'Spread' Key to CFC's Growth
Countrywide Financial Corp. executives filled in more details about their ambitious five-year growth plan last week, telling investors that the company can more than double its earnings.
But growing its mortgage banking market share is only part of Countrywide's equation for achieving that goal. The company also plans to earn more "spread" income from loans that are held in portfolio as the market moves from a refinancing boom to a more "normal" lending environment.
"There is a portion of earnings that moves from gain-on-sale in the mortgage banking sector to spread income in the banking sector," said Stanford Kurland, president and CEO of Countrywide, during an investors conference here last week. The conference was broadcast over the Internet.
As a result, Countrywide foresees dramatic growth in its bank subsidiary. Countrywide, at the parent level, had $98 billion in assets last year. By 2008, the company plans to have a $250 billion balance sheet.
Its bank subsidiary had $19.4 billion in assets last year. Countrywide sees that growing sixfold to $120 billion by 2008.
But traditional mortgage banking, loan origination and servicing, is hardly being overlooked in Countrywide's plans. The company plans to increase its loan origination market share to 30% by 2008, making it the largest mortgage lender in history. The company also plans to be the largest servicer, growing its portfolio from $645 billion at the end of last year to $1.9 trillion in 2008.
Growth in spread income from loans held in portfolio should help Countrywide pursue its goal to "diversify" earnings by boosting the bank's contribution to earnings.
Last year, Countrywide reported pretax earnings of $3.85 billion at the corporate level, more than double its 2002 earnings. Banking accounted for $287 million of that total, while mortgage activities accounted for $2.95 billion of the earnings.
Countrywide said its plan is to more than double annual pretax earnings to $7.5 billion by 2008. The company hopes that its "diversification" sources of revenue, which includes spread income earned by the bank, will account for about half of the company's earnings within five years.
Analysts remain largely upbeat about Countrywide's prospects, even though some have expressed skepticism about Countrywide's ability to meet its ambitious growth targets. Analysts at both Piper Jaffray and Sandler O'Neill rate Countrywide as a "buy" or "outperform" stock.
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