- 2007 Guidance Updated at $3.50 to $4.30 per Diluted Share -
- Board Authorizes $0.15 Dividend -
CALABASAS, Calif., April 26 /PRNewswire-FirstCall/ -- Countrywide
Financial Corporation (NYSE: CFC) today announced results for the first
quarter ended March 31, 2007. Key results include the following:
Table 1 Quarter Ended
($ in millions, except per share Mar. 31, Dec. 31, Mar. 31,
amounts) 2007 2006 2006
Consolidated Company
Revenues $2,406 $2,758 $2,836
Net Earnings $434 $622 $684
Diluted EPS $0.72 $1.01 $1.10
Total Assets ($ in billions) $208 $200 $178
Key Segment Pre-tax Earnings
Mortgage Banking $100 $453 $555
Banking $288 $343 $341
Capital Markets $132 $99 $156
Insurance $180 $75 $65
Key Operating Statistics ($ in
billions)
Total Loan Fundings $117 $124 $106
Ending Loan Servicing Portfolio $1,352 $1,298 $1,153
Ending Assets of Banking Operations $84 $83 $78
"Countrywide's earnings for the first quarter of 2007 were $434
million, despite adverse subprime and housing market conditions," said
Angelo R. Mozilo, Chairman and Chief Executive Officer. "While the
Company's core operations delivered what was otherwise a strong quarter,
earnings were impacted by charges relating to our subprime activities as
well as increases to our loss reserves and related asset valuation
adjustments stemming from higher delinquencies and softer housing markets."
During the quarter, subprime charges and other credit costs impacted
Countrywide as follows:
* Subprime operations. Mortgage banking revenues from subprime
operations, which include both production and investment activities,
declined approximately $400 million from the fourth quarter of 2006,
the equivalent of approximately $0.41 in earnings per diluted share.
Subprime production revenues decreased $245 million, primarily
resulting from volatile market conditions and related value declines of
loans sold during the quarter and unsold at quarter end, net of credit
hedge gains. Revenues from subprime investments fell $155 million from
the fourth quarter of 2006, largely as a result of impairment charges
against retained interests from subprime and related securities, net of
credit hedge gains. The Company has instituted policy and product
guideline changes and made other adjustments to reduce exposure to
future subprime losses, and as a result management anticipates that
both subprime production and investments will return to profitability
in subsequent quarters, absent a material worsening of market
conditions.
* Other credit costs. Aside from subprime-related credit costs described
above, other net credit costs increased from the fourth quarter of 2006
by $132 million, the equivalent of $0.14 in earnings per diluted share,
as a result of rising delinquencies, deteriorating housing market
conditions, and resulting increased loss reserves. This included a
$119 million increase in impairment of prime-quality home equity
retained interests and an $81 million increase in the provision for
loan losses, partially offset by a $68 million increase in loss reserve
reversal in the Insurance segment.
"Excluding the impact of subprime conditions and increased credit costs
in the quarter, Countrywide's core operations made strong contributions to
quarterly earnings," said Mozilo. "Our Production sector delivered strong
volume and margins for both prime first and home equity loans, which
accounted for 93 percent of our total mortgage banking originations;
Servicing sector margins, excluding impairment of retained interests, were
strong; net interest margins increased in our Banking Operations; and our
Capital Markets and Insurance segments both generated sequential quarter
pre-tax earnings growth.
"On a consolidated basis, Countrywide's residential lending operations
continued to grow market share, with first quarter production representing
over 18 percent of U.S. mortgage originations and our servicing portfolio
reaching 8.4 million loans, which represents 13 percent of residential
loans outstanding. In addition, our pipeline heading into the second
quarter is very strong at $69 billion, up 21 percent from the fourth
quarter of 2006 and up 8 percent from the first quarter last year.
Furthermore, our increasingly diverse business model has been generating
more than half of our earnings from businesses other than mortgage banking,
as was the case in 2006 and in the first quarter of 2007 again.
"While turbulent mortgage market conditions had an adverse impact on
the Company's first quarter, looking forward, management is optimistic
about the long-term future growth prospects and profitability of the
Company stemming from the consolidation and rationalization occurring in
the residential mortgage markets today.
"I would like to conclude by thanking my 50,000-plus Countrywide
colleagues. Each of them works hard every day to deliver outstanding
long-term returns to shareholders, and to make the American dream of
homeownership available to as many people as possible."
BUSINESS SEGMENT PERFORMANCE
Mortgage Banking
Table 2 below highlights the Mortgage Banking segment's financial
performance for the first quarter of 2007:
Table 2
Mortgage Banking Pre-tax Earnings Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 2006 2006
Pre-tax Earnings (Loss)
Production $139 $421 $284
Servicing (69) 9 249
Closing Services 30 23 22
Total Mortgage Banking $100 $453 $555
% Contribution to total pre-tax
earnings 14% 46% 50%
Loan Production
The Loan Production sector is comprised of the following distribution
channels: prime and subprime consumer-direct lending through Countrywide
Home Loans' 996-branch retail system, call center operations and the
Internet; wholesale lending through a network of mortgage brokers;
correspondent lending which buys closed loans from other financial
institutions such as independent mortgage companies, commercial banks,
savings and loans and credit unions. The sector also includes the mortgage
banking activities of Countrywide Bank.
Overall quarterly Loan Production sector margins on both a sequential
and year-over-year basis are detailed below:
Table 3
Loan Production Sector
Pre-tax Earnings (1) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 %(2) 2006 %(2) 2006 %(2)
Gain on sale of loans $1,033 0.93% $1,263 1.07% $1,161 1.24%
Net warehouse spread 90 0.08% 136 0.12% 113 0.12%
Miscellaneous income 58 0.06% 90 0.08% 67 0.08%
Total revenues 1,181 1.07% 1,489 1.27% 1,342 1.44%
Operating expenses (904) (0.82%) (944) (0.80%) (915) (0.98%)
Allocated corporate
expenses (138) (0.12%) (124) (0.11%) (143) (0.16%)
Total expenses (1,042) (0.94%) (1,068) (0.91%) (1,057) (1.14%)
Total Loan
Production sector
pre-tax earnings $139 0.13% $421 0.36% $284 0.30%
Total Mortgage
Banking loan
funding volume $110,567 $117,745 $93,452
(1) Numbers may not total exactly due to rounding
(2) Percentage based on loan funding volume
The sequential quarter decreases in overall gain on sale were largely
isolated to the subprime channel, with a modest increase in prime gain on
sale. The year-over-year quarterly comparisons reflect erosion in overall
gain-on-sale margins as shown in Table 4.
Table 4
Loan Production Sector Gain on Sale(1)
Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 2006 2006
Prime
Production $93,833 $98,603 $75,825
Loans sold $92,879 $93,620 $76,177
Gain on sale ("GOS") $901 $866 $898
GOS as % of loans sold 0.97% 0.93% 1.18%
Subprime
Production $7,500 $9,146 $8,099
Loans sold $7,890 $8,723 $9,090
(Loss) GOS $(33) $211 $149
(Loss) GOS as % of loans sold (0.42%) 2.41% 1.64%
Home Equity
Production $9,234 $9,996 $9,528
Initial sale
Loans sold $6,787 $6,811 $4,443
GOS $138 $152 $78
GOS as % of loans sold 2.03% 2.23% 1.75%
Subsequent draws
Loans sold $1,043 $1,105 $975
GOS $27 $35 $36
GOS as % of loans sold 2.63% 3.14% 3.66%
Total production $110,567 $117,745 $93,452
Total loans sold $108,599 $110,260 $90,684
Total GOS $1,033 $1,263 $1,161
Total GOS as % of loans sold 0.95% 1.15% 1.28%
Total GOS as % of loans produced 0.93% 1.07% 1.24%
(1) Numbers may not be exact due to rounding
Subprime gain on sale for the first quarter of 2007 was impacted by
deteriorating market conditions, specifically higher investor yield
requirements as well as increased future loss estimates, which adversely
impacted the value of subprime loans. The $244 million reduction in
subprime gain on sale was the result of a decline in the value of loans
sold during the quarter and unsold at quarter end, net of credit hedge
gains of $92 million.
Home equity gain on sale declined from the fourth quarter of 2006
because of increased credit enhancement costs and higher investor yield
requirements. Prime gain on sale increased from the fourth quarter of 2006
primarily as a result of changes in channel mix toward more retail
business. Factors impacting the overall year-over-year quarterly declines
included increased competitive pricing pressures, the decline in production
of higher-margin pay option products, and the general deterioration of
subprime market conditions discussed previously.
Loan Servicing
The Loan Servicing sector reflects the performance of mortgage
servicing rights (MSRs) and retained interests associated with
Countrywide's owned servicing portfolio. Countrywide also manages a
financial hedge within the Loan Servicing sector to mitigate negative
valuation changes in MSRs and retained interests.
The Loan Servicing sector's income statement and key operational metrics
are displayed below:
Table 5
Loan Servicing Sector
Pre-tax Results of
Operations (1) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 % (2) 2006 % (2) 2006 % (2)
Servicing fees, net of
guarantee fees $1,080 0.328% $1,010 0.321% $913 0.326%
Miscellaneous fees 209 0.063% 198 0.063% 144 0.052%
Income from retained
interests 148 0.045% 127 0.040% 134 0.048%
Escrow balance income 204 0.062% 240 0.076% 160 0.057%
Realization of expected
MSR cash flows (925) (0.281%) (880) (0.279%) (738) (0.264%)
Operating revenues 715 0.217% 696 0.221% 614 0.219%
Direct expenses (179) (0.054%) (188) (0.060%) (185) (0.066%)
Allocated corporate
expenses (22) (0.007%) (20) (0.006%) (23) (0.008%)
Total expenses (201) (0.061%) (208) (0.066%) (209) (0.074%)
Operating earnings 515 0.156% 488 0.155% 405 0.145%
Interest expense (221) (0.067%) (218) (0.069%) (128) (0.046%)
Change in fair value of
MSRs 179 0.054% (48) (0.015%) 978 0.349%
Impairment of retained
interests (429) (0.130%) (73) (0.023%) (120) (0.043%)
Servicing hedge losses (114) (0.034%) (141) (0.045%) (886) (0.316%)
Valuation changes,
net of servicing
hedge (363) (0.110%) (262) (0.083%) (28) (0.010%)
Total Loan
Servicing sector
results of
operations $(69) (0.021%) $9 0.003% $249 0.089%
Average servicing
portfolio ($ in
billions) $1,316 $1,261 $1,120
MSR portfolio
capitalization rate 1.40% 1.38% 1.38%
(1) Numbers may not total exactly due to rounding
(2) Percentage based on average servicing portfolio; computation is
annualized
Loan Servicing sector pre-tax earnings were adversely impacted by $429
million in impairment charges against retained interests. Impairment
charges of $231 million were related to subprime and similar retained
interests, while $135 million was related to retained interests on home
equity lines of credit extended to prime borrowers. These impairment
charges were driven by increased estimates for future losses on loans
underlying the related securities as well as increased market yield
requirements. In addition, the Company incurred $63 million in impairment
on other retained interests where Countrywide does not retain credit risk.
This impairment related to increased market yield requirements.
Delinquencies (based on loan count, 30 days or more past due) in the
servicing portfolio were 4.29 percent at March 31, 2007, which compares to
5.02 percent at December 31, 2006 and 3.68 percent at March 31, 2006.
Foreclosures in the servicing portfolio (based on loan count) were 69 basis
points at March 31, 2007, which compares to 65 basis points at December 31,
2006 and 47 basis points at March 31, 2006. The year-over-year increase in
total delinquencies and foreclosures is generally the result of softening
housing market conditions and the seasoning of the loans in the servicing
portfolio. The sequential quarter improvement in the delinquency ratio is
primarily attributable to seasonal factors. The weighted average age of the
loans in the portfolio at March 31, 2007 was 23 months, while the age at
March 31, 2006 was 21 months.
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 pre-tax earnings
increased from the prior year, primarily as a result of an increase in its
credit report and appraisal businesses due to the increase in Countrywide's
application activity.
BANKING
The Banking segment includes Banking Operations (primarily the fee and
investment activities of Countrywide Bank, FSB) and Countrywide Warehouse
Lending, a provider of mortgage inventory financing to independent mortgage
bankers. Countrywide Bank ("Bank") provides Countrywide with expanded
product capabilities, a 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 various means including its retail deposit franchise, which
is comprised of an expanding national financial center network of 101
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 6 and 7 below with
additional details in tables at the end of this release:
Table 6
Banking Segment Pre-tax Earnings Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 2006 2006
Banking Operations $294 $346 $331
Countrywide Warehouse Lending 10 13 18
Allocated corporate expenses (16) (16) (8)
Total Banking segment pre-tax
earnings $288 $343 $341
Table 7
Banking Operations
($ in millions) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
Pre-tax Earnings (1) 2007 2006 2006
Net interest income $497 $480 $418
Provision for loan losses (124) (63) (28)
Non-interest income 41 38 36
Non-interest expense (120) (109) (96)
Total Banking Operations pre-tax
earnings $294 $346 $331
At Period End
Key Operating Statistics Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Total Assets $84,261 $82,775 $77,778
Loan Portfolio, net $69,360 $73,482 $69,055
(1) Numbers may not total exactly due to rounding
Banking Operations' quarterly pre-tax earnings were $294 million, a
decrease of 15 percent from the prior quarter and 11 percent year over
year. The decreases were driven by an increase in the provision for loan
losses of $61 million from the fourth quarter and $96 million from the
first quarter of 2006 primarily resulting from increases in delinquencies
and related increased reserves for loan losses. This was partially offset
by increases in net interest income. Specifically, net interest margin
increased 7 basis points from the fourth quarter of 2006 and 22 basis
points from the first quarter of 2006, primarily from a smaller rate lag
effect.
While the Banking Operations' net residential loan portfolio was up
modestly on a year-over-year basis, loan portfolio growth has been slowing
and is down on a sequential quarter basis. This is attributable to an
increasing percentage of Countrywide's originations being sold in the
secondary markets, lesser availability of loans for purchase by the Bank
that meet its investment criteria, and portfolio runoff. Asset growth
during the first quarter of 2007 was primarily attributable to acquisitions
of high quality mortgage-backed securities.
During the first quarter, the credit rating agency Moody's upgraded its
rating on Countrywide Bank and announced that Countrywide, Countrywide Home
Loans and Countrywide Bank were under review for possible additional
upgrades.
The Bank continues to take steps to credit enhance its investment loan
portfolio by acquiring supplemental mortgage insurance coverage. As of
March 31, 2007, $19.8 billion of the residential lending portfolio of the
Bank, representing 29 percent of its total loan portfolio, was covered by
supplemental mortgage insurance on specified pools of loans. The maximum
loss coverage available under these policies is $851 million. The Bank is
also in the process of negotiating the purchase of additional pool
insurance on its loans.
CAPITAL MARKETS
The Capital Markets segment includes a registered securities
broker-dealer, a distressed-asset manager and a commercial real estate
finance group. Financial results for the Capital Markets segment are noted
below with operational metrics in the tables at the end of this release:
Table 8
Capital Markets Segment
Pre-tax Earnings (1) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 2006 2006
Revenues
Conduit $69 $47 $123
Underwriting 67 73 71
Commercial real estate 48 34 16
Securities trading 35 29 35
Brokering 12 11 7
Other 29 21 12
Total revenues 261 214 263
Expenses
Operating expenses (122) (107) (103)
Allocated corporate expenses (6) (8) (4)
Total expenses (128) (115) (108)
Total Capital Markets segment
pre-tax earnings $132 $99 $156
(1) Numbers may not total exactly due to rounding
Quarterly pre-tax earnings for the Capital Markets segment increased 33
percent from the fourth quarter of 2006, primarily driven by increases in
conduit and commercial real estate lending revenues. On a year-over-year
basis, quarterly pre-tax earnings decreased 15 percent. This was primarily
a result of reduced conduit revenue and increased operating expenses,
partially offset by growth in commercial real estate revenues. Reduced
conduit revenue resulted from decreased conduit volumes and margins which
have accompanied current secondary market conditions. Commercial real
estate revenues were higher primarily because of increased origination
volumes and improved securitization execution.
INSURANCE
Countrywide's Insurance segment includes Balboa Insurance Group, whose
companies are national providers of property, life and casualty insurance;
and Balboa Reinsurance Company, a captive mortgage guaranty reinsurance
company. Financial results for the Insurance segment are noted below with
operational metrics in the tables at the end of this release:
Table 9
Insurance Segment Pre-tax Earnings Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2007 2006 2006
Balboa Reinsurance Company $131 $56 $46
Balboa Life & Casualty 57 29 23
Allocated corporate expenses (8) (10) (4)
Total Insurance segment pre-tax
earnings $180 $75 $65
For the first quarter of 2007, Insurance segment pre-tax results
increased $105 million from the fourth quarter of 2006 and $115 million
year over year. This growth resulted from increases at Balboa Reinsurance
of $75 million and $85 million, respectively, from the fourth quarter and
first quarter of 2006. In addition, earnings at Balboa Life and Casualty
doubled when compared to the sequential and year-over-year quarters. The
increase at Balboa Reinsurance resulted from a $74 million reversal of the
loss reserves related to the 2003 books of business, on which negligible
remaining loss exposure was deemed to exist in the first quarter of 2007.
This compares to a reversal of $6 million in the fourth quarter of 2006 and
$5 million for the first quarter of 2006, the latter related to loss
reserves on the 2002 books of business. The increases at Balboa Life &
Casualty stemmed from an increase in net earned premiums, primarily in the
lender-placed lines, as well as improved claims experience.
DIVIDEND DECLARATION
Countrywide's Board of Directors declared a dividend of $0.15 per
share. The payable date on the dividend is May 31, 2007 to stockholders of
record on May 14, 2007.
2007 OUTLOOK
Management believes that considerable risks remain in the mortgage
marketplace, including but not limited to potential further deterioration
in the housing market that could impact origination volume and future
credit costs; potential pending regulatory or legislative actions that
could impose constraints on our operations; and other business risks as
outlined in the disclaimer at the end of this press release. While the
balance of 2007 is expected to be challenging, management continues to
believe that current market conditions will result in opportunities in the
form of further industry consolidation. Management also believes that the
Company is well-positioned to capitalize upon these 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:
Updated 2007 Previous 2007
Table 10 Guidance Guidance
April 26, 2007 January 30, 2007
CFC Consolidated Earnings
Diluted EPS $3.50 to $4.30 $3.80 to $4.80
Market
Total mortgage market ($ in
trillions) $2.2 to $3.0 $2.2 to $3.0
Average 10-year U.S. Treasury yield 4.20% to 5.20% 4.20% to 5.20%
Average 3-month LIBOR 4.80% to 5.90% 4.60% to 5.80%
Production
Company-wide loan origination volume
($ in billions) (1) $450 to $550 $375 to $525
Loan production sector pre-tax
margins (2) 10 bps to 25 bps 15 bps to 35 bps
Servicing
Average loan servicing portfolio
($ in trillions) (3) $1.3 to $1.4 $1.3 to $1.4
Loan servicing sector pre-tax
margins, net hedge 3 bps to 6 bps 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) 398-9386 (U.S.) or (612) 332-0107 (International).
The management discussion will be available for replay through midnight
Pacific on Thursday, May 10, 2007. The replay dial-in numbers and access
code are (800) 475-6701 (U.S.) / (320) 365-3844 (International) and 868872,
respectively.
An accompanying slide presentation will be available on Countrywide's
website (http://www.countrywide.com), and can be accessed by clicking on "Investor
Relations" on the website main page and clicking on the supporting slide
show text link for the 2007 first quarter earnings teleconference.
Management strongly recommends that participants have access to this
presentation while listening to the management discussion.
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 subprime 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 judgments and assumptions made by management regarding
accounting estimates and related matters; the ability of management to
effectively implement the Company's strategies; and other risks noted in
documents filed by the Company with the Securities and Exchange Commission
from time to time. Words like "believe," "expect," "anticipate," "promise,"
"plan," and other expressions or words of similar meanings, as well as
future or conditional verbs such as "will," "would," "should," "could," or
"may" are generally intended to identify forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements or any other information contained herein.
(tables follow)
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Quarters Ended
(in thousands, except per March 31, %
share data) 2007 2006 Change
(unaudited)
Revenues
Gain on sale of loans and
securities $1,234,104 $1,361,178 (9%)
Interest income 3,351,982 2,593,758 29%
Interest expense (2,621,045) (1,899,323) 38%
Net interest income 730,937 694,435 5%
Provision for loan losses (151,962) (63,138) 141%
Net interest income after
provision for loan losses 578,975 631,297 (8%)
Loan servicing fees and
other income from mortgage
servicing rights and
retained interests 1,387,289 1,199,887 16%
Realization of expected
cash flows from mortgage
servicing rights (924,706) (738,567) 25%
Change in fair value of
mortgage servicing rights 179,007 978,281 (82%)
Impairment of retained interests (429,601) (120,654) 256%
Servicing hedge losses (113,738) (885,870) (87%)
Net loan servicing fees and
other income from mortgage
servicing rights and
retained interests 98,251 433,077 (77%)
Net insurance premiums earned 334,177 279,793 19%
Other 160,269 130,603 23%
Total revenues 2,405,776 2,835,948 (15%)
Expenses
Compensation 1,075,408 1,074,818 0%
Occupancy and other office 264,213 245,331 8%
Insurance claims 57,305 124,042 (54%)
Advertising and promotion 70,017 60,230 16%
Other 238,038 212,164 12%
Total expenses 1,704,981 1,716,585 (1%)
Earnings before income taxes 700,795 1,119,363 (37%)
Provision for income taxes 266,814 435,852 (39%)
NET EARNINGS $433,981 $683,511 (37%)
Earnings per Share:
Basic $0.74 $1.14 (35%)
Diluted $0.72 $1.10 (35%)
Weighted Average Shares Outstanding:
Basic 588,158 601,585 (2%)
Diluted 603,000 620,332 (3%)
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31, %
(in thousands, except share data) 2007 2006 Change
(unaudited) (audited)
Assets
Cash $1,202,114 $1,407,000 (15%)
Mortgage loans held for sale 32,282,579 31,272,630 3%
Trading securities owned,
at fair value 16,794,223 20,036,668 (16%)
Trading securities pledged
as collateral, at fair value 4,839,902 1,465,517 230%
Securities purchased under
agreements to resell,
securities borrowed and
federal funds sold 28,851,069 27,269,897 6%
Loans held for investment,
net of allowance for loan
losses of $374,367 and
$261,054, respectively 75,177,094 78,085,757 (4%)
Investments in other
financial instruments,
at fair value 19,445,697 12,769,451 52%
Mortgage servicing rights,
at fair value 17,441,860 16,172,064 8%
Premises and equipment, net 1,653,233 1,625,456 2%
Other assets 10,262,832 9,841,790 4%
Total assets $207,950,603 $199,946,230 4%
Liabilities
Deposit liabilities $57,525,061 $55,578,682 4%
Securities sold under
agreements to repurchase
and federal funds purchased 44,085,743 42,113,501 5%
Trading securities sold,
not yet purchased,
at fair value 3,380,852 3,325,249 2%
Notes payable 74,322,902 71,487,584 4%
Accounts payable and
accrued liabilities 8,650,035 8,187,605 6%
Income taxes payable 5,167,561 4,935,763 5%
Total liabilities 193,132,154 185,628,384 4%
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,
591,596,654 shares and
585,466,719 shares at
March 31, 2007 and
December 31, 2006, respectively;
outstanding, 591,201,542
shares and 585,182,298 shares
at March 31, 2007 and
December 31, 2006, respectively 29,580 29,273 1%
Additional paid-in capital 2,320,760 2,154,438 8%
Accumulated other
comprehensive loss (16,535) (17,556) (6%)
Retained earnings 12,484,644 12,151,691 3%
Total shareholders' equity 14,818,449 14,317,846 3%
Total liabilities and
shareholders' equity $207,950,603 $199,946,230 4%
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND
MORTGAGE SERVICING RIGHTS
March 31, December 31, %
(in thousands) 2007 2006 Change
(unaudited) (audited)
Loans Held for Investment, Net
Mortgage loans $70,126,737 $72,295,979 (3%)
Warehouse lending advances
secured by mortgage loans 2,771,074 3,185,248 (13%)
Defaulted FHA-insured and
VA-guaranteed loans
repurchased from securities 1,770,410 1,761,170 1%
74,668,221 77,242,397 (3%)
Purchase premiums and
discounts, and deferred
loan origination fees
and costs, net 883,240 1,104,414 (20%)
Allowance for loan losses (374,367) (261,054) 43%
Total loans held for
investment, net $75,177,094 $78,085,757 (4%)
Other Assets
Reimbursable servicing
advances, net $2,266,756 $2,121,486 7%
Securities broker-dealer
receivables 1,976,388 1,605,502 23%
Investments in Federal
Reserve Bank and Federal
Home Loan Bank stock 1,220,597 1,433,070 (15%)
Interest receivable 998,387 997,854 0%
Receivables from custodial
accounts 599,223 719,048 (17%)
Real estate acquired in
settlement of loans 386,219 251,163 54%
Capitalized software, net 377,291 367,055 3%
Prepaid expenses 336,659 320,597 5%
Cash surrender value of
assets held in trust for
deferred compensation plans 324,054 319,864 1%
Restricted cash 321,032 238,930 34%
Receivables from sale of
securities 153,700 284,177 (46%)
Derivative margin accounts 133,003 118,254 12%
Other assets 1,169,523 1,064,790 10%
Total other assets $10,262,832 $9,841,790 4%
Mortgage Servicing Rights,
at Fair Value
Balance at December 31, 2006 $16,172,064
Additions:
Servicing resulting from
transfers of financial
assets 1,898,903
Purchases of servicing
assets 116,592
2,015,495
Change in fair value:
Due to changes in valuation
inputs or assumptions used
in valuation model (1) 179,007
Other changes in fair
value (2) (924,706)
Balance at March 31, 2007 $17,441,860
(1) Mostly reflects changes in discount rates and prepayment speed
assumptions, primarily due to changes in interest rates.
(2) Represents changes due to realization of expected cash flows.
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
March 31, December 31, %
(in thousands) 2007 2006 Change
(unaudited) (audited)
Investments in Other Financial
Instruments, at Fair Value
Available-for-sale securities:
Mortgage-backed securities $13,369,569 $7,007,786 91%
Obligations of U.S.
Government-sponsored
enterprises 654,361 776,717 (16%)
Municipal bonds 414,049 412,886 0%
U.S. Treasury securities 141,424 168,313 (16%)
Other 2,697 2,858 (6%)
Subtotal 14,582,100 8,368,560 74%
Interests retained in
securitization accounted
for as available-for-sale
securities:
Prime interest-only and
principal-only securities 264,266 279,375 (5%)
Prime home equity line of
credit transferor's interest 101,686 144,346 (30%)
Subprime residuals and other
related securities 90,547 152,745 (41%)
Prepayment penalty bonds 38,516 52,697 (27%)
Prime home equity residual
securities 25,842 40,766 (37%)
Subprime interest-only
securities 14,996 3,757 299%
Prime home equity
interest-only securities 6,255 7,021 (11%)
Subordinated mortgage-backed
pass-through securities 799 1,382 (42%)
Prime residual securities 715 1,435 (50%)
Total interests retained
in securitization accounted
for as available-for-sale
securities 543,622 683,524 (20%)
Total available-for-sale
securities 15,125,722 9,052,084 67%
Interests retained in
securitization accounted
for as trading securities:
Prime home equity line of
credit transferor's interest 679,389 553,701 23%
Prime interest-only and
principal-only securities 634,098 549,635 15%
Prime home equity residual
securities 591,434 737,808 (20%)
Subprime residuals and other
related securities 292,054 388,963 (25%)
Prepayment penalty bonds 116,249 90,666 28%
Subordinated mortgage-backed
pass-through securities 46,487 -- N/M
Prime home equity
interest-only securities 22,141 22,467 (1%)
Prime residual securities 6,999 11,321 (38%)
Interest rate swaps 964 2,490 (61%)
Total interests retained
in securitization accounted
for as trading securities 2,389,815 2,357,051 1%
Servicing hedge principal-only
securities accounted for as
trading securities 466,245 -- N/M
Hedging and mortgage pipeline
derivatives:
Mortgage servicing related 761,984 837,908 (9%)
Notes payable related 486,031 444,342 9%
Mortgage loans held for sale
and pipeline related 215,900 78,066 177%
Total investments in other
financial instruments $19,445,697 $12,769,451 52%
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Quarters Ended
March 31, %
(dollar amounts in millions) 2007 2006 Change
Production by segment:
Mortgage Banking $110,567 $93,452 18%
Banking Operations 2,568 8,073 (68%)
Capital Markets - conduit
acquisitions 1,829 4,007 (54%)
Total Mortgage Loan Fundings 114,964 105,532 9%
Commercial real estate 2,011 966 108%
Total Loan Fundings $116,975 $106,498 10%
Number of loans produced 595,534 571,737 4%
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 6,474,805 5,802,108 12%
March 31, %
2007 2006 Change
Mortgage loan pipeline
(loans-in-process) $69,389 $64,167 8%
Loan servicing portfolio (1) $1,351,598 $1,152,651 17%
Number of loans serviced (1) 8,438,625 7,604,711 11%
MSR portfolio (2) $1,242,111 $1,024,220 21%
Assets of Banking Operations
(in billions) $84 $78 8%
(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 March 31, 2007
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale of loans
and securities $1,033,209 $(49) $-- $1,033,160
Net interest income
after provision for
loan losses 90,024 (16,684) 3,192 76,532
Net loan servicing
fees (1) -- 139,994 -- 139,994
Net insurance premiums
earned -- -- -- --
Other revenue (2) 58,093 26,908 82,284 167,285
Total revenues 1,181,326 150,169 85,476 1,416,971
Expenses 1,041,885 219,262 55,520 1,316,667
Earnings (loss)
before income taxes $139,441 $(69,093) $29,956 $100,304
Quarter Ended March 31, 2007
Capital Global
(in thousands) Banking Markets Insurance Operations
Revenues
Gain on sale of loans
and securities $-- $189,796 $-- $--
Net interest income
after provision for
loan losses 386,648 60,624 17,012 1,609
Net loan servicing
fees (1) -- 1,577 (907) --
Net insurance premiums
earned -- -- 334,177 --
Other revenue (2) 42,613 8,659 19,434 18,841
Total revenues 429,261 260,656 369,716 20,450
Expenses 141,167 128,448 190,058 16,444
Earnings (loss)
before income taxes $288,094 $132,208 $179,658 $4,006
Quarter Ended March 31, 2007
(in thousands) Other Grand Total
Revenues
Gain on sale of loans
and securities $11,148 $1,234,104
Net interest income
after provision for
loan losses 36,550 578,975
Net loan servicing
fees (1) (42,413) 98,251
Net insurance premiums
earned -- 334,177
Other revenue (2) (96,563) 160,269
Total revenues (91,278) 2,405,776
Expenses (87,803) 1,704,981
Earnings (loss)
before income taxes $(3,475) $700,795
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
Quarter Ended March 31, 2006
Mortgage Banking
(in thousands) Loan Loan Closing
Production Servicing Services Total
Revenues
Gain on sale of
loans and securities $1,160,777 $1,979 $-- $1,162,756
Net interest income
after provision for
loan losses 113,326 31,658 1,361 146,345
Net loan servicing
fees (1) -- 429,538 -- 429,538
Net insurance premiums
earned -- -- -- --
Other revenue (2) 67,496 6,661 70,267 144,424
Total revenues 1,341,599 469,836 71,628 1,883,063
Expenses 1,057,450 221,118 49,421 1,327,989
Earnings (loss)
before income taxes $284,149 $248,718 $22,207 $555,074
Quarter Ended March 31, 2006
Capital Global
(in thousands) Banking Markets Insurance Operations
Revenues
Gain on sale of
loans and securities $-- $187,300 $-- $--
Net interest income
after provision for
loan losses 410,282 58,094 14,535 542
Net loan servicing
fees (1) 282 1,332 (614) 11,322
Net insurance premiums
earned -- -- 279,793 --
Other revenue (2) 41,068 16,397 9,433 23,214
Total revenues 451,632 263,123 303,147 35,078
Expenses 110,546 107,550 238,204 24,910
Earnings (loss) before
income taxes $341,086 $155,573 $64,943 $10,168
Quarter Ended March 31, 2006
(in thousands) Other Grand Total
Revenues
Gain on sale of
loans and securities $11,122 $1,361,178
Net interest income
after provision for
loan losses 1,499 631,297
Net loan servicing
fees (1) (8,783) 433,077
Net insurance premiums
earned -- 279,793
Other revenue (2) (103,933) 130,603
Total revenues (100,095) 2,835,948
Expenses (92,614) 1,716,585
Earnings (loss)
before income taxes $(7,481) $1,119,363
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, change in
fair value of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
(2) Consists primarily of revenues from ancillary products and services,
including title, escrow, appraisal, credit reporting and home
inspection services and insurance agency commissions.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
PAY-OPTION LOANS HELD FOR INVESTMENT,
PRODUCTION AND ACQUISITIONS OF LOANS HELD FOR INVESTMENT AND
CREDIT QUALITY
(Unaudited)
March 31, December 31,
(in thousands) 2007 2006
Pay-option ARM loans held
for investment:
Total pay-option ARM loan
portfolio $30,780,617 $32,732,581
Total principal balance of
pay-option ARM loans with
accumulated negative
amortization $27,448,774 $28,958,718
Accumulated negative
amortization (from
original loan balance) $815,826 $653,974
Quarters Ended
March 31, %
(in thousands) 2007 2006 Change
Interest capitalized
on loans $233,986 $109,237 114%
Quarters Ended
March 31, %
(in millions) 2007 2006 Change
Production and bulk acquisitions
of loans held for investment by
channel:
Purchases (1) $2,163 $2,114 2%
Correspondent Lending 366 2,337 (84%)
Consumer Markets 26 852 (97%)
Wholesale Lending 13 2,770 (100%)
Total production and purchases
of loans held for investment $2,568 $8,073 (68%)
(1) Acquisitions from third parties
March 31 December 31,
(dollar amounts in thousands) 2007 2006
Non-performing residential
loans: % assets % assets
With third party credit
enhancement (2) $146,297 0.17% $109,218 0.13%
Without third party
credit enhancement 547,553 0.65% 409,865 0.50%
693,850 0.82% 519,083 0.63%
Foreclosed real estate 110,059 0.13% 27,416 0.03%
Total non-performing
assets $803,909 0.95% $546,499 0.66%
Allowances for credit
losses:
Allowances for loan
losses $318,083 $228,692
Liability for unfunded
loan commitments 13,759 8,104
331,842 236,796
Allowances for credit losses
as a percentage of:
Total non-performing
loans 47.83% 45.62%
Total non-performing
loans without third
party credit
enhancements 60.60% 57.77%
Total loans held for
investment 0.48% 0.32%
Quarter Ended Quarter Ended
March 31, 2007 March 31, 2006
Annualized net Annualized net
charge-offs charge-offs
as % average as % average
investment investment
loans loans
Net charge-offs: $33,057 0.19% $6,665 0.04%
(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 March 31,
(dollar amounts in thousands) 2007 2006
After-tax return on average
assets 0.88% 1.08%
After-tax return on average
equity 14.6% 15.4%
Period end:
Total assets $84,260,689 $77,777,915
Total equity $5,029,782 $5,360,416
Total investment loan
portfolio, net $69,360,391 $69,055,297
Average Balance Sheet Quarter Ended March 31, 2007
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $32,135,605 $591,547 7.36%
Hybrid & other 1st liens 18,655,609 258,177 5.54%
Home equity loans 20,061,375 415,223 8.35%
Warehouse lending advances -- -- 0.00%
Construction loans 21,493 417 7.76%
Other assets 9,037,634 122,899 5.45%
Total interest-earning
assets $79,911,716 $1,388,263 6.97%
Interest-bearing liabilities
Money market & savings
deposits $10,676,624 $136,174 5.17%
Escrow deposits 15,588,390 198,412 5.16%
Time deposits (CDs) 29,328,133 369,146 5.10%
FHLB advances 17,166,718 180,971 4.28%
Other borrowings 515,266 6,820 5.37%
Total interest-bearing
liabilities $73,275,131 $891,523 4.93%
Net interest spread 2.04%
Net interest margin 2.45%
Average Balance Sheet Quarter Ended March 31, 2006
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $28,410,879 $427,954 6.03%
Hybrid & other 1st liens 22,214,899 291,096 5.24%
Home equity loans 15,424,400 301,950 7.91%
Warehouse lending advances -- -- 0.00%
Construction loans -- -- 0.00%
Other assets 7,991,760 101,464 5.09%
Total interest-earning
assets $74,041,938 $1,122,464 6.08%
Interest-bearing liabilities
Money market & savings
deposits $4,831,270 $51,411 4.32%
Escrow deposits 13,468,530 145,852 4.39%
Time deposits (CDs) 22,769,200 236,566 4.21%
FHLB advances 24,663,071 245,221 4.03%
Other borrowings 2,216,502 25,114 4.60%
Total interest-bearing
liabilities $67,948,573 $704,164 4.20%
Net interest spread 1.88%
Net interest margin 2.23%
Loan Quality (1)
March 31, 2007
LTV CLTV FICO
Pay-option ARMs 75% 79% 717
Hybrid & other 1st liens 74% 79% 733
Home equity loans 20% 81% 731
Loan Quality (1)
March 31, 2006
LTV CLTV FICO
Pay-option ARMs 75% 78% 721
Hybrid & other 1st liens 74% 79% 735
Home equity loans 20% 81% 729
(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
March 31, %
(in millions) 2007 2006 Change
Capital Markets Securities
Trading Volume: (1)
Mortgage-backed securities $560,269 $528,350 6%
U.S. Treasury securities 365,329 357,112 2%
Asset-backed securities 33,641 32,676 3%
Other 38,703 60,217 (36%)
Total securities trading
volume $997,942 $978,355 2%
(1) Includes trades with Mortgage Banking Segment.
Insurance Segment Quarters Ended
March 31, %
(dollar amounts in thousands) 2007 2006 Change
Balboa Life & Casualty:
Lender-placed net premiums
earned $166,734 $126,052 32%
Voluntary net premiums earned $104,183 $101,946 2%
Loss ratio 43% 50%
Combined ratio 81% 91%
Quarters Ended
March 31, %
2007 2006 Change
Balboa Reinsurance:
(in thousands)
Reinsurance net earned premiums $63,260 $51,795 22%
(in billions)
Period end:
Loans in CFC servicing
portfolio covered by
Balboa Reinsurance $94 $81 16%
SOURCE Countrywide Financial Corporation
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Related links:
http://www.countrywide.com
CONTACT:
Investors, David Bigelow or Lisa Riordan,
+1-818-225-3550, or Media Line, +1-800-796-8448, both of
Countrywide Financial Corporation
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