CALABASAS, Calif., April 29 /PRNewswire-FirstCall/ — Countrywide Financial Corporation today reported a net loss of $893 million, or $1.60 per diluted share, for the first quarter ended March 31, 2008, which compares to net income of $434 million, or $0.72 per diluted share, for the first quarter of 2007.
Key quarterly results include the following:
Table 1 Quarter Ended
($ in millions, except per share Mar. 31, Dec. 31, Mar. 31,
amounts) 2008 2007 2007
Consolidated Company
Net (Loss) Earnings $(893) $(422) $434
Diluted (Loss) Earnings per Share $(1.60) $(0.79) $0.72
Shareholders’ Equity $13,155 $14,656 $14,818
Total Assets $199,018 $208,367 $207,183
Key Segment Pre-tax (Loss) Earnings
Mortgage Banking $(552) $(623) $100
Banking $(960) $(279) $288
Capital Markets $1 $118 $132
Insurance $36 $172 $180
Key Operating Statistics ($ in
billions)
Total Loan Fundings $73 $69 $117
Ending Loan Servicing Portfolio $1,484 $1,476 $1,352
Ending Assets of Banking
Operations $110 $113 $84
During the first quarter of 2008, operating results benefited from profitability in the Company’s Loan Production sector, from its investment in mortgage servicing rights(a), and from its Balboa Life & Casualty insurance business. However, these results were more than offset by materially higher credit-related costs during the quarter. Increased credit-related charges were driven by increased levels of mortgage delinquencies, defaults and loss severities, as well as downward revisions in expectations of home prices relative to prior quarters.
(a) MSR portfolio operating earnings and MSR valuation changes, net of related hedging results.
FIRST QUARTER 2008 CREDIT-RELATED CHARGES
Table 2
Quarter Ended March 31, 2008
Insurance
Mortgage Banking Segment
Banking &
Production Servicing Segment other Total
($ in millions)
Provision for credit losses $- $213 $1,316 $- $1,529
Provision for representations
& warranty claims 51 404 - 1 456
Impairment of credit-sensitive
retained interests (1) - 441 - - 441
Provision for captive mortgage
reinsurance claims - - - 236 236
Senior and mezzanine security
valuation adjustments (2) - 202 - - 202
Inventory and pipeline
valuation adjustments 188 - - - 188
Total $239 $1,260 $1,316 $237 $3,052
(1) Includes $154 million related to HELOC rapid amortization.
(2) These securities were retained in securitizations and are backed by
nonprime, home equity and non-conforming prime loans and are carried at
estimated fair value.
The credit-related charges in the first quarter of 2008 are further discussed below:
— Provision for credit losses on the Company’s investment in residential
loans was $1.5 billion during the quarter, compared to $925 million
last quarter and $158 million in the first quarter of 2007. Charge-
offs for the first quarter of 2008 were $606 million, compared to $283
million for the fourth quarter of 2007 and $39 million for the first
quarter of 2007. The reserve for credit losses was increased by
approximately $1 billion to $3.4 billion at the end of the quarter.(b)
— Provision for representations and warranty claims was $456 million
during the quarter, compared to a recovery of $58 million in the
fourth quarter of 2007 and a $42 million provision in the first
quarter of 2007. Charge-offs related to claims settled during the
quarter were $129 million for the first quarter of 2008, compared to
$5 million for the fourth quarter of 2007 and $43 million for the
first quarter of 2007. The sequential quarter build in the
representations and warranty claims liability was approximately $320
million, increasing it to $1 billion at March 31, 2008.
— Impairment of credit-sensitive retained interests was $441 million
during the quarter, compared to impairment of $852 million last
quarter and $366 million in the first quarter of 2007. Of the $441
million in impairment charges, $347 million related to home equity
securitizations and $67 million related to subprime residuals. The
carrying value of the Company’s credit-sensitive residual assets at
March 31, 2008 was $483 million, including $207 million related to
subprime loans and $234 million related to home equity loans. The
liability for estimated losses on future draws related to HELOC rapid
amortization amounted to $798 million at March 31, 2008, which
compares to $704 million at December 31, 2007 and no liability existed
at March 31, 2007.
— Provision for captive mortgage reinsurance claims was $236 million,
compared to a provision of $21 million in the fourth quarter of 2007
and a reversal of $60 million in the first quarter of 2007. The
liability for future claims increased to $385 million at March 31,
2008. As of March 31, 2008, approximately $134 billion of mortgage
loans in the Company’s servicing portfolio are covered by such
mortgage reinsurance contracts, and the Company’s maximum aggregate
losses under the reinsurance contracts are limited to $1.1 billion.
— Valuation adjustments were $390 million during the quarter. Further
disruption in the capital markets and declining liquidity for non-
agency mortgage assets persisted and credit spreads on those assets
continued to widen. As a result, senior and mezzanine securities
retained in prior securitizations and non-agency inventory subject to
fair value adjustments were written down. Senior and mezzanine
securities were written down by $202 million in the first quarter of
2008 compared to $66 million in the fourth quarter of 2007 and no
charge was taken in the first quarter of 2007. Loan inventory was
written down in the amount of $188 million in the first quarter of
2008, which compares to write-downs of $428 million in the fourth
quarter of 2007 and $253 million in the first quarter of 2007.
(b) The reserve for credit losses and the asset for estimated amounts recoverable from pool mortgage insurance are shown separately on the balance sheet. The March 31, 2008 and December 31, 2007 balances of the asset were $613 million and $556 million, respectively.
BUSINESS SEGMENT PERFORMANCE
Mortgage Banking — Loan Production
The Loan Production sector is comprised of the following distribution channels: consumer-direct lending through Countrywide’s retail home loan offices, call center operations and the Internet; wholesale lending through a network of mortgage brokers; and correspondent lending which buys closed loans from other financial institutions such as independent mortgage companies, commercial banks, savings and loans and credit unions. The sector also includes the mortgage banking activities of Countrywide Bank.
Table 3
Loan Production Sector
Results of Operations (1) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Gain on sale of loans (2) $1,045 $274 $1,064
Net warehouse spread 37 22 90
Miscellaneous income 22 15 10
Total revenues 1,104 311 1,164
Operating expenses (757) (729) (856)
Allocated corporate expenses (115) (89) (138)
Total expenses (872) (818) (993)
Total Loan Production sector
pre-tax earnings (loss) $232 $(507) $171
(1) Numbers may not total exactly due to rounding.
(2) Includes hedge results and inventory valuation adjustments, and in
the first quarter of 2008 includes the impact of the adoption of SAB
109.
Pre-tax earnings in the Loan Production sector were $232 million in the first quarter, compared to a pre-tax loss of $507 million in the prior quarter and pre-tax earnings of $171 million in the first quarter of 2007. The following summarizes the operational and financial highlights in the Loan Production sector for the first quarter of 2008:
— On a consolidated basis, the Company’s loan originations totaled $73
billion in the first quarter of 2008, of which $67 billion was
originated for sale and $6 billion was originated for investment.
This compares to $61 billion originated for sale and $8 billion
originated for investment in the fourth quarter of 2007.
— Average daily applications were $2.2 billion in the first quarter of
2008, up 27 percent from the fourth quarter of 2007.
— Pricing margins on loans originated for sale (i.e., margins at the
time of lock) remained stable or improved slightly during the quarter
relative to the prior quarter. However, gain on sale margins were
negatively impacted by significant secondary market volatility during
the quarter.
— Operating expenses were up $28 million, but down 7 basis points as a
percentage of production. The sequential quarter dollar increase is
primarily driven by a reduced benefit in the first quarter of 2008
from SFAS 91 deferral due to the Company’s adoption of SFAS 159 on
most held-for-sale loans.
— The Company’s adoption of the SEC’s Staff Accounting Bulletin No. 109
aided first quarter profitability by $358 million. The adoption of
this accounting standard requires the Company to book “gain on sale”
at the time of loan lock versus loan sale as was previously the
practice.
— The Company recorded write-downs of $188 million resulting from
credit-spread widening during the quarter on non-agency fixed-rate
mortgages and on loans that had been previously securitized but on
which the Company did not receive sales treatment pursuant to SFAS
140. As a result of first quarter spread widening and lessened
liquidity for these loans, management has determined that any new
production of non-agency fixed-rate loans will be originated solely
for the Company’s investment portfolio.
Mortgage Banking — Loan Servicing
The Loan Servicing sector includes the performance of mortgage servicing rights (MSRs), interest-only securities and other mortgage banking segment investments which include: credit-sensitive subprime and home equity residuals; Mortgage Banking HFI loans; and senior and mezzanine mortgage- backed securities which remain unsold from prior securitizations. Countrywide also manages a financial hedge within the Loan Servicing sector to mitigate negative valuation changes in MSRs and retained interests.
Table 4
Quarter Ended (5)
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Loan Servicing sector earnings before
credit charges $442 $969 $256
Credit charges (1,260) (1,108) (357)
Total Loan Servicing sector pre-tax
loss $(818) $(139) $(100)
Loan Servicing sector earnings before
credit charges:
Servicing fees, net of guarantee
fees $1,174 $1,219 $1,080
Escrow balance income 69 168 204
Miscellaneous fees 168 162 209
Income from retained interests 98 112 148
Realization of expected MSR cash
flows (754) (659) (800)
Operating revenues 756 1,001 840
Direct expenses (268) (244) (179)
Allocated corporate expenses (24) (16) (22)
Total expenses (293) (260) (201)
Operating earnings 463 741 640
Change in fair value of MSRs (1) (1,558) (1,535) (9)
Servicing hedge gains (losses) (1) 1,667 1,986 (161)
Valuation changes, net of
servicing hedge (1) 109 451 (170)
Interest expense (130) (223) (213)
Loan Servicing sector earnings
before credit charges 442 969 256
Credit charges
Impairment of credit-sensitive
retained interests, net of hedge (444) (862) (318)
Adjustment to representation and
warranty liability (2) (404) 59 (31)
Loan loss provision (3) (209) (238) (7)
Change in fair value of senior and
mezzanine securities (4) (202) (66) -
Credit charges (1,260) (1,108) (357)
Total Loan Servicing sector
pre-tax loss $(818) $(139) $(100)
Average servicing portfolio ($ in
billions) $1,469 $1,456 $1,316
MSR portfolio capitalization rate 1.26% 1.40% 1.40%
Actual prepayment speed (CPR) 13.0% 10.5% 17.4%
Ending value of credit-sensitive
retained interests ($ in millions) $483.1 $771.0 $1,836.9
(1) Includes other non credit-sensitive retained interests,
predominately interest-only securities.
(2) We estimate our liability for representations and warranty claims at
the time of sale and update our estimates quarterly. At the time of
sale, the liability adjusts our gain on sale. Subsequent to sale,
adjustments to our liability for representations and warranty claims are
included in our Loan Servicing sector.
(3) Represents the provision for loan losses for the Mortgage Banking
segment’s mortgage loan investment portfolio.
(4) These securities were retained in securitization and are backed by
nonprime, home equity and non-conforming prime loans and are carried at
estimated fair value.
(5) Numbers may not total exactly due to rounding.
Before the impact of credit charges, Loan Servicing sector pre-tax earnings were $442 million during the first quarter of 2008 compared to $969 million and $256 million in the fourth and first quarters of 2007, respectively. The Loan Servicing sector incurred a pre-tax loss of $818 million in the first quarter of 2008, which compares to a loss of $139 million in the fourth quarter of 2007. The sequential quarter comparison was impacted by the following factors:
— Earnings from the Company’s investment in mortgage serving rights were
impacted by lower interest rates during the quarter and related
increases in prepayment speeds. This resulted in an increase in the
write-down of the MSR asset related to “realization of expected MSR
cash flows” from $659 million in the fourth quarter of 2007 to $754
million in the first quarter of 2008. Prepayment speeds on the MSR
asset approximated 13 percent in the first quarter, compared to 11
percent for the fourth quarter of 2007. However, while up from the
previous quarter, prepayment speeds continue to be slow relative to
historic speeds in similar interest rate environments due to slowing
housing conditions and lesser credit availability in the mortgage
markets.
— While the Company’s servicing hedge applicable to the MSR asset
performed favorably during the quarter resulting in hedge gains
exceeding MSR impairment by $109 million, the valuation change on the
MSR asset, net of hedge gains, in the prior quarter was a gain of $451
million.
— Impairment charges of $444 million applicable to the Company’s credit-
sensitive retained interests, net of hedge, also negatively impacted
Loan Servicing sector earnings with the majority of the impact related
to the retained interests from home equity securitizations, including
impairment losses related to HELOC rapid amortization. The impairment
on retained interests was driven primarily by worsening trends and
expectations for delinquencies and home prices and the resulting
increases in estimates of future defaults and credit losses. During
the first quarter of 2008, Countrywide recorded impairment losses of
$154 million related to future draw obligations on the home equity
securitization deals that have entered or are probable to enter rapid
amortization status. This compares to rapid amortization-related
impairment losses of $704 million recorded in the fourth quarter of
2007. The aggregate carrying value of the Company’s investments in
credit-sensitive retained interests at March 31, 2008 was $483
million, compared to $771 million at December 31, 2007, and $1.8
billion at March 31, 2007.
— The provision expense applicable to estimated future representations
and warranty claims was increased from the fourth quarter of 2007 by
$463 million. The increase is primarily attributable to worsening
trends and expectations for delinquencies and home prices and the
related increases in the projections of future defaults to which
representation and warranty claims are correlated. As a result, the
reserve for such future claims at March 31, 2008 approximated $1
billion.
— The loan loss provision applicable to the Mortgage Banking segment
loan portfolio was $209 million for the first quarter of 2008 compared
to $238 million for the fourth quarter of 2007 and $7 million for the
first quarter of 2007.
— The fair value of senior and mezzanine securities declined $202
million during the first quarter of 2008, as compared to $66 million
for the fourth quarter of 2007 and there was no such decline for the
first quarter of 2007. The downward change in fair value was driven
by further disruption in the capital markets and declining liquidity
for non-agency mortgage assets, which resulted in wider credit spreads
on those assets.
Banking
The Banking segment includes Banking Operations (primarily the fee and investment activities of Countrywide Bank, FSB) and Countrywide Warehouse Lending, a provider of mortgage inventory financing to independent mortgage bankers.
Table 5
Banking Segment Results of Operations
Quarter Ended (2)
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Banking Operations $(925) $(262) $294
Countrywide Warehouse Lending (2) 5 10
Allocated corporate expenses (34) (23) (16)
Total Banking segment pre-tax
(loss) earnings $(960) $(279) $288
Table 6
Quarter Ended (2)
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Banking Operations:
Net interest income $633 $627 $497
Provision for credit losses (1,316) (688) (129)
Non-interest income 6 11 41
Mortgage insurance expense (27) (23) (19)
Other non-interest expense (222) (189) (95)
Banking Operations pre-tax (loss)
earnings $(925) $(262) $294
Other statistics:
Total assets $110,190 $113,057 $84,261
Total deposits (1) $64,266 $61,184 $57,783
Loan portfolio, net $84,774 $85,432 $69,271
Net charge-offs $485 $192 $33
Allowance for credit losses $3,066 $2,179 $422
(1) Includes intercompany deposits
(2) Numbers may not total exactly due to rounding
During the first quarter of 2008, Banking Operations incurred a pre-tax loss of $925 million, compared to a pre-tax loss of $262 million last quarter and pre-tax income of $294 million in the first quarter of 2007. The sequential quarter comparison was impacted by the following factors:
— The provision for credit losses in the first quarter increased 91
percent from the fourth quarter provision to $1.3 billion, driven by
the worsening trends and expectations for delinquencies and home
prices and the related increase in the projection of future charge-
offs during the quarter. During the first quarter of 2008, net
charge-offs in Banking Operations were $485 million, which compares to
$192 million in the fourth quarter of 2007 and $33 million in the
first quarter of 2007. The allowance for credit losses in the Banking
Operations sector at March 31, 2008 grew to $3.1 billion from $2.2
billion at December 31, 2007. The estimated amounts recoverable from
pool mortgage insurance increased to $613 million at the end of the
quarter from $556 million at the end of the fourth quarter of 2007.
— Net interest income increased modestly from $627 million in the fourth
quarter of 2007 to $633 million in the first quarter of 2008. Although
the average balance of interest-earning assets increased by 6 percent,
the net interest margin declined 16 basis points from the fourth
quarter to 2.25 percent in the first quarter of 2008. This decline
resulted from reductions in interest rates, which impacted the average
yield on interest-earning assets and was not fully offset by
reductions in funding costs, and a higher balance of non-performing
loans.
— Total deposits were $64 billion at March 31, 2008, which compares to
$61 billion at December 31, 2007. Retail deposits totaled $38 billion
at March 31, 2008, which compares to $33 billion at December 31, 2007.
During the first quarter of 2008, the Bank opened eight new Financial
Centers, bringing its total to 201 at March 31, 2008.
Capital Markets
The Capital Markets segment includes a registered securities broker- dealer, a distressed-asset manager, a commercial real estate finance group and related businesses. Financial results for the Capital Markets segment are noted below:
Table 7
Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Revenues $81 $193 $261
Pre-tax earnings $1 $118 $132
Conduit loans sold $436 $1,687 $7,434
The pre-tax earnings in the Capital Markets segment were $1 million in the first quarter, which compares to $118 million in the fourth quarter of 2007 and $132 million in the first quarter of 2007. The sequential quarter decrease was primarily due to a reduction in revenues resulting from the continued disruption in the capital markets and declines in the value of non- agency securities and loans. The sequential quarter difference in revenue was also impacted by a SFAS 140 benefit of $104 million in the fourth quarter of 2007 compared to a benefit of $38 million in the first quarter of 2008, which resulted from the sale of certain securities allowing sale accounting to be achieved.
Insurance
Countrywide’s Insurance segment includes Balboa Life & Casualty, a provider of property, life and casualty insurance; and Balboa Reinsurance Company, a captive mortgage guaranty reinsurance company.
Table 8
Insurance Segment Pre-tax Earnings(1) Quarter Ended
Mar. 31, Dec. 31, Mar. 31,
($ in millions) 2008 2007 2007
Balboa Reinsurance Company $(136) $76 $131
Balboa Life & Casualty 181 105 57
Allocated corporate expenses (10) (9) (8)
Total Insurance segment pre-tax
earnings $36 $172 $180
(1) Numbers may not total exactly due to rounding
For the first quarter of 2008, Insurance segment pre-tax earnings were $36 million, compared to $172 million last quarter and $180 million in the first quarter of 2007. Earnings were primarily impacted by the pre-tax loss at Balboa Reinsurance, which resulted from an increase in its provision for mortgage reinsurance claims of $215 million. For the quarter ended March 31, 2008, Balboa Reinsurance was not required to pay any claims under its reinsurance contracts, but increased its projection for future claims payments, driven primarily by a worsening housing market and resulting higher actual and projected default rates. The liability at March 31, 2008 for future insurance claims payments approximated $385 million.
The sequential quarter increase in pre-tax earnings at Balboa Life & Casualty was primarily the result of continued growth in net earned premiums, lower catastrophe losses, and lower non-catastrophe loss ratios.
Dividend Declaration
Countrywide’s Board of Directors declared a dividend of $1,812.50 per share on its Series B preferred stock. The preferred stock dividend is payable on May 15, 2008. Countrywide’s Board of Directors also declared a $0.15 dividend on its common shares despite its quarterly loss and the challenging market conditions. The common stock dividend is payable on June 2, 2008 to shareholders of record on May 14, 2008.
EARNINGS WEBCAST/CONFERENCE CALL
Given the pending merger with Bank of America, announced January 11, 2008, Countrywide will not hold a webcast or conference call to discuss quarterly results.
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 residential and commercial 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 .
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, financial results, 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: lack of or further reduced access to corporate debt markets or other sources of liquidity; additional disruptions in the secondary mortgage market; increased credit losses due to downward trends in the economy and in the real estate market, including as a result of continued increases in the delinquency rates of borrowers; adverse changes in the Company’s credit ratings, including any downgrade that causes the Company to lose its investment grade credit rating; continued increases in credit exposure resulting from the Company’s decision to retain more loans in its portfolio of loans held for investment; competitive conditions in each of the Company’s business segments; unexpected changes in general business, economic, market and political conditions in the United States; 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 which Countrywide 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; unforeseen cash or capital requirements; 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, and the statements made in this press release are current as of the date of this release only.
(tables follow)
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarters Ended
March 31, %
(in thousands, except per share data) 2008 2007 Change
(unaudited)
Revenues
Gain on sale of loans and securities $289,311 $1,234,104 (77%)
Interest income 2,806,559 3,351,982 (16%)
Interest expense (2,075,239) (2,621,045) (21%)
Net interest income 731,320 730,937 0%
Provision for loan losses (1,501,352) (151,962) 888%
Net interest (expense) income
after provision for loan losses (770,032) 578,975 N/M
Loan servicing fees and other income
from mortgage servicing rights and
retained interests 1,406,409 1,387,289 1%
Realization of expected cash flows
from mortgage servicing rights (753,626) (799,882) (6%)
Change in fair value of mortgage
servicing rights (1,460,713) 54,183 N/M
Impairment of retained interests (741,020) (429,601) 72%
Servicing Hedge gains (losses) 2,004,407 (113,738) N/M
Net loan servicing fees and other
income from mortgage servicing
rights and retained interests 455,457 98,251 364%
Net insurance premiums earned 488,829 334,177 46%
Other 215,309 160,269 34%
Total revenues 678,874 2,405,776 (72%)
Expenses
Compensation 1,053,985 1,075,408 (2%)
Occupancy and other office 242,779 264,213 (8%)
Insurance claims 355,651 57,305 521%
Advertising and promotion 73,260 70,017 5%
Other 445,426 238,038 87%
Total expenses 2,171,101 1,704,981 27%
(Loss) earnings before income taxes (1,492,227) 700,795 N/M
(Benefit) provision for income taxes (599,174) 266,814 N/M
NET (LOSS) EARNINGS $(893,053) $433,981 N/M
(Loss) Earnings per Share:
Basic $(1.60) $0.74 N/M
Diluted $(1.60) $0.72 N/M
Weighted Average Shares Outstanding:
Basic 579,339 588,158 (1%)
Diluted 579,339 603,000 (4%)
COUNTRYWIDE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31, %
(in thousands, except share data) 2008 2007 Change
(unaudited) (audited)
Assets
Cash $9,014,340 $8,810,399 2%
Mortgage loans held for sale
(includes $11,484,414 carried at
estimated fair value at
March 31, 2008) 15,653,390 11,681,274 34%
Trading securities owned, at
estimated fair value 14,101,304 14,504,563 (3%)
Trading securities pledged as
collateral, at estimated fair value 3,358,767 6,838,044 (51%)
Securities purchased under
agreements to resell, securities
borrowed and federal funds sold 7,786,346 9,640,879 (19%)
Loans held for investment, net of
allowance for loan losses of
$3,351,304 and $2,399,491, at
March 31, 2008 and December 31, 2007,
respectively 95,264,500 98,000,713 (3%)
Investments in other financial
instruments, at estimated fair
value 20,903,537 25,817,659 (19%)
Mortgage servicing rights, at
estimated fair value 17,154,574 18,958,180 (10%)
Premises and equipment, net 1,582,483 1,564,438 1%
Other assets 14,198,552 12,550,775 13%
Total assets $199,017,793 $208,366,924 (4%)
Liabilities
Deposit liabilities $63,293,392 $60,200,599 5%
Securities sold under agreements
to repurchase 17,862,890 18,218,162 (2%)
Trading securities sold, not yet
purchased, at estimated fair value 2,180,954 3,686,978 (41%)
Notes payable (includes $1,692,472
carried at estimated fair value at
March 31, 2008) 87,651,431 97,227,413 (10%)
Accounts payable and accrued
liabilities 11,641,310 10,194,358 14%
Income taxes payable 3,232,760 4,183,543 (23%)
Total liabilities 185,862,737 193,711,053 (4%)
Commitments and contingencies - - -
Shareholders’ Equity
Preferred stock, par value $0.05 -
authorized, 1,500,000 shares; issued
and outstanding at March 31, 2008 and
December 31, 2007, 20,000 shares of
7.25% Series B non-voting convertible
cumulative shares with total
liquidation preference of $2,000,000 1 1 0%
Common stock, par value $0.05 -
authorized, 1,000,000,000 shares; issued,
581,113,066 shares and 578,881,566 shares
at March 31, 2008 and December 31, 2007,
respectively; outstanding, 580,603,314
shares and 578,434,243 shares at
March 31, 2008 and December 31, 2007,
respectively 29,056 28,944 0%
Additional paid-in capital 4,186,868 4,155,724 1%
Retained earnings 9,662,386 10,644,511 (9%)
Accumulated other comprehensive loss (723,255) (173,309) 317%
Total shareholders’ equity 13,155,056 14,655,871 (10%)
Total liabilities and
shareholders’ equity $199,017,793 $208,366,924 (4%)
COUNTRYWIDE FINANCIAL CORPORATION
LOANS HELD FOR INVESTMENT, NET, OTHER ASSETS AND
MORTGAGE SERVICING RIGHTS
March 31, December 31, %
(in thousands) 2008 2007 Change
(unaudited) (audited)
Loans Held for Investment, Net
Mortgage loans $91,638,178 $91,557,484 0%
Defaulted FHA-insured and
VA-guaranteed loans repurchased
from securities 3,071,946 2,691,563 14%
Warehouse lending advances secured
by mortgage loans 1,146,138 887,134 29%
95,856,262 95,136,181 1%
Premiums and discounts and deferred
loan origination fees and costs, net (378,880) (363,560) 4%
Allowance for loan losses (3,351,304) (2,399,491) 40%
92,126,078 92,373,130 0%
Mortgage loans held in SPEs 3,138,422 5,627,583 (44%)
Total loans held for
investment, net $95,264,500 $98,000,713 (3%)
Other Assets
Reimbursable servicing advances, net $4,378,797 $3,981,703 10%
Margin accounts 2,123,485 669,391 217%
Investments in Federal Reserve Bank
and Federal Home Loan Bank stock 2,098,782 2,172,987 (3%)
Real estate acquired in settlement
of loans 863,070 807,843 7%
Interest receivable 792,508 932,477 (15%)
Estimated amounts recoverable from
pool mortgage insurance 612,530 555,803 10%
Receivables from custodial accounts 399,334 387,509 3%
Capitalized software, net 389,656 385,276 1%
Prepaid expenses 382,263 374,943 2%
Cash surrender value of assets held in
trust for deferred compensation plans 285,835 307,902 (7%)
Securities broker-dealer receivables 239,303 203,206 18%
Cash surrender value of Company-owned
life insurance 217,988 229,835 (5%)
Mortgage guaranty insurance tax and
loss bonds 188,667 165,066 14%
Restricted cash 115,569 86,078 34%
Receivables from sale of securities - 98,021 (100%)
Other assets 1,110,765 1,192,735 (7%)
Total other assets $14,198,552 $12,550,775 13%
Quarters Ended
March 31, %
2008 2007 Change
Mortgage Servicing Rights, at Estimated
Fair Value
Balance at beginning of period $18,958,180 $16,172,064 17%
Additions:
Servicing resulting from
transfers of financial assets 834,778 1,898,903 (56%)
Purchases of servicing assets 420 116,592 (100%)
Total additions 835,198 2,015,495 (59%)
Less sale of MSRs (424,465) - N/M
Change in fair value:
Due to changes in valuation
inputs or assumptions used
in valuation model (1) (1,460,713) 54,183 N/M
Other changes in fair value (2) (753,626) (799,882) (6%)
Balance at end of period $17,154,574 $17,441,860 (2%)
(1) Principally reflects changes in discount rates and prepayment speed
assumptions, primarily due to changes in interest rates.
(2) Represents changes due to realization of expected cash flows.
COUNTRYWIDE FINANCIAL CORPORATION
INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS, AT ESTIMATED FAIR VALUE
March 31, December 31, %
(in thousands) 2008 2007 Change
(unaudited) (audited)
Securities accounted for as
available-for-sale:
Prime agency mortgage-backed securities $1,640,924 $2,944,210 (44%)
Prime non-agency mortgage-backed
securities 14,655,604 16,328,280 (10%)
Subprime mortgage-backed securities 1,111 35 N/M
Obligations of U.S. Government-sponsored
enterprises 229,410 255,205 (10%)
Municipal bonds 173,808 419,540 (59%)
U.S. Treasury Securities 91,003 92,900 (2%)
Corporate bonds 76,438 74,643 2%
Subtotal 16,868,298 20,114,813 (16%)
Interests retained in
securitization - non credit-sensitive:
Mortgage-backed pass-through securities 36,741 37,567 (2%)
Prime interest-only and principal-only
securities 247,368 256,832 (4%)
Prepayment penalty bonds 6,175 9,516 (35%)
Total interests retained in
securitization - non
credit-sensitive 290,284 303,915 (4%)
Interests retained in
securitization - credit-sensitive:
Mortgage-backed pass-through
securities 144 281 (49%)
Prime residual securities 9,514 8,026 19%
Prime home equity retained interests 70,528 84,969 (17%)
Prime home equity interest-only
securities 8,826 9,143 (3%)
Subprime interest-only securities 21,755 20,918 4%
Subprime residuals and other
related securities 19,051 8,852 115%
Total interests retained in
securitization - credit-sensitive 129,818 132,189 (2%)
Total securities accounted for as
available-for-sale 17,288,400 20,550,917 (16%)
Financial instruments with changes in
unrealized gains and losses recognized
in earnings in the period of change:
Securities accounted for as trading:
Interests retained in
securitization - non credit-sensitive:
Mortgage-backed pass-through
securities 351,972 559,880 (37%)
Prime interest-only and
principal-only securities 664,053 745,160 (11%)
Prepayment penalty bonds 63,777 70,401 (9%)
Interest rate swaps - 50 (100%)
Total interests retained in
securitization - non
credit-sensitive 1,079,802 1,375,491 (21%)
Interests retained in
securitization - credit-sensitive:
Mortgage-backed pass-through
securities 12,371 34,424 (64%)
Prime residual securities 19,379 12,531 55%
Prime home equity retained
interests 155,080 328,569 (53%)
Subprime residuals and other
related securities 166,443 263,278 (37%)
Total interests retained
in securitization -
credit-sensitive 353,273 638,802 (45%)
Servicing hedge principal-only
securities - 908,358 (100%)
Municipal bonds 361,166 - N/M
Corporate bonds 74,849 72,685 3%
Total securities accounted for as
trading 1,869,090 2,995,336 (38%)
Hedging and mortgage pipeline
derivatives 1,746,047 2,271,406 (23%)
Total financial instruments with changes
in unrealized gains and losses recognized
in earnings in the period of change 3,615,137 5,266,742 (31%)
Total investments in other
financial instruments $20,903,537 $25,817,659 (19%)
COUNTRYWIDE FINANCIAL CORPORATION
NOTES PAYABLE
March 31, December 31, %
(in thousands) 2008 2007 Change
(unaudited) (audited)
Secured revolving lines of credit $288,232 $1,547,648 (81%)
Unsecured revolving lines of credit 10,820,000 10,820,000 0%
Unsecured bank loan 660,000 660,000 0%
Borrowings from the Federal Reserve
Bank - 750,000 (100%)
Federal Home Loan Bank advances 46,025,000 47,675,000 (3%)
Medium-term notes:
Floating-rate 9,517,333 10,779,722 (12%)
Fixed-rate 8,089,073 8,221,445 (2%)
17,606,406 19,001,167 (7%)
Asset-backed secured financings 3,161,420 9,453,478 (67%)
Asset-backed secured financings at
estimated fair value 1,692,472 - N/M
Convertible debentures 4,000,000 4,000,000 0%
Junior subordinated debentures 2,280,951 2,219,511 3%
Subordinated debt 1,085,224 1,067,010 2%
Other 31,726 33,599 (6%)
$87,651,431 $97,227,413 (10%)
COUNTRYWIDE FINANCIAL CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Quarters Ended
March 31, %
(dollar amounts in millions) 2008 2007 Change
Production by segment:
Mortgage Banking $67,370 $110,567 (39%)
Banking Operations 5,640 2,568 120%
Capital Markets - conduit acquisitions 3 1,829 (100%)
Total Mortgage Loan Fundings 73,013 114,964 (36%)
Commercial real estate 76 2,011 (96%)
Total Loan Fundings $73,089 $116,975 (38%)
Number of loans produced 347,937 595,534 (42%)
Mortgage Loan Fundings by Product:
Government Fundings $10,191 $3,539 188%
ARM Fundings $12,180 $40,958 (70%)
Home Equity Fundings $2,221 $10,539 (79%)
Nonprime Fundings $ - $7,881 (100%)
Mortgage Loan Fundings by Purpose:
Non-purchase $52,319 $71,798 (27%)
Purchase 20,694 43,166 (52%)
$73,013 $114,964 (36%)
March 31, %
2008 2007 Change
Mortgage loan pipeline
(loans-in-process) $45,529 $69,389 (34%)
Loan servicing portfolio (1) $1,484,157 $1,351,598 10%
Number of loans serviced (1) 8,999,850 8,438,625 7%
MSR portfolio (2) $1,361,945 $1,242,111 10%
Assets of Banking Operations $110,190 $84,261 31%
Workforce Head Count (3) 50,549 55,923 (10%)
(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.
(3) Workforce Head Count includes full-time employees, contract, and
temporary help.
COUNTRYWIDE FINANCIAL CORPORATION
QUARTERLY SEGMENT ANALYSIS
(Unaudited)
Quarter Ended March 31, 2008
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
Gain (loss) on sale of loans
and securities $1,045,544 $(404,173) $ - $641,371
Net interest income (expense)
after provision for loan
losses 37,060 (270,175) 2,727 (230,388)
Net loan servicing fees (1) - 137,933 - 137,933
Net insurance premiums earned - - - -
Other revenue (2) 21,714 56,489 93,966 172,169
Total revenues 1,104,318 (479,926) 96,693 721,085
Expenses 871,943 337,620 63,518 1,273,081
Earnings (loss) before
income taxes $232,375 $(817,546) $33,175 $(551,996)
Capital
(in thousands) Banking Markets Insurance
Revenues
Gain (loss) on sale of loans and
securities $(23,919) $5,774 $ -
Net interest income (expense) after
provision for loan losses (657,901) 79,064 28,889
Net loan servicing fees (1) (108) 1,475 (179)
Net insurance premiums earned - - 488,829
Other revenue (2) 31,597 (4,868) 37,208
Total revenues (650,331) 81,445 554,747
Expenses 310,040 80,448 519,246
Earnings (loss) before
income taxes $(960,371) $997 $35,501
Global
(in thousands) Operations Other Grand Total
Revenues
Gain (loss) on sale of loans and
securities $ - $(333,915) $289,311
Net interest income (expense) after
provision for loan losses 1,871 8,433 (770,032)
Net loan servicing fees (1) - 316,336 455,457
Net insurance premiums earned - - 488,829
Other revenue (2) 39,470 (60,267) 215,309
Total revenues 41,341 (69,413) 678,874
Expenses 30,362 (42,076) 2,171,101
Earnings (loss) before
income taxes $10,979 $(27,337) $(1,492,227)
Quarter Ended March 31, 2007
Mortgage Banking
Loan Loan Closing
(in thousands) Production Servicing Services Total
Revenues
Gain (loss) on sale of loans
and securities $1,064,422 $(31,262) $ - $1,033,160
Net interest income (expense)
after provision for loan
losses 90,024 (16,684) 3,192 76,532
Net loan servicing fees (1) - 139,994 - 139,994
Net insurance premiums earned - - - -
Other revenue (2) 9,697 26,908 82,284 118,889
Total revenues 1,164,143 118,956 85,476 1,368,575
Expenses 993,489 219,262 55,520 1,268,271
Earnings (loss) before
income taxes $170,654 $(100,306) $29,956 $100,304
Capital
(in thousands) Banking Markets Insurance
Revenues
Gain (loss) on sale of loans and
securities $ - $189,796 $ -
Net interest income (expense) after
provision for loan losses 386,648 60,624 17,012
Net loan servicing fees (1) - 1,577 (907)
Net insurance premiums earned - - 334,177
Other revenue (2) 42,613 8,659 19,434
Total revenues 429,261 260,656 369,716
Expenses 141,167 128,448 190,058
Earnings (loss) before
income taxes $288,094 $132,208 $179,658
Global
(in thousands) Operations Other Grand Total
Revenues
Gain (loss) on sale of loans and
securities $ - $11,148 $1,234,104
Net interest income (expense) after
provision for loan losses 1,609 36,550 578,975
Net loan servicing fees (1) - (42,413) 98,251
Net insurance premiums earned - - 334,177
Other revenue (2) 18,841 (48,167) 160,269
Total revenues 20,450 (42,882) 2,405,776
Expenses 16,444 (39,407) 1,704,981
Earnings (loss) before
income taxes $4,006 $(3,475) $700,795
(1) Consists primarily of fees earned for servicing mortgage loans,
related ancillary fees and income from retained interests, change in
fair value of mortgage servicing rights, recovery (impairment) of
retained interests and servicing hedge gains (losses).
(2) Consists primarily of revenues from ancillary products and services,
including title, escrow, appraisal, credit reporting and home
inspection services and insurance agency commissions.
COUNTRYWIDE FINANCIAL CORPORATION
LOAN SERVICING SECTOR
SERVICING PORTFOLIO DELINQUENCIES
(Unaudited)
Servicing Portfolio
Delinquencies (1) Quarters Ended
March 31, 2008 December 31, 2007 March 31, 2007
Total 90 day Total 90 day Total 90 day
Conventional 1st liens 6.48% 3.19% 5.76% 2.28% 2.85% 0.82%
Government 1st liens 12.29% 5.00% 14.38% 5.27% 11.32% 4.41%
Prime home equity loans
(including FRS) 8.29% 4.58% 7.32% 3.61% 3.77% 1.75%
Subprime loans 35.88% 21.04% 33.64% 17.25% 19.62% 7.82%
Total servicing
portfolio 9.27% 4.81% 8.64% 3.78% 4.90% 1.70%
(1) Delinquencies are based on outstanding loan balances and include loans
in foreclosure and are calculated using the MBA method. Using the OTS
method, total delinquency ratios would have been 6.34% at
March 31, 2008; 5.32% at December 31, 2007; and 2.59% at
March 31, 2007. In the OTS method, a loan increases its delinquency
status if a monthly payment is not received by the loan’s due date in
the following month. In the MBA method, a loan increases its
delinquency status if a monthly payment is not received by the end of
the day immediately preceding the loan’s next due date.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
KEY STATISTICS AND CREDIT PERFORMANCE TRENDS
(Unaudited)
Quarters Ended
March 31, December 31, March 31,
(dollar amounts in thousands) 2008 2007 2007
Banking Operations Key Operating
Statistics
Securities portfolio $14,818,166 $17,730,604 $12,504,868
Total equity $8,099,711 $8,357,966 $5,029,782
After-tax return on average assets (1.93%) (0.52%) 0.88%
After-tax return on average equity (26.0%) (7.5%) 14.6%
90 Day Delinquencies
Banking Operations Loans Held for Investment
March 31, December 31, March 31,
2008 2007 2007
Pay-Option 9.4% 5.7% 1.0%
Other First Lien 3.3% 2.1% 0.9%
Prime Home Equity 2.3% 1.6% 0.9%
Subprime 11.6% 0.0% 0.0%
Total 4.6% 3.0% 1.0%
Charge-Offs/Losses(1)
Banking Operations Loans Held for Investment
March 31, December 31, March 31,
(amounts in thousands) 2008 2007 2007
Pay-Option $125,298 $35,449 $5,059
Other First Lien 40,592 14,753 3,334
Prime Home Equity 318,853 141,616 24,664
Subprime 363 - -
Total $485,106 $191,818 $33,057
(1) Charge-offs in Banking Operations generally occur at 180 days of
delinquency.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
CREDIT QUALITY
(Unaudited)
(dollar amounts March 31, December 31,
in thousands) 2008 2007
Non-performing
residential loans: % assets % assets
With third party
credit
enhancement (1) $1,521,877 1.38% $1,272,116 1.12%
Without third
party credit
enhancement 2,561,184 2.32% 1,611,951 1.43%
Total non-
performing
loans 4,083,061 3.70% 2,884,067 2.55%
Foreclosed real estate 505,213 0.46% 394,859 0.35%
Total non-
performing
assets $4,588,274 4.16% $3,278,926 2.90%
Allowances for credit
losses
Allowance for
loan losses $3,005,345 $2,141,247
Liability for
unfunded loan
commitments 60,899 37,516
Estimated
amounts
recoverable
from pool
mortgage
insurance (612,530) (555,803)
Total allowances
for credit losses $2,453,714 $1,622,960
Allowances for credit
losses as a
percentage of:
Total non-
performing
loans 60.09% 56.27%
Total non-
performing
loans without
third party
credit
enhancements 95.80% 100.68%
Total loans
held for
investment 2.81% 1.86%
Quarters Ended
March 31, 2008 December 31, 2007 March 31, 2007
Annualized Annualized Annualized
net net net
charge-offs charge-offs charge-offs
as % as % as %
average average average
investment investment investment
loans loans loans
Net charge-offs: $485,106 2.21% $191,818 0.93% $33,057 0.19%
(1) Third party credit enhancements include borrower-paid mortgage
insurance and pool mortgage insurance acquired by the Banking
Operations.
COUNTRYWIDE FINANCIAL CORPORATION
BANKING OPERATIONS
AVERAGE BALANCE SHEET AND LOAN QUALITY
(Unaudited)
Quarters Ended
Average Balance Sheet March 31, 2008
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $24,522,502 $372,244 6.07%
Hybrid & other 1st liens 28,932,432 455,639 6.30%
Home equity loans 33,802,616 654,244 7.76%
Commercial real estate loans 391,993 5,086 5.19%
investment securities 17,035,693 239,485 5.62%
Other assets 7,085,488 78,575 4.46%
Total interest-earning assets $111,770,724 $1,805,273 6.47%
Interest-bearing liabilities
Money market & savings deposits $13,367,321 $133,583 4.02%
Company-controlled custodial deposit
accounts 10,979,981 90,496 3.31%
Time deposits (CDs) 37,228,475 471,218 5.09%
Borrowings 38,870,090 476,521 4.93%
Total interest-bearing
liabilities $100,445,867 $1,171,818 4.69%
Net interest spread 1.78%
Net interest margin 2.25%
December 31, 2007
Interest
Average Income/ Annualized
(dollar amounts in thousands) Balance Expense Yield/Rate
Interest-earning assets
Home loans
Pay-option ARMs $28,115,759 $474,255 6.75%
Hybrid & other 1st liens 20,750,006 308,879 5.95%
Home equity loans 33,054,628 689,559 8.32%
Commercial real estate loans 520,491 7,921 6.04%
investment securities 18,369,743 266,249 5.80%
Other assets 4,345,516 61,250 5.59%
Total interest-earning