- Quarterly Diluted EPS of $1.01 Drove Full Year EPS to a Record $4.30 -
- 2007 Guidance Announced at $3.80 to $4.80 per Diluted Share -
- Board Authorizes $0.15 Dividend -
CALABASAS, Calif., Jan. 30 /PRNewswire-FirstCall/ -- Countrywide
Financial Corporation (NYSE: CFC) today announced results for the fourth
quarter and full year ended December 31, 2006. Key results include the
following:
Table 1
($ in millions, Quarter Ended Year Ended
except per Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
share amounts) 2006 2005 Change 2006 2005 Change
Consolidated
Company
Revenues $2,758 $2,592 6% $11,417 $10,017 14%
Net Earnings $622 $639 (3%) $2,675 $2,528 6%
Diluted EPS $1.01 $1.03 (2%) $4.30 $4.11 5%
Total Assets
($ in billions) $200 $175 14%
Key Segment Pre-tax
Earnings
Mortgage Banking $453 $434 4% $2,062 $2,435 (15%)
Banking $343 $329 4% $1,380 $1,074 28%
Capital Markets $99 $133 (25%) $554 $452 23%
Insurance $75 $104 (27%) $320 $184 74%
Key Operating
Statistics
($ in billions)
Total Loan
Fundings $124 $135 (8%) $468 $499 (6%)
Ending Loan
Servicing
Portfolio $1,298 $1,111 17%
Ending Assets
of Banking
Operations $83 $73 13%
"Countrywide delivered strong results again in 2006," said Angelo R.
Mozilo, Chairman and Chief Executive Officer. "In the face of a challenging
environment which included flat and inverted yield curve conditions, home
price depreciation, slowing home sales, declining production volumes, and
pressure on credit quality, Countrywide set a new record for annual diluted
earnings per share. While our total loan production declined six percent,
our performance outpaced the industry. Production margins dropped only
modestly despite the very competitive pricing environment we faced in 2006.
Our servicing portfolio continued its uninterrupted growth to $1.3
trillion, despite high prepayments among ARM borrowers and slowing
production volume. Pre-tax earnings for our Banking segment increased 28
percent, establishing a new earnings record at $1.4 billion. Furthermore,
Banking Operations' assets grew by 13 percent. Our Capital Markets business
also set new records for pre-tax earnings and securities trading volume at
$554 million and $3.8 trillion, respectively. Our Insurance segment set a
new benchmark as well, generating $320 million in pre-tax earnings for
2006.
"The Company made progress in its expense management campaign
throughout the second half of the year and we continue to focus on further
efficiency and productivity improvements. Additionally, Countrywide
continues to focus on capital optimization. During the fourth quarter, the
Company entered into an accelerated share repurchase agreement with a
dealer in which we repurchased 38.6 million shares that were subsequently
retired. The share repurchase program was financed largely through the
issuance of $1.5 billion in high equity content debt securities, and had a
net positive effect of $0.02 per diluted share for 2006.
"I want to take this opportunity to thank all of our employees for
their effort and dedication this past year in assuring that Countrywide
continues on its mission of making a positive difference in the lives of
American families and in maintaining our industry leadership position. This
was clearly a challenging twelve months but our team again rose to the
occasion, making this the most successful year in our thirty-seven year
history. Our combined efforts have delivered a 36 percent compound annual
growth rate in net earnings over the past five years, and a 26 percent
compound annual growth rate over the past 10 years. And, as a result of
this performance, our total return to shareholders has been 340 percent
over the past five years and 561 percent over the past 10 years, outpacing
the S&P 500's performance of 35 percent and 124 percent, respectively.
"Looking ahead to 2007, the industry will likely see continued pressure
on margins as mortgage origination volumes decline and industry capacity is
rationalized. We are also preparing for increased borrower delinquencies
and continued credit deterioration. We believe, however, that 2007 will
likely be the trough year of the current housing cycle and that 2008 should
represent the beginning of upward trends associated with the next cycle. As
we have said in the past, it is our view that the most relevant way to
measure performance and growth in our industry and in our business is to
view performance from business cycle to business cycle rather than year
over year. This is how Countrywide manages its franchise and we are well
positioned and extremely optimistic about our prospects to continue
generating growth and superior returns over future cycles."
BUSINESS SEGMENT PERFORMANCE
Mortgage Banking
The table below highlights the Mortgage Banking segment's financial
performance for the fourth quarter and twelve months of 2006:
Table 2
Mortgage Banking Pre-tax Earnings
Quarter Ended Year Ended
Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
($ in millions) 2006 2005 Change 2006 2005 Change
Pre-tax Earnings(1)
Production $421 $102 314% $1,311 $1,659 (21%)
Servicing 9 306 (97%) 660 670 (1%)
Closing Services 23 26 (12%) 91 105 (13%)
Total Mortgage
Banking $453 $434 4% $2,062 $2,435 (15%)
% Contribution
to total
pre-tax earnings 46% 43% 48% 59%
(1) Numbers may not total exactly due to rounding
Mortgage Banking segment pre-tax earnings increased 4 percent for the
quarter, but were down 15 percent for the year when compared to the same
periods a year ago. The year-over-year quarterly increase was primarily the
result of an increase in the Loan Production sector. For the twelve months,
the decrease in Mortgage Banking segment pre-tax earnings was the result of
declines in all three sectors.
Loan Production
The Loan Production sector is comprised of the following distribution
channels: prime and nonprime consumer-direct lending through Countrywide
Home Loans' 999-branch retail system, call center operations and the
Internet; wholesale lending through a network of mortgage brokers;
correspondent lending which buys closed loans from other financial
institutions such as independent mortgage companies, commercial banks,
savings and loans and credit unions. The sector also includes the mortgage
banking activities of Countrywide Bank.
Overall quarterly Loan Production sector margins on both a sequential
and year-over-year basis are detailed below:
Table 3
Loan Production Sector
Pre-tax Earnings Quarter Ended
Dec. 31, Sept. 30, Dec. 31,
($ in millions) 2006 %(1) 2006 %(1) 2005 %(1)
Gain on sale of loans $1,263 1.07% $1,166 1.10% $876 0.75%
Net warehouse spread 136 0.12% 155 0.14% 134 0.11%
Miscellaneous income 90 0.08% 92 0.09% 56 0.05%
Total revenues 1,489 1.27% 1,413 1.33% 1,066 0.91%
Operating expenses (944) (0.80%) (979) (0.92%) (840) (0.72%)
Allocated corporate
expenses (124) (0.11%) (153) (0.15%) (124) (0.10%)
Total expenses (1,068) (0.91%) (1,132) (1.07%) (964) (0.82%)
Total Loan Production
sector pre-tax
earnings $421 0.36% $281 0.26% $102 0.09%
Total Mortgage
Banking loan
funding volume $117,745 $106,252 $116,887
(1) Percentage based on loan funding volume
Pre-tax earnings for the Loan Production sector increased from the
third quarter of 2006 primarily as a result of a $98 million increase in
gain-on-sale revenue which is detailed in Table 5 below. This was also
aided by a decrease in operating expenses, despite an 11 percent increase
in mortgage banking loan funding volume.
Compared to the fourth quarter of 2005, Loan Production sector pre-tax
earnings growth was driven by significantly higher gain-on-sale revenue, both
in terms of absolute dollars and as a percentage of production. This was
partially offset by an increase in costs that resulted from the Company's
continued investment in growing the loan sales force and branch distribution
network.
Table 4
Loan Production Sector
Pre-tax Earnings (1) Year Ended
Dec. 31, Dec. 31,
($ in millions) 2006 %(2) 2005 %(2)
Gain on sale of loans $4,898 1.16% $4,301 1.01%
Net warehouse spread 511 0.12% 607 0.14%
Miscellaneous income 317 0.08% 232 0.05%
Total revenues 5,726 1.36% 5,139 1.20%
Operating expenses (3,859) (0.92%) (3,070) (0.71%)
Allocated corporate expenses (556) (0.13%) (410) (0.10%)
Total expenses (4,415) (1.05%) (3,480) (0.81%)
Total Loan Production sector
pre-tax earnings $1,311 0.31% $1,659 0.39%
Total Mortgage Banking loan
funding volume $421,084 $427,916
(1) Numbers may not total exactly due to rounding
(2) Percentage based on loan funding volume
For the full year of 2006, Loan Production sector pre-tax earnings
decreased primarily as a result of an increase in expenses, partially
offset by an improvement in gain on sale.
Table 5
Loan Production Sector Gain on Sale (1)
Quarter Ended
Dec. 31, Sept. 30, Dec. 31,
($ in millions) 2006 2006 2005
Prime
Production $98,603 $87,713 $96,558
Loans sold $93,620 $84,656 $93,742
Gain on sale ("GOS") $866 $847 $606
GOS as % of loans sold 0.93% 1.00% 0.65%
Nonprime
Production $9,146 $9,336 $10,833
Loans sold $8,723 $10,585 $12,251
GOS $211 $144 $139
GOS as % of loans sold 2.41% 1.36% 1.14%
Home Equity
Production $9,996 $9,203 $9,496
Initial securitization/sale
Loans sold $6,811 $10,856 $7,025
GOS $152 $138 $97
GOS as % of loans sold 2.23% 1.27% 1.38%
Subsequent draws
Loans sold $1,105 $1,022 $916
GOS $35 $37 $33
GOS as % of loans sold 3.14% 3.64% 3.63%
Total production $117,745 $106,252 $116,887
Total loans sold $110,260 $107,119 $113,933
Total GOS $1,263 $1,166 $876
Total GOS as % of loans sold 1.15% 1.09% 0.77%
Total GOS as % of loans produced 1.07% 1.10% 0.75%
(1) Numbers may not be exact due to rounding
For the fourth quarter of 2006, overall gain-on-sale margins as a
percentage of loans sold increased 6 basis points from the prior quarter to
115 basis points. This increase resulted from increases in the nonprime and
home equity product categories, partially offset by a 7 basis point decline
in prime margins. Prime margins declined between the third and fourth
quarters primarily as a result of a decrease in higher-margin pay-option
ARM production and sales, as well as a mix shift to the lower margin
correspondent channel. Nonprime and home equity margins increased between
the third and fourth quarters as a result of lower credit enhancement
costs, a favorable shift in the mix of product types sold and improved
execution in the secondary market. Additionally, there are ongoing timing
mismatches that occur wherein losses and gains from the sale of loans, and
offsetting hedging gains and losses of the related loans were or will be
recognized in different periods because the inventory of nonprime and home
equity loans do not qualify for hedge accounting pursuant to SFAS 133. As
it relates to nonprime and home equity loans in the fourth quarter of 2006,
hedge losses were recorded in the third quarter and higher gain on sale was
recorded in the fourth quarter and hence the sequential quarter gain on
sale comparison was positively impacted for both nonprime and home equity.
Table 6
Loan Production Sector Gain on Sale (1) Year Ended
Dec. 31, Dec. 31,
($ in millions) 2006 2005
Prime
Production $344,370 $354,493
Loans sold $333,628 $340,483
Gain on sale ("GOS") $3,583 $2,787
GOS as % of loans sold 1.07% 0.82%
Nonprime
Production $36,752 $40,089
Loans sold $38,294 $43,774
GOS $704 $882
GOS as % of loans sold 1.84% 2.01%
Home Equity
Production $39,962 $33,334
Initial securitization/sale
Loans sold $26,812 $24,258
GOS $459 $510
GOS as % of loans sold 1.71% 2.10%
Subsequent draws
Loans sold $4,301 $3,332
GOS $152 $122
GOS as % of loans sold 3.52% 3.65%
Total production $421,084 $427,916
Total loans sold $403,035 $411,848
Total GOS $4,898 $4,301
Total GOS as % of loans sold 1.22% 1.04%
Total GOS as % of loans produced 1.16% 1.01%
(1) Numbers may not be exact due to rounding
For the full 2006 year, overall gain-on-sale margins as a percentage of
loans sold increased 18 basis points from the prior year to 122 basis
points. This increase resulted from improved gain-on-sale margins in prime
loans, which primarily resulted from improved secondary market execution on
pay-option ARM loans in 2006. Nonprime and Home Equity margins declined
primarily due to competitive market conditions.
Loan Servicing
The Loan Servicing sector reflects the performance of mortgage
servicing rights (MSRs) and retained interests associated with
Countrywide's owned servicing portfolio. Since MSRs generally perform best
in higher interest rate environments, management expects that earnings from
these assets will, over the various cycles, act as a natural
counter-balance to earnings from the Loan Production sector, which
typically performs best in lower interest rate environments. Countrywide
also manages a financial hedge within the Loan Servicing sector to further
mitigate any negative impact of valuation changes in MSRs and retained
interests.
The Loan Servicing sector's income statement and key operational
metrics are displayed below:
Table 7
Loan Servicing Sector Pre-tax Earnings (1)
Quarter Ended
($ in millions) Dec. 31, Dec. 31,
2006 % (2) 2005 % (2)
Servicing fees, net of
guarantee fees $1,010 0.321% $887 0.331%
Miscellaneous fees 198 0.063% 141 0.053%
Income from retained interests 127 0.040% 123 0.046%
Escrow balance income 240 0.076% 140 0.052%
Realization of expected
MSR cash flows (880) (0.279%) -- --
Amortization of MSRs -- -- (680) (0.254%)
Operating revenues 696 0.221% 610 0.228%
Direct expenses (188) (0.060%) (154) (0.057%)
Allocated corporate expenses (20) (0.006%) (18) (0.007%)
Total expenses (208) (0.066%) (172) (0.064%)
Operating earnings 488 0.155% 438 0.164%
Interest expense (218) (0.069%) (85) (0.032%)
Change in fair value of MSRs (48) (0.015%) -- --
Recovery of MSRs -- -- 301 0.112%
Impairment of retained interests (73) (0.023%) (68) (0.025%)
Servicing hedge losses (141) (0.045%) (281) (0.105%)
Valuation changes, net of
servicing hedge (262) (0.083%) (47) (0.018%)
Total Loan Servicing sector
pre-tax earnings $9 0.003% $306 0.114%
Average servicing portfolio
($ in billions) $1,261 $1,070
MSR portfolio capitalization
rate 1.38% 1.29%
(1) Numbers may not total exactly due to rounding
(2) Percentage based on average servicing portfolio; computation is
annualized
Quarterly Loan Servicing sector pre-tax earnings decreased year over
year as a result of both a negative swing of $215 million in the net
valuation changes of MSRs and retained interests and a $132 million
increase in interest expense. The primary sources of the negative valuation
movement were the increased investor yield requirements (wider option
adjusted spreads) and the impact of higher delinquencies on residual
valuations. The increase in interest expense primarily resulted from higher
prevailing interest rates on a larger servicing asset as well as increased
leverage in the Servicing sector stemming from the issuance of the $1.5
billion high-equity content debt securities that took place in the fourth
quarter of 2006 in connection with Countrywide's share repurchase program.
Delinquencies in the servicing portfolio were 5.02 percent at December
31, 2006, which compares to 4.61 percent at December 31, 2005. Foreclosures
in the servicing portfolio were 65 basis points at December 31, 2006, which
compares to 44 basis points at December 31, 2005. The year-over-year
increase in delinquencies and foreclosures is primarily the result of
portfolio seasoning, product mix and changing economic and housing market
conditions. The weighted average age of the loans in the portfolio at
December 31, 2006 was 22 months, while the age at December 31, 2005 was 19
months. The Company believes its asset valuations and reserves for credit
losses are appropriate for the increase in delinquencies.
Table 8
Loan Servicing Sector Pre-tax Earnings (1)
Year Ended
($ in millions) Dec. 31, Dec. 31,
2006 % (2) 2005 % (2)
Servicing fees, net of
guarantee fees $3,804 0.320% $3,194 0.333%
Miscellaneous fees 645 0.054% 509 0.053%
Income from retained interests 513 0.043% 456 0.048%
Escrow balance income 846 0.071% 367 0.038%
Realization of expected
MSR cash flows (3,193) (0.268%) -- --
Amortization of MSRs -- -- (2,288) (0.238%)
Operating revenues 2,616 0.220% 2,237 0.234%
Direct expenses (743) (0.062%) (648) (0.067%)
Allocated corporate expenses (86) (0.007%) (65) (0.007%)
Total expenses (829) (0.069%) (713) (0.074%)
Operating earnings 1,787 0.151% 1,525 0.160%
Interest expense (663) (0.056%) (354) (0.037%)
Change in fair value of MSRs 432 0.036% -- --
Recovery of MSRs -- -- 388 0.040%
Impairment of retained interests (282) (0.024%) (366) (0.038%)
Servicing hedge losses (614) (0.051%) (523) (0.055%)
Valuation changes, net of
servicing hedge (464) (0.039%) (501) (0.053%)
Total Loan Servicing sector
pre-tax earnings $660 0.056% $670 0.070%
Average servicing portfolio
($ in billions) $1,188 $960
(1) Numbers may not total exactly due to rounding
(2) Percentage based on average servicing portfolio
For the twelve months of 2006, Loan Servicing sector pre-tax earnings
declined modestly as a result of increased interest expense partially
offset by increased operating earnings resulting from the larger servicing
portfolio. The increase in interest expense was driven primarily by the
overall increase in servicing assets combined with an increase in interest
rates which drove up the Company's financing costs.
Loan Closing Services
Loan Closing Services are offered through Countrywide's LandSafe
companies, which primarily provide credit reports, appraisals and flood
determinations. The LandSafe companies' quarterly and annual pre-tax
earnings decreased from the prior year, primarily as a result of a decrease
in fundings.
BANKING
The Banking segment includes the fee and investment activities of
Countrywide Bank, N.A. ("Banking Operations") and Countrywide Warehouse
Lending, a provider of mortgage inventory financing to independent mortgage
bankers. Countrywide Bank ("Bank") provides Countrywide with expanded
product capabilities, a low cost source of funds, liquidity, and portfolio
lending capabilities that result in substantial recurring earnings. The
Bank invests primarily in high-quality residential mortgage loans sourced
from the Loan Production sector and the secondary market. It funds these
assets through its retail deposit franchise, which is comprised of an
expanding national financial center network of 99 locations (most of which
are located in existing Countrywide retail offices), call centers, and
Internet presence. The Bank also leverages its deposit base through a
variety of wholesale funding activities.
Key financial and operational results for the Banking segment as well
as the Banking Operations sector are noted in Tables 9 and 10 below with
additional details in tables at the end of this release:
Table 9
Banking Segment Pre-tax Earnings
Quarter Ended Year Ended
($ in millions) Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
2006 2005 Change 2006 2005 Change
Banking Operations $346 $314 10% $1,384 $1,017 36%
Countrywide
Warehouse Lending 13 24 (47%) 56 90 (38%)
Allocated corporate
expenses (16) (9) 76% (60) (33) 83%
Total Banking
segment pre-tax
earnings $343 $329 4% $1,380 $1,074 28%
Table 10
Banking Operations Pre-tax Earnings (1)
Quarter Ended Year Ended
($ in millions) Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
2006 2005 Change 2006 2005 Change
Net interest income $480 $377 27% $1,796 $1,281 40%
Provision for loan
losses (63) (10) 516% (154) (82) 89%
Non-interest income 38 40 (6%) 148 148 0%
Non-interest expense (109) (94) 16% (405) (330) 23%
Total Banking
Operations
pre-tax earnings $346 $314 10% $1,384 $1,017 36%
(1) Numbers may not total exactly due to rounding
Banking segment quarterly pre-tax earnings increased 4 percent year
over year, driven by a 10 percent increase in Banking Operations earnings.
The increase in earnings for Banking Operations in the fourth quarter of
2006 was driven by a $10 billion increase in interest-earning assets,
combined with a 24 basis point increase in the net interest margin (NIM)
when compared to the same period a year ago. The NIM increased from last
year primarily as a result of the reduced impact of introductory teaser
rates as significantly fewer pay-option ARM loans were added to the
portfolio in the fourth quarter of 2006 than in the year-ago quarter and a
smaller impact of the lag in repricing the Bank's loan portfolio compared
to its deposits, as the spread between the LIBOR and MTA indices narrowed.
The NIM increase was partially offset by a $53 million increase in the
provision for loan losses to $63 million for the fourth quarter of 2006.
The provision rose year over year primarily due to increased delinquencies.
Delinquencies (90+ days) at December 31, 2006 were 67 basis points, an
increase from 24 basis points at December 31, 2005, reflecting prevailing
real estate market and economic conditions and the seasoning of the Bank's
loan portfolio. The allowance for loan losses was $229 million at December
31, 2006 as compared to $103 million at December 31, 2005. Non-interest
expense increased $15.3 million from the fourth quarter last year to $109
million for the fourth quarter of 2006. The increase in non-interest
expense primarily resulted from increased costs of mortgage insurance.
Asset growth year over year was 13 percent for 2006 versus
year-over-year growth of 78 percent for 2005. The Company's strategic plan
calls for continued long-term growth in the Bank's assets, although asset
growth in any given period could materially vary based on a number of
factors. These factors include general mortgage market conditions, the
availability of assets which meet yield and credit criteria of the Bank,
secondary market execution alternatives and the Company's capital and
earnings considerations. The Bank has invested in new business lines to
supplement its current residential mortgage operations, as evidenced by the
recent introduction of its Commercial Real Estate portfolio lending, and
its Reverse Mortgage and Builder Finance lending units, which are all
expected to contribute to the Bank's earnings in 2007.
For the twelve months, pre-tax earnings rose 28 percent for the Banking
segment, driven by a 36 percent increase in earnings from Banking
Operations. Earnings in Banking Operations increased as a result of a 31
percent increase in interest-earning assets, as well as a 14 basis point
expansion in the NIM to 2.25 percent. The NIM increased primarily as a
result of a reduction in the teaser rate impact, together with favorable
product/spread mix changes. The benefit from the mix changes was somewhat
offset by the lag between the LIBOR and MTA indices. The NIM increase was
partially offset by a $72.4 million increase in the loan loss provision for
the reasons discussed above, as well as an increase in non-interest
expense. The increase in non-interest expense primarily resulted from costs
to support new product initiatives and additional financial centers,
fulfillment and other expenses associated with portfolio growth, as well as
increased cost of mortgage insurance.
The Bank has taken steps in recent years to credit enhance its
investment loan portfolio by acquiring supplemental mortgage insurance
coverage. Prior to 2006, such coverage provided protection on second lien
mortgages only. During 2006, coverage on certain first lien pay-option ARM
loans was purchased as well. As of December 31, 2006, $9.1 billion of the
residential lending portfolio of the Bank, representing 13 percent of its
total loan portfolio, is covered by supplemental mortgage insurance on
specified pools of loans. The maximum coverage available under these
policies is $500 million. The Bank is also in the process of closing pool
insurance transactions covering an additional $10.2 billion in loans. The
Company anticipates these transactions will be finalized in the first
quarter of 2007.
In addition to this, the Bank has $3.5 billion of loans in its
investment portfolio, representing 5 percent of the total, covered by
borrower-paid mortgage insurance. The maximum coverage available under the
borrower-paid mortgage insurance is $0.9 billion.
CAPITAL MARKETS
The Capital Markets segment includes a registered securities broker-
dealer, a distressed-asset manager and a commercial real estate finance
group. Financial results for the Capital Markets segment are noted below
with operational metrics in the tables at the end of this release:
Table 11
Capital Markets Segment
Pre-tax Earnings (1)
Quarter Ended Year Ended
($ in millions) Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
2006 2005 Change 2006 2005 Change
Revenues
Conduit $47 $80 (42%) $395 $301 31%
Underwriting 73 81 (10%) 295 272 8%
Securities trading 29 25 16% 114 93 23%
Commercial real
estate 34 23 49% 104 67 55%
Brokering 11 14 (24%) 37 36 3%
Other 21 14 49% 49 29 67%
Total revenues 214 237 (10%) 993 798 24%
Expenses
Operating expenses 107 102 5% 410 333 23%
Allocated corporate
expenses 8 3 179% 29 14 114%
Total expenses 115 105 10% 440 347 27%
Total Capital
Markets segment
pre-tax earnings $99 $133 (25%) $554 $452 23%
(1) Numbers may not total exactly due to rounding
Quarterly pre-tax earnings for the Capital Markets segment decreased
$33 million from the fourth quarter last year, primarily a result of lower
conduit and underwriting revenues. For the twelve months, pre-tax earnings
in the Capital Markets segment rose $102 million over last year to $554
million, fueled by a $93 million increase in conduit revenues, a $23
million increase in underwriting revenues and a $37 million increase in
commercial real estate revenues.
INSURANCE
Countrywide's Insurance segment includes Balboa Insurance Group, whose
companies are national providers of property, life and casualty insurance;
and Balboa Reinsurance Company, a captive mortgage reinsurance company.
Financial results for the Insurance segment are noted below with
operational metrics in the tables at the end of this release:
Table 12
Insurance Segment Pre-tax Earnings (1)
Quarter Ended Year Ended
($ in millions) Dec. 31, Dec. 31, % Dec. 31, Dec. 31, %
2006 2005 Change 2006 2005 Change
Balboa Reinsurance
Company $56 $58 (3%) $216 $179 21%
Balboa Life &
Casualty 29 49 (42%) 138 24 481%
Allocated corporate
expenses (10) (4) 144% (34) (19) 80%
Total Insurance
segment pre-tax
earnings $75 $104 (27%) $320 $184 74%
(1) Numbers may not total exactly due to rounding
For the fourth quarter of 2006, Insurance segment pre-tax results
declined $28 million year over year. This decline resulted from a $21
million earnings decrease at Balboa Life & Casualty.
For the twelve months, pre-tax earnings in the Insurance segment rose
74 percent from last year to $320 million. This year-over-year improvement
is primarily fueled by an increase in earnings at Balboa Life & Casualty,
which benefited from fewer catastrophe losses in 2006 as compared to 2005,
as well as 23 percent growth in net premiums earned. Balboa Reinsurance
also increased its pre-tax earnings by 21 percent, driven by a 15 percent
increase in the reinsurance portfolio as well as an increase in the
percentage of policies earning a higher reinsurance premium.
DIVIDEND DECLARATION
Countrywide's Board of Directors declared a dividend of $0.15 per
share. The payable date on the dividend is February 28, 2007 to
stockholders of record on February 9, 2007.
OUTLOOK
Management's outlook for 2007 contemplates that current difficult
market conditions will continue. The Company believes the industry will
experience continued pressure on volumes, margins and housing prices, as
well as increased defaults and foreclosures. As a result, 2007 is
anticipated to be a challenging year for the Company. However, the Company
also believes that these dynamics will result in further industry
consolidation as companies either exit the business or attempt to align
themselves with stronger players. Management believes the Company is very
well positioned to capitalize on these market opportunities which should
strengthen Countrywide's franchise and result in accelerated future market
share and earnings growth.
EARNINGS GUIDANCE
Countrywide's guidance for 2007 is as follows:
Table 13 2007 Guidance
January 30, 2007
CFC Consolidated Earnings
Diluted EPS $3.80 to $4.80
Market
Total mortgage market ($ in trillions) $2.2 to $3.0
Average 10-year U.S. Treasury yield 4.20% to 5.20%
Average 3-month LIBOR 4.60% to 5.80%
Production
Company-wide loan origination
volume ($ in billions) (1) $375 to $525
Loan production sector pre-tax margins (2) 15 bps to 35 bps
Servicing
Average loan servicing portfolio
($ in trillions) (3) $1.3 to $1.4
Loan servicing sector pre-tax margins,
net hedge 3 bps to 8 bps
(1) Includes production from the Mortgage Banking, Banking and Capital
Markets segments
(2) Denominator is based on company-wide loan origination volume
(3) Total portfolio, including retained servicing, inventory, Bank
portfolio and subservicing
The earnings estimates and assumptions and other projections provided
in this press release should be considered forward-looking statements and
readers are directed to the information contained in the disclaimer
provided herein.
Conference Call
Countrywide will host a live conference call to discuss quarterly
results today at 12:00 pm Eastern. The dial-in number for the live
conference call is (800) 230-1951 (U.S.) or (612) 332-0335 (International).
The management discussion will be available for replay through midnight
Pacific on Tuesday, February 13, 2007. The replay dial-in numbers and
access code are (800) 475-6701 (U.S.) / (320) 365-3844 (International) and
858014, respectively.
About Countrywide
Founded in 1969, Countrywide Financial Corporation is a diversified
financial services provider and a member of the S&P 500, Forbes 2000 and
Fortune 500. Through its family of companies, Countrywide originates,
purchases, securitizes, sells, and services prime and nonprime loans;
provides loan closing services such as credit reports, appraisals and flood
determinations; offers banking services which include depository and home
loan products; conducts fixed income securities underwriting and trading
activities; provides property, life and casualty insurance; and manages a
captive mortgage reinsurance company. For more information about the
Company, visit Countrywide's website at http://www.countrywide.com. This press
release does not constitute an offer of any securities for sale.
This Press Release contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding management's beliefs, estimates, projections, and assumptions
with respect to, among other things, the Company's future operations,
business plans and strategies, as well as industry and market conditions,
all of which are subject to change. Actual results and operations for any
future period may vary materially from those projected herein and from past
results discussed herein. Factors which could cause actual results to
differ materially from historical results or those anticipated include, but
are not limited to: competitive and general economic conditions in each of
our business segments such as slower or negative home price appreciation;
changes in general business, economic, market and political conditions in
the United States and abroad from those expected; loss of investment grade
ratings that may result in an increase in the cost of debt or loss of
access to corporate debt markets; reduction in government support of
homeownership; the level and volatility of interest rates; changes in
interest rate paths; increases in the delinquency rates of borrowers;
changes in generally accepted accounting principles or in the legal,
regulatory and legislative environments in the markets in which the Company
operates; the ability of management to effectively implement the Company's
strategies; and other risks noted in documents filed by the Company with
the Securities and Exchange Commission from time to time. Words like
"believe," "expect," "anticipate," "promise," "plan," and other expressions
or words of similar meanings, as well as future or conditional verbs such
as "will," "would," "should," "could," or "may" are generally intended to
identify forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements.
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Quarters Ended
December 31, %
(in thousands, except per share data) 2006 2005 Change
(unaudited)
Revenues
Gain on sale of loans and
securities $1,419,318 $1,069,628 33%
Interest income 3,328,545 2,472,290 35%
Interest expense (2,590,063) (1,802,260) 44%
Net interest income 738,482 670,030 10%
Provision for loan losses (70,815) (24,128) 193%
Net interest income after
provision for loan losses 667,667 645,902 3%
Loan servicing fees and other
income from mortgage servicing
rights and retained interests 1,324,963 1,186,214 12%
Realization of expected cash
flows from mortgage servicing
rights (879,685) -- N/M
Amortization of mortgage servicing
rights -- (680,443) N/M
Change in fair value of mortgage
servicing rights (47,722) -- N/M
Recovery of mortgage servicing rights -- 301,393 N/M
Impairment of retained interests (73,677) (68,110) 8%
Servicing hedge losses (141,115) (280,703) (50%)
Net loan servicing fees and other
income from mortgage servicing
rights and retained interests 182,764 458,351 (60%)
Net insurance premiums earned 306,640 298,572 3%
Other 182,080 119,809 52%
Total revenues 2,758,469 2,592,262 6%
Expenses
Compensation 1,016,559 990,247 3%
Occupancy and other office 265,845 237,624 12%
Insurance claims 120,336 93,105 29%
Advertising and promotion 65,781 63,977 3%
Other 305,411 195,099 57%
Total expenses 1,773,932 1,580,052 12%
Earnings before income taxes 984,537 1,012,210 (3%)
Provision for income taxes 362,956 373,315 (3%)
NET EARNINGS $621,581 $638,895 (3%)
Earnings per Share:
Basic $1.04 $1.07 (3%)
Diluted $1.01 $1.03 (2%)
Weighted Average Shares Outstanding:
Basic 598,940 597,865 0%
Diluted 614,482 617,493 0%
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended
December 31, %
(in thousands, except per share data) 2006 2005 Change
(unaudited) (audited)
Revenues
Gain on sale of loans and
securities $5,681,847 $4,861,780 17%
Interest income 12,056,043 7,970,045 51%
Interest expense (9,133,682) (5,616,425) 63%
Net interest income 2,922,361 2,353,620 24%
Provision for loan losses (233,847) (115,685) 102%
Net interest income after
provision for loan losses 2,688,514 2,237,935 20%
Loan servicing fees and other
income from mortgage servicing
rights and retained interests 4,960,550 4,281,254 16%
Realization of expected cash
flows from mortgage servicing
rights (3,193,740) -- N/M
Amortization of mortgage servicing
rights -- (2,288,354) N/M
Change in fair value of mortgage
servicing rights 432,241 -- N/M
Recovery of mortgage servicing rights -- 387,851 N/M
Impairment of retained interests (284,690) (364,506) (22%)
Servicing hedge losses (613,706) (523,078) 17%
Net loan servicing fees and other
income from mortgage servicing
rights and retained interests 1,300,655 1,493,167 (13%)
Net insurance premiums earned 1,171,433 953,647 23%
Other 574,679 470,179 22%
Total revenues 11,417,128 10,016,708 14%
Expenses
Compensation 4,373,985 3,615,483 21%
Occupancy and other office 1,030,164 879,680 17%
Insurance claims 449,138 441,584 2%
Advertising and promotion 260,652 229,183 14%
Other 969,054 703,012 38%
Total expenses 7,082,993 5,868,942 21%
Earnings before income taxes 4,334,135 4,147,766 4%
Provision for income taxes 1,659,289 1,619,676 2%
NET EARNINGS $2,674,846 $2,528,090 6%
Earnings per Share:
Basic $4.42 $4.28 3%
Diluted $4.30 $4.11 5%
Weighted Average Shares Outstanding:
Basic 605,143 590,982 2%
Diluted 622,298 615,873 1%
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31, %
(in thousands, except share data) 2006 2005 Change
(unaudited) (audited)
Assets
Cash $1,407,000 $1,031,108 36%
Mortgage loans held for sale 31,272,630 36,808,185 (15%)
Trading securities owned,
at fair value 20,036,668 10,314,384 94%
Trading securities pledged as
collateral, at fair value 1,465,517 668,189 119%
Securities purchased under
agreements to resell,
securities borrowed and
federal funds sold 27,269,897 23,317,361 17%
Loans held for investment,
net of allowance for loan
losses of $261,054 and
$189,201, respectively 78,085,757 69,865,447 12%
Investments in other financial
instruments, at fair value 12,769,451 11,260,725 13%
Mortgage servicing rights,
at fair value 16,172,064 -- N/M
Mortgage servicing rights, net -- 12,610,839 N/M
Premises and equipment, net 1,625,456 1,279,659 27%
Other assets 9,841,790 7,929,473 24%
Total assets $199,946,230 $175,085,370 14%
Liabilities
Deposit liabilities $55,578,682 $39,438,916 41%
Securities sold under agreements
to repurchase and federal funds
purchased 42,113,501 34,153,205 23%
Trading securities sold, not yet
purchased, at fair value 3,325,249 2,285,171 46%
Notes payable 71,487,584 76,187,886 (6%)
Accounts payable and accrued
liabilities 8,187,605 6,358,158 29%
Income taxes payable 4,935,763 3,846,174 28%
Total liabilities 185,628,384 162,269,510 14%
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,
585,466,719 shares and
600,169,268 shares at
December 31, 2006 and 2005,
respectively; outstanding,
585,182,298 shares and
600,030,686 shares at
December 31, 2006 and 2005,
respectively 29,273 30,008 (2%)
Additional paid-in capital 2,154,438 2,954,019 (27%)
Accumulated other comprehensive
(loss) income (17,556) 61,114 N/M
Retained earnings 12,151,691 9,770,719 24%
Total shareholders' equity 14,317,846 12,815,860 12%
Total liabilities and
shareholders' equity $199,946,230 $175,085,370 14%
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND MORTGAGE SERVICING RIGHTS
December 31, December 31, %
(in thousands) 2006 2005 Change
(unaudited) (audited)
Loans Held for Investment, Net
Mortgage loans $72,212,106 $63,780,980 13%
Warehouse lending advances
secured by mortgage loans 3,185,248 3,943,046 (19%)
Defaulted FHA-insured and
VA-guaranteed loans repurchased
from securities 1,760,484 1,392,398 26%
77,157,838 69,116,424 12%
Purchase premiums and discounts,
and deferred loan origination
fees and costs, net 1,188,973 938,224 27%
Allowance for loan losses (261,054) (189,201) 38%
Total loans held for
investment, net $78,085,757 $69,865,447 12%
Other Assets
Reimbursable servicing
advances, net $2,121,486 $2,124,317 0%
Securities broker-dealer
receivables 1,605,502 392,847 309%
Investments in Federal Reserve
Bank and Federal Home Loan Bank
stock 1,433,070 1,334,100 7%
Interest receivable 997,854 777,966 28%
Receivables from custodial
accounts 719,048 629,075 14%
Capitalized software, net 367,055 331,454 11%
Prepaid expenses 320,597 187,377 71%
Cash surrender value of assets
held in trust for deferred
compensation plans 319,864 224,884 42%
Receivables from sale of securities 284,177 325,327 (13%)
Real estate acquired in settlement
of loans 251,163 110,499 127%
Restricted cash 238,930 252,285 (5%)
Derivative margin accounts 118,254 296,005 (60%)
Other assets 1,064,790 943,337 13%
Total other assets $9,841,790 $7,929,473 24%
Mortgage Servicing Rights
Balance at December 31, 2005,
net of impairment reserve $12,610,839
Remeasurement to fair value
upon adoption of SFAS 156 109,916
Balance at January 1, 2006,
at fair value 12,720,755
Additions:
Servicing resulting from
transfers of financial
assets 6,063,170
Purchases of servicing assets 149,638
6,212,808
Change in fair value:
Due to changes in valuation
inputs or assumptions used
in valuation model (1) 432,241
Other changes in fair
value (2) (3,193,740)
Balance at December 31, 2006,
at fair value $16,172,064
(1) Mostly reflects changes in discount rates and prepayment speed
assumptions, mostly due to changes in interest rates.
(2) Represents changes due to realization of expected cash flows.
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
December 31, December 31, %
(in thousands) 2006 2005 Change
(unaudited) (audited)
Investments in Other Financial
Instruments, at Fair Value
Available-for-sale securities:
Mortgage-backed securities $7,007,786 $6,866,520 2%
Obligations of
U.S. Government-sponsored
enterprises 776,717 547,715 42%
Municipal bonds 412,886 369,748 12%
U.S. Treasury securities 168,313 144,951 16%
Other 2,858 3,109 (8%)
Subtotal 8,368,560 7,932,043 6%
Interests retained in securitization
accounted for as available-for-sale
securities:
Prime interest-only and
principal-only securities 279,375 323,368 (14%)
Nonprime residual securities 147,703 206,033 (28%)
Prime home equity line of credit
transferor's interest 144,346 158,416 (9%)
Prepayment penalty bonds 52,697 112,492 (53%)
Prime home equity residual
securities 40,766 124,377 (67%)
Prime home equity interest-only
securities 7,021 15,136 (54%)
Prime residual securities 6,477 21,383 (70%)
Nonprime interest-only securities 3,757 9,455 (60%)
Subordinated mortgage-backed
pass-through securities 1,382 2,059 (33%)
Total interests retained in
securitization accounted for
as available-for-sale
securities 683,524 972,719 (30%)
Total available-for-sale
securities 9,052,084 8,904,762 2%
Interests retained in securitization
accounted for as trading securities:
Prime home equity residual
securities 737,808 757,762 (3%)
Prime home equity line of credit
transferor's interest 553,701 95,514 480%
Prime interest-only and
principal-only securities 549,635 180,216 205%
Nonprime residual securities 374,139 341,106 10%
Prepayment penalty bonds 90,666 -- N/M
Prime residual securities 26,145 43,244 (40%)
Prime home equity interest-only
securities 22,467 -- N/M
Interest rate swaps 2,490 782 218%
Total interests retained
in securitization accounted
for as trading securities 2,357,051 1,418,624 66%
Hedging instruments and mortgage
pipeline derivatives:
Mortgage servicing related 837,908 741,156 13%
Notes payable related 444,342 107,085 315%
Mortgage loans held for sale
and pipeline related 78,066 89,098 (12%)
Total investments in other
financial instruments $12,769,451 $11,260,725 13%
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Quarters Ended
December 31, %
(dollar amounts in millions) 2006 2005 Change
Production by segment:
Mortgage Banking $117,745 $116,887 1%
Capital Markets - conduit
acquisitions 2,716 8,629 (69%)
Banking Operations 1,443 8,252 (83%)
Total Mortgage Loan Fundings 121,904 133,768 (9%)
Commercial real estate 2,362 1,516 56%
Total Loan Fundings $124,266 $135,284 (8%)
Number of loans produced 642,858 701,671 (8%)
Loan closing services (units):
Number of credit reports, flood
determinations, appraisals,
automated property valuation
services, title reports, default
title orders, other title and
escrow services, and home
inspections 5,391,256 5,273,624 2%
Years Ended
December 31, %
(dollar amounts in millions) 2006 2005 Change
Production by segment:
Mortgage Banking $421,084 $427,916 (2%)
Capital Markets - conduit
acquisitions 17,658 21,028 (16%)
Banking Operations 23,759 46,432 (49%)
Total Mortgage Loan Fundings 462,501 495,376 (7%)
Commercial real estate 5,671 3,925 44%
Total Loan Fundings $468,172 $499,301 (6%)
Number of loans produced 2,507,051 2,730,132 (8%)
Loan closing services (units):
Number of credit reports, flood
determinations, appraisals,
automated property valuation
services, title reports, default
title orders, other title and
escrow services, and home
inspections 22,930,682 21,975,720 4%
December 31, %
2006 2005 Change
Mortgage loan pipeline
(loans-in-process) $57,217 $59,651 (4%)
Loan servicing portfolio (1) $1,298,394 $1,111,090 17%
Number of loans serviced (1) 8,198,873 7,431,949 10%
MSR portfolio (2) $1,174,874 $979,204 20%
Assets of Banking Operations
(in billions) $83 $73 13%
(1) Includes loans held for sale, loans held for investment and loans
serviced for others, including those under subservicing agreements.
(2) Represents loan servicing portfolio reduced by loans held for sale,
loans held for investment and subservicing.
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
Quarter Ended December 31, 2006
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale
of loans
and
securities $1,263,360 $(5) $-- $1,263,355
Net interest
income after
provision
for loan
losses 135,673 22,847 3,025 161,545
Net loan
servicing
fees(1) -- 192,615 -- 192,615
Net
insurance
premiums
earned -- -- -- --
Other
revenue(2) 90,073 17,786 77,234 185,093
Total
revenues 1,489,106 233,243 80,259 1,802,608
Expenses 1,067,608 224,596 57,078 1,349,282
Earnings
before
income
taxes $421,498 $8,647 $23,181 $453,326
Quarter Ended December 31, 2006
(in Capital Insur- Global Grand
thousands) Banking Markets ance Operations Other Total
Revenues
Gain on sale
of loans
and
securities $-- $140,758 $-- $-- $15,205 $1,419,318
Net interest
income after
provision
for loan
losses 433,250 54,292 15,094 1,231 2,255 667,667
Net loan
servicing
fees(1) -- 1,349 (339) 1 (10,862) 182,764
Net
insurance
premiums
earned -- -- 306,640 -- -- 306,640
Other
revenue(2) 40,483 17,962 29,791 26,638 (117,887) 182,080
Total
revenues 473,733 214,361 351,186 27,870 (111,289) 2,758,469
Expenses 130,612 115,123 276,086 15,667 (112,838) 1,773,932
Earnings
before
income
taxes $343,121 $99,238 $75,100 $12,203 $1,549 $984,537
Quarter Ended December 31, 2005
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale
of loans
and
securities $876,043 $3,120 $-- $879,163
Net interest
income after
provision
for loan
losses 134,325 54,695 1,032 190,052
Net loan
servicing
fees(3) -- 439,447 -- 439,447
Net
insurance
premiums
earned -- -- -- --
Other
revenue(2) 55,977 (7,843) 70,772 118,906
Total
revenues 1,066,345 489,419 71,804 1,627,568
Expenses 964,411 183,766 45,482 1,193,659
Earnings
(loss)
before
income
taxes $101,934 $305,653 $26,322 $433,909
Quarter Ended December 31, 2005
(in Capital Insur- Global Grand
thousands) Banking Markets ance Operations Other Total
Revenues
Gain on sale
of loans
and
securities $-- $178,571 $-- $-- $11,894 $1,069,628
Net interest
income after
provision
for loan
losses 391,953 49,513 14,608 901 (1,125) 645,902
Net loan
servicing
fees(3) -- 1,200 -- 25,993 (8,289) 458,351
Net
insurance
premiums
earned -- -- 298,572 -- -- 298,572
Other
revenue(2) 46,408 7,981 10,026 37,690 (101,202) 119,809
Total
revenues 438,361 237,265 323,206 64,584 (98,722) 2,592,262
Expenses 109,246 104,576 219,656 46,744 (93,829) 1,580,052
Earnings
(loss)
before
income
taxes $329,115 $132,689 $103,550 $17,840 $(4,893) $1,012,210
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, change in
fair value of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
(2) Consists primarily of revenues from ancillary products and services,
including title, escrow, appraisal, credit reporting and home
inspection services and insurance agency commissions.
(3) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, net of
amortization of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
COUNTRYWIDE FINANCIAL CORPORATION
YEAR-TO-DATE SEGMENT ANALYSIS
(Unaudited)
Year Ended December 31, 2006
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale
of loans
and
securities $4,897,771 $2,630 $-- $4,900,401
Net interest
income after
provision
for loan
losses 511,355 182,451 9,509 703,315
Net loan
servicing
fees(1) -- 1,323,248 -- 1,323,248
Net
insurance
premiums
earned -- -- -- --
Other
revenue(2) 316,990 38,468 295,505 650,963
Total
revenues 5,726,116 1,546,797 305,014 7,577,927
Expenses 4,415,221 886,776 213,531 5,515,528
Earnings
(loss)
before
income
taxes $1,310,895 $660,021 $91,483 $2,062,399
Year Ended December 31, 2006
(in Capital Insur- Global Grand
thousands) Banking Markets ance Operations Other Total
Revenues
Gain on sale
of loans
and
securities $-- $717,007 $-- $-- $64,439 $5,681,847
Net interest
income after
provision
for loan
losses 1,706,957 210,544 55,248 3,670 8,780 2,688,514
Net loan
servicing
fees(1) 529 5,664 (1,949) 12,034 (38,871) 1,300,655
Net
insurance
premiums
earned -- -- 1,171,433 -- -- 1,171,433
Other
revenue(2) 164,110 59,938 68,399 77,882 (446,613) 574,679
Total
revenues 1,871,596 993,153 1,293,131 93,586 (412,265) 11,417,128
Expenses 491,212 439,653 972,998 64,944 (401,342) 7,082,993
Earnings
(loss)
before
income
taxes $1,380,384 $553,500 $320,133 $28,642 $(10,923) $4,334,135
Year Ended December 31, 2005
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale
of loans
and
securities $4,300,579 $32,595 $-- $4,333,174
Net interest
income after
provision
for loan
losses 607,041 12,693 3,406 623,140
Net loan
servicing
fees(3) -- 1,404,149 -- 1,404,149
Net
insurance
premiums
earned -- -- -- --
Other
revenue(2) 231,774 (24,769) 274,240 481,245
Total
revenues 5,139,394 1,424,668 277,646 6,841,708
Expenses 3,479,937 755,057 172,189 4,407,183
Earnings
(loss)
before
income
taxes $1,659,457 $669,611 $105,457 $2,434,525
Year Ended December 31, 2005
(in Capital Insur- Global Grand
thousands) Banking Markets ance Operations Other Total
Revenues
Gain on sale
of loans
and
securities $(808) $499,139 $-- $-- $30,275 $4,861,780
Net interest
income after
provision
for loan
losses 1,289,711 261,999 50,512 3,648 8,925 2,237,935
Net loan
servicing
fees(3) -- 4,587 5,881 108,378 (29,828) 1,493,167
Net
insurance
premiums
earned -- -- 953,647 -- -- 953,647
Other
revenue(2) 171,963 32,526 49,501 122,016 (387,072) 470,179
Total
revenues 1,460,866 798,251 1,059,541 234,042 (377,700) 10,016,708
Expenses 386,386 346,622 875,825 198,689 (345,763) 5,868,942
Earnings
(loss)
before
income
taxes $1,074,480 $451,629 $183,716 $35,353 $(31,937) $4,147,766
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, change in
fair value of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
(2) Consists primarily of revenues from ancillary products and services,
including title, escrow, appraisal, credit reporting and home
inspection services and insurance agency commissions.
(3) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, net of
amortization of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
PAY-OPTION LOANS HELD FOR INVESTMENT,
PRODUCTION AND ACQUISITIONS OF LOANS HELD FOR INVESTMENT AND
CREDIT QUALITY
(Unaudited)
December 31, December 31,
(in thousands) 2006 2005
Pay-option ARM
loans held for
investment:
Total pay-option
ARM loan portfolio $32,732,581 $26,101,306
Pay-option ARM loans
with accumulated
negative
amortization:
Principal $28,958,718 $13,963,721
Accumulated
negative
amortization
(from original
loan balance) $653,974 $74,748
Quarters Ended Years Ended
December 31, % December 31, %
(in thousands) 2006 2005 Change 2006 2005 Change
Interest
capitalized
on loans $242,236 $69,440 249% $723,012 $123,457 486%
Quarters Ended Years Ended
December 31, % December 31, %
(in millions) 2006 2005 Change 2006 2005 Change
Production and
bulk acquisitions
of loans held for
investment by
channel:
Bulk
Acquisitions(1) $1,333 $638 109% $8,196 $4,429 85%
Consumer Markets 48 2,763 (98%) 2,117 9,296 (77%)
Correspondent
Lending 40 1,911 (98%) 7,302 13,529 (46%)
Wholesale Lending 22 2,940 (99%) 6,144 19,178 (68%)
Total
production
and purchases
of loans held
for investment $1,443 $8,252 (83%) $23,759 $46,432 (49%)
(1) Acquisitions from third parties
(dollar amounts December 31, December 31,
in thousands) 2006 2005
Non-performing
residential
loans: % assets % assets
With third
party credit
enhancement(2) $109,218 0.13% $35,988 0.05%
Without third
party credit
enhancement 409,865 0.50% 117,954 0.16%
519,083 0.63% 153,942 0.21%
Foreclosed
real estate 27,416 0.03% 4,258 0.01%
Total
non-performing
assets $546,499 0.66% $158,200 0.22%
Allowances for
credit losses $228,692 $102,756
Allowances for
credit losses as
a percentage of:
Total
non-performing
loans 44.06% 66.75%
Total
non-performing
loans without
third party
credit
enhancements 55.80% 87.12%
Total loans held
for investment 0.31% 0.16%
Year Ended Year Ended
December 31, 2006 December 31, 2005
Net Net
charge-offs charge-offs
as % average as % average
investment investment
loans loans
Net charge-offs: $33,718 0.05% $6,779 0.01%
(2) Third party credit enhancements include borrower-paid mortgage
insurance and pool mortgage insurance acquired by the Banking
Operations.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
SUMMARY INFORMATION, AVERAGE BALANCE SHEET AND LOAN QUALITY
(Unaudited)
Summary Information December 31,
(dollar amounts in thousands) 2006 2005
After-tax return on average assets 1.05% 1.01%
After-tax return on average equity 15.4% 15.5%
Period end:
Total assets $82,774,568 $73,026,606
Total equity $6,338,382 $5,273,389
Total investment loan
portfolio, net $73,481,762 $64,279,198
Average Balance Sheet Quarter Ended December 31, 2006
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $34,894,570 $628,112 7.20%
Hybrid & other 1st liens 19,773,771 273,517 5.53%
Home equity loans 19,325,861 404,556 8.33%
Warehouse lending advances 303,963 3,181 4.19%
Construction loans 8,812 179 8.12%
Other assets 7,073,563 87,132 4.81%
Total interest-earning
assets $81,380,540 $1,396,677 6.84%
Interest-bearing liabilities
Money market & savings deposits $9,479,408 $125,687 5.26%
Escrow deposits 17,235,087 224,964 5.18%
Time deposits (CDs) 30,317,593 383,017 5.01%
FHLB advances 15,963,099 166,539 4.14%
Other borrowings 1,195,219 16,213 5.38%
Total interest-bearing
liabilities $74,190,406 $916,420 4.90%
Net interest spread 1.94%
Net interest margin 2.38%
Average Balance Sheet Quarter Ended December 31, 2005
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $23,697,015 $320,743 5.41%
Hybrid & other 1st liens 23,427,741 296,232 5.06%
Home equity loans 15,121,520 287,179 7.55%
Warehouse lending advances -- -- 0.00%
Construction loans -- -- 0.00%
Other assets 8,733,123 104,291 4.77%
Total interest-earning
assets $70,979,399 $1,008,445 5.67%
Interest-bearing liabilities
Money market & savings deposits $3,951,535 $39,057 3.92%
Escrow deposits 15,039,738 144,790 3.82%
Time deposits (CDs) 19,931,779 197,213 3.93%
FHLB advances 25,379,547 240,528 3.76%
Other borrowings 871,833 9,238 4.20%
Total interest-bearing
liabilities $65,174,432 $630,826 3.84%
Net interest spread 1.83%
Net interest margin 2.14%
Average Balance Sheet Year Ended December 31, 2006
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $33,157,106 $2,210,070 6.67%
Hybrid & other 1st liens 21,286,201 1,145,354 5.38%
Home equity loans 17,424,042 1,431,913 8.22%
Warehouse lending advances 75,991 3,181 4.19%
Construction loans 2,204 179 8.12%
Other assets 7,802,789 391,763 5.02%
Total interest-earning
assets $79,748,333 $5,182,460 6.50%
Interest-bearing liabilities
Money market & savings deposits $6,755,339 $334,134 4.95%
Escrow deposits 15,790,741 775,484 4.91%
Time deposits (CDs) 27,308,975 1,277,143 4.68%
FHLB advances 21,496,353 910,281 4.23%
Other borrowings 1,771,797 89,421 5.05%
Total interest-bearing
liabilities $73,123,205 $3,386,463 4.63%
Net interest spread 1.87%
Net interest margin 2.25%
Average Balance Sheet Year Ended December 31, 2005
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $15,516,845 $703,089 4.53%
Hybrid & other 1st liens 22,944,122 1,161,064 5.06%
Home equity loans 14,280,048 997,126 6.98%
Warehouse lending advances -- -- 0.00%
Construction loans -- -- 0.00%
Other assets 7,945,961 358,311 4.51%
Total interest-earning
assets $60,686,976 $3,219,590 5.31%
Interest-bearing liabilities
Money market & savings deposits $2,735,107 $98,878 3.62%
Escrow deposits 11,895,480 382,332 3.21%
Time deposits (CDs) 16,204,803 585,139 3.61%
FHLB advances 22,086,532 769,711 3.48%
Other borrowings 3,175,166 102,390 3.22%
Total interest-bearing
liabilities $56,097,088 $1,938,450 3.46%
Net interest spread 1.85%
Net interest margin 2.11%
Loan Quality (1)
December 31, 2006
LTV CLTV FICO
Pay-option ARMs 75% 78% 718
Hybrid & other 1st liens 74% 79% 733
Home equity loans 20% 80% 731
Loan Quality (1)
December 31, 2005
LTV CLTV FICO
Pay-option ARMs 75% 78% 720
Hybrid & other 1st liens 75% 79% 736
Home equity loans 19% 79% 728
(1) At time of origination; LTV=loan-to-value ratio; CLTV=combined LTV,
which included second mortgages at time of origination; FICO is a
commonly used credit scoring measure
COUNTRYWIDE FINANCIAL CORPORATION
OTHER OPERATIONS
CAPITAL MARKETS SECURITIES AND INSURANCE SEGMENT
(Unaudited)
Quarters Ended Years Ended
December 31, % December 31, %
(in millions) 2006 2005 Change 2006 2005 Change
Capital Markets
Securities
Trading
Volume: (1)
Mortgage-
backed
securities $551,615 $438,228 26% $2,190,008 $1,841,783 19%
U.S. Treasury
securities 361,346 315,926 14% 1,326,681 1,420,217 (7%)
Asset-backed
securities 36,047 50,931 (29%) 161,434 163,975 (2%)
Other 38,291 58,910 (35%) 154,777 125,508 23%
Total
securities
trading
volume $987,299 $863,995 14% $3,832,900 $3,551,483 8%
(1) Includes trades with Mortgage Banking Segment.
Insurance Segment
(dollar Quarters Ended Years Ended
amounts December 31, % December 31, %
in thousands) 2006 2005 Change 2006 2005 Change
Balboa Life
& Casualty:
Lender-placed
net premiums
earned $148,078 $154,646 (4%) $538,655 $487,787 10%
Voluntary net
premiums
earned $98,576 $94,736 4% $409,165 $285,144 43%
Loss ratio 44% 37% 44% 53%
Combined ratio 82% 80% 83% 99%
Quarters Ended Years Ended
December 31, % December 31, %
2006 2005 Change 2006 2005 Change
Balboa
Reinsurance:
(in thousands)
Reinsurance
net earned
premiums $59,986 $49,190 22% $223,613 $180,716 24%
(in billions)
Period end:
Loans in CFC
servicing
portfolio
covered by
Balboa
Reinsurance $90 $78 15%
SOURCE Countrywide Financial Corporation
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CONTACT:
Investors, David Bigelow or Lisa Riordan,
both of Countrywide Financial Corporation, +1-818-225-3550, or
Countrywide Media Relations, +1-800-796-8448
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