Countrywide Credit Industries Inc. said Wednesday that its profits for the quarter that ended Nov. 30 fell 5% from a year earlier and that it would miss analysts’ per-share earnings targets by a penny.

The company posted profits of $95.4 million, or 80 cents a share, versus $100.6 million last year.

Countrywide said the earnings drop was caused by lower profits in its mortgage-related investments unit, which acts as a counterbalance to mortgage origination income. A year earlier the company had lower servicing asset amortization and impairment charges, and its portfolio had an impairment reserve recovery of $47 million.

Still, profits rose 5% from the quarter that ended Aug. 30. Analysts said they would expect the company to benefit if interest rates are slashed next quarter, as many Federal Reserve Board watchers now expect.

Shares of the Calabasas, Calif., company dropped 0.12% to close at $48.9375, on a mixed day for financials.

Thomas O’Donnell, an analyst with Salomon Smith Barney, said Countrywide “should benefit from a rate reduction” because of its extensive origination activities.

Indeed, the company cited a rise in mortgage refinancing activity as a sign of growth to come in this part of the portfolio.

“If mortgage rates remain at this level or continue to decline, a surge in refinance funding volume could begin our fourth quarter,” when there is usually a slowdown, Angelo R. Mozilo, Countrywide’s chairman, chief executive officer, and president said in a prerecorded conference call.

Refinance applications have been growing steadily over the last four months. This month they represent 49% of total credit applications, up from 34% in September. The pipeline of refinance loans-in-process stands at $9.9 billion, Countrywide’s highest level since August 1999, the company said.

The strength of the refinance market pushed loan volume up 9% from the previous quarter and 39% from a year earlier, to $17.7 billion.

But some analysts say the industrywide trend of an increasingly automated mortgage origination process has made them less bullish on the Countrywide’s prospects.

“We believe that in the long term it will be hard” for Countrywide “to replace the decreasing margins in its core business with growth in peripheral areas such as subprime lending and insurance,” Gary Gordon, an analyst at UBS Warburg, wrote in a research note.

Mr. O’Donnell said he expects Countrywide’s stock to benefit next year from an issue separate from mortgage origination activity: credit quality.

Over the last three quarters the banking industry has had to deal with concerns that earnings would be hit by higher levels of nonperforming loans, and it appears those fears will not let up next year, Mr. O’Donnell said. But as a single-family lender, rather than a commercial one, Countrywide “will be on the right side of the credit quality issue,” he said.

Countrywide reported healthy growth overall in consumer mortgage originations, which were helped by gains in purchase originations and refinance activity.

The consumer mortgage origination business contributed 30% of the company’s earnings, compared with 13% a year earlier. Funding for the business increased 37%, to $10.3 billion. Revenues from loan origination fees rose 34%, to $99.6 million. Loan servicing revenues climbed 17%, to $307 million.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.