EX-99 2 a07-12367_1ex99.htm EX-99

Exhibit 99

NEWS                                                                              

INVESTOR CONTACT:  (818) 225-3550

David Bigelow or Lisa Riordan

MEDIA LINE:  (800) 796-8448

 

COUNTRYWIDE REPORTS DILUTED EPS OF $0.72 FOR FIRST QUARTER OF 2007

           2007 Guidance Updated at $3.50 to $4.30 per Diluted Share —

— Board Authorizes $0.15 Dividend —

CALABASAS, CA (April 26, 2007) — 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 amounts)

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
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

Investor Relations
4500 Park Granada
· Calabasas, CA  91302 ·  818-225-3550
http://www.countrywide.com

 Countrywide Home Loans, Inc.  and Countrywide Bank, FSB, are Equal Housing Lenders. ã2002 Countrywide Financial Corporation.
Trade/service marks are the property of Countrywide Financial Corporation and/or its subsidiaries.  All rights reserved.




                        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.”

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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

 

($ in millions)

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
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

 

($ in millions)

 

Mar. 31,
2007

 

% (2)

 

Dec. 31,
2006

 

% (2)

 

Mar. 31,
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

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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

 

($ in millions)

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
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

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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

 

($ in millions)

 

Mar. 31,
2007

 

(2)

 

Dec. 31,
2006

 

(2)

 

Mar. 31,
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

5




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:

6




Table 6

Banking Segment Pre-tax Earnings

 

 

Quarter Ended

 

($ in millions)

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
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

 

 

Quarter Ended

 

($ in millions)

 

Mar. 31,

2007

 

Dec. 31,

2006

 

Mar. 31,

2006

 

Pre-tax Earnings (1)

 

 

 

 

 

 

 

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

 

 

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
2006

 

Key Operating Statistics

 

 

 

 

 

 

 

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.

7




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

 

($ in millions)

 

Mar. 31,
2007

 

Dec. 31,
2006

 

Mar. 31,
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

8




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

 

($ in millions)

 

Mar. 31,

2007

 

Dec. 31,

2006

 

Mar. 31,

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.

9




EARNINGS GUIDANCE

Countrywide’s guidance for 2007 is as follows:

Table 10

 

 

 

Updated 2007 Guidance

 

Previous 2007 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 (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 www.countrywide.com.  This press release does not constitute an offer of any securities for sale.

10




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)

 

11




COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS

 

 

Quarters Ended
March 31,

 

%

 

(in thousands, except per 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

%)

 

(more)




COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share data)

 

 

 

March 31,
2007

 

December 31,
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, respective; 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

%

 

(more)




COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND
MORTGAGE SERVICING RIGHTS

 

(in thousands)

 

 

 

March 31,
2007

 

December 31,
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.

(more)




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

%

 

(more)




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.

(more)




COUNTRYWIDE FINANCIAL CORPORATION

QUARTERLY SEGMENT ANALYSIS

(Unaudited)

 

 

 

Quarter Ended March 31, 2007

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

1,033,209

 

$

(49

)

$

 

$

1,033,160

 

$

 

$

189,796

 

$

 

$

 

$

11,148

 

$

1,234,104

 

Net interest income after provision for loan losses

 

90,024

 

(16,684

)

3,192

 

76,532

 

386,648

 

60,624

 

17,012

 

1,609

 

36,550

 

578,975

 

Net loan servicing fees (1)

 

 

139,994

 

 

139,994

 

 

1,577

 

(907

)

 

(42,413

)

98,251

 

Net insurance premiums earned

 

 

 

 

 

 

 

334,177

 

 

 

334,177

 

Other revenue (2)

 

58,093

 

26,908

 

82,284

 

167,285

 

42,613

 

8,659

 

19,434

 

18,841

 

(96,563

)

160,269

 

Total revenues

 

1,181,326

 

150,169

 

85,476

 

1,416,971

 

429,261

 

260,656

 

369,716

 

20,450

 

(91,278

)

2,405,776

 

Expenses

 

1,041,885

 

219,262

 

55,520

 

1,316,667

 

141,167

 

128,448

 

190,058

 

16,444

 

(87,803

)

1,704,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

$

139,441

 

$

(69,093

)

$

29,956

 

$

100,304

 

$

288,094

 

$

132,208

 

$

179,658

 

$

4,006

 

$

(3,475

)

$

700,795

 

 

 

 

Quarter Ended March 31, 2006

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Loan
Production

 

Loan
Servicing

 

Closing
Services

 

Total

 

Banking

 

Capital
Markets

 

Insurance

 

Global
Operations

 

Other

 

Grand
Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and securities

 

$

1,160,777

 

$

1,979

 

$

 

$

1,162,756

 

$

 

$

187,300

 

$

 

$

 

$

11,122

 

$

1,361,178

 

Net interest income after provision for loan losses

 

113,326

 

31,658

 

1,361

 

146,345

 

410,282

 

58,094

 

14,535

 

542

 

1,499

 

631,297

 

Net loan servicing fees (1)

 

 

429,538

 

 

429,538

 

282

 

1,332

 

(614

)

11,322

 

(8,783

)

433,077

 

Net insurance premiums earned

 

 

 

 

 

 

 

279,793

 

 

 

279,793

 

Other revenue (2)

 

67,496

 

6,661

 

70,267

 

144,424

 

41,068

 

16,397

 

9,433

 

23,214

 

(103,933

)

130,603

 

Total revenues

 

1,341,599

 

469,836

 

71,628

 

1,883,063

 

451,632

 

263,123

 

303,147

 

35,078

 

(100,095

)

2,835,948

 

Expenses

 

1,057,450

 

221,118

 

49,421

 

1,327,989

 

110,546

 

107,550

 

238,204

 

24,910

 

(92,614

)

1,716,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

$

284,149

 

$

248,718

 

$

22,207

 

$

555,074

 

$

341,086

 

$

155,573

 

$

64,943

 

$

10,168

 

$

(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.

(more)




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