Countrywide Credit Industries Inc. reported Tuesday that its second-quarter earnings were up 12%, to $106.5 million, calming fears that rising rates would clobber the mortgage banking company's results.

The Calabasas, Calif., company reported that its loan production revenue slipped 14% from the same quarter last year, to about $281 million, but that its 18% gain in loan servicing revenue, to $281 million, more than offset the effects of lost loan volume.

The results appeared to support Countrywide's contention that the growth in its servicing business would help it ride out the current rising rate environment, and boosted Countrywide shares $1.3125, to $31.4375 in late afternoon trading, despite a broad selloff in Tuesday's market.

The company's shares had been in a tailspin, as investors worried that rising rates would have the same effect on Countrywide as in 1994, when its earnings tumbled 70%. Also boosting the company's result for its second quarter of fiscal 2000 was the funding of $438 million of home equity loans and $326 million of subprime loans in August.

Countrywide argues that it has adopted a business model that insulates it from the cycles of the mortgage market. In 1993 Countrywide's $80 billion servicing portfolio at yearend represented 1.6 times its production, but the company notes that its $250 million servicing portfolio at yearend last year represented 2.3 times loan production for the year.

Angelo Mozilo, the chairman and chief executive, said Countrywide is more diversified, noting subprime lending, credit card, title insurance and appraisal, and credit report businesses.

"This company is not a proxy for interest rates. It's a company built for all seasons," Mr. Mozilo said.

Jonathan Gray, a principal at Sanford C. Bernstein, said investors have overreacted to rising rates and should now be buying Countrywide stock. But he isn't buying the argument that Countrywide has hedged itself, saying the price war that accompanied rising rates simply hasn't hit the production side of Countrywide's business as hard as in the earlier cycle.

"To date, by our estimates, production pricing has been reduced by no more than 10 to 15 basis points," Mr. Gray said. "It's like saying last time around there was a Richter scale eight earthquake and now we've had tremors."

In 1994 a ferocious price war erupted as lenders tried to make up for lost refinancing volume. Countrywide's production margins decreased from 60 basis points to negative 180 basis points in a span of six months.

Mr. Gray said that in terms of earnings mix, Countrywide is just as dependent on production as it ever was. "They say that their servicing business is more important now and servicing earnings are more stable. This is the point they make and I would dismiss it completely," he said. "Since the last cycle, there has been a change in accounting that has actually made production more important."

Indeed, in 1993, 10% of Countrywide's earnings came from servicing; last year, that figure was halved, to 5%, Mr. Gray said.

"The points they make regarding the change in the structure of their business are correct," Mr. Gray said, "but the implication that their earnings are more stable or more derived from servicing, are not."

Still, Mr. Gray recommends Countrywide shares. "They're growing at 11% or 12% a year, which is very good for a stock that's selling as if it's headed for a waterfall."

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