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Countrywide Reports 2005 Fourth Quarter and Full-Year Results- Diluted EPS Up 69% in Fourth Quarter, 13% in 2005 Compared to Prior Year Periods -
CALABASAS, Calif., Jan. 31 /PRNewswire-FirstCall/ -- Countrywide Financial Corporation (NYSE: CFC) today announced results for the quarter and year ended December 31, 2005. Fourth quarter and 2005 net earnings were $639 million and $2.5 billion, respectively, compared to $370 million and $2.2 billion for the comparable periods in 2004. Diluted earnings per share were $1.03 for the fourth quarter and $4.11 for the full year, which compares to $0.61 and $3.63, respectively, for the same periods in 2004. "For the fourth quarter and full year 2005, Countrywide achieved impressive earnings growth from the comparable prior year periods, despite a challenging transitional operating environment," said Angelo R. Mozilo, Chairman and Chief Executive Officer. "In 2005, the Company delivered a 22 percent return on average equity for our shareholders and earnings of $4.11 per diluted share -- the second-highest year in Countrywide's history. Annual mortgage loan production volume reached $491 billion, establishing a new record for the Company as well as the industry. Countrywide also made significant advances in market share, which grew by more than 25 percent from 2004 to 2005, according to various market estimates. In addition, pre-tax earnings for the year in the Banking segment exceeded the $1 billion mark. "Importantly, we achieved these results despite an environment that included volatile interest rates; declining production profit margins throughout the industry; and the adverse effects of 2005's hurricanes, primarily Hurricane Katrina. If not for the hurricane charges, the Company would have surpassed its record of $4.18 per diluted share, achieved in the peak refinance boom year of 2003. Countrywide's exceptional performance in the 2005 environment is a reflection of the Company's ability to generate organic market share growth in its Mortgage Banking segment, and of the effective implementation of its strategy to expand its other business segments. "Within the Mortgage Banking segment, quarterly pre-tax earnings rose 67 percent over last year to $434 million. Collectively, quarterly pre-tax earnings for our other segments which include Banking, Capital Markets, Insurance and Global Operations advanced 52 percent to $578 million compared to the fourth quarter of 2004. For the full year, Mortgage Banking pre-tax earnings rose 4 percent over 2004 to $2.4 billion while the other segments collectively increased 36 percent to $1.7 billion. "Throughout 2005, Mortgage Banking profitability was hampered by declining margins in the Production sector. In the fourth quarter of 2005, margins declined to 9 basis points compared to 61 basis points in the fourth quarter of 2004. The primary cause of the decline was a lower gain on sale driven by front-end competitive pricing pressure and weaker secondary market conditions, as well as a 10 basis point decrease in warehouse spread driven by a flattening yield curve. Normally, declining warehouse spreads caused by a flatter yield curve would likely be mitigated by an accompanying increase in gains on sale, but in the fourth quarter this was hindered by pricing pressure and weak secondary market conditions. For the twelve months, overall production margins were 39 basis points in 2005 versus 84 basis points in 2004. For the full year, margin compression was driven by a 36 basis point reduction (based on production volume) in gain on sale margin and a 23 basis point reduction in net warehouse spread. This decrease in gain on sale margin primarily resulted from front-end competitive pricing pressures in the marketplace and the decrease in net warehouse spread, which was primarily driven by a flattening of the yield curve. "In the Servicing sector, 2005 quarterly pre-tax earnings increased $583 million over the prior-year period. Pre-tax servicing margins were 11 basis points for the fourth quarter of 2005, an improvement of 25 basis points from the fourth quarter of 2004. The improvement in year-over-year servicing margins was aided by a lower prepayment rate, which drove a 16 basis point improvement in impairment/recovery of the MSRs and other retained interests, net of the hedge. Another factor was a rise in short-term interest rates, which fueled a 5 basis point improvement in escrow balance benefits. For the 2005 full year, pre-tax earnings grew $1.1 billion over 2004 and servicing margins increased to 7 basis points, an improvement of 13 basis points from 2004. This expansion in servicing margins resulted primarily from a reduced prepayment rate which yielded improvements of 7 basis points in impairment/recovery of MSRs and other retained interests, net of the hedge. Additionally, higher short-term rates increased escrow balance benefits by 5 basis points. Countrywide's servicing capitalization rate at the end of 2005 was 129 basis points. "In the Banking segment, pre-tax earnings grew 69 percent and 84 percent year-over-year for the fourth quarter and full year, respectively, to $329 million and $1.1 billion. Within this segment, the Bank continues to build its deposit base while leveraging the strong operational capabilities of Countrywide Home Loans. Net interest margins in the fourth quarter, as well as the prior quarter and full year, were negatively affected by low introductory rates, or 'teasers,' on newly produced pay-option loans, as well as by the lag period between the reset date on certain loans and actual changes in the underlying index rate of the same loans, commonly called the 'lag effect.' In the fourth quarter, the teaser effect depressed net interest margins by 16 basis points, and the lag effect contributed another 31 basis points. This was an improvement over the third quarter, however, when the effect of teaser rates was detrimental by 27 basis points, and the lag effect by a further 28 basis points. Similarly, these factors reduced net interest margins for the full year 2005, as teaser rates and the lag effect reduced margins by 19 and 23 basis points, respectively. "In the Capital Markets business, pre-tax earnings were $133 million for the fourth quarter and $452 million for the full year, which compares to $146 million and $479 million, respectively, for the same periods a year ago. These year-over-year declines were primarily the result of a decline in margins as a result of a flattening of the yield curve, partially offset by gains in our commercial real estate finance business. "Within the Insurance segment, pre-tax earnings were $104 million for the fourth quarter and $184 million for the full year, which compares to $30 million and $160 million for the comparable prior year periods. The fourth quarter favorable comparison was largely attributable to a $13 million downward adjustment to the $98 million charge that was recorded during the third quarter related to the hurricanes, primarily Hurricane Katrina. Comparison of fourth quarter earnings was also affected by a $45 million charge recorded in the fourth quarter of 2004 related to hurricane losses in that period. "In addition to the Insurance segment's $13 million downward adjustment of previously recorded hurricane-related charges, other segments had similar downward adjustments totaling $33 million out of $85 million recorded in the third quarter, including $28 million in Mortgage Banking ($22 million and $6 million for Servicing and Production, respectively) and $5 million for Banking. "As we look ahead to 2006 and beyond, we expect to see the market transition continue, which should lead to substantial industry consolidation. In the past, Countrywide has benefited from consolidating environments by recruiting talented personnel and fortifying our infrastructure. Just as we have done for nearly four decades, we expect to emerge from challenging times as a stronger Company that is better positioned for the future. We continue to believe the long-term fundamentals of the housing and mortgage finance markets are strong as homeownership remains the foundation of the American dream. Shareholders should take comfort in knowing that Countrywide's workforce of more than 50,000 will continue to work toward making this dream available to all Americans." Countrywide's 2006 earnings guidance was announced at $3.80 to $4.80 per diluted share. Key full-year assumptions behind the guidance include the following: * Total mortgage market originations of $2.2 trillion to $3.2 trillion
* Average 10-year U.S. Treasury yield range of 4.0 percent to
5.0 percent.
* Mortgage Banking segment pre-tax earnings of $1.85 billion to
$2.55 billion
- Company-wide loan production market share of 18.0 percent to
18.5 percent (1)
- Company-wide loan origination volume of $400 billion to
$600 billion (1)
- Mortgage Banking segment production pre-tax margins of 15 basis
points to 40 basis points (2)
- Average loan servicing portfolio of $1.2 trillion to
$1.3 trillion (3)
- Loan servicing pre-tax margins of 1 basis point to 10 basis points
* Pre-tax earnings from other segments (Banking, Capital Markets,
Insurance and Global Operations) of $2.05 billion to $2.35 billion
(1) Includes production from the Mortgage Banking and Capital Markets
segments and Countrywide Bank
(2) Excludes pre-tax earnings from Capital Markets, and is based on total
loans funded
(3) Total portfolio, including 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. Countrywide's Board of Directors declared a dividend of $0.15 per share. The payable date on the dividend is March 2, 2006 to stockholders of record on February 13, 2006. MORTGAGE BANKING Countrywide's Mortgage Banking segment includes Loan Production and Loan Servicing. These two sectors tend to be countercyclical and the relationship between the two is often referred to as the Macro Hedge. In addition, this segment includes Loan Closing Services. The Mortgage Banking segment contributed 43 percent of consolidated pre-tax earnings for the fourth quarter and 59 percent for the full year of 2005. Loan Production The Loan Production sector is comprised of four distribution channels: prime and nonprime consumer-direct lending through Countrywide Home Loans' 857-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; and loans originated through Countrywide Bank that are sold into the secondary mortgage market. The Loan Production sector generated $102 million in pre-tax earnings for the 2005 fourth quarter, which compares to $517 million for the fourth quarter of 2004. This decrease resulted primarily from a 60 basis point reduction in gain on sale margins combined with a 10 basis point decline in net warehouse spread. The table below shows fundings, sales, and gain on sale by product category for the periods indicated. Mortgage Banking Segment* Quarter Ended
Dec. 31, Sept. 30, Dec. 31,
(dollars in millions) 2005 2005 2004
Prime
Production $96,558 $109,382 $67,144
Loans sold $93,742 $102,886 $67,743
Gain on sale ("GOS") $606 $778 $609
GOS as % of loans sold 0.65% 0.76% 0.90%
Nonprime
Production $10,833 $11,399 $9,711
Loans sold $12,251 $7,556 $8,878
GOS $139 $173 $322
GOS as % of loans sold 1.14% 2.28% 3.63%
Home Equity
Production $9,496 $10,344 $7,962
Loans sold $7,025 $10,188 $7,111
GOS $130 $223 $222
GOS as % of loans sold 1.86% 2.19% 3.12%
Total production $116,887 $131,126 $84,818
Total loans sold $113,018 $120,630 $83,733
Total GOS $876 $1,174 $1,153
Total GOS as % of loans sold 0.78% 0.97% 1.38%
* Numbers may not be exact due to rounding
Prime margins declined to 65 basis points, down 11 basis points from the third quarter of 2005 and 25 basis points from the fourth quarter of 2004. The decline from the third quarter was largely attributable to weaker secondary market sales, primarily related to pay-option loans. Compared to the fourth quarter of 2004, the decline was largely attributable to front-end competitive pricing pressure. For nonprime products, the gain on sale margin decreased 114 basis points from the previous quarter and 249 basis points year over year. The decline from the third quarter was primarily a result of secondary marketing issues, primarily wider spreads in the credit default swap market. Compared to the fourth quarter of 2004, the decline was primarily attributable to pricing pressure and the timing of recognition of hedging losses and gain on sale during the third and fourth quarters of 2004. Home equity gain on sale margins decreased 33 basis points from the third quarter of this year and 126 basis points from the same quarter last year. The margin decline from the third quarter and the fourth quarter of 2004 both resulted from pricing pressure and weaker secondary market sales. Loan Servicing The Loan Servicing sector reflects the performance of mortgage servicing rights (MSRs) and other retained interests associated with Countrywide's owned-servicing portfolio. Since the MSRs generally perform best in higher interest rate environments, management expects that earnings from these assets will, over the long term, act as a natural counterbalance against Loan Production earnings, which typically improve in declining interest rate environments. Generally, in declining interest rate environments, Loan Production operations provide substantial incremental earnings to offset the effect of faster amortization and impairment of MSRs. Countrywide also manages a financial hedge within the Loan Servicing sector to further counteract MSR impairment. As of December 31, 2005, the servicing portfolio was $1.1 trillion, compared to a portfolio of $838 billion at December 31, 2004, with the weighted average coupon of 6.1 percent increasing from 5.9 percent one year ago. The servicing portfolio is comprised of 60 percent fixed rate loans and 40 percent adjustable rate loans. The weighted average age of the portfolio at December 31, 2005 was 1.6 years. The lifetime constant prepayment rate of the servicing portfolio at December 31, 2005 was 22.6 percent. For the quarter, the Loan Servicing sector recorded pre-tax earnings of $306 million, which compares to a pre-tax loss of $278 million for the fourth quarter of 2004. The year-over-year increase in servicing earnings was driven largely by portfolio growth, as well as an increase in interest rates which drove recovery of previously recorded impairment of MSRs and other retained interests. For the twelve months, pre-tax earnings for the Loan Servicing sector were $670 million, which compares to a pre-tax loss of $434 million for the comparable period last year, an improvement of $1.1 billion. The capitalization rate on the MSR portfolio now stands at 129 basis points, which compares to 124 basis points at September 30, 2005 and 115 basis points at December 31, 2004. 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' pre-tax earnings were $26 million in the fourth quarter, which compares to $21 million earned during the fourth quarter last year. For the twelve months, pre-tax earnings were $105 million, which compares to $85 million for the twelve months of 2004. Pre-tax earnings tend to be driven by Company and industry loan production volume. BANKING The Banking segment includes the investment and fee-based activities of Countrywide Bank, along with the activities of Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers. The Bank continues to leverage its relationship with the Mortgage Banking segment by sourcing high-quality mortgage assets through existing production distribution channels and then funding the loans for either retention in the Bank's investment portfolio or sale into the secondary mortgage market. The Bank's revenues for loans that are sold are recorded in the Mortgage Banking segment's Production sector net of expenses. Asset growth is funded by growth in the Bank's deposit base and its ability to borrow from the Federal Home Loan Bank. The Bank raises retail deposits through the Internet, call centers and 86 financial centers. The Bank activities provide Countrywide with an expanded product menu, lower-cost funding sources and opportunities for a diversified revenue stream through net interest income. For the fourth quarter of 2005, the net interest margin was 211 basis points, which compares to 200 basis points for the third quarter of 2005 and 243 basis points for the fourth quarter of 2004. The sequential quarter increase resulted primarily from a lessening of the compression affect from introductory teaser rates as these rates reset. Additionally, an increase in the average earning assets at the Bank aided the Bank's net interest income in the fourth quarter of 2005. The year-over-year decline in net interest income margin is mainly the result of a lag in the repricing of the Bank's loan portfolio compared to the increase in the cost of its interest-bearing liabilities as well as the teaser effect from pay-option loans. At December 31, 2005, total assets at Countrywide Bank reached $73 billion, compared to $41 billion at December 31, 2004, and were comprised of approximately 11 percent cash and investments, 88 percent first lien and home equity mortgage loans and 1 percent other assets. Delinquencies (90+ days) on the Bank's total loan portfolio at December 31, 2005 were 0.24 percent. In the fourth quarter of 2005, the Bank increased its retail deposits by $3 billion, as well as continued expansion of commercial and escrow deposit accounts. Countrywide Bank's total retail deposits at December 31, 2005 now stands at $17 billion, which compares to $7 billion for December 31, 2004. Countrywide Warehouse Lending had average loans outstanding of $7 billion during the quarter, an increase of 62 percent from the fourth quarter of 2004. Overall, quarterly pre-tax earnings for the Banking segment were $329 million, increasing 69 percent from last year's $195 million, driven primarily by the increase in average earning assets at the Bank. For the twelve months, pre-tax earnings advanced 84 percent from last year to $1.1 billion for 2005. For the full year, the Banking segment represented 26 percent of the total Company's pre-tax earnings for 2005, which compares to 16 percent for 2004. For the fourth quarter, Banking segment pre-tax earnings were 33 percent of consolidated pre-tax earnings, compared to 30 percent for the fourth quarter of 2004. CAPITAL MARKETS The Capital Markets segment includes a registered securities broker-dealer, a distressed-asset manager and a commercial real estate finance group. Total revenues for Capital Markets in the fourth quarter of 2005 were $237 million, with approximately 34 percent derived from conduit activities, 34 percent from underwriting, 23 percent from securities trading, brokerage and other activities, and 9 percent from commercial real estate activities. This compares to total revenues of $209 million in the fourth quarter of 2004 with approximately 45 percent derived from conduit activities, 31 percent from underwriting, and 23 percent from securities trading, brokerage and other activities and 1 percent from commercial real estate activities. In total, pre-tax earnings for the Capital Markets segment were $133 million in the fourth quarter of 2005, a decrease of 9 percent from the $146 million earned in the comparable year-ago period. For the twelve months, pre-tax earnings were $452 million for 2005 and $479 million for 2004. These year-over-year declines were primarily the result of a decline in margins as a result of a flattening of the yield curve, partially offset by gains in our commercial real estate finance business. INSURANCE Countrywide's Insurance segment includes Balboa Insurance Group, whose companies are national providers of property, life and casualty insurance; and Balboa Reinsurance Company, a captive mortgage reinsurance company. For the fourth quarter of 2005, net premiums earned were $249 million for the carrier and $49 million for the reinsurance group, which compares to $163 million and $42 million, respectively, for the comparable year-ago period. For the twelve months of 2005, net premiums earned were $773 million for the carrier and $181 million for the reinsurance group, which compares to $625 million and $157 million, respectively, for the comparable year-ago period. The Insurance segment recorded pre-tax earnings of $104 million in the fourth quarter of 2005, which compares to pre-tax earnings for the fourth quarter of 2004 of $30 million. During the 2005 fourth quarter, the Insurance segment had a $13 million downward adjustment to the charge that was recorded in the third quarter of 2005 related to the hurricanes, primarily Hurricane Katrina. During the fourth quarter of 2004, the insurance segment recorded a $45 million charge related to hurricanes in Florida. For the twelve months of 2005, pre-tax earnings were $184 million, which compares to $160 million in the year-ago period. The year-over-year increase is the result of an increase in insurance premiums, offset by an $88 million pre-tax charge for catastrophe loss, primarily related to Hurricane Katrina. It should be noted that 2004 pre-tax earnings included total catastrophe loss charges of $68 million. GLOBAL OPERATIONS During 2005, the principal component of the Global Operations segment was loan processing and subservicing in the UK, through a majority-owned joint venture, Global Home Loans (GHL). In 2005, GHL processed $20 billion in loans, all of which are subserviced for Barclays Bank, PLC, Countrywide's then-joint venture partner. At December 31, 2005, GHL's subservicing portfolio was $102 billion. Effective December 23, 2005, Countrywide renegotiated its relationship with Barclays, which effectively ended the joint venture. Beginning February 1, 2006, Barclays will control and manage its mortgage business, and the two parties have entered into a three-year software licensing agreement which allows for Barclays to use Countrywide's global originations, servicing and arrears management systems. Pre-tax earnings for the fourth quarter were $18 million, which compares to $11 million for the fourth quarter of 2004. For the twelve months of 2005, pre-tax earnings were $35 million, which compares to $42 million for the comparable year-ago period. The year-over-year increase in quarterly pre-tax earnings is the result of both increased revenue and a reduction in expense related to the termination of the joint venture. The decline in annual pre-tax earnings resulted primarily from lower levels of new loan processing volumes. Conference Call Countrywide will host a live conference call to discuss quarterly results today at 12:00 pm Eastern Standard Time. The dial-in number for the live conference call is (800) 230-1096 (U.S.) or (612) 288-0340 (International). The management discussion will be available for replay through midnight on Tuesday, February 14, 2006. The replay dial-in numbers and access code are (800) 475-6701 (U.S.) / (320) 365-3844 (International) and 812914, 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 2005 fourth quarter and year-end 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 nonprime loans; provides loan closing services such as credit reports, appraisals and flood determinations; offers banking services which include depository and home loan products; conducts mortgage-related investment banking; 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/. Many factors could ultimately affect the financial impact of Hurricane Katrina on Countrywide, including, but not limited to, new information that will become available; the short-term and long-term impact on the economies of the affected communities; the conduct of borrowers in the affected areas; the actions of various third parties, including government agencies and government-sponsored entities that support housing, insurance companies, lenders and mortgage insurance companies; the apportionment of liability among insurers; the availability of catastrophic reinsurance proceeds; factors impacting property values in the affected areas, including any environmental factors such as the presence of toxic chemicals; subsequent storm activity; and other factors. 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; changes in general business, economic, market and political conditions in the United States and abroad from those expected; loss of investment grade rating 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; changes in generally accepted accounting principles or in the legal, regulatory and legislative environments in the markets in which the Company operates; the ability of management to effectively implement the Company's strategies; and other risks noted in documents filed by the Company with the Securities and Exchange Commission from time to time. Words like "believe," "expect," "anticipate," "promise," "plan," and other expressions or words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could," or "may" are generally intended to identify forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements. COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except Quarter Ended
per share data) December 31, %
2005 2004 Change
(unaudited)
Revenues
Gain on sale of loans
and securities $1,069,628 $1,282,331 (17%)
Interest income 2,472,290 1,285,485 92%
Interest expense (1,802,260) (843,036) 114%
Net interest income 670,030 442,449 51%
Provision for loan losses (24,128) (22,887) 5%
Net interest income
after provision for
loan losses 645,902 419,562 54%
Loan servicing fees and
other income from
retained interests 1,186,214 897,234 32%
Amortization of mortgage
servicing rights (680,443) (562,729) 21%
Recovery (impairment) of
retained interests 233,283 (36,005) N/M
Servicing hedge losses (280,703) (329,655) (15%)
Net loan servicing fees
and other income (loss)
from retained interests 458,351 (31,155) N/M
Net insurance premiums earned 298,572 205,272 45%
Other revenue 119,809 141,150 (15%)
Total revenues 2,592,262 2,017,160 29%
Expenses
Compensation 990,247 835,907 18%
Occupancy and other office 237,624 188,897 26%
Insurance claims 93,105 115,055 (19%)
Advertising and promotion 63,977 50,204 27%
Other operating 195,099 185,560 5%
Total expenses 1,580,052 1,375,623 15%
Earnings before income taxes 1,012,210 641,537 58%
Provision for income taxes 373,315 271,702 37%
NET EARNINGS $638,895 $369,835 73%
Earnings per Share:
Basic $1.07 $0.64 67%
Diluted $1.03 $0.61 69%
Weighted Average Shares Outstanding:
Basic 597,865 576,586 4%
Diluted 617,493 609,162 1%
Year Ended
(In thousands, except December 31, %
per share data) 2005 2004 Change
(unaudited) (audited)
Revenues
Gain on sale of loans
and securities $4,861,780 $4,842,082 0%
Interest income 7,970,045 4,645,654 72%
Interest expense (5,616,425) (2,608,338) 115%
Net interest income 2,353,620 2,037,316 16%
Provision for loan losses (115,685) (71,775) 61%
Net interest income
after provision for
loan losses 2,237,935 1,965,541 14%
Loan servicing fees and
other income from
retained interests 4,281,254 3,269,587 31%
Amortization of mortgage
servicing rights (2,288,354) (1,940,457) 18%
Recovery (impairment) of
retained interests 23,345 (648,137) N/M
Servicing hedge losses (523,078) (215,343) 143%
Net loan servicing fees
and other income (loss)
from retained interests 1,493,167 465,650 221%
Net insurance premiums earned 953,647 782,685 22%
Other revenue 470,179 510,669 (8%)
Total revenues 10,016,708 8,566,627 17%
Expenses
Compensation 3,615,483 3,137,045 15%
Occupancy and other office 879,680 643,378 37%
Insurance claims 441,584 390,203 13%
Advertising and promotion 229,183 171,585 34%
Other operating 703,012 628,543 12%
Total expenses 5,868,942 4,970,754 18%
Earnings before income taxes 4,147,766 3,595,873 15%
Provision for income taxes 1,619,676 1,398,299 16%
NET EARNINGS $2,528,090 $2,197,574 15%
Earnings per Share:
Basic $4.28 $3.90 10%
Diluted $4.11 $3.63 13%
Weighted Average Shares Outstanding:
Basic 590,982 563,981 5%
Diluted 615,873 605,722 2%
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except December 31, December 31, %
share data) 2005 2004 Change
(unaudited) (audited)
Assets
Cash $1,031,108 $751,237 37%
Mortgage loans and
mortgage-backed securities
held for sale 36,818,688 37,350,149 (1%)
Trading securities owned,
at market value 10,314,384 10,558,387 (2%)
Trading securities pledged
as collateral,
at market value 668,189 1,303,007 (49%)
Securities purchased under
agreements to resell,
federal funds sold and
securities borrowed 23,317,361 13,456,448 73%
Loans held for investment,
net of allowance for
loan losses of $189,201 and
$125,046, respectively 70,071,152 39,661,191 77%
Investments in other
financial instruments 11,455,745 10,091,057 14%
Mortgage servicing rights, net 12,610,839 8,729,929 44%
Premises and equipment, net 1,279,659 985,350 30%
Other assets 7,518,245 5,608,950 34%
Total assets $175,085,370 $128,495,705 36%
Liabilities
Notes payable $76,187,886 $66,613,671 14%
Securities sold under
agreements to repurchase
and federal funds purchased 34,153,205 20,465,123 67%
Deposit liabilities 39,489,256 20,013,208 97%
Accounts payable and
accrued liabilities 6,307,818 5,594,764 13%
Trading securities sold,
not yet purchased,
at fair value 2,285,171 2,912,620 (22%)
Income taxes payable 3,846,174 2,586,243 49%
Total liabilities 162,269,510 118,185,629 37%
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,
600,169,268 shares and
581,706,836 shares at
December 31, 2005 and 2004,
respectively; outstanding,
600,030,686 shares and
581,648,881 shares at
December 31, 2005 and 2004,
respectively 30,008 29,085 3%
Additional paid-in capital 2,954,019 2,570,402 15%
Accumulated other
comprehensive income 61,114 118,943 (49%)
Retained earnings 9,770,719 7,591,646 29%
Total shareholders' equity 12,815,860 10,310,076 24%
Total liabilities and
shareholders' equity $175,085,370 $128,495,705 36%
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET AND OTHER ASSETS
December 31, December 31, %
(In thousands) 2005 2004 Change
(unaudited) (audited)
Loans Held for Investment, Net
Mortgage loans $63,866,618 $34,195,735 87%
Warehouse lending advances
secured by mortgage loans 3,943,046 3,681,830 7%
Defaulted mortgage loans
repurchased from securities 1,515,660 1,518,642 (0%)
69,325,324 39,396,207 76%
Purchase premium/discount and
deferred loan origination
costs, net 935,029 390,030 140%
Allowance for loan losses (189,201) (125,046) 51%
Total loans held for
investment, net $70,071,152 $39,661,191 77%
Other Assets
Reimbursable servicing advances $1,529,001 $1,355,584 13%
Investments in Federal Reserve
Bank and Federal Home Loan
Bank stock 1,334,100 795,894 68%
Interest receivable 777,966 426,962 82%
Receivables from
custodial accounts 629,075 391,898 61%
Restricted cash 429,556 250,662 71%
Securities broker-dealer
receivables 392,847 818,299 (52%)
Capitalized software, net 331,454 286,504 16%
Receivables from sale
of securities 325,327 143,874 126%
Derivative margin accounts 296,005 131,244 126%
Cash surrender value of assets
held in trust for deferred
compensation plan 224,884 184,569 22%
Prepaid expenses 187,377 212,310 (12%)
Other assets 1,060,653 611,150 74%
Total other assets $7,518,245 $5,608,950 34%
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
December 31, December 31, %
(In thousands) 2005 2004 Change
(unaudited) (audited)
Investments in Other Financial
Instruments
Available-for-sale securities:
Mortgage-backed securities $6,866,520 $6,009,819 14%
Obligations of U.S.
Government-sponsored
enterprises 547,715 279,991 96%
Municipal bonds 369,748 208,239 78%
U.S. Treasury securities 144,951 66,030 120%
Other 3,109 3,685 (16%)
Subtotal 7,932,043 6,567,764 21%
Other interests retained in
securitization accounted for
as available-for-sale
securities:
Nonconforming interest-only
and principal-only
securities 323,368 191,502 69%
Prime home equity line of
credit transferor's
interest 212,862 273,639 (22%)
Nonprime residual securities 206,033 237,695 (13%)
Prime home equity residual
securities 143,590 275,598 (48%)
Prepayment penalty bonds 112,492 61,483 83%
Prime home equity
interest-only securities 15,136 27,950 (46%)
Nonprime interest-only
securities 9,455 84,834 (89%)
Nonconforming residual
securities 2,170 11,462 (81%)
Subordinated mortgage-backed
pass-through securities 2,059 2,306 (11%)
Total other interests
retained in
securitization
accounted for as
available-for-sale
securities 1,027,165 1,166,469 (12%)
Total available-for-sale
securities 8,959,208 7,734,233 16%
Other interests retained in
securitization accounted for as
trading securities:
Prime home equity residual
securities 782,172 533,554 47%
Nonprime residual securities 341,106 187,926 82%
Prime home equity line of
credit transferor's interest 325,186 -- N/M
Nonconforming interest-only
securities 180,216 -- N/M
Nonconforming residual
securities 18,834 20,555 (8%)
Interest rate swaps 782 -- N/M
Total other interests
retained in
securitization
accounted for as
trading securities 1,648,296 742,035 122%
Hedging instruments:
Servicing 741,156 1,024,977 (28%)
Debt 107,085 589,812 (82%)
Total investments in
other financial
instruments $11,455,745 $10,091,057 14%
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Quarter Ended
December 31, %
(Dollar amounts in millions) 2005 2004 Change
Volume of loans produced $134,646 $95,670 41%
Number of loans produced 700,034 590,162 19%
Loan closing services (units):
Number of credit reports, flood
determinations, appraisals,
automated property valuation
services, title reports,
default title orders,
other title and
escrow services, and
home inspections 5,273,624 4,366,313 21%
Capital Markets
Securities trading volume (1) $863,995 $759,859 14%
Insurance
Net premiums earned:
Carrier $249.4 $163.5 53%
Reinsurance 49.2 41.8 18%
Total net premiums earned $298.6 $205.3 45%
Year Ended
December 31, %
(Dollar amounts in millions) 2005 2004 Change
Volume of loans produced $494,872 $363,364 36%
Number of loans produced 2,678,593 2,298,774 17%
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 21,975,720 16,705,556 32%
Capital Markets
Securities trading volume (1) $3,551,483 $3,126,672 14%
Insurance
Net premiums earned:
Carrier $772.9 $625.4 24%
Reinsurance 180.7 157.3 15%
Total net premiums earned $953.6 $782.7 22%
December 31, %
2005 2004 Change
Mortgage loan pipeline
(loans-in-process) $59,651 $47,768 25%
Loan servicing portfolio (2) $1,111,090 $838,322 33%
Number of loans serviced (2) 7,431,949 6,196,487 20%
MSR portfolio (3) $978,988 $758,974 29%
Assets held by Countrywide Bank
(in billions) $73.1 $41.0 78%
Global Operations
Global Home Loans subservicing
volume (in billions) $102 $118 (14%)
(1) Includes trades with Mortgage Banking Segment.
(2) Includes loans held for sale, loans held for investment and loans
serviced for others, including those under subservicing agreements.
(3) Represents loan servicing portfolio reduced by loans held for sale,
loans held for investment and subservicing.
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
Quarter Ended December 31, 2005
Mortgage Banking
Loan Loan Closing
(In thousands) Production Servicing Services Total
Revenues
Gain on sale of loans
and securities $876,043 $3,120 $-- $879,163
Net interest income
after provision for
loan losses 134,325 54,695 1,032 190,052
Net loan servicing
fees (1) -- 439,447 -- 439,447
Net insurance premiums
earned -- -- -- --
Other revenue (2) 55,977 (7,843) 70,772 118,906
Total revenues 1,066,345 489,419 71,804 1,627,568
Expenses 964,411 183,766 45,482 1,193,659
Earnings (loss)
before income
taxes $101,934 $305,653 $26,322 $433,909
Quarter Ended December 31, 2005
Capital
(In thousands) Banking Markets Insurance
Revenues
Gain on sale of loans
and securities $-- $178,571 $--
Net interest income
after provision for
loan losses 391,953 49,513 14,608
Net loan servicing
fees (1) -- 1,200 --
Net insurance premiums
earned -- -- 298,572
Other revenue (2) 46,408 7,981 10,026
Total revenues 438,361 237,265 323,206
Expenses 109,246 104,576 219,656
Earnings (loss)
before income
taxes $329,115 $132,689 $103,550
Quarter Ended December 31, 2005
Global
(In thousands) Operations Other Grand Total
Revenues
Gain on sale of loans
and securities $-- $11,894 $1,069,628
Net interest income
after provision for
loan losses 901 (1,125) 645,902
Net loan servicing
fees (1) 25,993 (8,289) 458,351
Net insurance premiums
earned -- -- 298,572
Other revenue (2) 37,690 (101,202) 119,809
Total revenues 64,584 (98,722) 2,592,262
Expenses 46,744 (93,829) 1,580,052
Earnings (loss)
before income
taxes $17,840 $(4,893) $1,012,210
Quarter Ended December 31, 2004
Mortgage Banking
Loan Loan Closing
(In thousands) Production Servicing Services Total
Revenues
Gain on sale of loans
and securities $1,153,034 $11,130 $-- $1,164,164
Net interest income
after provision for
loan losses 175,451 (92,295) 464 83,620
Net loan servicing
fees (1) -- (49,705) -- (49,705)
Net insurance premiums
earned -- -- -- --
Other revenue (2) 26,485 14,391 59,349 100,225
Total revenues 1,354,970 (116,479) 59,813 1,298,304
Expenses 837,698 161,359 38,973 1,038,030
Earnings (loss)
before income
taxes $517,272 $(277,838) $20,840 $260,274
Quarter Ended December 31, 2004
Capital
(In thousands) Banking Markets Insurance
Revenues
Gain on sale of loans
and securities $(554) $110,676 $--
Net interest income
after provision for
loan losses 235,881 85,408 14,450
Net loan servicing
fees (1) -- 913 (4,086)
Net insurance premiums
earned -- -- 205,272
Other revenue (2) 20,581 12,501 24,292
Total revenues 255,908 209,498 239,928
Expenses 61,287 63,300 209,987
Earnings (loss)
before income
taxes $194,621 $146,198 $29,941
Quarter Ended December 31, 2004
Global
(In thousands) Operations Other Grand Total
Revenues
Gain on sale of loans
and securities $-- $8,045 $1,282,331
Net interest income
after provision for
loan losses 541 (338) 419,562
Net loan servicing
fees (1) 27,147 (5,424) (31,155)
Net insurance premiums
earned -- -- 205,272
Other revenue (2) 31,861 (48,310) 141,150
Total revenues 59,549 (46,027) 2,017,160
Expenses 48,909 (45,890) 1,375,623
Earnings (loss)
before income
taxes $10,640 $(137) $641,537
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, net of
amortization of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
(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
ANNUAL SEGMENT ANALYSIS
(Unaudited)
Year Ended December 31, 2005
Mortgage Banking
Loan Loan Closing
(In thousands) Production Servicing Services Total
Revenues
Gain on sale of loans
and securities $4,300,579 $32,595 $-- $4,333,174
Net interest income
after provision for
loan losses 607,041 12,693 3,406 623,140
Net loan servicing
fees (1) -- 1,404,149 -- 1,404,149
Net insurance premiums
earned -- -- -- --
Other revenue (2) 231,774 (24,769) 274,240 481,245
Total revenues 5,139,394 1,424,668 277,646 6,841,708
Expenses 3,479,937 755,057 172,189 4,407,183
Earnings (loss)
before income
taxes $1,659,457 $669,611 $105,457 $2,434,525
Year Ended December 31, 2005
Capital
(In thousands) Banking Markets Insurance
Revenues
Gain on sale of loans
and securities $(808) $499,139 $--
Net interest income
after provision for
loan losses 1,289,711 261,999 50,512
Net loan servicing
fees (1) -- 4,587 5,881
Net insurance premiums
earned -- -- 953,647
Other revenue (2) 171,963 32,526 49,501
Total revenues 1,460,866 798,251 1,059,541
Expenses 386,386 346,622 875,825
Earnings (loss)
before income
taxes $1,074,480 $451,629 $183,716
Year Ended December 31, 2005
Global
(In thousands) Operations Other Grand Total
Revenues
Gain on sale of loans
and securities $-- $30,275 $4,861,780
Net interest income
after provision for
loan losses 3,648 8,925 2,237,935
Net loan servicing
fees (1) 108,378 (29,828) 1,493,167
Net insurance premiums
earned -- -- 953,647
Other revenue (2) 122,016 (387,072) 470,179
Total revenues 234,042 (377,700) 10,016,708
Expenses 198,689 (345,763) 5,868,942
Earnings (loss)
before income
taxes $35,353 $(31,937) $4,147,766
Year Ended December 31, 2004
Mortgage Banking
Loan Loan Closing
(In thousands) Production Servicing Services Total
Revenues
Gain on sale of loans
and securities $4,386,536 $127,149 $-- $4,513,685
Net interest income
after provision for
loan losses 1,181,151 (393,266) 1,323 789,208
Net loan servicing
fees (1) -- 377,302 -- 377,302
Net insurance premiums
earned -- -- -- --
Other revenue (2) 114,739 59,622 221,303 395,664
Total revenues 5,682,426 170,807 222,626 6,075,859
Expenses 2,998,168 604,338 137,640 3,740,146
Earnings (loss)
before income
taxes $2,684,258 $(433,531) $84,986 $2,335,713
Year Ended December 31, 2004
Capital
(In thousands) Banking Markets Insurance
Revenues
Gain on sale of loans
and securities $5,137 $296,010 $--
Net interest income
after provision for
loan losses 700,410 428,609 46,650
Net loan servicing
fees (1) -- 3,471 (4,086)
Net insurance premiums
earned -- -- 782,685
Other revenue (2) 78,053 33,348 71,601
Total revenues 783,600 761,438 896,850
Expenses 201,117 282,323 736,757
Earnings (loss)
before income
taxes $582,483 $479,115 $160,093
Year Ended December 31, 2004
Global
(In thousands) Operations Other Grand Total
Revenues
Gain on sale of loans
and securities $-- $27,250 $4,842,082
Net interest income
after provision for
loan losses 2,108 (1,444) 1,965,541
Net loan servicing
fees (1) 106,356 (17,393) 465,650
Net insurance premiums
earned -- -- 782,685
Other revenue (2) 119,538 (187,535) 510,669
Total revenues 228,002 (179,122) 8,566,627
Expenses 186,137 (175,726) 4,970,754
Earnings (loss)
before income
taxes $41,865 $(3,396) $3,595,873
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, net of
amortization of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses)
(2) Consists primarily of revenues from ancillary products and services,
including title, escrow, appraisal, credit reporting and home
inspection services and insurance agency commissions.
First Call Analyst: FCMN Contact: Elizabeth_Moyer@Countrywide.Com Website: http://www.countrywide.com/ |
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