Page 2
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 quarterly period ended May 31, 1999
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 of (IRS Employe
incorporation or organization) Identification No.)
4500 Park Granada, Calabasas, California 91302
- -------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(818) 225-3000
-------------------------------------------------------------------------
(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 13, 1999
----- ----------------------------
Common Stock $.05 par value 112,934,017
<PAGE>
Page 5
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
A S S E T S
<TABLE>
May 31, February 28,
1999 1999
------------------- -------------------
<S> <C> <C>
Cash $32,837 $ 58,748
Mortgage loans and mortgage-backed securities held for sale 6,713,084 6,231,220
Property, equipment and leasehold improvements, at cost - net of
accumulated depreciation and amortization 326,528 311,741
Mortgage servicing rights, net 4,953,321 4,496,439
Other assets 5,338,837 4,550,108
------------------- -------------------
Total assets $17,364,607 $15,648,256
=================== ===================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $3,817,451 $4,020,998
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $11,543,349 $9,935,759
Drafts payable issued in connection with mortgage loan closings 863,195 1,083,499
Accounts payable, accrued liabilities and other 675,354 517,937
Deferred income taxes 1,159,669 1,092,176
------------------- -------------------
Total liabilities 14,241,567 12,629,371
Commitments and contingencies - -
Company-obligated mandatorily redeemable capital trust pass-through securities
of subsidiary trusts holding solely Company
guaranteed related subordinated debt 500,000 500,000
Shareholders' equity
Preferred stock - authorized, 1,500,000 shares of $0.05 par value;
Issued and outstanding, none - -
Common stock - authorized, 240,000,000 shares of $0.05 par
Value; issued and outstanding, 112,862,117 shares at
May 31,1999 and 112,619,313 shares at February 28, 1999 5,643 5,631
Additional paid-in capital 1,162,527 1,153,673
Accumulated other comprehensive (loss) income (16,415)
(19,593)
Retained earnings 1,471,285 1,379,174
------------------- -------------------
Total shareholders' equity 2,623,040 2,518,885
------------------- -------------------
Total liabilities and shareholders' equity $17,364,607 $15,648,256
=================== ===================
Borrower and investor custodial accounts $3,817,451 $4,020,998
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
Three Months
Ended May 31,
1999 1998
-------------- --------------
Revenues
<S> <C> <C>
Loan origination fees $146,701 $ 138,770
Gain on sale of loans, net of commitment fees 170,012 159,027
-------------- --------------
Loan production revenue 316,713 297,797
Interest earned 275,562 242,767
Interest charges (247,741) (231,235)
-------------- --------------
Net interest income 27,821 11,532
Loan servicing income 272,997 242,691
Amortization of mortgage servicing rights,
net of servicing hedge (146,845) (148,711)
-------------- --------------
Net loan administration income 126,152 93,980
Commissions, fees and other income 66,317 46,956
-------------- --------------
Total revenues 537,003 450,265
Expenses
Salaries and related expenses 185,426 146,487
Occupancy and other office expenses 76,263 62,677
Guarantee fees 45,843 44,667
Marketing expenses 19,523 14,515
Other operating expenses 40,474 33,142
-------------- --------------
Total expenses 367,529 301,488
-------------- --------------
Earnings before income taxes 169,474 148,777
Provision for income taxes 66,095 58,023
-------------- --------------
NET EARNINGS $103,379 $ 90,754
============== ==============
Earnings per share
Basic $0.92 $0.82
Diluted $0.88 $0.78
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)
<TABLE>
Three Months
Ended May 31,
1999 1998
----------------- -----------------
Cash flows from operating activities:
Net earnings
<S> <C> <C>
Adjustments to reconcile net earnings to net cash $103,379 $ 90,754
provided (used) by operating activities:
Gain on sale of available-for-sale securities (11,194) (2,387)
Amortization and impairment/recovery of mortgage
servicing rights 128,760 133,893
Depreciation and other amortization 15,752 12,996
Deferred income taxes 66,130 58,023
Origination and purchase of loans held for sale (23,193,000) (20,876,079)
Principal repayments and sale of loans 22,711,136 20,154,531
----------------- -----------------
Increase in mortgage loans and mortgage-
backed securities held for sale (481,864) (721,548)
Increase in other assets (978,890) (369,664)
Increase in accounts payable and accrued liabilities 157,417 269,771
----------------- -----------------
Net cash used by operating activities (1,000,510) (528,162)
----------------- -----------------
Cash flows from investing activities:
Additions to mortgage servicing rights, net (432,368) (415,012)
Purchase of property, equipment and leasehold
Improvements, net (27,043) (23,022)
Proceeds from sale of available-for-sale securities 49,360 8,619
----------------- -----------------
Net cash used by investing activities (410,051) (429,415)
----------------- -----------------
Cash flows from financing activities:
Net increase in warehouse debt and other
short-term borrowings 745,601 601,662
Issuance of long-term debt 717,000 394,315
Repayment of long-term debt (75,315) (47,948)
Issuance of common stock 8,632 32,458
Cash dividends paid (11,268) (8,812)
----------------- -----------------
Net cash used provided by financing activities 1,384,650 971,675
----------------- -----------------
Net increase (decrease) in cash (25,911) 14,098
Cash at beginning of period 58,748 10,707
================= =================
Cash at end of period $32,837 $ 24,805
================= =================
Supplemental cash flow information:
Cash used to pay interest $ 113,141 $ 145,206
Cash used to pay income taxes $ $ 675
7
Noncash financing activities:
Unrealized gain on available-for-sale securities,
net of tax $3,178 $ 7,965
</TABLE>
The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollar amounts in thousands)
<TABLE>
Three Months
Ended May 31,
1999 1998
----------------- ---------------
<S> <C> <C>
NET EARNINGS $103,379 $90,754
Other comprehensive income, net of taxes:
Unrealized gains (losses) on available for sale
securities:
Unrealized holding gains (losses) arising
during the period 10,006 9,421
Less: reclassification adjustment for gains included
in net earnings (1,456)
(6,828)
----------------- ---------------
Other comprehensive income 3,178 7,965
================= ===============
COMPREHENSIVE INCOME $ 106,557 $98,719
================= ===============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Page 14
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ending February 28, 2000. 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, 1999 of Countrywide
Credit Industries, Inc. (the "Company").
Certain amounts reflected in the consolidated financial statements for the
three-month period ended May 31, 1998 have been reclassified to conform to the
presentation for the three-month period ended May 31, 1999.
NOTE B - MORTGAGE SERVICING RIGHTS
The activity in mortgage servicing rights was as follows.
<TABLE>
----------------------------------------------- ---------------------- ---------------------
Quarter Ended
May 31,
(Dollar amounts in thousands) 1999
----------------------------------------------- -- ---------------- -- ----------------
Mortgage Servicing Rights
<S> <C>
Balance at beginning of period $4,591,191
Additions 432,368
Scheduled amortization (126,976)
Hedge losses (gains) applied 153,274
----------------
Balance before valuation reserve
at end of period 5,049,857
----------------
Reserve for Impairment of Mortgage Servicing Rights
Balance at beginning of period (94,752)
Reductions (additions) (1,784)
----------------
Balance at end of period (96,536)
================
Mortgage Servicing Rights, net $4,953,321
================
----------------------------------------------- -- ---------------- -- ---------------- ----
</TABLE>
NOTE C - OTHER ASSETS
Other assets consisted of the following.
<TABLE>
------------------------------------------------------------ -----------------------------------------------------
May 31, February 28,
(Dollar amounts in thousands) 1999 1999
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
<S> <C> <C>
Trading securities $2,017,398 $ 1,460,446
Servicing hedge instruments 1,223,261 991,401
Mortgage-backed securities retained in securitization 469,084 500,631
Rewarehoused FHA and VA loans 286,963 216,598
Receivables related to broker-dealer activities 198,151 401,232
Servicing related advances 188,039 199,143
Accrued interest 138,366 102,093
Loans held for investment 169,873 125,236
Reverse repurchase agreements 121,564 76,246
Equity Securities 71,182 59,875
Other 454,956 417,207
----------------- --- ----------------
$5,338,837 $4,550,108
================= ================
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
</TABLE>
NOTE D - AVAILABLE FOR SALE SECURITIES
Amortized cost and fair value of available for sale securities were as
follows.
<TABLE>
---------------------------------- ---------------- - ------------------------------------ -- ---------------- ---
May 31, 1999
---------------- - ------------------------------------ -- ---------------- ---
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
Mortgage-backed
securities retained in
<S> <C> <C> <C> <C>
securitization $486,114 $11,224 ($28,254) $469,084
Principal only securities 310,319 2,130 302,799
(9,650)
Equity securities 42,498 - (2,498) 40,000
================ ================= ================ ================
$838,931 $13,354 ($40,402) $811,883
================ ================= ================ ================
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
---------------------------------- ---------------- - ------------------------------------ -- ---------------- ---
February 28, 1999
---------------- - ------------------------------------ -- ---------------- ---
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
Mortgage-backed
securities retained in
securitization $519,321 - ($18,690) $500,631
Principal only securities 32,514 312 - 32,826
Equity securities 42,498 3,098 (16,904) 28,692
================ ================= ================ ================
$594,333 $3,410 ($35,594) $562,149
================ ================= ================ ================
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
</TABLE>
<TABLE>
NOTE E - NOTES PAYABLE
Notes payable consisted of the following.
------------------------------------------------------------ -----------------------------------------------------
May 31, February 28,
(Dollar amounts in thousands) 1999 1999
-------------------------------------------------------------------- -- ------------------ ---------------- ---
<S> <C> <C>
Commercial paper $458,578 $176,559
Medium-term notes, Series A, B, C, D, E, F, G, H
and Euro Notes 8,681,824 8,039,824
Repurchase agreements 2,201,291 1,517,405
Subordinated notes 200,000 200,000
Other notes payable 1,656 1,971
================= ================
$11,543,349 $9,935,759
================= ================
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
</TABLE>
Commercial Paper and Backup Credit Facilities
As of May 31, 1999, CHL, the Company's mortgage banking subsidiary, had
unsecured credit agreements (revolving credit facilities) with consortiums of
commercial banks permitting CHL to borrow an aggregate maximum amount of $5.0
billion. The facilities included a $4.0 billion revolving credit facility with
forty-four commercial banks consisting of: (i) a five-year facility of $3.0
billion, which expires on September 24, 2002, and (ii) a one-year facility of
$1.0 billion which expires on September 22, 1999. As consideration for the
facility, CHL pays annual commitment fees of $3.8 million. There is an
additional one-year facility, which expires April 12, 2000, with eleven of the
forty-four banks referenced above for total commitments of $1.0 billion. As
consideration for the facility, CHL pays annual commitment fees of $0.8 million.
In addition, CHL has entered into a $1.5 billion committed mortgage loan conduit
facility, with four commercial banks. The committed mortgage loan conduit
facility has a maturity date of November 24, 1999. As a consideration for this
facility, CHL pays annual commitment fees of $1.9 million. Loans made under this
facility are secured by conforming and non-conforming mortgage loans. All of the
facilities contain various financial covenants and restrictions, certain of
which limit the amount of dividends that can be paid by the Company or CHL. The
purpose of these credit facilities is to provide liquidity backup for CHL's
commercial paper program. No amount was outstanding under these revolving credit
facilities at May 31, 1999. The weighted average borrowing rate on commercial
paper borrowings for the quarter ended May 31, 1999 was 4.92%. The weighted
average borrowing rate on commercial paper outstanding as of May 31, 1999 was
5.03%
NOTE E - NOTES PAYABLE (Continued)
Medium-Term Notes
As of May 31, 1999, outstanding medium-term notes issued by CHL under
various shelf registrations filed with the Securities and Exchange Commission or
issued by CHL pursuant to its Euro medium-term note program were as follows.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
Outstanding Balance Interest Rate Maturity Date
------------------------------------------- ---------------------- ----------------------------
Floating-Rate Fixed-Rate Total From To From To
------------------------------------------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A - $143,500 $143,500 7.29% 8.79% Aug. 2000 Mar. 2002
Series B - 351,000 351,000 6.08% 6.98% Jul. 1999 Aug. 2005
Series C $163,000 197,000 360,000 4.86% 8.43% Nov. 1999 Mar. 2004
Series D 75,000 385,000 460,000 5.34% 6.88% Aug. 2000 Sep. 2005
Series E 310,000 690,000 1,000,000 5.12% 7.45% Feb. 2000 Oct. 2008
Series F 656,000 1,344,000 2,000,000 5.00% 7.00% Oct. 1999 May 2013
Series G 919,000 581,000 1,500,000 4.94% 7.00% Jul. 1999 Nov. 2018
Series H 114,500 1,017,000 1,131,500 5.05% 7.00% Dec. 1999 May 2019
Euro Notes 1,019,600 716,224 1,735,824 4.97% 6.30% Jul. 1999 Jan. 2009
-------------------------------------------
Total $3,257,100 $5,424,724 $8,681,824
===========================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of May 31, 1999, substantially all of the outstanding fixed-rate notes
had been effectively converted through interest rate swap agreements to
floating-rate notes. The weighted average borrowing rate on medium-term note
borrowings for the quarter ended May 31, 1999, including the effect of the
interest rate swap agreements, was 5.44%. As of May 31, 1999, $666.2 million
foreign currency denominated fixed-rate notes issued pursuant to the Euro
medium-term notes program were outstanding. Such notes are denominated in
Deutsche marks, French Francs and Portuguese Escudos. The Company manages the
associated foreign currency risk by entering into currency swaps. The terms of
the currency swaps effectively translate the foreign currency denominated
medium-term notes into U.S. dollars.
Repurchase Agreements
The Company routinely enters into short-term financing arrangements to sell
MBS under agreements to repurchase. The weighted average borrowing rate for the
quarter ended May 31, 1999 was 4.83%. The weighted average borrowing rate on
repurchase agreements outstanding as of May 31, 1999 was 4.98%. The repurchase
agreements were collateralized by MBS. All MBS underlying repurchase agreements
are held in safekeeping by broker-dealers. All agreements are to repurchase the
same or substantially identical MBS.
NOTE E - NOTES PAYABLE (Continued)
Subordinated Notes
The 8.25% subordinated notes are due July 15, 2002. Interest is payable
semi-annually on each January 15 and July 15. The subordinated notes are not
redeemable prior to maturity and are not subject to any sinking fund
requirements.
Pre-Sale Funding Facilities
As of May 31, 1999 CHL had no uncommitted revolving credit facilities with
the Federal National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"). The credit facilities are secured by
conforming mortgage loans which are in the process of being pooled into MBS. As
of May 31, 1999, the Company had no outstanding borrowings under any of these
facilities.
NOTE F - FINANCIAL INSTRUMENTS
The following table summarizes the notional amounts of derivative contracts
included in the Servicing Hedge.
<TABLE>
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
(Dollar amounts in millions) Balance, Dispositions/ Balance,
February 28, 1999 Additions Expirations May 31,
1999
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Interest Rate Floors $33,000 9,000 - $42,000
Long Call Options on
Interest Rate Futures $32,000 250 (11,000) $21,250
Long Put Options on
Interest Rate Futures $54,600 - (2,100) $52,500
Short Call Options on
Interest Rate Futures $22,000 - (1,000) $21,000
Short Put Options on
Interest Rate Futures $720 - (720) -
Interest Rate Futures $22,500 - (8,500) $14,000
Capped Swaps $1,000 - - $1,000
Interest Rate Swaps $15,150 300 - $15,450
Interest Rate Cap $4,500 - - $4,500
Swaptions $32,550 7,500 (300) $39,750
Options on Callable Pass-through
Certificates $4,561 - - $4,561
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
</TABLE>
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments as of May 31, 1999 and February 28, 1999 is made by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<PAGE>
NOTE F- FINANCIAL INSTRUMENTS (Continued)
<TABLE>
---- ------------------------------------------------- --------------------------------- --- ----------------------------
May 31, 1999 February 28, 1999
--------------------------------- --- ----------------------------
Carrying Estimated Carrying Estimated
(Dollar amounts in thousands) Amount fair value Amount fair value
---- ------------------------------------------------- -------------- -- ------------- -- ------------- --- -------------
Assets:
Mortgage loans and mortgage-backed securities
<S> <C> <C> <C> <C>
held for sale $6,713,084 $6,713,084 $6,231,220 $6,231,220
Items included in other assets:
Trading securities 2,017,398 2,017,398 1,460,446 1,460,446
Loans held for investment 169,873 169,873 125,236 125,236
Receivables related to broker-dealer activiti198,151 198,151 401,232 401,232
Reverse repurchase agreements 121,564 121,564 76,246 76,246
Principal only securities purchased 302,799 302,799 32,826 32,826
Mortgage-backed securities retained in
Securitizations 469,084 469,084 500,631 500,631
Equity Securities - restricted and unrestricte71,182 65,483 59,875 46,971
Rewarehoused FHA and VA loans 286,963 286,963 216,598 216,598
Liabilities:
Notes payable 11,543,349 10,734,731 9,935,759 9,883,859
Securities sold not yet purchased 143,430 143,430 84,775 84,775
Derivatives:
Interest rate floors 437,596 324,923 426,838 402,061
Forward contracts on MBS 13,886 200,415 12,775 120,709
Options on MBS 16,081 51,228 34,883 62,475
Options on interest rate futures 5,560 1,109 18,261 15,729
Options on callable pass-through certificates 55,093 25,758 55,593 36,460
Interest rate caps 63,777 52,371 77,508 40,437
Capped Swaps 4,892 2,710 8,470 3,092
Swaptions 361,041 197,708 337,703 271,073
Interest rate futures (46,189) (46,189) 57,280 57,280
Interest rate swaps (3,189) (65,678) 43,570 93,205
Short-term commitments to extend credit - 14,100 - 26,400
---- ------------------------------------------------- -------------- -- ------------- -- ------------- --- -------------
</TABLE>
The fair value estimates as of May 31, 1999 and February 28, 1999 are based
on pertinent information that was available to management as of the respective
dates. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates and, therefore, current estimates of fair value may differ significantly
from the amounts presented herein.
NOTE G - LEGAL PROCEEDINGS
Legal Proceedings
The Company and certain subsidiaries are defendants in various legal
proceedings involving matters generally incidental to their business. Although
it is difficult to predict the ultimate outcome of these proceedings, management
believes, based on discussions with counsel, that any ultimate liability will
not materially affect the consolidated financial position or results of
operations of the Company and its subsidiaries.
NOTE H - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
Summarized financial information for Countrywide Home Loans, Inc.
was as follows.
<TABLE>
---- ----------------------------------------- ---- ------------------------------------------------- ---------
May 31, February 28,
(Dollar amounts in thousands) 1999 1999
---- ---------------------------------------------- ------- -------------- ----------- -------------- ---------
Balance Sheets:
Mortgage loans and mortgage-backed
<S> <C> <C>
securities held for sale $6,713,084 $ 6,231,220
Mortgage servicing rights, net 4,953,321 4,496,439
Other assets 3,271,258 2,955,382
============== ==============
Total assets $14,937,663 $13,683,041
============== ==============
Short- and long-term debt $10,923,756 $9,910,966
Other liabilities 1,602,744 1,434,727
Equity 2,411,163 2,337,348
============== ==============
Total liabilities and equity $14,937,663 $13,683,041
============== ==============
---- ---------------------------------------------- ------- -------------- ----------- -------------- ---------
----- ----------------------------------------- --- --------------------------------------------------- --------
Three Months Ended May 31,
(Dollar amounts in thousands) 1999 1998
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
--------------- ---------- --------------- ---------
Statements of Earnings:
Revenues $436,497 $382,167
Expenses 303,314 261,114
Provision for income taxes 51,941 47,211
=============== ===============
Net earnings $81,242 $ 73,842
=============== ===============
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
</TABLE>
NOTE I - IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
It requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This statement becomes
effective in the fiscal year ending February 28, 2002. The Company has not yet
determined the impact upon adoption of this standard on the Consolidated
Financial Statements.
NOTE J - SEGMENTS AND RELATED INFORMATION
The Company has three major segments: Loan Production, Loan Servicing and
Capital Markets. The Loan Production segment is comprised of the Consumer
Markets, Wholesale and Correspondent Divisions and Full Spectrum Lending, Inc.
The Loan Production segment originates and purchases conventional mortgage
loans, mortgage loans insured by the FHA and VA, home equity and sub-prime loans
and sells those loans to permanent investors. The Loan Servicing segment
services on a primarily non-recourse basis substantially all of the mortgage
loans originated and purchased by the Loan Production segment. In addition, the
Loan Servicing segment purchases bulk servicing rights, also on a non-recourse
basis, to service single-family residential mortgage loans originated by other
lenders. The Capital Markets segment trades securities, primarily
mortgage-related securities, with broker-dealers and institutional investors
and, as an agent, facilitates the purchase and sale of bulk servicing rights.
Included in the tables below labeled "Other" are the operating segments that
provide ancillary services and certain reclassifications to conform management
reporting to the consolidated financial statements.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
For the fiscal quarter ended May 31, 1999
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
<S> <C> <C> <C> <C> <C>
Non-interest revenues $302,958 $165,196 $13,627 $27,401 $509,182
Interest earned 190,234 59,680 28,510 (2,862) 275,562
Interest charges (144,735) (83,325) (21,776) 2,095 (247,741)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 45,499 (23,645) 6,734 (767) 27,821
----------- ----------- ------------ ------------ ------------
Total revenue $348,457 $141,551 $20,361 $26,634 $537,003
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $125,918 $29,982 $7,775 $5,799 $169,474
Segment assets $7,606,791 $7,385,579 $2,306,038 $66,199 $17,364,607
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
- --------------------------------------------------------------------------------------------------------------------
For the fiscal quarter ended May 31, 1998
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
Non-interest revenues $287,045 $116,459 $11,586 $23,643 $438,733
Interest earned 172,860 64,602 781 4,524 242,767
Interest charges (142,906) (85,776) (303) (2,250) (231,235)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 29,954 (21,174) 478 2,274 11,532
----------- ----------- ------------ ------------ ------------
Total revenue $316,999 $95,285 $12,064 $25,917 $450,265
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $136,002 ($595) $5,248 $8,122
$148,777
Segment assets $7,071,379 $6,096,420 $348,576 $105,320 $13,621,695
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
</TABLE>
NOTE K - SUBSEQUENT EVENTS
On June 14, 1999 the Company announced that it had reached an agreement to
purchase Balboa from Associates First Capital Corporation for $425 million. The
purchase price will be funded by approximately $200 million of new common stock,
or an equivalent amount of Hybrid Equity Securities, along with unsecured debt
to be issued by the Company or CHL. Balboa is an underwriter of credit-related
insurance, specializing in creditor-placed auto and homeowners insurance. Balboa
also offers voluntary homeowners and life and disability products.
NOTE K - SUBSEQUENT EVENTS (Continued)
On June 24, 1999 CHL issued $750 million 6.85% Senior Global Notes (the
"Notes"). Interest is payable semi-annually on each June 15 and December 15. The
Notes mature June 15, 2004 and are not redeemable prior to maturity.
On July 9, 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission (the "SEC") which provides for the issuance
of common stock, preferred stock, debt securities and/or hybrid equity
securities with an aggregate public offering price of up to $3.0 billion.
Pursuant to this registration statement, the Company may issue adjustable
conversion rate equity securities (the "Hybrid Equity Securities"), which will
include the issuance by the Company or CHL of a subordinated deferrable note and
a contract to purchase shares of common stock of the Company. If issued, the
proceeds from the Hybrid Equity Securities may be used to pay a portion of the
purchase price for the acquisition of the Balboa Life and Casualty Insurance
group.
NOTE L - EARNINGS PER SHARE
Basic earnings per share is determined using net income divided by the
weighted average shares outstanding during the period. Diluted EPS is computed
by dividing net income by the weighted average shares outstanding, assuming all
dilutive potential common shares were issued.
The following table presents basic and diluted EPS for the three months ended
May 31, 1999 and 1998.
<TABLE>
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Three Months Ended May 31,
-- -- ----- ------------------------------------ -- ----- ----
1999 1998
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- ---------
========= ==========
<S> <C> <C>
Net earnings $103,379 $90,754
========= ==========
Basic EPS
Net earnings available
to common shareholders $103,379 112,751 $0.92 $90,754 110,127 $ 0.82
Effect of dilutive
stock options - 4,762 - 6,416
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $103,379 117,513 $0.88 $90,754 116,543 $ 0.78
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Page 15
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain forward-looking
statements that reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including those identified below, which
could cause actual results to differ materially from historical results or those
anticipated. The words "believe," "expect," "anticipate," "intend," "estimate,"
"should" and other expressions which indicate future events and trends identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The following factors could cause actual results to differ
materially from historical results or those anticipated: (1) the level of demand
for mortgage credit, which is affected by such external factors as the level of
interest rates, the strength of the various segments of the economy and
demographics of the Company's lending markets; (2) the direction of interest
rates; (3) the relationship between mortgage interest rates and the cost of
funds; (4) federal and state regulation of the Company's mortgage banking
operations, capital markets operations, and insurance services; and (5)
competition within the mortgage banking industry, capital markets industries,
and insurance services; and (6) the ability of the Company to manage expenses.
RESULTS OF OPERATIONS
Quarter Ended May 31, 1999 Compared to Quarter Ended May 31, 1998
Revenues for the quarter ended May 31, 1999 increased 19% to $537.0
million, up from $450.3 million for the quarter ended May 31, 1998. Net earnings
from ongoing operations increased 14% to $103.4 for the quarter ended May 31,
1999, up from $90.8 million for May 31, 1998. The increase in revenues and net
earnings from ongoing operations for the quarter ended May 31, 1999 compared to
the quarter ended May 31, 1998 was primarily attributed to higher loan
production volume, an increase in the size of the Company's servicing portfolio,
a reduction in the amortization rate of its mortgage servicing rights ("MSRs")
and an increase in the income of the non-mortgage banking subsidiaries. These
positive factors were partially offset by an increase in expenses for the
quarter ended May 31, 1999 over the quarter ended May 31, 1998.
The total volume of loans produced by the Company increased 11% to
$23.2 billion for the quarter ended May 31, 1999, up from $20.9 billion for the
quarter ended May 31, 1998. The increase in loan production was primarily due to
an increase in the Company's market share, driven largely by the expansion of
the Company's consumer markets and wholesale branch networks, including the
retail sub-prime branches, combined with an increase in the overall mortgage
market. Purchase fundings totaled $11.7 billion, or 51% of total fundings, for
the quarter ended May 31, 1999 as compared to $9.0 billion, or 43% of total
fundings, for the quarter ended May 31, 1998. Fixed-rate mortgage loan
production totaled $21.6 billion, or 93% of total fundings, for the quarter
ended May 31, 1999 as compared to $19.4 billion, or 93% of total fundings, for
the quarter ended May 31, 1998.
Total loan volume in the Company's production Divisions is summarized below.
<TABLE>
- -------------------------------------------- ------------------------------------ --------
(Dollar amounts in millions) Loan Production
Three Months Ended May 31,
- -------------------------------------------- ------------------------------------ --------
1999 1998
------------- ------------
<S> <C> <C>
Consumer Markets Division $7,035 $ 6,001
Wholesale Lending Division 7,122 7,462
Correspondent Lending Division 8,712 7,287
Full Spectrum Lending, Inc. 324 126
============= =============
Total Loan Volume $23,193 $20,876
============= =============
Electronic Commerce (1) $1,792 $84
</TABLE>
(1) This category includes loans sourced through the Company's website of $212
million and $84 million for the quarter ended May 31, 1999 and the quarter ended
May 31, 1998, respectively, as well as loans submitted to the Correspondent
Lending Division via its correspondent website of $1,580 million for the quarter
ended May 31, 1999.
- --------------------------------------------------------------------------------
The factors which affect the relative volume of production among the
Company's Divisions include the price competitiveness of each Division's product
offerings, the level of mortgage lending activity in each Division's market and
the success of each Division's sales and marketing efforts.
Included in the Company's total volume of loans produced are $717 million of
home equity loans funded in the quarter ended May 31, 1999 and $452 million
funded in the quarter ended May 31, 1998. Sub-prime loan production, which is
also included in the Company's total production volume, was $769 million in the
quarter ended May 31, 1999 and $521 million in the quarter ended May 31, 1998.
As of May 31, 1999 and 1998, the Company's pipeline of loans in process was
$14.1 billion and $14.6 billion, respectively. Historically, approximately 43%
to 77% of the pipeline of loans in process have funded. In addition, as of May
31, 1999, the Company had committed to make loans in the amount of $2.7 billion,
subject to property identification and approval of the loans (the "LOCK 'N SHOP
(R) Pipeline"). As of May 31, 1998, the LOCK 'N SHOP (R) Pipeline was $1.5
billion. During the quarters ended May 31, 1999 and 1998, the Company received
303,942 and 278,448 new loan applications, respectively, at an average daily
rate of $521 million and $495 million, respectively. 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 increased in the quarter ended May 31, 1999 as
compared to the quarter ended May 31, 1998 primarily due to higher production.
Gain on sale of loans also increased in the quarter ended May 31, 1999 as
compared to the quarter ended May 31, 1998 primarily due to higher production
volume and increased sales during the quarter ended May 31, 1999 of higher
margin home equity and sub-prime loans. These positive factors were partially
offset by reduced margins on prime credit quality mortgages. The sale of home
equity loans contributed $20.3 million and $17.5 million to gain on sale of
loans in the quarter ended May 31, 1999 and the quarter ended May 31, 1998,
respectively. Sub-prime loans contributed $35.5 million to the gain on sale of
loans in the quarter ended May 31, 1999 and $16.4 million in the quarter ended
May 31, 1998. In general, loan origination fees and gain (loss) on sale of loans
are affected by numerous factors including the volume and mix of loans produced
and sold, loan pricing decisions, interest rate volatility and the general
direction of interest rates.
Net interest income (interest earned net of interest charges) increased to
$27.8 million for the quarter ended May 31, 1999, up from $11.5 million for the
quarter ended May 31, 1998. Net interest income is principally a function of:
(i) net interest income earned from the Company's mortgage loan warehouse ($45.5
million and $30.0 million for the quarter ended May 31, 1999 and the quarter
ended May 31, 1998, respectively); (ii) interest expense related to the
Company's investment in servicing rights ($83.3 million and $85.8 million for
the quarter ended May 31, 1999 and the quarter ended May 31, 1998, respectively)
and (iii) interest income earned from the custodial balances associated with the
Company's servicing portfolio ($59.7 million and $64.6 million for the quarter
ended May 31, 1999 and the quarter ended May 31, 1998, respectively). The
Company earns interest on, and incurs interest expense to carry, mortgage loans
held in its warehouse. The increase in net interest income from the mortgage
loan warehouse was primarily attributable to higher production levels combined
with a higher net earnings rate during the quarter ended May 31, 1999. The
increase in interest expense on the investment in servicing rights resulted
primarily from a larger servicing portfolio partially offset by a decrease in
the payments of interest to certain investors pursuant to customary servicing
arrangements with regard to paid-off loans in excess of the interest earned on
these loans through their respective payoff dates ("Interest Costs Incurred on
Payoffs"). The decrease in net interest income earned from the custodial
balances was primarily related to a decrease in the average custodial balances
caused by a decrease in the amount of prepayments.
During the quarter ended May 31, 1999, loan servicing income before
amortization increased primarily due to growth of the loan servicing portfolio.
As of May 31, 1999, the Company serviced $226.0 billion of loans (including $2.3
billion of loans subserviced for others), up from $191.6 billion (including $8.3
billion of loans subserviced for others) as of May 31, 1998, which was an 18%
increase. The growth in the Company's servicing portfolio since May 31, 1998 was
the result of increased loan production volume and the acquisition of bulk
servicing rights. This was partially offset by prepayments, partial prepayments
and scheduled amortization and the transfer back to IndyMac Mortgage Holdings,
Inc. ("INMC ") of $6.5 billion of subservicing.
During the quarter ended May 31, 1999, the annual prepayment rate of the
Company's servicing portfolio was 21%, compared to 28% for the quarter ended May
31, 1998. In general, the prepayment rate is affected by the level of refinance
activity, which in turn is driven by the relative level of mortgage interest
rates, and activity in the home purchase market. The weighted average interest
rate of the mortgage loans in the Company's servicing portfolio as of May 31,
1999 was 7.4% compared to 7.7% as of May 31, 1998.
The Company recorded amortization and net recovery of its MSRs for the
quarter ended May 31,1999 totaling $24.5 million (consisting of amortization
amounting to $127.0 million and recovery of previous impairment of $151.5
million), compared to $149.3 million of amortization and impairment (consisting
of amortization amounting to $132.9 million and impairment of $16.4 million) for
the quarter ended May 31, 1998. To mitigate the effect on earnings of MSR
impairment that may result from increased current and projected future
prepayment activity, the Company acquires financial instruments, including
derivative contracts, that increase in aggregate value when interest rates
decline (the "Servicing Hedge"). The factors affecting the amount of
amortization and impairment of the MSRs recorded in an accounting period include
the level of prepayments during the period, the change in estimated future
prepayments and the amount of Servicing Hedge gains or losses.
In the quarter ended May 31, 1999, the Company recognized a net expense of
$171.4 million from its Servicing Hedge. The net expense included unrealized net
losses of $182.8 million and realized net gains of $11.4 million from the sale
of various financial instruments that comprise the Servicing Hedge net of
premium amortization. In the quarter ended May 31, 1998, the Company recognized
a net benefit of $0.6 million from its Servicing Hedge. The net benefit included
unrealized gains of $4.6 million and net realized losses of $4.0 million from
the sale of various financial instruments that comprise the Servicing Hedge net
of premium amortization. There can be no assurance that the Servicing Hedge will
generate gains in the future, or if gains are generated that they will fully
offset impairment of the MSRs.
The financial instruments that comprised the Servicing Hedge include options
on interest rate futures and MBS, interest rate futures, interest rate floors,
interest rate swaps, interest rate swaps with the Company's maximum payment
capped ("Capped Swaps"), options on interest rate swaps ("Swaptions"), interest
rate caps, principal only securities ("P/O securities" ) and options on callable
pass-through certificates ("options on CPC").
With the Capped Swaps, the Company receives and pays interest on a specified
notional amount. The rate received is fixed. The rate paid is adjustable, is
indexed to the London Interbank Offered Rate for U.S. dollar deposits ("LIBOR")
and has a specified maximum or "cap". With Swaps, the Company receives and pays
interest on a specified notional amount. The rate received is fixed; the rate
paid is adjustable and is indexed to LIBOR.
With the Swaptions, the Company has the option to enter into a
receive-fixed, pay-floating interest rate swap at a future date or to settle the
transaction for cash.
The P/O securities consist of certain tranches of collateralized mortgage
securities ("CMOs"), mortgage Trust Principal Only Securities and Treasury
Principal Only Strips. These securities have been purchased at deep discounts to
their par values. As interest rates decrease, prepayments on the collateral
underlying the CMOs and mortgage Trust Principal Only Securities should
increase. This results in a decline in the average lives of the P/O securities
and a corresponding increase in the present values of their cash flows.
Conversely, as interest rates increase, prepayments on the collateral underlying
the CMOs and mortgage Trust Principal Only Securities should decrease. This
would result in an increase in the average lives of the P/O Securities and a
decrease in the present values of their cashflows. The prices of the Treasury
Principal Only Strips are determined by the discount rate used to determine
their present value, as interest rates decline the discount rate applied to the
maturity principal payment declines, resulting in an increase in the price.
An option CPC gives the holder the right to call a mortgage-backed security
at par and receive the remaining cash flows from the particular pool. This
option has a one year lockout, meaning it cannot be exercised until the end of
the first year. After the lockout period, the option can be exercised at
anytime.
The Servicing Hedge is designed to protect the value of the MSRs 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
MSRs increases while the value of the hedge instruments declines. With respect
to the floors, options, caps, Swaptions, options on CPC and P/O Securities, the
Company is not exposed to loss beyond its initial outlay to acquire the hedge
instruments plus any unrealized gains recognized to date. The Company's exposure
to loss on futures is related to changes in the LIBOR rate over the life of the
contract. The Company estimates that its maximum exposure to loss over the
contractual term is $53 million. With respect to the Interest Rate Swaps
contracts entered into by the Company as of May 31, 1999, the Company estimates
that its maximum exposure to loss over the contractual term is $305 million.
During the quarter ended May 31, 1999, the Company acquired bulk servicing
rights for loans with principal balances aggregating $268.0 million at a price
of 1.22% of the aggregate outstanding principal balances. During the quarter
ended May 31, 1998, the Company acquired bulk servicing rights for loans with
principal balances aggregating $291.2 million at a price of 1.35% of the
aggregate outstanding principal balances.
Salaries and related expenses are summarized below for the quarters ended
May 31, 1999 and 1998.
<TABLE>
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Quarter Ended May 31, 1999
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
<S> <C> <C> <C> <C> <C>
Base Salaries $62,474 $14,979 $25,076 $12,952 $115,481
Incentive Bonus 32,857 693 5,850 6,385 45,785
Payroll Taxes and Benefits 14,481 3,180 4,604 1,895 24,160
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $109,812 $18,852 $35,530 $21,232 $185,426
============ ============= ============= ============= ------------
Average Number of 6,380 2,162 2,092 862 11,496
Employees
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Quarter Ended May 31, 1998
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
Base Salaries $43,485 $11,960 $20,211 $7,806 $83,462
Incentive Bonus 33,539 329 5,122 3,640 42,630
Payroll Taxes and Benefits 12,062 2,826 4,274 1,233 20,395
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $89,086 $15,115 $29,607 $12,679 $146,487
============ ============= ============= ============= ------------
Average Number of 4,597 1,839 1,622 641 8,699
Employees
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
</TABLE>
The amount of salaries increased during the quarter ended May 31, 1999
reflecting the Company's strategy of expanding and enhancing its Consumer
Markets and Wholesale branch networks, including new retail sub-prime branches.
In addition, a larger servicing portfolio and growth in the Company's
non-mortgage banking subsidiaries also contributed to the increase. Incentive
bonuses earned during the quarter ended May 31, 1999 increased primarily due to
growth in the Company's non-mortgage banking subsidiaries.
Occupancy and other office expenses for the quarter ended May 31, 1999
increased to $76.3 million from $62.7 million for the quarter ended May 31,
1998. This was primarily due to: (i) the continued effort by the Company to
expand its Consumer Markets and Wholesale branch networks, including new retail
sub-prime branches; (ii) higher loan production; (iii) a larger servicing
portfolio; and (iv) growth in the Company's non-mortgage banking activities.
Guarantee fees represent fees paid to Fannie Mae, Freddie Mac, and Ginnie
Mae in order for these Government Sponsored Entities ("GSE") to agree to
guarantee timely and full payment of principal and interest on MBS and to
transfer the credit risk of the loans in the servicing portfolio sold to these
entities. For the quarter ended May 31, 1999, guarantee fees increased 3% to
$45.8 million, up from $44.7 million for the quarter ended May 31, 1998. The
increase resulted from an increase in the servicing portfolio, changes in the
mix of the portfolio sold to GSE and terms negotiated at the time of loan sales.
Marketing expenses for the quarter ended May 31, 1999 increased 35% to $19.5
million which was up from $14.5 million for the quarter ended May 31, 1998,
reflecting the increased mortgage market and the Company's continued
implementation of a marketing plan to increase its consumer brand awareness.
Other operating expenses for the quarter ended May 31, 1999 increased from
the quarter ended May 31, 1998 by $7.3 million, or 22%. This increase was due
primarily to higher loan production, a larger servicing portfolio, increased
systems development and growth in the Company's non-mortgage banking
subsidiaries in the quarter ended May 31, 1999 as compared to the quarter ended
May 31, 1998.
On May 11, 1999 the Company entered into a definitive agreement (the
"Agreement") with Woolwich, plc ("Woolwich"), to form a joint venture (the
"Joint Venture") which will provide fee-based mortgage services. Under the terms
of the Agreement, the Company and Woolwich will each own approximately 50% of
the Joint Venture and will each provide up to approximately $16 million to the
initial capitalization of the Joint Venture. As of May 31, 1999, the Company had
contributed capital of approximately $8.0 million to the Joint Venture. The
Joint Venture is expected to begin operations in the second half of 1999.
On June 14, 1999 the Company announced that it had reached an agreement to
purchase Balboa from Associates First Capital Corporation for $425 million. The
purchase price will be funded by approximately $200 million of new common stock,
or Hybrid Equity Securities, along with unsecured debt to be issued by the
Company or CHL. Balboa is an underwriter of credit-related insurance,
specializing in creditor-placed auto and homeowners insurance. Balboa also
offers voluntary homeowners and life and disability products.
Profitability of Loan Production Segment
In the quarter ended May 31, 1999, pre-tax earnings from loan production
segment activities (which include loan origination and purchases, warehousing
and sales) were $125.9 million. In the quarter ended May 31, 1998, comparable
pre-tax earnings were $136.0 million. The decrease of $10.1 million was
primarily attributable to higher production costs which were partially offset by
increased production and a shift in production towards the Consumer Markets
Division.
Profitability of Loan Servicing Segment
In the quarter ended May 31, 1999, pre-tax income from loan servicing
segment activities (which include administering the loans in the servicing
portfolio, selling homeowners and other insurance, acting as tax payment agent,
marketing foreclosed properties and acting as reinsurer) was $30.0 million as
compared to $0.6 million loss in the quarter ended May 31, 1998. The increase of
$30.6 million is primarily due to an increase in servicing revenues resulting
from servicing portfolio growth combined with a reduction in the amortization
rate of the servicing asset. These positive factors were partially offset by
higher servicing costs.
Profitability of Capital Markets Segment
In the quarter ended May 31, 1999, pre-tax earnings from the capital markets
segment were $7.8 million. In the quarter ended May 31, 1998, comparable pre-tax
earnings were $5.2 million. The increase of $2.6 million was primarily due to
increased trading volumes.
Profitability of Other Activities
In addition to loan production, loan servicing and capital markets, the
Company offers ancillary products and services related to its mortgage banking
activities, primarily through its subsidiary, LandSafe, Inc. Through several
subsidiaries, LandSafe, Inc. acts as a title insurance agent and a provider of
settlement, escrow, appraisal and credit reporting, and home inspection and
flood zone determination services. In addition, through its subsidiaries,
LandSafe, Inc. provides property profiles to realtors, builders, consumers,
mortgage brokers and other financial institutions. For the quarter ended May 31,
1999, LandSafe Inc. contributed $6.5 million to the Company's pre-tax income
compared to $5.0 million for the quarter ended May 31, 1998. The increase in the
profitability of LandSafe Inc. resulted primarily from expanded services and
increased loan production.
The Company's other activities also include the operations of its holding
company, Countrywide Credit Industries, Inc. ("CCI") and the operations of
Countrywide Financial Services, Inc. and subsidiaries. The operations of other
activities, excluding LandSafe Inc., incurred pre-tax losses of $0.7 million
during the quarter ended May 31, 1999 compared to pre-tax income of $3.2 million
during the quarter ended May 31, 1998. The decrease in pre-tax income resulted
from a decrease in the CCI's net interest income related to a receivable from
CHL that was eliminated by a capital contribution.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk. From an
enterprise perspective, the Company manages this risk by striving to balance its
loan origination and loan servicing business segments, which are counter
cyclical in nature. In addition, the Company utilizes various financial
instruments, including derivatives contracts, to manage the interest rate risk
related specifically to its committed pipeline, mortgage loan inventory and MBS
held for sale, MSRs, mortgage-backed securities retained in securitizations,
trading securities and debt securities. The overall objective of the Company's
interest rate risk management policies is to offset changes in the values of
these items resulting from changes in interest rates. The Company does not
speculate on the direction of interest rates in its management of interest rate
risk.
As part of its interest rate risk management process, the Company performs
various sensitivity analyses that quantify the net financial impact of changes
in interest rates on its interest rate-sensitive assets, liabilities and
commitments. These analyses incorporate scenarios including selected
hypothetical (instantaneous) parallel shifts in the yield curve. Various
modeling techniques are employed to value the financial instruments. For
mortgages, MBS and MBS forward contracts and CMOs, an option-adjusted spread
("OAS") model is used. The primary assumptions used in this model are the
implied market volatility of interest rates and prepayment speeds. For options
and interest rate floors, an option-pricing model is used. The primary
assumption used in this model is implied market volatility of interest rates.
MSRs and residual interests are valued using discounted cash flow models. The
primary assumptions used in these models are prepayment rates, discount rates
and credit losses.
Utilizing the sensitivity analyses described above, as of May 31, 1999, the
Company estimates that a permanent 0.50% reduction in interest rates, all else
being constant, would result in a $0.4 million after-tax gain related to its
trading securities and a $29.6 million after-tax loss related to its other
financial instruments. As of May 31, 1999, the Company estimates that this
combined after-tax loss of $29.2 million is the largest such loss that would
occur within the range of reasonably possible interest rate changes. These
sensitivity analyses are limited by the fact that they are performed at a
particular point in time and do not incorporate other factors that would impact
the Company's financial performance in such a scenario. Consequently, the
preceding estimates should not be viewed as a forecast.
An additional market risk facing the Company is foreign currency risk. The
Company has issued foreign currency denominated medium-term notes (See Note E).
The Company manages the foreign currency risk associated with such medium-term
notes by entering into currency swaps. The terms of the currency swaps
effectively translate the foreign currency denominated medium-term notes into
the Company's reporting currency (i.e., U.S. dollars) thereby eliminating the
associated foreign currency risk. As a result, hypothetical changes in the
exchange rates of foreign currencies denominating such medium-term notes would
not have a net financial impact on future earnings, fair values or cash flows.
Inflation
Inflation affects the Company most significantly 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 decreases, particularly from loan
refinancings. 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 thereby extending the average life of the Company's servicing
portfolio and reducing amortization and impairment of the MSRs, decreasing
Interest Costs Incurred on Payoffs and because 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 primarily due to increased
amortization and impairment of the MSRs, a decreased rate of interest earned
from the custodial balances and increased Interest Costs Incurred on Payoffs.
The impacts of changing interest rates on servicing-related earnings are reduced
by performance of the Servicing Hedge, which is designed to mitigate the impact
on earnings of higher amortization and impairment that may result from declining
interest rates.
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. In addition, delinquency rates typically rise in the winter months,
which results in higher servicing costs. However, late charge income has
historically been sufficient to offset such incremental expenses.
Liquidity and Capital Resources
The Company's principal financing needs are the financing of its mortgage
loan inventory and its investment in MSRs. To meet these needs, the Company
currently utilizes commercial paper supported by the revolving credit facility,
medium-term notes, senior debt, MBS repurchase agreements, subordinated notes,
pre-sale funding facilities, an optional cash purchase feature in the dividend
reinvestment plan, redeemable capital trust pass-through securities and cash
flow from operations. In addition, in the past the Company has utilized whole
loan repurchase agreements, servicing-secured bank facilities, private
placements of unsecured notes and other financings, direct borrowings from the
revolving credit facility and public offerings of common and preferred stock.
Certain of the debt obligations of the Company and Countrywide Home Loans,
Inc. ("CHL") contain various provisions that may affect the ability of the
Company and CHL to pay dividends and remain in compliance with such obligations.
These provisions include requirements concerning net worth 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 CHL to pay dividends.
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.
In connection with its derivative contracts, the Company may be required to
deposit cash or certain government securities or obtain letters of credit to
meet margin requirements. The Company considers such potential margin
requirements in its overall liquidity management.
In the course of the Company's mortgage banking operations, the Company
sells the mortgage loans it originates and purchases to investors but generally
retains the right to service the loans, thereby increasing the Company's
investment in MSRs. 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, 1999, the Company's
operating activities used cash of approximately $1.0 billion on a short-term
basis primarily to support the increase in its mortgage loans and MBS held for
sale. In the quarter ended May 31, 1998, operating activities used approximately
$0.5 billion on a short-term basis primarily to support the increase in its
mortgage loans and MBS held for sale.
Investing Activities The primary investing activity for which cash was used
by the Company was the investment in MSRs. Net cash used by investing activities
was $0.4 billion for the quarter ended May 31, 1999, $0.4 billion for the
quarter ended May 31, 1998.
Financing Activities Net cash provided by financing activities amounted to
$1.4 billion for the quarter ended May 31, 1999. Net cash provided by financing
activities amounted to $1.0 billion for the quarter ended May 31, 1998. The
increase or decrease in cash flow from financing activities was primarily the
result of the change in the Company's mortgage loan inventory and investment in
MSRs.
Prospective Trends
Applications and Pipeline of Loans in Process
For the month ended June 30, 1999, the Company received new loan
applications at an average daily rate of $490 million. As of June 30, 1999, the
Company's pipeline of loans in process was $13.3 billion. This compares to a
daily application rate for the month ended in June 30, 1998 of $505 million and
a pipeline of loans in process as of June 30, 1998 of $14.7 billion. The size of
the pipeline is generally an indication of the level of future fundings, as
historically 43% to 77% of the pipeline of loans in process has funded. In
addition, the Company's LOCK `N SHOP(R) Pipeline as of June 30, 1999 was $3.5
billion and as of June 30, 1998 was $1.4 billion. Future application levels and
loan fundings are dependent on numerous factors, including the level of demand
for mortgage loans, the level of competition in the market, the direction of
interest rates, seasonal factors and general economic conditions.
Market Factors
Loan production increased 11% from the quarter ended May 31, 1998 to
quarter ended May 31, 1999. This increase was primarily due to two factors.
First, the Company's market share increased, driven largely by the expansion of
the Company's consumer markets and wholesale branch networks, including the new
retail sub-prime branches. Second, new and existing home sales were stronger
during the quarter ended May 31, 1999 compared to the quarter ended May 31,
1998. Additionally higher market interest rates during the quarter ended May 31,
1999 compared to the same period in 1998 resulted in a shift in production from
refinancings to purchase fundings.
The prepayment rate in the servicing portfolio decreased from 28% for the
quarter ended May 31, 1998 to 21% for the quarter ended May 31, 1999. This was
due primarily to decreases in refinances.
The Company's primary competitors are commercial banks, savings and loans,
mortgage banking subsidiaries of diversified companies, as well as other
mortgage bankers. Over the past several years, certain commercial banks have
expanded their mortgage banking operations through the acquisition of formerly
independent mortgage banking companies or through consolidation. The Company
believes that these transactions and activities have not had a material impact
on the overall level of competition in the market.
The Company's California mortgage loan production (as measured by principal
balance) constituted 23% of its total production during the quarter ended May
31, 1999 and 26% during the quarter ended May 31, 1998. The Company is
continuing its efforts to expand its production capacity outside of California.
Some regions in which the Company operates have experienced slower economic
growth, and real estate financing activity in these regions has been impacted
negatively. The Company has striven to diversify its mortgage banking activities
geographically to mitigate such effects.
The delinquency rate in the Company's servicing portfolio, excluding
sub-servicing, decreased to 3.00% at May 31, 1999 from 3.38% as of May 31, 1998.
The Company believes that this decrease was primarily the result of changes in
portfolio mix and aging. The proportion of government loans and high
loan-to-value conventional loans (which tend to experience higher delinquency
rates than low loan-to-value conventional loans) was 43% and 47% of the
portfolio as of May 31, 1999 and May 31, 1998, respectively. In addition, the
weighted average age of the portfolio was 25 months at May 31, 1999, down from
30 months as of May 31, 1998. Delinquency rates tend to increase as loans age,
reaching a peak at three to five years of age. However, because the loans in the
portfolio are generally serviced on a non-recourse basis, the Company's exposure
to credit loss resulting from increased delinquency rates is substantially
limited. Furthermore the, related late charge income has historically been
sufficient to offset incremental servicing expenses resulting from an increased
delinquency rate.
The percentage of loans in the Company's servicing portfolio, excluding
sub-servicing, that are in foreclosure decreased to 0.27% as of May 31, 1999
from 0.39% as of May 31, 1998. Generally, the Company is not exposed to credit
risk. 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. While the Company does not generally
retain credit risk with respect to the prime credit quality first mortgage loans
it sells, it does have potential liability under representations and warranties
made to purchasers and insurers of the loans. In the event of a breach of these
representations and warranties, the Company may be required to repurchase a
mortgage loan and any subsequent loss on the mortgage loan may be borne by the
Company. Similarly, government loans serviced by the Company (24% of the
Company's servicing portfolio as of May 31, 1999) are insured by the Federal
Housing Administration or partially guaranteed against loss by the Department of
Veterans Administration. The Company is exposed to credit losses to the extent
that the partial guarantee provided by the Department of Veterans Administration
is inadequate to cover the total credit losses incurred. The Company retains
credit risk on the home equity and sub-prime loans it securitizes, through
retention of a subordinated interest. As of May 31, 1999, the Company had
investments in such subordinated interests amounting to $313.6 million.
Servicing Hedge
As previously discussed, the Company's Servicing Hedge is designed to
protect the value of its investment in MSRs from the effects of increased
prepayment activity that generally results from declining interest rates. In
periods of increasing interest rates, the value of the Servicing Hedge generally
declines and the value of MSRs generally increases. There can be no assurance
that, in periods of increasing interest rates, the increase in value of the MSRs
will offset the decline in value of the Servicing Hedge. Likewise, there can be
no assurance that, in periods of declining interest rates, that the Servicing
Hedge will generate gains, or if gains are generated, that they will fully
offset impairment of the MSRs.
Implementation of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize the
fair value of all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. This statement will become effective in the fiscal year
ended February 28, 2002. The Company has not yet determined the impact upon
adoption of this standard on the Consolidated Financial Statements.
Year 2000 Update
The Company has four distinct Year 2000 Projects, each of which focuses on a
particular critical area.
The Company's primary platform is the IBM AS/400 which contains all of the
data relating to the origination and servicing of the home loans in the
Company's portfolio. As of December 31, 1998 the Company has substantially
reprogrammed and re-engineered the system to incorporate four-digit century date
fields by testing the function and accuracy of the reprogrammed fields,
implementing the revised code and forward-date testing of the more than 17,000
production programs on the AS/400.
Many of the Company's Client Server applications have been developed
in-house and in a Year 2000 compliant format. The majority of these applications
interface with the AS/400. The Company has reviewed each of its mission critical
Client Server applications to confirm their Year 2000 readiness. Additionally,
as part of this project, the Company has tested the interfaces between the
individual mission critical Client Server applications and the AS/400 to confirm
that accurate data is exchanged with the revised AS/400 programs. All of the
Company's mission critical Client Server applications have been forward-date
tested. The Company estimates that forward-date testing of its less critical
applications will be completed by September 1999. Newly-developed Client Server
applications are forward-date tested before they are implemented into
production.
The Company's Infrastructure Project has inventoried the personal computers
used by the Company's employees nationwide to determine the Year 2000 readiness
of these computers. The Company has fewer than 43 computers and related hardware
which are not Year 2000 compliant, and they will be upgraded or replaced before
December 31, 1999. As part of the Infrastructure Project, the Company also
identified "shrink-wrapped" and desktop software used company-wide, as well as
desktop software supporting individuals and individual business units, in order
to determine whether the vendor is bringing its products into compliance. This
Project also monitors websites and other available information concerning
software and hardware vendors and disseminates the latest available information
to those business units relying on the product. In the event that the products
are not, or will not be compliant, the Company is assessing its need for these
applications. With respect to non-compliant software, the Company will either
seek alternative sources of similar applications, develop its own applications
or attempt to obtain the source code and the vendor's authorization to
re-engineer it.
The Infrastructure Project has inventoried, assessed, corrected and
forward-date tested the Company's mission critical wide area network components,
telecommunications systems and unique business systems. Additionally, the
Infrastructure Project personnel, along with personnel from the Company's
Facilities and Property Management Departments, have evaluated building systems
of the Company's corporate facilities to assess whether they will operate
satisfactorily in the Year 2000 and beyond. These building systems include
energy management, environmental, and safety and security systems. Where
necessary, non-compliant systems or components will be upgraded or replaced
before December 31, 1999.
The Communications Project personnel have developed a database for
collecting information regarding the Year 2000 status of the Company's strategic
business partners and other vendors and suppliers. Individual business units
identify contact information in the database regarding their respective business
partners, vendors and suppliers. The database tracks the inquiry made of each
such entity, that entity's response to the Company's inquiry and the Company's
response to each entity's inquiry. Analysis of the information contained in the
database and development of additional features and functions of the database
are ongoing. The goal is to achieve a reasonable understanding of the Year 2000
readiness and contingency plans of the Company's business partners, vendors and
suppliers well in advance of the Year 2000. The Company has successfully
completed company-wide testing of electronic interfaces with Freddie Mac, Fannie
Mae and Ginnie Mae.
Additionally, the Communications Project personnel represent the Company in
its participation as one of the leading mortgage banking companies involved in
the Mortgage Bankers Association ("MBA") inter-industry testing project. Other
participants include Freddie Mac, Fannie Mae and Ginnie Mae, as well as banks,
insurance companies and credit bureaus. The MBA project involves inter-industry
testing of transactions from loan origination, secondary marketing and loan
servicing areas and its mission is to make sure the various interfaces work
together across the entire industry.
Contingency Planning
The Company has retained a vendor specializing in business continuity
planning to review its business continuity procedures on a company-wide basis
and assist in its assessment of the contingency plans of each business unit, as
well as those of mission critical business partners, vendors and suppliers.
Documentation of the Year 2000 aspect of business recovery planning for the
Company's mission critical business functions is complete. The business analysis
aspect of the contingency planning process also serves as a means of verifying
the Company's existing inventories of Client Server applications, Infrastructure
hardware and software, vendors and suppliers, external and internal interfaces
and business partners.
Costs
The total cost associated with the Company's Year 2000 efforts is not
expected to be material to the Company's financial position. The Company is
expensing these costs during the period in which they are incurred. The
estimated total cost of the Year 2000 Project is approximately $43.0 million, of
which $27.9 million had been incurred through May 31, 1999. However, the
Company's expectations about future costs associated with the Year 2000 are
subject to uncertainties that could cause the actual results to differ
materially from the Company's expectations. Factors that could influence the
amount and timing of future costs include the success of the Company in
identifying systems and programs that are not year 2000 compliant, the nature
and amount of programming required to replace or upgrade each of the affected
programs, the availability, rate and magnitude of related labor and consulting
costs and the success of the Company's business partners, vendors and clients in
addressing Year 2000 issues.
Risks
Due to the global nature of the Year 2000 issue, the Company cannot
determine all of the consequences the Year 2000 may have on its business and
operations. The Company believes that in light of the efforts of its Year 2000
Projects, including the Contingency Planning aspect, the possibility of material
business interruptions is unlikely. However, there may be instances where the
Company will rely on third party information, which may be unreliable or
unverifiable. Furthermore, the Company cannot be assured that the third parties,
upon which it relies, including utilities and telecommunications service
providers, will not have business interruptions which could have an adverse
effect on the Company.
<PAGE>
Page 27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Per Share Earnings
12.1 Computation of the Ratio of Earnings to Fixed Charges
27 Financial Data Schedules (included only in the electronic
filing with the SEC).
(b) Reports on Form 8-K. None.
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Three Months
Ended May 31,
1999 1998
----------------- ----------------
(Dollar amounts in thousands,
except per share data)
Basic
<S> <C> <C>
Net earnings applicable to common stock $103,379 $90,754
================ =================
Average shares outstanding 112,751 110,127
================ =================
Per share amount $0.92 $0.82
================ =================
Diluted
Net earnings applicable to common stock $103,379 $90,754
================ =================
Average shares outstanding 112,751 110,127
Net effect of dilutive stock options --
based on the treasury stock method using
the average market price. 4,762 6,416
---------------- -----------------
Total average shares 117,513 116,543
================ =================
$0.88 $0.78
================ =================
Per share amount
</TABLE>
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, 1999 and 1998 and for the five fiscal
years ended February 28, 1999 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).
<TABLE>
Three Months Ended
May 31, Fiscal Years Ended February 29(28),
-------------------------- ------------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------------ ------------- ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $103,379 $90,754 $385,401 $344,938 $257,358 $195,720 $ 88,407
Income tax expense 66,095 58,023 246,404 220,563 164,540 130,480 58,938
Interest charges 247,741 231,235 983,829 568,359 423,447 337,655 267,685
Interest portion of rental
Expense 4,798 3,107 14,898 10,055 7,420 6,803 7,379
------------ ------------- ------------ ------------- ------------ ------------ -------------
Earnings available to cover
fixed charges $422,013 $383,119 $1,630,532 $1,143,915 $852,765 $670,658 $422,409
============ ============= ============ ============= ============ ============ =============
Fixed charges
Interest charges $247,741 $231,235 $983,829 $568,359 $423,447 $337,655 $267,685
Interest portion of rental
Expense 4,798 3,107 14,898 10,055 7,420 6,803 7,379
------------ ------------- ------------ ------------- ------------ ------------ -------------
Total fixed charges $252,539 $234,342 $998,727 $578,414 $430,867 $344,458 $275,064
============ ============= ============ ============= ============ ============ =============
Ratio of earnings to fixed
charges 1.67 1.63 1.63 1.98 1.98 1.95 1.54
============ ============= ============ ============= ============ ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000025191
<NAME> Countrywide Credit Industries
<MULTIPLIER> 1,000
<CURRENCY> 1.00
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 32,837
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 326,528
<DEPRECIATION> 179,705
<TOTAL-ASSETS> 17,364,607
<CURRENT-LIABILITIES> 0
<BONDS> 8,681,824
0
0
<COMMON> 5,643
<OTHER-SE> 2,617,397
<TOTAL-LIABILITY-AND-EQUITY> 17,364,607
<SALES> 0
<TOTAL-REVENUES> 537,003
<CGS> 0
<TOTAL-COSTS> 367,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 169,474
<INCOME-TAX> 66,095
<INCOME-CONTINUING> 103,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,379
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.88
</TABLE>
