Countrywide Earnings Top Forecasts

Mortgage servicing income looks strong.
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Mortgage lender

Countrywide Financial

(CFC)

reported a 1% decline in first-quarter profits, one more indication that the once red-hot housing market continues to cool down.

But the drop in profits at the California-based firm was considerably smaller than what Wall Street analysts were expecting. Additionally, revenue exceeded expectations.

In the quarter, Countrywide, one of the nation's biggest mortgage bankers, earned $684 million, or $1.10 a share, compared with $689 million, or $1.13 a share, a year ago. Revenue rose 18% to $2.8 billion.

Analysts, as surveyed by Thomson Financial, were looking for earnings of 96 cents a share on revenue of $2.48 billion.

In a press release, Countrywide blamed a tricky interest rate environment in the first quarter for depressing profits. The firm said its loan production division generated $284 million in pretax earnings, compared with $735 million for the first quarter of 2005.

The narrowing of the spread between short- and long-term rates also made it more difficult for the firm to generate revenue from the resale of mortgages in the secondary market. Revenue from the gain on sale of loans and securities was unchanged compared with a year ago at $1.36 billion.

But net interest income rose a robust 34% to $631 million. Revenue from loan servicing rose 23% to $1.2 billion.

"Overall, in this challenging environment, Countrywide's results demonstrate the effectiveness of our time-tested business model, our focus on mortgage lending and the continued diversification of our earnings base,'' said Chairman and CEO Angelo Mozilo.

Expenses, meanwhile, rose 37% to $1.7 billion. The firm reported a 63% jump in insurance claims to $124 million.

Countrywide also tweaked its full-year earnings guidance, raising the low end of its estimate a dime to $3.90 a share. The upper end of the range remains unchanged from the $4.80-a-share estimate the company provided in January.