<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to
__________________________
Commission File Number: 1-8422
COUNTRYWIDE CREDIT INDUSTRIES,
INC.
(Exact name of registrant as
specified in its charter)
DELAWARE 13-2641992
(State or other jurisdiction (IRS Employer
of Identification No.)
incorporation or
organization)
155 N. Lake Avenue, Pasadena,
California 91101
(Address of principal executive
offices) (Zip Code)
(818) 304-8400
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common
stock, as of the latest practicable date.
Class Outstanding at July 3,1995
Common Stock $.05 par value
101,639,098
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 31, February 28,
1995 1995
(Dollar amounts in thousands)
ASSETS
Cash $ 12,891 $ 17,624
Receivables for mortgage loans shipped 1,956,740 1,174,648
Mortgage loans held for sale 1,756,589 1,724,177
Other receivables 506,027 476,754
Property, equipment and leasehold
improvements, at cost - net of
accumulated depreciation and
amortization 139,166 145,612
Capitalized servicing fees receivable 486,276 464,268
Mortgage servicing rights 1,378,607 1,332,629
Other assets 400,590 243,950
Total assets
$6,636,886 $5,579,662
Borrower and investor custodial accounts
(segregated in special
accounts - excluded from corporate
assets) $1,387,779 $1,063,676
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $4,964,281 $3,963,091
Drafts payable issued in connection with
mortgage loan closings 151,735 200,221
Accounts payable and accrued liabilities 154,946 105,097
Deferred income taxes 392,813 368,695
Total liabilities 5,663,775 4,637,104
Commitments and contingencies - -
Shareholders' equity
Preferred stock - authorized, 1,500,000
shares of $.05 par value;
issued and outstanding, none - -
Common stock - authorized, 240,000,000
shares of $.05 par value;
issued and outstanding, 91,561,027
shares at May 31, 1995
and 91,370,364 shares at February 28,
1995 4,578 4,568
Additional paid-in capital 609,971 608,289
Retained earnings 358,562 329,701
Total shareholders' equity 973,111 942,558
Total liabilities and shareholders'
equity $6,636,886 $5,579,662
Borrower and investor custodial accounts $1,387,779 $1,063,676
The accompanying notes are an integral
part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months
Ended May 31,
1995 1994
(Dollar amounts in thousands,
except per share data)
Revenues
Loan origination fees $ 41,521 $ 73,736
Gain (loss) on sale of loans 12,731 11,748
Loan production revenue 54,252 85,484
Interest earned 91,731 90,782
Interest charges (80,112) (63,643)
Net interest income 11,619 27,139
Loan servicing income 129,382 95,930
Less amortization and impairment of
servicing assets (145,743) (23,000)
Servicing hedge benefit (expense) 116,975 (19,916)
Net loan administration income 100,614 53,014
Commissions, fees and other income 12,478 11,481
Total revenues 178,963 177,118
Expenses
Salaries and related expenses 50,639 60,132
Occupancy and other office expenses 26,545 26,005
Guarantee fees 26,022 19,058
Marketing expenses 5,951 6,757
Other operating expenses 9,512 8,951
Total expenses 118,669 120,903
Earnings before income taxes 60,294 56,215
Provision for income taxes 24,118 22,486
NET EARNINGS $ 36,176 $ 33,729
Earnings per share
Primary $0.39 $0.37
Fully diluted $0.39 $0.37
The accompanying notes are an integral
part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended May 31,
1995 1994
(Dollar amounts in thousands)
Cash flows from operating activities:
Net earnings $ 36,176 $ 33,729
Adjustments to reconcile net earnings
to net cash (used) provided by operating
activities:
Amortization and impairment of
mortgage servicing rights 111,489 23,000
Amortization and impairment of
capitalized servicing fees
receivable 34,254 -
Depreciation and other amortization 6,917 6,366
Deferred income taxes 24,118 22,486
Servicing hedge benefit (106,821) -
Origination and purchase of loans held
for sale (6,771,558) (9,353,167)
Principal repayments and sale of loans 5,957,054 10,119,827
(Increase) decrease in mortgage loans
shipped and held for sale (814,504) 766,660
Increase in other receivables and
other assets (80,375) (54,993)
Increase in accounts payable and
accrued liabilities 49,849 25,439
Net cash (used) provided by operating
activities (738,897) 822,687
Cash flows from investing activities:
Additions to mortgage servicing rights (157,467) (129,389)
Additions to capitalized servicing fees
receivable (56,262) (65,453)
Sale (purchase) of property, equipment
and leasehold improvements - net 812 (15,223)
Net cash used by investing activities (212,917) (210,065)
Cash flows from financing activities:
Net increase (decrease) in warehouse
debt and other short-term borrowings 972,945 (706,695)
Issuance of long-term debt 25,000 101,706
Repayment of long-term debt (45,241) (181)
Issuance of common stock 1,692 448
Cash dividends paid (7,315) (7,290)
Net cash provided (used) by financing
activities 947,081 (612,012)
Net (decrease) increase in cash (4,733) 610
Cash at beginning of period 17,624 4,034
Cash at end of period $ 12,891 $ 4,644
Supplemental cash flow information:
Cash used to pay interest $ 57,445 $ 61,231
Cash refunded from income taxes - ($ 804)
The accompanying notes are an integral
part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended May 31, 1995 are not necessarily indicative of the results that may be
expected for the fiscal year ending February 29, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the annual report on Form 10-K for the fiscal year ended
February 28, 1995 of Countrywide Credit Industries, Inc. (the "Company").
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 122, Accounting for Mortgage
Servicing Rights, which the Company adopted in the quarter ended May 31,
1995. SFAS No. 122 amended SFAS No. 65, Accounting for Certain Mortgage
Banking Activities. Since SFAS No. 122 prohibits retroactive application,
historical accounting results have not been restated and, accordingly, the
accounting results for the quarter ended May 31, 1995 are not directly
comparable to prior periods. See Note E.
NOTE B - NOTES PAYABLE
Notes payable consisted of the following.
(Dollar amounts in thousands) May 31, February 28,
1995 1995
Commercial paper $2,418,372 $2,122,348
Medium-term notes, Series A, B and
C, net of discounts 1,373,900 1,393,900
Reverse-repurchase agreements 782,555 245,212
Subordinated notes 200,000 200,000
Unsecured note payable, matured
June 2, 1995 100,000 -
Pre-sale funding facilities 88,064 -
Other notes payable (2.40%-2.90%) 1,390 1,631
$4,964,281 $3,963,091
Revolving Credit Facility and Commercial Paper
As of May 31, 1995, Countrywide Funding Corporation ("CFC"), the Company's
mortgage banking subsidiary, had an unsecured credit agreement (revolving
credit facility) with forty-two commercial banks permitting CFC to borrow an
aggregate maximum amount of $2.5 billion, less commercial paper backed by the
agreement. This agreement was amended in June 1995 and the borrowing limit
was increased to $3 billion. The amount available under the facility is
subject to a borrowing base, which consists of mortgage loans held for sale,
receivables for mortgage loans shipped and mortgage servicing rights. The
facility contains various financial covenants and restrictions, certain of
which limit the amount of dividends that can be paid by the Company or CFC.
The interest rate on direct borrowings is based on a variety of sources,
including the prime rate and the London Interbank Offered Rates ("LIBOR") for
U.S. dollar deposits. This interest rate varies, depending on CFC's credit
ratings. The weighted average borrowing rate on direct borrowings and
commercial paper borrowings for the three months ended May 31, 1995, including
the effect of the interest rate swap agreements discussed below, was 6.06%.
The weighted average borrowing rate on commercial paper outstanding as of May
31, 1995 was 6.04%. Under certain circumstances, including the failure to
maintain specified minimum credit ratings, borrowings under the revolving
credit facility and commercial paper may become secured by mortgage loans held
for sale, receivables for mortgage loans shipped and mortgage servicing
rights. The June 1995 amendment extended the facility from September 1997
until May 1998. See Note C.
<PAGE>
Medium-Term Notes
As of May 31, 1995, outstanding medium-term notes issued by the Company
and CFC under various shelf registrations filed with the Securities and
Exchange Commission were as follows.
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
Outstanding Balance Interest Rate Maturity Date
Floating-
Rate Fixed-Rate Total From To From To
Parent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series A $ - $ 10,600 $ 10,600 10.60% 10.60% Jun 1995 Aug 1995
CFC
Series A - 384,800 384,800 6.10% 8.79% Jun 1995 Mar 2002
Series B 11,000 469,000 480,000 5.11% 6.98% Mar 1996 Aug 2005
Series C 303,000 195,500 498,500 6.33% 8.43% Dec 1997 Mar 2004
Subtotal $314,000 $1,049,300 $1,363,300
Total $314,000 $1,059,900 $1,373,900
</TABLE>
As of May 31, 1995, all of the outstanding fixed-rate notes of CFC had been
effectively converted by interest rate swap agreements to floating-rate notes.
The weighted average borrowing rate on CFC's medium-term note borrowings for
the three months ended May 31, 1995, including the effect of the interest rate
swap agreements, was 7.02%. In addition, as of May 31, 1995, $1.5 million was
available for future issuances under the Series C shelf registration.
In May 1995, the Company and CFC filed a shelf registration statement
providing for the issuance by CFC of an additional series of medium-term
notes. Under the terms of the filing, floating- and fixed-rate notes can be
issued with maturities from nine months or more from date of issue. As of May
31, 1995, this registration statement was not effective and no medium-term
notes had been issued pursuant to it.
Reverse-Repurchase Agreements
As of May 31, 1995, the Company had entered into short-term financing
arrangements to sell mortgage-backed securities ("MBS") and whole loans under
agreements to repurchase. The weighted average borrowing rate for the three
months ended May 31, 1995 was 6.09%. The weighted average borrowing rate on
reverse-repurchase agreements outstanding as of May 31, 1995 was 6.07%. The
reverse-repurchase agreements were collateralized by either MBS or whole
loans. All MBS and whole loans underlying reverse-repurchase agreements are
held in safekeeping by broker-dealers, and all agreements are to repurchase
the same or substantially identical MBS or whole loans.
<PAGE>
Pre-Sale Funding Facilities
As of May 31, 1995, CFC had a $500 million revolving credit facility ("As
Soon as Pooled Agreement") with the Federal National Mortgage Association
("Fannie Mae"). The credit facility is secured by conforming mortgage loans
which are in the process of being pooled into Fannie Mae MBS. Interest rates
are based on LIBOR and/or federal funds. The weighted average borrowing rate
for the three months ended May 31, 1995 was 6.17%. The facility is committed
through July 20, 1995, subject to CFC's compliance with certain financial and
operational covenants. The balance outstanding under this facility at May 31,
1995 was $58.4 million.
As of May 31, 1995, CFC had an uncommitted revolving credit facility ("Pre-
sale Funding Facility") with an affiliate of an investment banking firm. The
credit facility is secured by conforming mortgage loans which are in the
process of being pooled into MBS. Interest rates are based on LIBOR. The
weighted average borrowing rate for the three months ended May 31, 1995 was
6.76%. The balance outstanding under this facility at May 31, 1995 was $29.7
million.
As of May 31, 1995, CFC had an uncommitted revolving credit facility ("Early
Funding Agreement") with the Federal Home Loan Mortgage Corporation ("Freddie
Mac"). The credit facility is secured by conforming mortgage loans which are
in the process of being pooled into Freddie Mac participation certificates.
Interest rates under the agreement are based on the prevailing rates for MBS
reverse-repurchase agreements. The weighted average borrowing rate for the
three months ended May 31, 1995 was 6.05%. As of May 31, 1995, the Company
had no outstanding borrowings under this facility.
NOTE C - SUBSEQUENT EVENTS
In June 1995, CFC entered into an amendment to its revolving credit facility.
The borrowing limit under the facility was increased by $500 million to $3
billion and the expiration date of the facility was extended from September
1997 to May 1998.
On June 9, 1995, the Company declared a cash dividend of $0.08 per common
share payable July 17, 1995 to shareholders of record on June 26, 1995.
On June 30, 1995, the Company completed a public offering of its common stock
through the issuance and sale of 10,000,000 shares at a price of $21 per
share. The proceeds will be used for general corporate purposes, which may
include retirement of indebtedness of the Company or CFC and investment in
servicing rights through the current production of loans and the bulk
acquisition of contracts to service loans.
<PAGE>
NOTE D - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
The following tables present summarized financial information for Countrywide
Funding Corporation.
(Dollar amounts
in thousands) May 31, February 28,
1995 1995
Balance Sheets:
Mortgage loans shipped
and held for sale $3,713,329 $2,898,825
Other assets 2,857,082 2,621,458
Total assets $6,570,411 $5,520,283
Short- and long-term debt $5,105,417 $4,152,712
Other liabilities 507,505 433,025
Equity 957,489 934,546
Total liabilities
and equity $6,570,411 $5,520,283
(Dollar amounts in
thousands) Three Months Ended May 31,
1995 1994
Statements of Earnings:
Revenues $168,515 $167,973
Expenses 110,277 115,133
Provision for income taxes 23,295 21,136
Net earnings $ 34,943 $ 31,704
NOTE E - IMPLEMENTATION OF NEW ACCOUNTING STANDARD
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
which the Company adopted in the quarter ended May 31, 1995. The overall
impact on the Company's financial statements of adopting SFAS No. 122 was an
increase in net earnings for the quarter ended May 31, 1995 of $8.9 million,
or $0.10 per fully diluted share.
SFAS No. 122 requires the recognition of originated mortgage servicing rights
("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"), as assets
by allocating total costs incurred between the loan and the servicing rights
based on their relative fair values. Under SFAS No. 65, the cost of OMSRs was
not recognized as an asset and was charged to earnings when the related loan
was sold. The separate impact of recognizing OMSRs as assets in the Company's
financial statements in accordance with SFAS No. 122 for the quarter ended May
31, 1995 was an increase in net earnings of $18.6 million, or $0.20 per fully
diluted share.
With respect to PMSRs, SFAS No. 122 has a different cost allocation
methodology than SFAS No. 65. In contrast to a cost allocation based on
relative market value as set forth in SFAS No. 122, the prior requirement was
to allocate the costs incurred in excess of the market value of the loans
without the servicing rights to PMSRs. During the quarter ended May 31, 1995,
the separate impact of the application of the SFAS No. 122 cost allocation
method, along with the effect of changes in market conditions, was to reduce
PMSR capitalization by $9.7 million, or $0.10 per fully diluted share.
SFAS No. 122 also requires that all capitalized mortgage servicing rights
("MSRs") be evaluated for impairment based on the excess of the carrying
amount of the MSRs over their fair value. For purposes of measuring
impairment, MSRs are stratified on the basis of interest rate and type of
interest rate (fixed or adjustable). In addition to normal amortization of
the servicing assets amounting to $29.1 million, the Company reduced the
servicing assets by an additional $116.7 million of impairment during the
quarter ended May 31, 1995. The entire amount of such impairment was offset
by a net gain of $117.0 million in the Company's servicing hedge which is
designed to protect its servicing investment. The net gain includes
unrealized gains of $106.9 million and realized gains of $10.1 million from
the sale of various financial instruments that comprise the hedge. As a part
of the adoption of SFAS No. 122, the Company revised its servicing hedge
accounting policy, effective with the quarter ended May 31, 1995, to adjust
the basis of the servicing assets for unrealized gains or losses in the
derivative financial instruments comprising the servicing hedge.
<PAGE>
NOTE F - SERVICING HEDGE
The following summarizes the notional amounts of servicing hedge derivative
contracts.
Long Call
Options
Interest on U.S.
(Dollar amounts Rate Treasury
in millions) Floors Futures
Balance, February 28, 1995 $4,000 $ -
Additions 3,000 2,100
Balance, May 31, 1995 $7,000 $2,100
NOTE G - VALUATION ALLOWANCE FOR CAPITALIZED MORTGAGE SERVICING RIGHTS
The following summarizes the aggregate activity in the valuation allowances
for capitalized mortgage servicing rights.
Aggregate
(Dollar amounts in thousands) Balances
At February 28, 1995 $ -
Additions charged 32,717
At May 31, 1995 $32,717
NOTE H - RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the quarters ended May 31, 1995
and 1994 were 1.74 and 1.86, respectively. For purposes of calculating the
ratio of earnings to fixed charges, earnings consist of income before Federal
income taxes, plus fixed charges. Fixed charges include interest expense on
debt and the portion of rental expenses which is considered to be
representative of the interest factor (one-third of operating leases). Since
the major portion of the Company's interest costs is incurred to finance
mortgage loans which generate interest income, and since interest income and
interest expense are generated simultaneously, management believes that a more
meaningful measure of its debt service requirements is the ratio of earnings
to net fixed charges. Under this alternative formula, net fixed charges are
defined as interest expense on debt, other than debt incurred to finance the
Company's mortgage loan inventory, plus the interest element (one-third of
operating leases). Under such alternative formula, these ratios for the
quarters ended May 31, 1995 and 1994 were 5.73 and 4.18, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Quarter Ended May 31, 1995 Compared to Quarter Ended May 31, 1994
Revenues for the quarter ended May 31, 1995 increased 1% to $179.0
million from $177.1 million for the quarter ended May 31, 1994. Net earnings
increased 7% to $36.2 million for the quarter ended May 31, 1995 from $33.7
million for the quarter ended May 31, 1994. Effective with the quarter ended
May 31, 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 122, Accounting for Mortgage Servicing Rights. Since SFAS No.
122 prohibits retroactive application, historical accounting results have not
been restated and, accordingly, the accounting results for the quarter ended
May 31, 1995 are not directly comparable to prior periods. The overall impact
on the Company's financial statements of adopting SFAS No. 122 was an increase
in net earnings for the quarter ended May 31, 1995 of $8.9 million, or $0.10
per fully diluted share. In addition to the accounting change, the increase
in revenues and net earnings for the quarter ended May 31, 1995 compared to
the quarter ended May 31, 1994 was attributable to an increase in the size of
the Company's servicing portfolio, offset in part by lower production and
increased price competition caused by lower demand for mortgage loans.
The total volume of loans produced decreased 28% to $6.8 billion for the
quarter ended May 31, 1995 from $9.4 billion for the quarter ended May 31,
1994. Refinancings totaled $1.2 billion, or 17% of total fundings, for the
quarter ended May 31, 1995, as compared to $4.8 billion, or 52% of total
fundings, for the quarter ended May 31, 1994. Adjustable-rate mortgage
("ARM") loan production totaled $2.3 billion, or 33% of total fundings, for
the quarter ended May 31, 1995, as compared to $2.0 billion, or 21% of total
fundings, for the quarter ended May 31, 1994. Production in the Company's
Consumer Markets Division decreased to $1.3 billion for the quarter ended May
31, 1995 compared to a combined production of $2.9 billion for the Company's
Retail and Consumer Divisions for the quarter ended May 31, 1994. Production
in the Company's Wholesale Division decreased to $1.8 billion for the quarter
ended May 31, 1995 compared to $3.0 billion for the quarter ended May 31,
1994. The Company's Correspondent Division purchased $3.7 billion in mortgage
loans for the quarter ended May 31, 1995 compared to $3.5 billion for the
quarter ended May 31, 1994. The factors which affect the relative volume of
production among the Company's three divisions include pricing decisions and
the relative competitiveness of such pricing, the level of real estate and
mortgage lending activity in each Division's markets, and the success of each
Division's sales and marketing efforts.
At May 31, 1995 and 1994, the Company's pipeline of loans in process was
$4.3 billion and $4.4 billion, respectively. In addition, at May 31, 1995,
the Company had committed to make loans in the amount of $1.6 billion, subject
to property identification and borrower qualification ("Lock N' ShopSM
Pipeline"). At May 31, 1994, the Lock N' Shop Pipeline was $2.7 billion.
Historically, approximately 43% to 75% of the pipeline of loans in process has
funded. For the quarters ended May 31, 1995 and 1994, the Company received
101,205 and 90,900 new loan applications, respectively, at an average daily
rate of $160 million and $165 million, respectively. The following actions
were taken during the quarter ended May 31, 1995 on the total applications
received during that quarter: 51,018 loans (50% of total applications
received) were funded and 14,626 applications (14% of total applications
received) were either rejected by the Company or withdrawn by the applicant.
The following actions were taken during the quarter ended May 31, 1994 on the
total applications received during that quarter: 44,048 loans (48% of total
applications received) were funded and 13,240 applications (15% of total
applications received) were either rejected by the Company or withdrawn by the
applicant. The factors that affect the percentage of applications received
and funded during a given time period include the movement and direction of
interest rates, the average length of loan commitments issued, the
creditworthiness of applicants, the production divisions' loan processing
efficiency and loan pricing decisions.
Loan origination fees decreased during the quarter ended May 31, 1995 as
compared to the quarter ended May 31, 1994 due to lower loan production that
resulted from an increase in the level of mortgage interest rates. The
percentage decrease in loan origination fees was greater than the percentage
decrease in total production. This is primarily because production by the
divisions that, due to lower cost structures, charge lower origination fees
per dollar loaned comprised a greater percentage of total production in the
quarter ended May 31, 1995 than in the quarter ended May 31, 1994. Gain
(loss) on sale of loans improved during the quarter ended May 31, 1995 as
compared to the quarter ended May 31, 1994 primarily due to the impact of
adopting SFAS No. 122. SFAS No. 122 requires the recognition of originated
mortgage servicing rights ("OMSRs"), as well as purchased mortgage servicing
rights ("PMSRs"), as assets by allocating total costs incurred between the
loan and the servicing rights based on their relative fair values. This
accounting methodology, in turn, increases the gain (or reduces the loss) on
sale of loans as compared to the accounting results obtained under SFAS No.
65, the previously applicable accounting standard. Under SFAS No. 65, the
cost of OMSRs was not recognized as an asset and was included in the gain or
loss recorded when the related loan was sold. The separate impact of
recognizing OMSRs as assets in the Company's financial statements in
accordance with SFAS No. 122 for the quarter ended May 31, 1995 was an
increase in gain on sale of loans of $31.0 million.
<PAGE>
With respect to PMSRs, SFAS No. 122 has a different cost allocation
methodology than SFAS No. 65. In contrast to a cost allocation based on
relative market value as set forth in SFAS No. 122, the prior requirement was
to allocate the costs incurred in excess of the market value of the loans
without the servicing rights to PMSRs. During the quarter ended May 31, 1995,
the separate impact of the application of the SFAS No. 122 cost allocation
method, along with the effect of changes in market conditions, was to reduce
PMSR capitalization, and therefore negatively impact gain (loss) on sale of
loans, by $16.2 million. Those market conditions included increased price
competition caused by lower demand for mortgage loans during the quarter ended
May 31, 1995 than during the quarter ended May 31, 1994. In general, loan
origination fees and gain or loss on sale of loans are affected by numerous
factors including loan pricing decisions, interest rate volatility, the
general direction of interest rates and the volume of loans produced.
Net interest income (interest earned net of interest charges) decreased
to $11.6 million for the quarter ended May 31, 1995 from $27.1 million for the
quarter ended May 31, 1994. Consolidated net interest income is principally a
function of: (i) net interest income earned from the Company's mortgage loan
warehouse ($2.3 million and $19.4 million for the quarters ended May 31, 1995
and 1994, respectively); (ii) interest expense related to the Company's
investment in servicing rights ($8.8 million and $6.4 million for the quarters
ended May 31, 1995 and 1994, respectively) and (iii) interest income earned
from the custodial balances associated with the Company's servicing portfolio
($18.1 million and $14.1 million for the quarters ended May 31, 1995 and 1994,
respectively). The Company earns interest on, and incurs interest expense to
carry, mortgage loans held in its warehouse. The decrease in net interest
income from the mortgage loan warehouse was attributable to a decrease in the
average amount of the mortgage loan warehouse due to the decline in production
and to a decrease in the net earnings rate. The increase in interest expense
on the investment in servicing rights resulted primarily from a larger
servicing portfolio. The increase in net interest income earned from the
custodial balances was related to an increase in the earnings rate, offset
somewhat by a decline in the average custodial balances from the quarter ended
May 31, 1994 to the quarter ended May 31, 1995.
During the quarter ended May 31, 1995, loan administration income was
positively affected by the continued growth of the loan servicing portfolio.
At May 31, 1995, the Company serviced $120.9 billion of loans (including $1.1
billion of loans subserviced for others) compared to $93.6 billion (including
$0.9 billion of loans subserviced for others) at May 31, 1994, a 29% increase.
The growth in the Company's servicing portfolio during the quarter ended May
31, 1995 was the result of loan production volume and the acquisition of bulk
servicing rights, partially offset by prepayments, partial prepayments, and
scheduled amortization of mortgage loans. The weighted average interest rate
of the mortgage loans in the Company's servicing portfolio at May 31, 1995 was
7.7% compared to 7.2% at May 31, 1994. It is the Company's strategy to build
and retain its servicing portfolio because of the returns the Company can earn
from such investment and because the Company believes that servicing income is
countercyclical to loan origination income.
During the quarter ended May 31, 1995, the prepayment rate of the
Company's servicing portfolio was 6%, as compared to 17% for the quarter ended
May 31, 1994. In general, the prepayment rate is affected by the relative
level of mortgage interest rates, activity in the home purchase market and the
relative level of home prices in a particular market. The decrease in the
prepayment rate is primarily attributable to decreased refinance activity
caused by increased mortgage interest rates in the quarter ended May 31, 1995
from the quarter ended May 31, 1994. The primary means used by the Company to
reduce the sensitivity of its earnings to changes in interest rates is through
a strong loan production capability and a growing servicing portfolio. To
mitigate the effect on earnings of higher amortization and impairment (which
are deducted from loan servicing income) resulting from increased prepayment
activity, the Company acquires financial instruments, including derivative
contracts, that increase in value when interest rates decline (the "Servicing
Hedge"). These financial instruments include call options on U.S. Treasury
futures and MBS, interest rate floors and certain tranches of collateralized
mortgage obligations ("CMOs").
<PAGE>
The CMOs, which consist primarily of principal-only ("P/O") securities,
have been purchased at deep discounts to their par values. As interest rates
decline, prepayments on the collateral underlying the CMOs should increase.
These changes should result in a decline in the average lives of the P/O
securities and an increase in the present values of their cash flows.
The Servicing Hedge instruments utilized by the Company partially protect
the value of the investment in servicing rights from the effects of increased
prepayment activity that generally results from declining interest rates. To
the extent that interest rates increase, the value of the servicing rights
increases while the value of the hedge instruments declines. However, the
Company is not exposed to loss beyond its initial outlay to acquire the hedge
instruments. During the quarter ended May 31, 1995, the Company recognized a
net gain of $117.0 million from its Servicing Hedge. The net gain includes
unrealized gains of $106.9 million and realized gains of $10.1 million from
the sale of various financial instruments that comprise the Servicing Hedge.
As a part of the adoption of SFAS No. 122, the Company has revised its
servicing hedge accounting policy, effective with the quarter ended May 31,
1995, to adjust the basis of the servicing assets for unrealized gains or
losses in the derivative financial instruments comprising the Servicing Hedge.
There can be no assurance the Company's Servicing Hedge will generate gains in
the future.
The Company recorded amortization and impairment of its servicing assets
in the quarter ended May 31, 1995 totaling $145.7 million (consisting of
normal amortization amounting to $29.1 million and impairment of $116.7
million), compared to $23.0 million of amortization in the quarter ended May
31, 1994. SFAS No. 122 requires that all capitalized mortgage servicing
rights be evaluated for impairment based on the excess of the carrying amount
of the mortgage servicing rights over their fair value. Under SFAS No. 65,
the impairment evaluation was made using either discounted or undiscounted
cash flows. No uniform required level of disaggregation was specified. The
Company used a disaggregated undiscounted method. The factors affecting the
amount of amortization and impairment recorded in an accounting period include
the level of prepayments during the period, the change in prepayment
expectations and the amount of Servicing Hedge gains.
During the quarter ended May 31, 1995, the Company acquired bulk
servicing rights for loans with principal balances aggregating $3.0 billion at
a price of $37.3 million or 1.26% of the aggregate outstanding principal
balances of the servicing portfolios acquired. During the quarter ended May
31, 1994, the Company acquired bulk servicing rights for loans with principal
balances aggregating $3.5 billion at a price of $42.9 million or 1.23% of the
aggregate outstanding principal balances of the servicing portfolios acquired.
Salaries and related expenses are summarized below for the quarters ended
May 31, 1995 and 1994.
(Dollar amounts in
thousands) Quarter Ended May 31, 1995
Loan
Production Administrat Other
Activities ion Activities Total
Base Salaries $25,535 $6,653 $2,064 $34,252
Incentive Bonus 8,000 136 1,754 9,890
Payroll Taxes and
Benefits 4,998 1,202 297 6,497
Total Salaries and
Related Expenses $38,533 $7,991 $4,115 $50,639
Average Number of
Employees 2,350 961 308 3,619
<PAGE>
(Dollar amounts in
thousands) Quarter Ended May 31, 1994
Loan
Production Administr Other
Activities ation Activities Total
Base Salaries $33,656 $5,492 $1,334 $40,482
Incentive Bonus 10,693 110 683 11,486
Payroll Taxes and
Benefits 6,541 958 665 8,164
Total Salaries and
Related Expenses $50,890 $6,560 $2,682 $60,132
Average Number of
Employees 3,389 804 204 4,397
The amount of salaries decreased during the quarter ended May 31, 1995
primarily due to the decreased number of employees resulting from reduced loan
production, offset somewhat by an increased number of employees due to a
larger servicing portfolio and growth in the Company's non-mortgage banking
subsidiaries. Incentive bonuses earned during the quarter ended May 31, 1995
decreased primarily due to decreased loan production and decreased loan
production personnel.
Occupancy and other office expenses for the quarter ended May 31, 1995
slightly increased to $26.5 million from $26.0 million for the quarter ended
May 31, 1994. This was due to increased office and equipment rental expenses
resulting from the opening of four Consumer Markets Division branch offices in
the quarter ended May 31, 1995, partially offset by a decline in expenses
resulting from the closure of 19 Consumer Markets Division satellite offices.
Guarantee fees (fees paid to guarantee timely and full payment of
principal and interest on MBS and whole loans sold to permanent investors and
to transfer the credit risk of the loans in the servicing portfolio) for the
quarter ended May 31, 1995 increased 37% to $26.0 million from $19.1 million
for the quarter ended May 31, 1994. This increase resulted primarily from an
increase in the servicing portfolio.
Marketing expenses for the quarter ended May 31, 1995 decreased 12% to
$6.0 million from $6.8 million for the quarter ended May 31, 1994. The
decrease in marketing expenses reflected the Company's strategy to centralize
and streamline its marketing functions.
Other operating expenses for the quarter ended May 31, 1995 increased
from the quarter ended May 31, 1994 by $1.5 million, or 6%. This increase was
due primarily to increased activity in the Company's non-mortgage banking
subsidiaries.
Profitability of Loan Production and Servicing Activities
In the quarter ended May 31, 1995, the Company's pre-tax loss from its
loan production activities (which include loan origination and purchases,
warehousing and sales) was $1.5 million. In the quarter ended May 31, 1994,
the Company's comparable pre-tax earnings were $20.9 million. The decrease of
$22.4 million was primarily attributable to lower loan production and
increased price competition caused by lower demand for mortgage loans,
partially offset by the effect of the adoption of SFAS No. 122 previously
discussed and by a change of $10.0 million in the Company's internal method of
allocating overhead between its production and servicing activities. In the
quarter ended May 31, 1995, the Company's pre-tax income from its loan
servicing activities (which include administering the loans in the servicing
portfolio, selling homeowners and other insurance and acting as tax payment
agent) was $60.0 million as compared to $32.0 million in the quarter ended May
31, 1994. The increase of $28.0 million was principally due to an increase in
the size of the servicing portfolio, offset in part by the change in the
Company's internal overhead allocation method discussed above.
<PAGE>
INFLATION
Inflation affects the Company in the areas of loan production and
servicing. Interest rates normally increase during periods of high inflation
and decrease during periods of low inflation. Historically, as interest rates
increase, loan production, particularly from loan refinancings, decreases,
although in an environment of gradual interest rate increases, purchase
activity may actually be stimulated by an improving economy or the
anticipation of increasing real estate values. In such periods of reduced
loan production, production margins may decline due to increased competition
resulting from overcapacity in the market. In a higher interest rate
environment, servicing-related earnings are enhanced because prepayment rates
tend to slow down. This extends the average life of the Company's servicing
portfolio and reduces both amortization of the servicing assets and the
payments of interest to certain investors pursuant to customary servicing
arrangements with regard to paid-off loans which payments exceed the interest
earned on these loans through their respective payoff dates ("Interest Costs
Incurred on Payoffs"). In addition, the rate of interest earned from the
custodial balances tends to increase. Conversely, as interest rates decline,
loan production, particularly from loan refinancings, increases. However,
during such periods, prepayment rates tend to accelerate (principally on the
portion of the portfolio having a note rate higher than the then-current
interest rates), thereby decreasing the average life of the Company's
servicing portfolio and adversely impacting its servicing-related earnings.
This is primarily due to increased amortization and impairment of the
Servicing Assets, a decreased rate of interest earned from the custodial
balances, and increased Interest Costs Incurred on Payoffs.
SEASONALITY
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of
homes, although refinancings tend to be less seasonal and more closely related
to changes in interest rates. Sales and resales of homes typically peak
during the spring and summer seasons and decline to lower levels from mid-
November through February.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of loan funding
activities and the investment in servicing rights. To meet these needs, the
Company currently relies on commercial paper supported by its revolving
credit facility, medium-term note issuances, pre-sale funding facilities, MBS
and whole loan reverse-repurchase agreements, subordinated and unsecured notes
and cash flow from operations. In addition, in the past the Company has relied
on direct borrowings from its revolving credit facility, servicing-secured
bank facilities, privately-placed financings and public offerings of preferred
and common stock. See Note B to the Company's Consolidated Financial
Statements included herein for more information on the Company's financings.
Certain of the debt obligations of the Company and CFC contain various
provisions that may affect the ability of the Company and CFC to pay dividends
and remain in compliance with such obligations. These provisions include
requirements concerning net worth, current ratio and other financial
covenants. These provisions have not had, and are not expected to have, an
adverse impact on the ability of the Company and CFC to pay dividends.
In June 1995, CFC entered into an amendment to its revolving credit
facility. The borrowing limit under the facility was increased by $500
million to $3 billion and the expiration date of the facility was extended
from September 1997 to May 1998.
The Company continues to investigate and pursue alternative and
supplementary methods to finance its growing operations through the public and
private capital markets. These may include such methods as mortgage loan sale
transactions designed to expand the Company's financial capacity and reduce
its cost of capital and the securitization of servicing income cash flows.
<PAGE>
At times, the Company must meet margin requirements to cover changes in
the market value of its commitments to sell MBS and of its interest rate
swaps. To the extent that aggregate commitment prices are less than the
current market prices, the Company must deposit cash or certain government
securities or obtain letters of credit. The Company's credit facility
provides a means of obtaining such letters of credit to meet these margin
requirements. With respect to the interest rate swap agreements, the margin
requirements are negotiated with the various counterparties and are generally
tied to the credit ratings of CFC and each counterparty.
In the course of the Company's mortgage banking operations, the Company
sells to investors the mortgage loans it originates and purchases but
generally retains the right to service the loans, thereby increasing the
Company's investment in loan servicing rights. The Company views the sale of
loans on a servicing-retained basis in part as an investment vehicle.
Significant unanticipated prepayments in the Company's servicing portfolio
could have a material adverse effect on the Company's future operating results
and liquidity.
Cash Flows
Operating Activities In the quarter ended May 31, 1995, the Company's
operating activities used cash of approximately $815 million on a short-term
basis to fund the increase in its warehouse of mortgage loans. The Company's
operating activities also generated $76 million of positive cash flow, which
was principally allocated to the long-term investment in servicing as
discussed below under "Investing Activities."
Investing Activities The primary investing activity for which cash was
used during the quarter ended May 31, 1995 was the investment in servicing.
Net cash used by investing activities increased to $213 million for the
quarter ended May 31, 1995 from $210 million for the quarter ended May 31,
1994. The additional cash outlay for servicing was offset somewhat by a lower
cash outlay for purchases of property, equipment and leasehold improvements
during the quarter ended May 31, 1995 than in the quarter ended May 31, 1994.
Financing Activities Net cash provided by financing activities amounted
to $947 million for the quarter ended May 31, 1995. Net cash used by financing
activities amounted to $612 million for the quarter ended May 31, 1994. The
increase in net cash provided was primarily the result of net short-term
borrowings by the Company during the quarter ended May 31, 1995 and net short-
term debt repayments in the quarter ended May 31, 1994.
PROSPECTIVE TRENDS
Applications and Pipeline of Loans in Process
During the quarter ended May 31, 1995, the Company received new loan
applications at an average daily rate of $160 million and at May 31, 1995, the
Company's pipeline of loans in process was $4.3 billion. This compares to a
daily application rate during the quarter ended May 31, 1994 of $165 million
and a pipeline of loans in process at May 31, 1994 of $4.4 billion. During
most of the period from May 31, 1994 to February 28, 1995, interest rates
increased, resulting in a decrease in demand for mortgage loans. However,
during the quarter ended May 31, 1995, interest rates decreased, resulting in
an increase in demand for mortgage loans. The size of the pipeline is
generally an indication of the level of future fundings, as historically 43%
to 75% of the pipeline of loans in process has funded. In addition, the
Company's Lock N' Shop Pipeline at May 31, 1995 was $1.6 billion and at May
31, 1994 was $2.7 billion. Future application levels and loan fundings are
dependent on numerous factors, including the level of demand for mortgage
credit, the extent of price competition in the market, the direction of
interest rates, seasonal factors and general economic conditions. For the
month ended June 30, 1995, the average daily amount of applications received
was $199 million, and at June 30, 1995, the pipeline of loans in process was
$5.0 billion and the Lock N' Shop pipeline was $1.6 billion.
<PAGE>
Market Factors
Since late 1993, mortgage interest rates have increased. An environment
of rising interest rates has resulted in lower production (particularly from
refinancings) and greater price competition, which has adversely impacted
earnings from loan production activities and may continue to do so in the
future. The Company has taken steps to maintain its productivity and
efficiency, particularly in the loan production area, by reducing staff and
embarking on a program to reduce production-related and overhead costs. The
Company has reduced its total staffing levels from approximately 4,100 at May
31, 1994 to approximately 3,600 at May 31, 1995. However, the rising interest
rates enhanced earnings from the Company's loan servicing portfolio as
amortization of the servicing assets and Interest Costs Incurred on Payoffs
decreased from levels experienced during the prior periods of declining
interest rates, and the rate of interest earned from the custodial balances
associated with the Company's servicing portfolio increased. The decline in
interest rates during the quarter ended May 31, 1995 resulted in impairment
(as specified in SFAS No. 122) of $116.7 million and a servicing hedge gain of
$117.0 million. In addition, the Company has further increased the size of
its servicing portfolio, thereby increasing its servicing revenue base, by
acquiring servicing contracts through bulk purchases. During quarter ended May
31, 1995, the Company purchased such servicing contracts with principal
balances amounting to $3.0 billion. Prepayments in the Company's servicing
portfolio were $1.6 billion during the quarter ended May 31, 1995 and $1.0
billion during the month of June 1995.
The Company's primary competitors are commercial banks and savings and
loans and mortgage banking subsidiaries of diversified companies, as well as
other mortgage bankers. Particularly in California, savings and loans and
other portfolio lenders have competed with the Company by offering
aggressively priced adjustable-rate mortgage products which grew in popularity
with the rise in interest rates. Generally, the Company has experienced
significant price competition among mortgage lenders which has resulted in
downward pressure on loan production earnings.
Some regions in which the Company operates, particularly some regions of
California, have been experiencing slower economic growth, and real estate
financing activity in these regions has been negatively impacted. As a
result, home lending activity for single- (one-to-four) family residences in
these regions may also have experienced slower growth. The Company's
California mortgage loan production (measured by principal balance)
constituted 29% of its total production during the quarter ended May 31, 1995,
down from 34% for the quarter ended May 31, 1994. The decline in the
percentage of California loan production was due to the Company's continuing
effort to expand its production capacity outside of California and the
aggressively priced adjustable-rate mortgage products offered by the Company's
competitors in the state. Since California's mortgage loan production
constituted a significant portion of the Company's production during the
quarter, there can be no assurance that the Company's operations will not
continue to be adversely affected to the extent California continues to
experience slower or negative economic growth resulting in decreased
residential real estate lending activity or market factors further impact the
Company's competitive position in the state.
Because the Company services substantially all conventional loans on a
non-recourse basis, foreclosure losses are generally the responsibility of the
investor or insurer and not the Company. Accordingly, any increase in
foreclosure activity should not result in significant foreclosure losses to
the Company. However, the Company's expenses may be increased somewhat as a
result of the additional staff efforts required to foreclose on a loan.
Similarly, government loans serviced by the Company (23% of the Company's
servicing portfolio at May 31, 1995) are insured or partially guaranteed
against loss by the Federal Housing Administration or the Veterans
Administration. In the Company's view, the limited unreimbursed costs that
may be incurred by the Company on government foreclosed loans are not material
to the Company's consolidated financial statements.
Servicing Hedge
As previously discussed, the Company recorded a net gain of $117.0
million from its Servicing Hedge which is designed to partially protect its
servicing investment from the effects of increased prepayment activity that
generally results from declining interest rates. There can be no assurance
the Company's Servicing Hedge will generate gains in the future.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of Supplemental Indenture No.1 dated as of June 15, 1995, to the
Indenture dated as of January 1, 1992, among CFC, CCI, and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.9 to
Amendment No. 2 to the registration statement on Form S-3 of CCI and CFC
(File No. 33-59559) filed with the SEC on June 16, 1995).
4.2 Form of Medium-Term Notes, Series D (fixed-rate) of CFC (incorporated by
reference to Exhibit 4.10 to Amendment No. 2 to the registration
statement on Form S-3 of CCI and CFC (File No. 33-59559) filed with the
SEC on June 16, 1995).
4.3 Form of Medium-Term Notes, Series D (floating-rate) of CFC (incorporated
by reference to Exhibit 4.11 to Amendment No. 2 to the registration
statement on Form S-3 of CCI and CFC (File No. 33-59559) filed with the
SEC on June 16, 1995).
10.1 First Amendment to Credit Documents dated as of June 1, 1995, by and
among CFC, CCI, The First National Bank of Chicago, Bankers Trust Company
and the Lenders Party Thereto.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
12.2 Computation of the Ratio of Earnings to Net Fixed Charges.
27 Financial Data Schedules (included only with the electronic filing with
the SEC).
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during this
reporting period.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Registrant)
DATE: July 14, 1995 /s/ Stanford L. Kurland
Senior Managing Director and
Chief Operating Officer
DATE: July 14, 1995 /s/ Carlos M. Garcia
Managing Director; Chief
Financial Officer and Chief
Accounting Officer
(Principal Financial Officer
and Principal Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Document Description
4.1 Form of Supplemental Indenture No.1 dated as of June 15, 1995, to
the Indenture dated as of January 1, 1992, among CFC, CCI, and The
Bank of New York, as trustee (incorporated by reference to Exhibit
4.9 to Amendment No. 2 to the registration statement on Form S-3 of
CCI and CFC (File No. 33-59559) filed with the SEC on June 16,
1995).
4.2 Form of Medium-Term Notes, Series D (fixed-rate) of CFC
(incorporated by reference to Exhibit 4.10 to Amendment No. 2 to the
registration statement on Form S-3 of CCI and CFC (File No. 33-
59559) filed with the SEC on June 16, 1995).
4.3 Form of Medium-Term Notes, Series D (floating-rate) of CFC
(incorporated by reference to Exhibit 4.11 to Amendment No. 2 to the
registration statement on Form S-3 of CCI and CFC (File No. 33-
59559) filed with the SEC on June 16, 1995).
10.1 First Amendment to Credit Documents dated as of June 1, 1995, by and
among CFC, CCI, The First National Bank of Chicago, Bankers Trust
Company and the Lenders Party Thereto.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
12.2 Computation of the Ratio of Earnings to Net Fixed Charges.
27 Financial Data Schedules (included only with the electronic filing
with the SEC).
FIRST AMENDMENT TO CREDIT DOCUMENTS
THIS FIRST AMENDMENT TO CREDIT DOCUMENTS (the "Amendment") is made and
dated as of the 1st day of June, 1995, by and among COUNTRYWIDE FUNDING
CORPORATION, a New York corporation (the "Company"); COUNTRYWIDE CREDIT
INDUSTRIES, a Delaware corporation (the "Parent"); THE FIRST NATIONAL BANK OF
CHICAGO, a national banking association ("FNBC"), as credit agent (in such
capacity, the "Credit Agent") for the Lenders from time to time party to that
certain Revolving Credit Agreement dated as of September 23, 1994 by and among
such Lenders, the Company and others (the "Credit Agreement," and with
capitalized terms not otherwise defined herein used with the meanings given
such terms in the Glossary attached to the Credit Agreement as "Annex I");
FNBC and BANKERS TRUST COMPANY, a New York State banking corporation ("BT"),
as co-arrangers of the credit facility evidenced by the Credit Agreement (in
such capacity, the "Co-Arrangers"); BT as syndication agent of the credit
facility evidenced by the Credit Agreement (in such capacity, the "Syndication
Agent"); and the Lenders.
RECITALS
A. Pursuant to the Credit Agreement the Lenders agreed to extend credit to
the Company on the terms and subject to the conditions set forth therein.
B. The Company and such Lenders desire to amend the Credit Documents in
certain respects, as more particularly described below.
C. NOW, THEREFORE, in consideration of the foregoing Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
I. Extension of Maturity Date. To reflect the agreement of the parties
hereto to extend the Maturity Date of the credit facility evidenced by the
Credit Agreement, the date "September 19, 1997" set forth in the first line of
the definition of "Maturity Date" set forth in the Glossary is hereby replaced
with the date "May 31, 1998".
II. Increase in Credit Limits. To reflect the agreement of the parties hereto
to permit the increase of the Primary Loan Credit Limit, with a concomitant
increase in the Aggregate Credit Limit, and the L/C Commitments under certain
circumstances without the written consent of one hundred percent of the Lenders:
A. The definition of the term "Aggregate Credit Limit" set forth in the
Glossary is hereby amended to delete the dollar amount "$2,500,000,000.00"
appearing in the parenthetical set forth therein and to replace the same with
the dollar amount "$4,000,000,000.00"; and
B. The definition of the term "Primary Loan Credit Limit" set forth in the
Glossary is hereby amended to read in its entirety as follows:
"'Primary Loan Credit Limit' shall mean at any date the aggregate of the
Lenders' Maximum Primary Loan Commitments at such date, as set forth on the then
effective Commitment Schedule; provided, however, that in no event shall the
Primary Loan Credit Limit exceed at any date the Aggregate Credit Limit minus
the aggregate L/C Commitments and the GNMA Pool Advance Commitment at such
date."
C. The dollar amount "$50,000,000.00" appearing in the last line of the
definition of "L/C Commitment" is hereby deleted and replaced with the dollar
amount "$100,000,000.00".
III. Modification of Minimum Net Worth Provision. To reflect the extension of
the Maturity Date:
A. Paragraph 10(j) of the Credit Agreement is hereby amended to read in its
entirety as follows:
"10(j) Minimum Net Worth. Permit its net worth determined in
accordance with GAAP on and as of each Applicable Financial Test Date to be
less than the greater of $725,000,000.00 and eighty percent (80%) of its net
worth determined in accordance with GAAP as of the most recent February 28
preceding the date such net worth is calculated."
B. Paragraph 11(d) of the Guaranty is hereby amended to read in its entirety
as follows:
"(d) Guarantor shall not permit its consolidated net worth
determined in accordance with GAAP on and as of each Applicable Financial Test
Date to be less than the greater of $750,000,000.00 and eighty percent (80%)
of its net worth determined in accordance with GAAP as of the most recent
February 28 preceding the date such net worth is calculated; and"
IV. Modification of Total Debt Restriction. To reflect the agreement of the
parties hereto to modify the restriction on Total Debt set forth in the Credit
Agreement:
A. Paragraph 10(k) thereof is hereby amended to read in its entirety as
follows:
"10(k) Maximum Total Debt. Permit Total Debt on and as of
each Applicable Financial Test Date to exceed the sum of:
(1) One hundred percent (100%) of Cash, plus
(2) Ninety percent (90%) of Margins, plus
(3) Ninety seven percent (97%) of the amount of each of Mortgage Loans Held
For Sale and Receivables for Mortgage Loans Shipped (including Mortgage Loans
and Mortgage-Backed Securities subject to a Lien under a repurchase agreement
but excluding all other Mortgage Loans and Mortgage-Backed Securities which are
excluded from "Eligible Mortgage Assets" pursuant to subparagraphs (a), (b)
and (c) of the definition of such term), plus
(4) Ninety percent (90%) of Pool Loan Purchases and Mortgage Claims Receivable
to the extent such assets represent VA and FHA Mortgage Loans repurchased by the
Company from pools supporting GNMA Mortgage-Backed Securities, plus
(5) Fifty percent (50%) of Deferred Commitment Fees, plus
(6) Fifty percent (50%) of Property and Equipment, plus
(7) Sixty seven percent (67%) of each of Capitalized Servicing Fees Receivable
and Purchased Servicing Rights, plus
(8) Fifty percent (50%) of Other Assets."
B. The following new definitions are added, in correct alphabetical order, to
the Glossary:
"Capitalized Servicing Fees Receivable" shall mean the dollar amount
shown as "Capitalized Servicing Fees Receivable" on the balance sheet of the
Company as of the Applicable Financial Test Date delivered by the Company
pursuant to Paragraph 9(a)(2) of the Agreement.
"Deferred Commitment Fees" shall mean the dollar amount shown as
"Deferred Commitment Fees" on the balance sheet of the Company as of the
Applicable Financial Test Date delivered by the Company pursuant to Paragraph
9(a)(2) of the Agreement.
"Margins" shall mean the dollar amount shown as "Margins" on the most
recent Covenant Compliance Certificate delivered by the Company pursuant to
Paragraph 9(a)(3) of the Agreement and shall equal the sum of: (a) that dollar
portion of "Other Receivables" shown on the balance sheet of the Company as of
the Applicable Financial Test Date delivered by the Company pursuant to
Paragraph 9(a)(2) of the Agreement constituting margins (relating to cash and
government securities with a maturity of less than one year), plus (b) Letters
of Credit outstanding as of such Applicable Financial Test Date.
"Other Assets" shall mean the dollar amount shown as "Other Assets" on
the most recent Covenant Compliance Certificate delivered by the Company
pursuant to Paragraph 9(a)(3) of the Agreement and shall consist of all assets
of the Company shown on the balance sheet of the Company as of the most recent
Applicable Financial Test Date other than the assets included in the
calculation of subparagraphs (1) through (7) of Paragraph 10(k) of the
Agreement; provided, however, that in no event shall Other Assets include
intangible assets.
"Property and Equipment" shall mean the dollar amount shown as "Property,
Equipment and Leasehold Improvements" on the balance sheet of the Company as
of the Applicable Financial Test Date delivered by the Company pursuant to
Paragraph 9(a)(2) of the Agreement.
"Purchased Servicing Rights" shall mean the dollar amount shown as
"Purchased Servicing Rights" on the balance sheet of the Company as of the
Applicable Financial Test Date delivered by the Company pursuant to Paragraph
9(a)(2) of the Agreement.
5. Modification of Collateral Value of Borrowing Base. To reflect the
agreement of the parties with respect to an increase in the value to be given to
the Company's servicing portfolio in the computation of the Collateral Value of
the Borrowing Base:
(a) Subparagraph (e) of the definition of "Collateral Value of
the Secured Borrowing Base" set forth in the Glossary is hereby amended to
read in its entirety as follows:
"(e) The least of: (1) three quarters of one percent
(0.75%) of the outstanding principal balances of Mortgage Loans being serviced
by the Company under the Pledged Eligible Mortgage Servicing Assets, (2)
fifteen percent (15%) of the Aggregate Credit Limit, and (3) $400,000,000.00."
(b) Subparagraph (c) of the definition of "Collateral Value of
the Unsecured Borrowing Base" set forth in the Glossary is hereby amended to
read in its entirety as follows:
"(c) The least of: (1) three quarters of one percent (0.75%) of
the outstanding principal balances of Mortgage Loans being serviced by the
Company under Eligible Mortgage Servicing Assets, (2) fifteen percent (15%) of
the Aggregate Credit Limit, and (3) $400,000,000.00."
6. Liens Securing Margin Call Obligations. To reflect the agreement
of the parties to clarify the right of the Company to provide collateral
consisting of property and assets of the Company (other than property and
assets included in the calculation of, as applicable, the Collateral Value of
the Unsecured Borrowing Base or the Collateral Value of the Secured Borrowing
Base) as security for the obligation of the Company to meet margin calls
arising under investment transactions entered into by the Company in the
normal course of its business, Paragraph 10(a)(2) of the Credit Agreement is
hereby amended to add the phrase ",margin call requirements" following the
word "leases" in the fifth line thereof.
7. Modification of Certificate Forms. To reflect the amendment of
certain financial covenants and of the method of computation of the Collateral
Value of the Borrowing Base set forth in this Amendment, the form of Covenant
Compliance Certificate for the Company attached to the Glossary as Exhibit F-
1, the form of Secured Period Borrowing Base Certificate attached to the
Glossary as Exhibit Q and the form of Unsecured Period Borrowing Base
Certificate attached to the Glossary as Exhibit T are hereby replaced with the
forms of such Certificates attached hereto as Replacement Exhibits F-1, Q and
T, respectively.
8. Differentiation of Accounts. To reflect the agreement of the
parties that during any Unsecured Period the Company may enter into such
agreements with FNBC as it may elect with respect to the issuance and payment
of CPNs and that the Settlement Account may be such unrestricted access
accounts as the Company may elect:
(a) The definition of "Depositary Agreement" set forth in the
Glossary is hereby amended to read in its entirety as follows:
"'Depositary Agreement' shall mean an issuing and paying agreement
with the Paying Agent governing the authentication and issuance of CPNs, which
agreement shall, during any Secured Period, be substantially in the form of
that attached hereto as Exhibit I."
(b) The definition of "Settlement Account" set forth in the
Glossary is hereby amended to read in its entirety as follows:
"'Settlement Account' shall mean: (a) during any Unsecured
Period, such account or accounts as the Company may designate from time to
time in writing, and (b) during any Secured Period, Account No. 19-13433
maintained in the Credit Agent's name at the Contact Office."
9. Modification of Pricing Provisions. To reflect the agreement of
the parties with respect to a modification of the pricing of the credit
facility evidenced by the Credit Agreement:
(a) The definition of "Pricing Spread" set forth in the Glossary
is hereby amended to read in its entirety as follows:
"'Pricing Spread' shall be determined for each Eurodollar Interest
Period and each Discount Loan Interest Period on the first Business Day of
such Interest Period, and with respect to each Swing Loan for each day such
Swing Loan is outstanding, as follows: If on such day the Company's long term
unsecured debt rating is: (a) at least "A+" with S&P or "A1" with Moody's,
the Pricing Spread shall be 0.25, (b) at least "A-" with S&P or "A3" with
Moody's, the Pricing Spread shall be 0.35; (c) at least "BBB+" with S&P or
"Baa1" with Moody's, the Pricing Spread shall be 0.40; (d) at least "BBB" with
S&P or "Baa2" with Moody's, the Pricing Spread shall be 0.45 and (e) below
"BBB" with S&P and "Baa2" with Moody's, the Pricing Spread shall be 0.50;
provided, however, that if on any day for whatever reason the Company's long
term unsecured debt rating is not available from S&P or Moody's or is not
otherwise determinable hereunder (including, without limitation, by reference
to an alternate rating agency of recognized standing), the Pricing Spread
shall be deemed to be 0.50."
(b) The Fee Letter is hereby amended and restated in its entirety in
the form of the modified fee letter attached hereto as Amendment Exhibit 1
(the "Replacement Fee Letter"). From and after the effective date of this
Amendment the Replacement Fee Letter shall be deemed to be the "Fee Letter"
for all purposes of the Credit Documents.
10. Substitution of Lenders; Replacement Commitment Schedule and
Schedule of Addresses for Notices. To reflect the withdrawal of certain
Lenders from the credit facility evidenced by the Agreement and the inclusion
of certain new Lenders (each, a "New Lender") therein, effective as of the
effective date of this Amendment, the "Commitment Schedule" referred to in the
Credit Documents shall be deemed to be the Commitment Schedule attached hereto
as Amendment Exhibit 2 (the "Replacement Commitment Schedule") for all
purposes thereof and Annex II (Schedule of Addresses for Notices) shall be
replaced by the Replacement Annex II attached hereto as Amendment Exhibit 3.
Upon the effective date of this Amendment, the Lenders party to the Credit
Agreement, whether prior to or after the same has been amended by this
Amendment, shall buy and sell among themselves the Obligations outstanding on
the effective date such that the Lenders remaining party to the Credit
Agreement following amendment hereby shall hold the outstanding Obligations
consistent with the Replacement Commitment Schedule.
11. Reaffirmation of Credit Documents. Each of the Company and the
Parent hereby acknowledges and agrees that: (a) the execution and delivery by
each of the Company and the Parent of and the performance of its obligations
under this Amendment shall not in any way amend, impair, invalidate or
otherwise affect any of the obligations of the Company or the Parent or the
rights of any party to the Credit Documents, (b) the term "Obligations" as
used in the Credit Documents includes, without limitation, the Obligations of
the Company under the Agreement as amended by this Amendment, and (c) for any
and all purposes, any reference to the Credit Documents, including, without
limitation, the Glossary and the Fee Letter, following the effective date of
this Amendment shall constitute a reference to such Credit Documents as
amended by this Amendment.
12. Effective Date. This Amendment shall be effective as of the day
and year first above written on the earliest date upon which:
(a) Each of the parties hereto have executed and delivered this
Amendment to the Credit Agent;
(b) The Company has executed and delivered the Replacement Fee
Letter to the Credit Agent;
(c) The Company has executed and delivered to each New Lender a
Direct Loan Note, a Discount Loan Note and a Negotiated Loan Note; and
(d) The Credit Agent has received such board resolutions,
incumbency certificates and other additional documentation as the Credit Agent
may request in connection herewith.
13. Representations and Warranties. Each of the Company and the
Parent hereby represents and warrants to the Credit Agent and the Lenders (as
to itself) as follows:
(a) It has the corporate power and authority and the legal right
to execute, deliver and perform this Amendment (and, in the case of the
Company, the Replacement Fee Letter and the Notes to be issued to each New
Lender) (collectively, the "Amendment Documents") and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Amendment Documents to which it is party; the Amendment Documents to which it
is a party have been duly executed and delivered on its behalf and constitute
its legal, valid and binding obligations enforceable against it in accordance
with their terms; and the execution, delivery and performance of the Amendment
Documents will not violate any Requirement of Law or Contractual Obligation or
require any consent, approval, authorization of, or registration, declaration
or filing with, any Governmental Authority.
(b) At and as of the date of execution hereof and at and as of
the effective date of this Amendment and both prior to and after giving effect
hereto: (1) the representations and warranties made by it contained in the
Credit Documents are accurate and complete in all respects, and (2) there has
not occurred an Event of Default or Potential Default.
(c) When delivered to the Credit Agent and each Lender as
required pursuant to Paragraph 9(a)(1) of the Agreement, the audited financial
statements referred to therein will not differ in any material respect from
the Company-prepared unaudited financial statements dated February 28, 1995
delivered to the Lenders prior to the date of this Amendment.
14. No Other Amendment. Except as expressly amended herein, the
Credit Documents shall remain in full force and effect as currently written.
15. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the day and year first above written.
COUNTRYWIDE FUNDING CORPORATION,
a New York corporation
By
Name
Title
COUNTRYWIDE CREDIT INDUSTRIES, a Delaware
corporation
By
Name
Title
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association,
as Co-Arranger and Credit Agent
By
Name
Title
BANKERS TRUST COMPANY, a New York State banking
corporation, as Co-Arranger and Syndication
Agent
By
Name
Title
ABN AMRO BANK N.V.,
LOS ANGELES INTERNATIONAL BRANCH,
as a Lender
By
Name
Title
By
Name
Title
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Lender
By
Name
Title
BANK BRUSSELS LAMBERT, NEW YORK BRANCH, as a
Lender
By
Name
Title
By
Name
Title
BANK OF HAWAII, as a Lender
By
Name
Title
BANK OF MONTREAL, as a Lender
By
Name
Title
THE BANK OF NEW YORK, as a Lender
By
Name
Title
BANKERS TRUST COMPANY, as a Lender
By
Name
Title
BANQUE NATIONALE DE PARIS,
LOS ANGELES AGENCY, as a Lender
By
Name
Title
BANQUE PARIBAS, as a Lender
By
Name
Title
By
Name
Title
CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender
By
Name
Title
THE CHASE MANHATTAN BANK, N.A., as a Lender
By
Name
Title
CITICORP USA, INC., as a Lender
By
Name
Title
COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH, as a Lender
By
Name
Title
By
Name
Title
CREDIT LYONNAIS SAN FRANCISCO BRANCH AND/OR
CAYMAN ISLANDS BRANCH, as a Lender
By
Name
Title
By
Name
Title
CREDIT SUISSE, as a Lender
By
Name
Title
THE DAI-ICHI KANGYO BANK, LIMITED, SAN FRANCISCO
AGENCY, as a Lender
By
Name
Title
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS
BRANCHES, as a Lender
By
Name
Title
By
Name
Title
DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, as a
Lender
By
Name
Title
By
Name
Title
FIRST INTERSTATE BANK OF CALIFORNIA,
as a Lender
By
Name
Title
By
Name
Title
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By
Name
Title
THE FIRST NATIONAL BANK OF CHICAGO, as a Lender
By
Name
Title
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as
a Lender
By
Name
Title
THE FUJI BANK, LIMITED, LOS ANGELES AGENCY, as a
Lender
By
Name
Title
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS
ANGELES AGENCY, as a Lender
By
Name
Title
KREDIETBANK N.V., as a Lender
By
Name
Title
By
Name
Title
LLOYDS BANK PLC, as a Lender
By
Name
Title
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS
ANGELES AGENCY, as a Lender
By
Name
Title
THE MITSUBISHI TRUST AND BANKING CORPORATION,
LOS ANGELES AGENCY, as a Lender
By
Name
Title
NATIONAL WESTMINSTER BANK USA,
as a Lender
By
Name
Title
NATIONSBANK OF TEXAS, N.A., as a Lender
By
Name
Title
PNC BANK KENTUCKY, as a Lender
By
Name
Title
ROYAL BANK OF CANADA, as a Lender
By
Name
Title
THE SAKURA BANK, LTD., LOS ANGELES AGENCY, as a
Lender
By
Name
Title
By
Name
Title
THE SANWA BANK LIMITED, LOS ANGELES BRANCH, as a
Lender
By
Name
Title
SHAWMUT BANK, N.A., as a Lender
By
Name
Title
SOCIETE GENERALE, NEW YORK BRANCH, as a Lender
By
Name
Title
THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH,
as a Lender
By
Name
Title
THE SUMITOMO TRUST AND BANKING CO., LTD., LOS
ANGELES AGENCY, as a Lender
By
Name
Title
THE TOYO TRUST & BANKING CO., LTD., LOS ANGELES
AGENCY, as a Lender
By
Name
Title
UNION BANK OF SWITZERLAND, NEW YORK BRANCH, as a
Lender
By
Name
Title
By
Name
Title
UNITED STATES NATIONAL BANK OF OREGON, as a
Lender
By
Name
Title
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK
BRANCH/CAYMAN ISLANDS BRANCH,
as a Lender
By
Name
Title
By
Name
Title
THE YASUDA TRUST & BANKING COMPANY, LIMITED, LOS
ANGELES AGENCY, as a Lender
By
Name
Title
SCHEDULE OF EXHIBITS AND ATTACHMENTS
AMENDMENT EXHIBIT 1: REPLACMENT FEE LETTER
AMENDMENT EXHIBIT 2: REPLACEMENT COMMITMENT
SCHEDULE
AMENDMENT EXHIBIT 3: REPLACEMENT ANNEX II
REPLACEMENT EXHIBIT F-1: FORM OF COVENANT COMPLIANCE
CERTIFICATE (COMPANY)
REPLACEMENT EXHIBIT Q: FORM OF SECURED PERIOD BORROWING
BASE CERTIFICATE
REPLACEMENT EXHIBIT T: FORM OF UNSECURED PERIOD
BORROWING BASE CERTIFICATE
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months
Ended May 31,
1995 1994
(Dollar amounts in thousands,
except per share data)
Primary
Net earnings applicable to common stock $36,176 $33,729
Average shares outstanding 91,440 91,121
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 1,243 1,060
Total average shares 92,683 92,181
Per share amount $0.39 $0.37
Fully diluted
Net earnings applicable to common stock $36,176 $33,729
Average shares outstanding 91,440 91,121
Net effect of dilutive stock options --
based on the treasury stock method
using
the closing market price, if higher
than
average market price. 1,409 1,224
Total average shares 92,849 92,345
Per share amount $0.39 $0.37
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 12.1 - COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
The following table sets forth the ratio of earnings to fixed charges of the
Company for the three months ended May 31, 1995 and 1994 and for the five
fiscal years ended February 28, 1995 computed by dividing net fixed charges
(interest expense on all debt plus the interest element (one-third) of
operating leases) into earnings (income before income taxes and fixed
charges).
Three Months Ended
May 31, For Fiscal Years Ended February 28(29),
1995 1994 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $36,176 $33,729 $88,407 $179,460 $140,073 $60,196 $22,311
Income tax expense 24,118 22,486 58,938 119,640 93,382 40,131 14,874
Interest charges 80,112 63,643 267,685 275,906 148,765 81,959 73,428
Interest portion of
rental expense 1,682 1,921 7,379 6,372 4,350 2,814 2,307
Earnings available to
cover fixed charges $142,088 $121,779 $422,409 $581,378 $386,570 $185,100 $112,920
Fixed charges
Interest charges $80,112 $63,643 $267,685 $275,906 $148,765 $81,959 $73,428
Interest portion of
rental expense 1,682 1,921 7,379 6,372 4,350 2,814 2,307
Total fixed
charges $81,794 $65,564 $275,064 $282,278 $153,115 $84,773 $75,735
Ratio of earnings to
fixed charges 1.74 1.86 1.54 2.06 2.52 2.18 1.49
</TABLE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 12.2 - COMPUTATION OF THE RATIO OF EARNINGS TO NET FIXED CHARGES
(Dollar amounts in thousands)
The following table sets forth the ratio of earnings to net fixed charges of
the Company for the three months ended May 31, 1995 and 1994 and for the five
fiscal years ended February 28, 1995 computed by dividing net fixed charges
(interest expense on debt other than to finance mortgage loan inventory plus
the interest element (one-third) of operating leases) into earnings (income
before income taxes and net fixed charges).
Three Months Ended
May 31, For Fiscal Years Ended February 28(29),
1995 1994 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $36,176 $33,729 $88,407 $179,460 $140,073 $60,196 $22,311
Income tax expense 24,118 22,486 58,938 119,640 93,382 40,131 14,874
Interest charges 11,070 15,745 55,045 85,240 51,551 45,928 23,609
Interest portion of rental
expense 1,682 1,921 7,379 6,372 4,350 2,814 2,307
Earnings available to cover
net fixed charges $73,046 $73,881 $209,769 $390,712 $289,356 $149,069 $63,101
Net fixed charges
Interest charges $11,070 $15,745 $55,045 $85,240 $51,551 $45,928 $23,609
Interest portion of rental
expense 1,682 1,921 7,379 6,372 4,350 2,814 2,307
Total net fixed
charges $12,752 $17,666 $62,424 $91,612 $55,901 $48,742 $25,916
Ratio of earnings to net
fixed charges 5.73 4.18 3.36 4.26 5.18 3.06 2.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> MAY-31-1995
<CASH> 12,891
<SECURITIES> 0
<RECEIVABLES> 506,027
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 198,584
<DEPRECIATION> 59,418
<TOTAL-ASSETS> 6,636,886
<CURRENT-LIABILITIES> 0
<BONDS> 1,575,290
<COMMON> 4,578
0
0
<OTHER-SE> 968,533
<TOTAL-LIABILITY-AND-EQUITY> 6,636,886
<SALES> 0
<TOTAL-REVENUES> 178,963<F1>
<CGS> 0
<TOTAL-COSTS> 118,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 60,294
<INCOME-TAX> 24,118
<INCOME-CONTINUING> 36,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,176
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<FN>
<F1>Includes $80,112 of interest expense related to mortgage loan activities.
</FN>
</TABLE>
