In thousands)
Nonprime securitizations with retained residual interest	$	46,992	$	43,990
Repurchased or indemnified loans		25,505		31,430
Prime home equity securitizations with retained residual interest		22,082		20,035
Prime home equity securitizations with corporate guarantee		9,219		6,088
Nonprime securitizations with corporate guarantee		8,611		15,777
VA losses in excess of VA guarantee		1,541		1,195
	$	113,950	$	118,515

Portfolio Lending Activities

      We have a portfolio of mortgage loans held for investment, consisting primarily of Prime Mortgage and Prime Home Equity Loans, which totaled $62.2 billion at September 30, 2005. This portfolio is held primarily in our Bank. Many Prime Home Equity Loans held in the Bank with combined loan-to-value ratios equal to or above 90% are covered by a pool insurance policy that provides partial protection against credit losses. Otherwise, we generally retain full credit exposure on these loans.

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      We also provide short-term secured mortgage-loan warehouse advances to various lending institutions, which totaled $4.5 billion at September 30, 2005. We incurred no credit losses related to this activity in the nine months ended September 30, 2005.

      Nonaccrual loans and foreclosed assets at period end are summarized as follows:

				September 30,
				2005
				(In thousands)
Nonaccrual loans(1):
	Mortgage loans:
		Nonprime		$	347,724
		Prime			274,564
		Prime home equity			52,901
			Subtotal		675,189
	Warehouse lending advances				—
	Defaulted FHA-insured and VA-guaranteed mortgage loans repurchased from securities				577,912
		Total nonaccrual loans			1,253,101
	Foreclosed assets				69,834
		Total nonaccrual loans and foreclosed assets		$	1,322,935
Nonaccrual loans as a percentage of loans held for investment:
	Total				1.8	%
	Excluding loans FHA-insured and VA-guaranteed loans				1.0	%
Allowance for loan losses				$	184,784
Allowance for loan losses as a percentage of nonaccrual loans:
	Total				14.7	%
	Excluding loans FHA-insured and VA-guaranteed loans				27.4	%
Allowance for loan losses as a percentage of loans held for investment					0.3	%

(1)  This amount excludes $282.7 million of government-insured loans eligible for repurchase from Ginnie Mae securities issued by us due to the loans’ severe delinquency. Our servicing agreement with Ginnie Mae allows us to repurchase loans that are delinquent more than 90 days instead of continuing to advance the delinquent interest to the security holders. This amount is included in loans held for investment as Countrywide has the option of repurchasing the loans from the securities and is required to include such loans on its balance sheets. However, we do not include these loans in our nonaccrual balances because we have not exercised the option to repurchase the loans.

      The allowance for loan losses increased by 48% from $125.0 million at December 31, 2004, to $184.8 million at September 30, 2005, primarily due to growth in loans held for investment at Countrywide Bank. We expect our allowance for loan losses and the related provision for loan losses to increase as a percentage of our portfolio of loans held for investment as our portfolio of loans held for investment continues to season. As our portfolio continues to grow, the impact of seasoning on the allowance as a percentage of loans held for investment will be partially offset by new loans.

Mortgage Reinsurance

      We provide mortgage reinsurance on mortgage loans included in our servicing portfolio through contracts with several primary mortgage insurance companies. Under these contracts, we absorb mortgage insurance losses in excess of a specified percentage of the principal balance of a given pool of loans, subject to a cap, in

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exchange for a portion of the pools’ mortgage insurance premium. As of September 30, 2005, approximately $74.2 billion of mortgage loans in our servicing portfolio are covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on our maximum exposure to losses. At September 30, 2005, the maximum aggregate losses under the reinsurance contracts were $526.3 million. We are required to pledge securities to cover this potential liability. For the nine months ended September 30, 2005, we did not experience any losses under our reinsurance contracts.

Mortgage Loans Held for Sale

      At September 30, 2005, mortgage loans held for sale amounted to $35.2 billion. While the loans are in inventory, we bear credit risk after taking into consideration primary mortgage insurance (which is generally required for conventional loans with a loan-to-value ratio greater than 80%), FHA insurance or VA guarantees. Historically, credit losses related to loans held for sale have not been significant due to the short period of time that loans are held prior to sale.

Counterparty Credit Risk

      We have exposure to credit loss in the event of contractual non-performance by our trading counterparties and counterparties to our various over-the-counter derivative financial instruments. We manage this credit risk by selecting only well-established, financially strong counterparties, spreading the credit risk among many such counterparties and by placing contractual limits on the amount of unsecured credit extended to any single counterparty.

      The aggregate amount of counterparty credit exposure after consideration of relevant netting agreements at September 30, 2005, before and after collateral held by us, was as follows:

		September 30,
		2005
		(In millions)
Aggregate credit exposure before collateral held		$	967
Less: collateral held			(611	)
	Net aggregate unsecured credit exposure	$	356

      For the nine months ended September 30, 2005, we incurred no credit losses due to non-performance of any of our counterparties.

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Loan Servicing

      The following table sets forth certain information regarding our servicing portfolio of single-family mortgage loans, including loans and securities held for sale, loans held for investment and loans serviced under subservicing agreements, for the periods indicated.

			Nine Months Ended
			September 30,
			2005			2004
			(In millions)
Beginning owned servicing portfolio			$	821,475		$	630,451
Add: Loan production				357,817			267,691
		Purchased MSRs		43,232			25,709
Less: Runoff(1)				(202,457	)		(155,720	)
Ending owned servicing portfolio				1,020,067			768,131
Subservicing portfolio				27,556			17,861
	Total servicing portfolio		$	1,047,623		$	785,992
MSR portfolio			$	922,344		$	708,124
Mortgage loans owned				97,723			60,007
Subservicing portfolio				27,556			17,861
	Total servicing portfolio		$	1,047,623		$	785,992

			September 30,
			2005			2004
			(Dollar amounts in
			millions)
Composition of owned servicing portfolio at period end:
	Conventional mortgage		$	798,344		$	605,849
	Nonprime Mortgage			117,666			68,774
	Prime Home Equity			53,728			39,412
	FHA-insured mortgage			37,409			40,815
	VA-guaranteed mortgage			12,920			13,281
		Total owned servicing portfolio	$	1,020,067		$	768,131
Delinquent mortgage loans(2):
	30 days			2.51	%		2.29	%
	60 days			0.71	%		0.67	%
	90 days or more			0.81	%		0.77	%
		Total delinquent mortgage loans		4.03	%		3.73	%
Loans pending foreclosure(2)				0.42	%		0.35	%
Delinquent mortgage loans(2):
	Conventional			2.28	%		2.22	%
	Government			13.13	%		12.84	%
	Nonprime Mortgage			12.37	%		11.06	%
	Prime Home Equity			1.19	%		0.71	%
		Total delinquent mortgage loans		4.03	%		3.73	%
Loans pending foreclosure(2):
	Conventional			0.21	%		0.16	%
	Government			1.07	%		1.12	%
	Nonprime Mortgage			1.70	%		1.59	%
	Prime Home Equity			0.06	%		0.03	%
		Total loans pending foreclosure		0.42	%		0.35	%

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(1)	Runoff refers to scheduled principal repayments on loans and unscheduled prepayments (partial prepayments or total prepayments due to refinancing, modification, sale, condemnation or foreclosure).
(2)	Expressed as a percentage of the total number of loans serviced, excluding subserviced loans and loans purchased at a discount due to their non-performing status.

      We attribute the overall increase in delinquencies in our servicing portfolio primarily to the relative overall increase in the number of loans in the nonprime portfolios, as well as an increase in average age of these portfolios, which carry higher delinquency rates than the conventional and Prime Home Equity portfolios. In addition, delinquencies were negatively impacted by the effects of Hurricane Katrina. We believe the delinquency rates in our servicing portfolio are consistent with industry experience for similar mortgage loan portfolios.

Liquidity and Capital Resources

      We regularly forecast our potential funding needs over three-month and longer horizons, taking into account debt maturities and potential peak balance sheet levels. We establish available reliable sources of liquidity sized to meet potential future funding requirements. We currently have $87.0 billion in available sources of short-term liquidity, which represents an increase of $13.8 billion from December 31, 2004. We believe we have adequate financing to meet our current needs.

      As part of our strategic capital management and as a cost effective means for financing growth, the Company issued $500 million in callable floating-rate subordinated notes during the third quarter. These subordinated notes are eligible for Tier 2 regulatory capital treatment and represent an efficient and non-dilutive means for supporting the Company’s capital management efforts. Other capital raising alternatives under consideration to address future needs include various high equity content securities that would not be dilutive.

      At September 30, 2005 and at December 31, 2004, CFC’s regulatory capital ratios were as follows:

				September 30, 2005				December 31, 2004
		Minimum
		Required(1)		Ratio		Amount		Ratio		Amount
		(Dollar amounts in thousands)
Tier 1 Leverage Capital			5.0%		6.4%	$	11,982,092		7.9%	$	10,332,383
Risk-Based Capital:
	Tier 1		6.0%		10.0%	$	11,982,092		11.1%	$	10,332,383
	Total		10.0%		11.0%	$	13,153,213		11.7%	$	10,928,223

(1)  Minimum required to qualify as “well capitalized.”

Cash Flow

      Cash flow used by operating activities was $9.5 billion for the nine months ended September 30, 2005, compared to $0.7 billion for the nine months ended September 30, 2004. The increase in net cash flow used by operations for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 was primarily due to a $7.0 billion net increase in cash used to fund Mortgage Loan Inventory and a $2.3 billion net increase in cash used to settle accounts payable and accrued liabilities.

      Net cash used by investing activities was $40.8 billion for the nine months ended September 30, 2005, compared to $8.7 billion for the nine months ended September 30, 2004. The increase in net cash used in investing activities was attributable to a $16.7 billion increase in cash used to fund loans held for investment, combined with a $7.1 billion increase in cash used to fund investments in other financial instruments and a $7.0 billion increase in securities purchased under agreements to resell and securities borrowed.

      Net cash provided by financing activities for the nine months ended September 30, 2005 totaled $51.0 billion, compared to $9.4 billion for the nine months ended September 30, 2004. The increase in cash provided by financing activities was comprised of a $29.5 billion net increase in short-term borrowings, including securities sold under agreements to repurchase, an $8.4 billion net increase in bank deposit liabilities and a $3.8 billion increase in long-term debt.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements and Guarantees

      In the ordinary course of our business, we engage in financial transactions that are not reflected on our balance sheet. (See Note 2 — “Summary of Significant Accounting Policies” in the 2004 Annual Report for a description of our consolidation policy.) Such transactions are structured to manage our interest rate, credit or liquidity risks, to diversify funding sources or to optimize our capital.

      Substantially all of our off-balance sheet arrangements relate to the securitization of mortgage loans. Our mortgage loan securitizations are normally structured as sales in accordance with SFAS 140 and as such involve the transfer of mortgage loans to qualifying special-purpose entities that are not subject to consolidation. In a securitization, an entity transferring the assets is able to convert those assets into cash. Special-purpose entities used in such securitizations obtain cash to acquire the assets by issuing securities to investors. In a securitization, we customarily provide representations and warranties with respect to the mortgage loans transferred. In addition, we generally retain the right to service the transferred mortgage loans.

      We also generally have the right to repurchase mortgage loans from the special-purpose entity if the remaining outstanding balance of the mortgage loans falls to a level where the cost of servicing the loans becomes burdensome in relation to the benefits of servicing.

      Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity and Nonprime Loans generally are securitized with limited recourse for credit losses. During the nine months ended September 30, 2005, we securitized $43.3 billion in Nonprime Mortgage and Prime Home Equity Loans with limited recourse for credit losses. Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. For a further discussion of our exposure to credit risk, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk.”

      We do not believe that any of our off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

      The following table summarizes our significant contractual obligations at September 30, 2005, with the exception of short-term borrowing arrangements and pension and post-retirement benefit plans:

	Less Than						More Than
	1 Year		1-3 Years		3-5 Years		5 Years		Total
	(In thousands)
Obligations:
Notes payable	$	15,697,798	$	25,397,535	$	10,600,067	$	3,276,238	$	54,971,638
Time deposits	$	11,462,222	$	4,430,535	$	2,132,505	$	1,117,108	$	19,142,370
Operating leases	$	152,701	$	225,579	$	103,356	$	31,577	$	513,213
Purchase obligations	$	108,097	$	16,337	$	3,301	$	760	$	128,495

      As of September 30, 2005, the Company had undisbursed home equity lines of credit and construction loan commitments of $10.1 billion and $1.5 billion, respectively. As of September 30, 2005, outstanding commitments to fund mortgage loans in process totaled $49.6 billion.

      In connection with the Company’s underwriting activities, the Company had commitments to purchase and sell new issues of securities aggregating $37.0 million at September 30, 2005.

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Prospective Trends

United States Mortgage Market

      Over the last decade, total mortgage indebtedness in the United States has grown at an average annual rate of 9%. We believe that continued population growth, ongoing developments in the mortgage market and the prospect of relatively low interest rates support similar growth in the market for the foreseeable future. Some of the ongoing developments in the mortgage market that should fuel its growth include government-sponsored programs targeted to increase homeownership in low-income and minority communities, the growth of prime home equity lending as a major form of consumer finance and the increasing efficiency of the secondary mortgage market that lowers the overall cost of homeownership.

      In recent years, the level of complexity in the mortgage lending business has increased significantly due to several factors:

•  The continuing evolution of the secondary mortgage market and demand by borrowers has resulted in a proliferation of mortgage products;

•  Greater regulation imposed on the industry has resulted in increased costs and the need for higher levels of specialization; and

•  Interest rate volatility has risen over the last decade. At the same time, homeowners’ propensity to refinance their mortgages has increased as the refinance process has become more efficient and cost effective. The combined result has been large swings in the volume of mortgage loans originated from year to year. These volume swings have placed significant operational and financial pressures on mortgage lenders.

      To compete effectively in this environment, mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage business has become more capital-intensive and therefore access to capital at a competitive cost is critical. Primarily because of these factors, the industry has undergone consolidation.

      According to the trade publication Inside Mortgage Finance, the top five originators produced 46% of all loans originated during the first nine months of the calendar year 2005, as compared to 45% for the nine months ended December 31, 2004. Following is a comparison of loan volume for the top five originators, according to Inside Mortgage Finance:

		Nine Months Ended		Nine Months Ended
Institution		September 30, 2005		December 31, 2004
		(In billions)
Countrywide		$	358	$	287
Wells Fargo Home Mortgage			253		234
Washington Mutual			182		195
Chase Home Finance			139		155
Bank of America Mortgage			118		114
	Total for Top Five	$	1,050	$	985

      We believe the consolidation trend will continue, as the aforementioned market forces will continue to drive out weak competitors. We believe Countrywide will benefit from this trend through increased market share.

      Compared to Countrywide, the other industry leaders are less reliant on the secondary mortgage market as an outlet for adjustable-rate mortgages, due to their greater portfolio lending capacity. This could place us at a competitive disadvantage in the future if the demand for adjustable-rate mortgages continues, the secondary mortgage market does not continue to provide a competitive outlet for these loans, or we are unable to sustain an adequate portfolio lending capacity.

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Regulatory Trends

      The regulatory environments in which we operate have an impact on the activities in which we may engage, how the activities may be carried out and the profitability of those activities. Therefore, changes to laws, regulations or regulatory policies can affect whether and to what extent we are able to operate profitably. For example, proposed state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories. This could result in a reduction of otherwise legitimate nonprime lending opportunities.

Recently Issued Accounting Standards

      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), an amendment of FASB Statement No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” This Statement requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. SFAS 123R requires measurement of fair value of employee stock options using an option pricing model that takes into account the awarded options’ unique characteristics. SFAS 123R requires charging the recognized cost to expense over the period the employee provides services to earn the award, generally the vesting period for the award. The Company will adopt SFAS 123R, using the modified prospective application approach, effective January 1, 2006. We expect the charge to earnings for 2006 related to unamortized grants made before the effective date will be less than $40.0 million, net of tax. The effect of amortization of the value of any grants awarded after December 31, 2005 will increase this earnings charge.

      In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Changes in Interim Financial Statements. The Statement changes the accounting for, and reporting of, a change in accounting principle. SFAS 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impracticable to do so. SFAS 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005 and will only affect the Company’s financial statements upon adoption of a voluntary change in accounting principles by the Company.

Factors That May Affect Our Future Results

      We make forward-looking statements in this Report and in other reports we file with the SEC. In addition, we make forward-looking statements in press releases and our management may make forward-looking statements orally to analysts, investors, the media and others. Generally, forward-looking statements include:

•  Projections of our revenues, income, earnings per share, capital structure or other financial items

•  Descriptions of our plans or objectives for future operations, products or services

•  Forecasts of future economic performance, interest rates, profit margins and our share of future markets

•  Descriptions of assumptions underlying or relating to any of the foregoing

      Forward-looking statements give management’s expectation about the future and are not guarantees. 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. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

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      Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. We do not undertake to update them to reflect changes that occur after the date they are made.

      Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to the following:

•  Changes in general business, economic, market and political conditions from those expected

•  Our inability to effectively implement our business strategies or manage the volatility inherent in the mortgage banking business

•  Our accounting policies and methods are fundamental to how we report our financial condition and results of operations and they may require management to make estimates about matters that are inherently uncertain

•  Competition within the financial services industry

•  Significant changes in regulations governing our business or in generally accepted accounting principles

•  Incomplete or inaccurate information provided by customers and counterparties

•  A general decline in U.S. housing prices or in activity in the U.S. housing market

•  A loss of investment-grade credit ratings, which may result in increased cost of debt or loss of access to corporate debt markets

•  A reduction in the availability of secondary markets for our mortgage loan products

•  A reduction in government support of homeownership

•  A change in our relationship with the housing-related government agencies and government sponsored enterprises

•  Changes in regulations or the occurrence of other events that impact the business, operation or prospects of government sponsored enterprises

•  Ineffectiveness of our hedging activities

•  The level and volatility of interest rates

•  Changes in interest rate paths

•  The ability of management to effectively implement the Company’s strategies

•  The level of competition in each of our business segments

•  The occurrence of natural disasters or other events or circumstances that could impact our operations or could impact the level of claims in the Insurance Segment.

      Other risk factors are described elsewhere herein as well as in other reports and documents that we file with or furnish to the SEC including the Company’s Annual Report on Form 10-K. Other factors that could also cause results to differ from our expectations may not be described in any such report or document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      In response to this Item, the information set forth on pages 71 to 73 of this Form 10-Q is incorporated herein by reference.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

      We have conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective in ensuring that material information relating to the Company, including our consolidated subsidiaries, is made known to the Chief Executive Officer and Chief Financial Officer by others within those entities during the period in which this quarterly report on Form 10-Q was being prepared.

Internal Control over Financial Reporting

Changes to Internal Control over Financial Reporting

      There has been no change in our internal control over financial reporting during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for the implementation of 1) a new payroll software application and 2) a new core banking system at Countrywide Bank. Management believes that these changes enhance the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      The following table shows Company repurchases of its common stock for each calendar month during the nine months ended September 30, 2005.

						Total Number of		Maximum Number
						Shares Purchased		of Shares That May
		Total Number of		Average		as Part of Publicly		yet be Purchased
		Shares		Price Paid		Announced Plan		Under the Plan or
Calendar Month		Purchased(1)		per Share		or Program(1)		Program(1)
January			8,960	$	36.82		n/a		n/a
February			2,395	$	32.02		n/a		n/a
March			17,098	$	32.57		n/a		n/a
April			39,363	$	33.02		n/a		n/a
May			—	$	—		n/a		n/a
June			449	$	37.17		n/a		n/a
July			1,186	$	38.14		n/a		n/a
August			1,130	$	35.13		n/a		n/a
September			—	$	—		n/a		n/a
	Total		70,581	$	33.51		n/a		n/a

(1)  The Company has no publicly announced plans or programs to repurchase its stock. The shares indicated in this table represent only the withholding of a portion of restricted shares to cover taxes on vested restricted shares.

Item 6. Exhibits

      (a) Exhibits

See Index of Exhibits on page 86

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Countrywide Financial Corporation

(Registrant)

Dated: November 8, 2005

By:  /s/ Stanford L. Kurland

Stanford L. Kurland

President and Chief Operating Officer

Dated: November 8, 2005

By:  /s/ Eric P. Sieracki

Eric P. Sieracki

Executive Managing Director and

Chief Financial Officer

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COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q

SEPTEMBER 30, 2005

INDEX OF EXHIBITS

Exhibit
No.			Description
	+10	.107*	Personalized Relocation Terms Document by and between Countrywide Financial Corporation (the “Company”) and Andrew Gissinger, III, dated as of January 29, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 3, 2005).
	10	.108	Trust Deed, between the Company, as Issuer, Countrywide Home Loans, Inc. (“CHL”), as Guarantor and Deutsche Trustee Company Limited, as Trustee, dated August 15, 2005.
	+10	.109*	Purchase Contract by and between CHL and Andrew Gissinger, III, dated as of September 27, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2005).
	+10	.110*	The Company 2003 Non-Employee Directors’ Fee Plan, as amended and restated on September 27, 2005 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2005).
	+10	.111*	Third Amendment to 2000 Equity Incentive Plan of the Company, dated September 28, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2005).
	+10	.112*	Amendment Number Five to the Company Global Stock Plan, dated September 28, 2005 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2005).
	10	.113*	Indenture, dated September 30, 2005, between the Company and The Bank of New York, as Trustee, relating to the Floating Rate Subordinated Notes due April 11, 2011 (incorporated by reference to Exhibit 4.27 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2005).
	10	.114*	Form of Floating Rate Subordinated Note due April 1, 2011 of the Company (incorporated by reference to Exhibit 4.28 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2005)
	12	.1	Computation of the Ratio of Earnings to Fixed Charges.
	31	.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
	32	.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

*  Incorporated by reference.

+ Constitutes a management contract or compensatory plan or arrangement.

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