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 August 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 Employer
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 registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 13, 1999
----- -------------------------------
Common Stock $.05 par value 113,164,848
<PAGE>
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>
August 31, February 28,
1999 1999
------------------- -------------------
<S> <C> <C>
Cash $ 48,024 $ 58,748
Mortgage loans and mortgage-backed securities held for sale 5,497,119 6,231,220
Property, equipment and leasehold improvements, at cost - net of
accumulated depreciation and amortization 347,292 311,741
Mortgage servicing rights, net 5,243,776 4,496,439
Other assets 5,095,234 4,550,108
------------------- -------------------
Total assets $ 16,231,445 $ 15,648,256
=================== ===================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $ 3,610,303 $ 4,020,998
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 10,829,461 $9,935,759
Drafts payable issued in connection with mortgage loan closings 455,984 1,083,499
Accounts payable, accrued liabilities and other 537,246 517,937
Deferred income taxes 1,211,759 1,092,176
------------------- -------------------
Total liabilities 13,034,450 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
Common stock - authorized, 240,000,000 shares of $0.05 par Value; issued and
outstanding, 113,058,030 shares at
August 31, 1999 and 112,619,313 shares at February 28, 1999 5,652 5,631
Additional paid-in capital 1,165,027 1,153,673
Accumulated other comprehensive (loss) income (40,176)
(19,593)
Retained earnings 1,566,492 1,379,174
------------------- -------------------
Total shareholders' equity 2,696,995 2,518,885
------------------- -------------------
Total liabilities and shareholders' equity $ 16,231,445 $ 15,648,256
=================== ===================
Borrower and investor custodial accounts $ 3,610,303 $ 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 Six Months
Ended August 31, Ended August 31,
1999 1998 1999 1998
-------------- -- -------------- -------------- --------------
Revenues
<S> <C> <C> <C> <C>
Loan origination fees $122,737 $ 157,036 $269,438 $ 295,806
Gain on sale of loans, net of commitment fees 158,652 171,805 328,664 330,832
-------------- -------------- -------------- --------------
Loan production revenue 281,389 328,841 598,102 626,638
Interest earned 264,977 253,278 540,539 496,046
Interest charges (233,831) (243,651) (481,572) (474,887)
-------------- -------------- -------------- --------------
Net interest income 31,146 9,627 58,967 21,159
Loan servicing income 295,901 251,483 568,898 494,174
Amortization of mortgage servicing rights,
net of servicing hedge (129,435) (151,732) (276,280) (300,443)
-------------- -------------- -------------- --------------
Net loan administration income 166,466 99,751 292,618 193,731
Commissions, fees and other income 58,014 43,938 124,331 90,894
-------------- -------------- -------------- --------------
Total revenues 537,015 482,157 1,074,018 932,422
Expenses
Salaries and related expenses 184,329 161,753 369,755 308,240
Occupancy and other office expenses 69,743 64,355 143,329 125,334
Guarantee fees 47,964 45,354 93,807 90,021
Marketing expenses 21,080 15,589 40,603 30,104
Other operating expenses 39,304 39,242 82,455 74,082
-------------- ------------ -------------- --------------
Total expenses 362,420 326,293 729,949 627,781
-------------- -------------- -------------- --------------
Earnings before income taxes 174,595 155,864 344,069 304,641
Provision for income taxes 68,092 60,787 134,187 118,810
-------------- -------------- -------------- --------------
NET EARNINGS $106,503 $ 95,077 $209,882 $ 185,831
============== ============== ============== ==============
Earnings per share
Basic $0.94 $0.86 $1.86 $1.68
Diluted $0.91 $0.81 $1.79 $1.59
</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>
Six Months
Ended August 31,
1999 1998
---------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $209,882 $ 185,831
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Gain on sale of available-for-sale securities (11,675) (14,846)
Amortization and impairment/recovery of mortgage
servicing rights 242,380 590,304
Depreciation and other amortization 30,988 26,834
Deferred income taxes 134,187 118,810
Origination and purchase of loans held for sale (42,818,201) (43,809,607)
Principal repayments and sale of loans 43,552,302 43,598,402
---------------- -----------------
Decrease (increase) in mortgage loans and mortgage-
backed securities held for sale 734,101 (211,205)
Increase in other assets (837,185) (1,506,858)
Increase in accounts payable and accrued liabilities 18,759 893,286
---------------- -----------------
Net cash provided by operating activities 521,437 82,156
---------------- -----------------
Cash flows from investing activities:
Additions to mortgage servicing rights, net (786,646) (858,564)
Purchase of property, equipment and leasehold
improvements, net (59,553) (53,036)
Proceeds from sale of available-for-sale securities 59,269 49,676
---------------- -----------------
Net cash used by investing activities (786,930) (861,924)
---------------- -----------------
Cash flows from financing activities:
Net decrease in warehouse debt and other
short-term borrowings (767,395) (921,976)
Issuance of long-term debt 1,303,000 1,824,315
Repayment of long-term debt (269,418) (143,896)
Issuance of common stock 11,146 61,024
Cash dividends paid (22,564) (17,696)
---------------- -----------------
Net cash provided by financing activities 254,769 801,771
---------------- -----------------
Net increase (decrease) in cash (10,724) 22,003
Cash at beginning of period 58,748 10,707
================ =================
Cash at end of period $48,024 $ 32,710
================ =================
Supplemental cash flow information:
Cash used to pay interest $ 446,840 $ 371,491
Cash used to pay income taxes $ 173 $ 1,279
Noncash financing activities:
Unrealized gain (loss) on available-for-sale securities,
net of tax ($20,583) $ 20,174
</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 Six Months
Ended August 31, Ended August 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET EARNINGS $106,503 $ 95,077 $209,882 $185,831
Other comprehensive income, net of taxes:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising
during the period (23,468) 19,809 (13,462) 29,230
Less: reclassification adjustment for gains
included in net earnings (293) (7,600) (7,121) (9,056)
--------------- --------------- --------------- ---------------
Other comprehensive income (loss) (23,761) 12,209 (20,583) 20,174
=============== =============== =============== ===============
COMPREHENSIVE INCOME $82,742 $107,286 $189,299 $ 206,005
=============== =============== =============== ===============
</TABLE>
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 - 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 six-months ended August 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
six-month period ended August 31, 1998 have been reclassified to conform to the
presentation for the six-month period ended August 31, 1999.
NOTE B - MORTGAGE SERVICING RIGHTS
The activity in mortgage servicing rights was as follows.
<TABLE>
----------------------------------------------- ---------------------- ---------------------
Six Months Ended
August 31,
(Dollar amounts in thousands) 1999
----------------------------------------------- -- ---------------- -- ---------------------
Mortgage Servicing Rights
<S> <C>
Balance at beginning of period $4,591,191
Additions 786,646
Scheduled amortization (245,038)
Hedge losses (gains) applied 203,072
----------------
Balance before valuation reserve
at end of period 5,335,871
----------------
Reserve for Impairment of Mortgage Servicing Rights
Balance at beginning of period (94,752)
Reductions (additions) 2,657
----------------
Balance at end of period (92,095)
================
Mortgage Servicing Rights, net $5,243,776
================
----------------------------------------------- -- ---------------- -- ---------------- ----
</TABLE>
<PAGE>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE C - OTHER ASSETS
Other assets consisted of the following.
<TABLE>
------------------------------------------------------------ -----------------------------------------------------
August 31, February 28,
(Dollar amounts in thousands) 1999 1999
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
<S> <C> <C>
Servicing hedge instruments $1,730,945 $991,401
Trading securities 1,423,701 1,460,446
Mortgage-backed securities retained in securitization 553,153 500,631
Rewarehoused FHA and VA loans 300,763 216,598
Loans held for investment 183,331 125,236
Servicing related advances 177,255 199,143
Receivables related to broker-dealer activities 91,540 401,232
Reverse repurchase agreements 78,278 76,246
Equity Securities 59,405 59,875
Accrued interest 58,003 102,093
Other 438,860 417,207
----------------- --- ----------------
$5,095,234 $4,550,108
================= ================
</TABLE>
NOTE D - AVAILABLE FOR SALE SECURITIES
Amortized cost and fair value of available for sale securities were as
follows.
<TABLE>
---------------------------------- ---------------- - ------------------------------------ -- ---------------- ---
August 31, 1999
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
Mortgage-backed
securities retained in
<S> <C> <C> <C> <C>
securitization $557,914 $17,307 ($22,068) $553,153
Principal only securities 850,952 2,616 (49,518) 804,050
Equity securities 73,681 - (14,276) 59,405
================ ================= ================ ================
$1,482,547 $19,923 ($85,862) $1,416,608
================ ================= ================ ================
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>
NOTE E - NOTES PAYABLE
Notes payable consisted of the following.
<TABLE>
------------------------------------------------------------ -----------------------------------------------------
August 31, February 28,
(Dollar amounts in thousands) 1999 1999
-------------------------------------------------------------------- ----------------- --- ---------------- ---
<S> <C> <C>
Commercial paper $208,468 $176,559
Medium-term notes, Series A, B, C, D, E, F, G, H
and Euro Notes 9,074,824 8,039,824
Repurchase agreements 1,345,615 1,517,405
Subordinated notes 200,000 200,000
Other notes payable 554 1,971
================= ================
$10,829,461 $9,935,759
================= ================
</TABLE>
Commercial Paper and Backup Credit Facilities
As of August 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 was extended on September 22, 1999 to September 20, 2000. 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. 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 August 31, 1999. The weighted average borrowing
rate on commercial paper borrowings for the six months ended August 31, 1999 was
5.00%. The weighted average borrowing rate on commercial paper outstanding as of
August 31, 1999 was 5.69%. 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 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.
NOTE E - NOTES PAYABLE (Continued)
Medium-Term Notes
As of August 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>
Series A - $143,500 $143,500 7.29% 8.79% Aug. 2000 Mar. 2002
Series B - 301,000 301,000 6.53% 6.98% Apr. 2000 Aug. 2005
Series C $163,000 197,000 360,000 5.07% 8.43% Nov. 1999 Mar. 2004
Series D 75,000 385,000 460,000 5.36% 6.88% Aug. 2000 Sep. 2005
Series E 310,000 690,000 1,000,000 5.17% 7.45% Feb. 2000 Oct. 2008
Series F 656,000 1,344,000 2,000,000 5.10% 7.00% Oct. 1999 May 2013
Series G 369,000 581,000 950,000 5.04% 7.00% Oct. 1999 Nov. 2018
Series H 114,500 1,912,000 2,026,500 5.16% 8.00% Dec. 1999 Aug. 2019
Euro Notes 709,600 1,124,224 1,833,824 5.07% 6.44% Sept. 1999 Jan. 2009
-------------------------------------------
Total $2,397,100 $6,677,724 $9,074,824
===========================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of August 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 six-months ended August 31, 1999, including the effect of the
interest rate swap agreements, was 5.51%. As of August 31, 1999, $1,074 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, Portuguese Escudos and Euros. 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
six-months ended August 31, 1999 was 4.93%. The weighted average borrowing rate
on repurchase agreements outstanding as of August 31, 1999 was 5.41%. The
repurchase agreements were collateralized by MBS. All MBS underlying repurchase
agreements are held in safekeeping by broker-dealers or banks. All agreements
are to repurchase the same or substantially identical MBS.
NOTE E - NOTES PAYABLE (Continued)
Pre-Sale Funding Facilities
As of August 31, 1999, CHL had 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 August 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 August 31,
1999
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C>
Interest Rate Floors $33,000 13,000 - $46,000
Long Call Options on
Interest Rate Futures $32,000 18,750 (14,250) $36,500
Long Put Options on
Interest Rate Futures $54,600 3,500 (54,600) $3,500
Short Call Options on
Interest Rate Futures $22,000 2,000 (4,000) $20,000
Short Put Options on
Interest Rate Futures $720 - (720) -
Interest Rate Futures $22,500 - (22,250) -
Capped Swaps $1,000 - - $1,000
Interest Rate Swaps $15,150 300 (13,200) $2,250
Interest Rate Cap $4,500 - - $4,500
Swaptions $32,550 12,500 (6,800) $38,250
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 August 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>
---- ------------------------------------------------- --------------------------------- --- ----------------------------
August 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 $5,497,119 $5,497,119 $6,231,220 $6,231,220
Items included in other assets:
Trading securities 1,423,701 1,423,701 1,460,446 1,460,446
Loans held for investment 183,331 183,331 125,236 125,236
Receivables related to broker-dealer activities 91,540 91,540 401,232 401,232
Reverse repurchase agreements 78,278 78,278 76,246 76,246
Principal only securities purchased 804,050 804,050 32,826 32,826
Mortgage-backed securities retained in
Securitizations 553,153 553,153 500,631 500,631
Equity Securities - restricted and unrestricted 59,405 59,405 59,875 46,971
Rewarehoused FHA and VA loans 300,763 300,763 216,598 216,598
Liabilities:
Notes payable 10,829,461 10,533,277 9,935,759 9,883,859
Securities sold not yet purchased 111,677 111,677 84,775 84,775
Derivatives:
Interest rate floors 445,942 303,803 426,838 402,061
Forward contracts on MBS (5,035) 71,328 12,775 120,709
Options on MBS 12,557 7,230 34,883 62,475
Options on interest rate futures 33,530 20,242 18,261 15,729
Options on callable pass-through certificates 54,592 24,297 55,593 36,460
Interest rate caps 84,146 74,122 77,508 40,437
Capped Swaps (619) (3,927) 8,470 3,092
Swaptions 358,086 155,712 337,703 271,073
Interest rate futures - - 57,280 57,280
Interest rate swaps (17,607) (205,901) 43,570 93,205
Short-term commitments to extend credit - 34,000 - 26,400
---- ------------------------------------------------- -------------- -- ------------- -- ------------- --- -------------
</TABLE>
The fair value estimates as of August 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
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>
---- ----------------------------------------- ---- ------------------------------------------------- ---------
August 31, February 28,
(Dollar amounts in thousands) 1999 1999
---- ---------------------------------------------- ------- -------------- ----------- -------------- ---------
Balance Sheets:
Mortgage loans and mortgage-backed
<S> <C> <C>
securities held for sale $5,497,119 $ 6,231,220
Mortgage servicing rights, net 5,243,776 4,496,439
Other assets 3,790,303 2,955,382
============== ==============
Total assets
$14,531,198 $13,683,041
============== ==============
Short- and long-term debt $10,519,001 $9,910,966
Other liabilities 1,528,952 1,434,727
Equity 2,483,245 2,337,348
============== ==============
Total liabilities and equity $14,531,198 $13,683,041
============== ==============
---- ---------------------------------------------- ------- -------------- ----------- -------------- ---------
----- ----------------------------------------- --- --------------------------------------------------- --------
Six Months Ended August 31,
(Dollar amounts in thousands) 1999 1998
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
--------------- ---------- --------------- ---------
Statements of Earnings:
Revenues $870,567 $790,473
Expenses 596,526 542,574
Provision for income taxes 106,876 96,681
=============== ===============
Net earnings $167,165 $151,218
=============== ===============
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
</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 recognize 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 and
mortgage loans. 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 three months ended August 31, 1999
- -------------------------------- -- -- ----------- --- ---------- -- ------------ -- ------------ -- ------------ ---
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- --- ---------- -- ------------ -- ------------ -- ------------ ---
<S> <C> <C> <C> <C> <C>
Non-interest revenues $266,655 $200,421 $15,145 $23,648 $505,869
Interest earned 189,289 52,923 22,801 (36) 264,977
Interest charges (140,062) (75,419) (17,454) (896) (233,831)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 49,227 (22,496) 5,347 (932) 31,146
----------- ----------- ------------ ------------ ------------
Total revenue $315,882 $177,925 $20,492 $22,716 $537,015
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $100,240 $63,768 $7,598 $2,989 $174,595
Segment assets $6,439,322 $8,156,847 $1,663,322 ($28,046) $16,231,445
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ ---
- --------------------------------------------------------------------------------------------------------------------
For the six months ended August 31, 1999
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
Non-interest revenues $569,613 $365,617 $28,772 $51,049 $1,015,051
Interest earned 379,523 112,603 51,311 (2,898) 540,539
Interest charges (284,797) (158,744) (39,230) 1,199 (481,572)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 94,726 (46,141) 12,081 (1,699) 58,967
----------- ----------- ------------ ------------ ------------
Total revenue $664,339 $319,476 $40,853 $49,350 $1,074,018
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $226,158 $93,750 $15,373 $8,788 $344,069
Segment assets $6,439,322 $8,156,847 $1,663,322 ($28,046) $16,231,445
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
</TABLE>
NOTE J - SEGMENTS AND RELATED INFORMATION (Continued)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
For the three months ended August 31, 1998
- -------------------------------- -- -- ----------- --- ----------- -- ------------ -- ------------ -- ------------ --
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- --- ----------- -- ------------ -- ------------ -- ------------ --
<S> <C> <C> <C> <C> <C>
Non-interest revenues $316,474 $117,730 $14,091 $24,235 $472,530
Interest earned 186,236 66,308 3,319 (2,585) 253,278
Interest charges (154,395) (88,452) (2,073) 1,269 (243,651)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 31,841 (22,144) 1,246 (1,316) 9,627
----------- ----------- ------------ ------------ ------------
Total revenue $348,315 $95,586 $15,337 $22,919 $482,157
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $146,579 ($2,412) $6,786 $4,911 $155,864
Segment assets $6,074,181 $6,484,205 $1,626,042 $66,835 $14,251,263
- -------------------------------- -- -- ----------- --- ----------- -- ------------ -- ------------ -- ------------ --
- --------------------------------------------------------------------------------------------------------------------
For the Six months ended August 31, 1998
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
(Dollars in thousands) Loan Loan Capital Consolidated
Production Servicing Markets Other Total
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
Non-interest revenues $603,519 $234,189 25,677 $47,878 $911,263
Interest earned 359,096 130,910 4,099 496,046
1,941
Interest charges (297,301) (174,228) (2,375) (983) (474,887)
----------- ----------- ------------ ------------ ------------
Net interest income (expense) 61,795 (43,318) 1,724 958 21,159
----------- ----------- ------------ ------------ ------------
Total revenue $665,314 $190,871 $27,401 $48,836 $932,422
=========== =========== ============ ============ ============
Segment earnings (pre-tax) $282,581 ($3,007) $12,034 $13,033 $304,641
Segment assets $6,074,181 $6,484,205 $1,626,042 $66,835 $14,251,263
- -------------------------------- -- -- ----------- -- ----------- -- ------------ -- ------------ -- ------------ --
</TABLE>
NOTE K - SUBSEQUENT EVENTS
On September 22, 1999, CHL renewed the $1.0 billion one-year portion of
the $4.0 billion revolving credit facility. This renewal will expire on
September 20, 2000.
On September 20, 1999, the Company declared a cash dividend of $0.10 per
common share payable November 1, 1999 to shareholders of record on
October 14, 1999.
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 and six month
periods ended August 31, 1999 and 1998.
<TABLE>
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Three Months Ended August 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 $106,503 $95,077
========= ==========
Basic EPS
Net earnings available
to common shareholders $106,503 112,991 $0.94 $95,077 111,153 $ 0.86
Effect of dilutive
stock options - 4,355 - 6,207
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $106,503 117,346 $0.91 $95,077 117,360 $ 0.81
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Six Months Ended August 31,
-- -- ----- ------------------------------------ -- ----- ----
1999 1998
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- ---------
========= ==========
Net earnings $209,882 $185,831
========= ==========
Basic EPS
Net earnings available
to common shareholders $209,882 112,871 $1.86 $185,831 110,640 $ 1.68
Effect of dilutive
stock options - 4,568 - 6,260
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $209,882 117,439 $1.79 $185,831 116,900 $ 1.59
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</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 16
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 August 31, 1999 Compared to Quarter Ended August 31, 1998
Revenues for the quarter ended August 31, 1999 increased 11% to $537.0 million,
up from $482.2 million for the quarter ended August 31, 1998. Net earnings
increased 12% to $106.5 million for the quarter ended August 31, 1999, up from
$95.1 million for the quarter ended August 31, 1998. The increase in revenues
and net earnings for the quarter ended August 31, 1999 compared to the quarter
ended August 31, 1998 was primarily attributed to improved profitabiliy in the
loan servicing segment, along with an increased contribution from non
traditional loan products (home equity and sub-prime loans). This was partially
offset by a decline in earnings contribution from the Company's traditional
prime loan origination business, attributable to the decline in loan
refinancings.
The total volume of loans produced by the Company decreased 14% to $19.6
billion for the quarter ended August 31, 1999, down from $22.9 billion for the
quarter ended August 31, 1998. The decrease in loan production was primarily due
to a decrease in the mortgage market, primarily refinances, partially offset by
an increase in the Company's market share. Purchase fundings increased 19% to
$13.7 billion, or 70% of total fundings, for the quarter ended August 31, 1999
as compared to $11.5 billion, or 50% of total fundings, for the quarter ended
August 31, 1998. Fixed-rate mortgage loan production totaled $16.8 billion, or
85% of total fundings, for the quarter ended August 31, 1999 as compared to
$21.7 billion, or 95% of total fundings, for the quarter ended August 31, 1998.
Total loan volume in the Company's production Divisions is summarized
below.
<TABLE>
- -------------------------------------------- -----------------------------------
(Dollar amounts in millions) Loan Production
Three Months Ended August 31,
- -------------------------------------------- ------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Consumer Markets Division $6,054 $ 7,258
Wholesale Lending Division 5,458 7,527
Correspondent Lending Division 7,734 7,962
Full Spectrum Lending, Inc. 379 187
============= =============
Total Loan Volume $19,625 $22,934
============= =============
- --------------------------------------------------------------------------------
</TABLE>
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 $1.2 billion of
home equity loans funded in the quarter ended August 31, 1999 and $613 million
funded in the quarter ended August 31, 1998. Sub-prime loan production, which is
also included in the Company's total production volume, was $1.3 billion in the
quarter ended August 31, 1999 and $872 million in the quarter ended August 31,
1998.
As of August 31, 1999 and 1998, the Company's pipeline of loans in process
was $10.9 billion and $13.1 billion, respectively. Historically, approximately
43% to 77% of the pipeline of loans in process have funded. In addition, as of
August 31, 1999, the Company had committed to make loans in the amount of $3.1
billion, subject to property identification and approval of the loans (the "LOCK
'N SHOP (R) Pipeline"). As of August 31, 1998, the LOCK 'N SHOP (R) Pipeline was
$1.3 billion. During the quarters ended August 31, 1999 and 1998, the Company
received 265,263 and 287,748 new loan applications, respectively, at an average
daily rate of $416 million and $499 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 decreased in the quarter ended August 31, 1999 as
compared to the quarter ended August 31, 1998 primarily due to lower production
and a change in the Divisional mix. The Consumer Markets Division and Wholesale
Lending Division (which, due to their cost structures, charge higher origination
fees per dollar loaned than the Correspondent Division), comprised a lower
percentage of total production in the quarter ended August 31, 1999 than in the
quarter ended August 31, 1998. Gain on sale of loans also decreased in the
quarter ended August 31, 1999 as compared to the quarter ended August 31, 1998
primarily due to lower production volume combined with reduced margins on prime
credit quality mortgages. These factors were partially offset by increased sales
during the quarter ended August 31, 1999 of higher margin home equity and
sub-prime loans. The sale of home equity loans contributed $26.5 million and
$17.3 million to gain on sale of loans in the quarter ended August 31, 1999 and
the quarter ended August 31, 1998, respectively. Sub-prime loans contributed
$48.2 million to the gain on sale of loans in the quarter ended August 31, 1999
and $26.9 million in the quarter ended August 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
$31.1 million for the quarter ended August 31, 1999, up from $9.6 million for
the quarter ended August 31, 1998. Net interest income is principally a function
of: (i) net interest income earned from the Company's mortgage loan warehouse
($49.2 million and $31.8 million for the quarter ended August 31, 1999 and the
quarter ended August 31, 1998, respectively); (ii) interest expense related to
the Company's investment in servicing rights ($75.4 million and $88.5 million
for the quarter ended August 31, 1999 and the quarter ended August 31, 1998,
respectively) and (iii) interest income earned from the custodial balances
associated with the Company's servicing portfolio ($52.9 million and $66.3
million for the quarter ended August 31, 1999 and the quarter ended August 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 a higher
net earnings rate combined with a longer warehousing period during the quarter
ended August 31, 1999. The decrease in interest expense on the investment in
servicing rights resulted primarily from 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 August 31, 1999, loan servicing income before
amortization increased primarily due to growth of the loan servicing portfolio.
As of August 31, 1999, the Company serviced $236 billion of loans (including
$2.4 billion of loans subserviced for others), up from $195 billion (including
$2.4 billion of loans subserviced for others) as of August 31, 1998, which was a
22% increase. The growth in the Company's servicing portfolio since August 31,
1998 was the result of loan production volume and the acquisition of bulk
servicing rights. This was partially offset by prepayments, partial prepayments
and scheduled amortization.
During the quarter ended August 31, 1999, the annual prepayment rate of the
Company's servicing portfolio was 15%, compared to 26% for the quarter ended
August 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
August 31, 1999 was 7.4% compared to 7.7% as of August 31, 1998.
The Company recorded amortization and net recovery of its MSRs for the
quarter ended August 31, 1999 totaling $63.8 million (consisting of amortization
amounting to $118.1 million and recovery of previous impairment of $54.3
million), compared to $441.0 million of amortization and impairment (consisting
of amortization amounting to $136.1 million and impairment of $304.9 million)
for the quarter ended August 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 August 31, 1999, the Company recognized a net expense
of $65.6 million from its Servicing Hedge. The net expense included unrealized
net losses of $37.1 million and realized net expense of $28.5 million from
premium amortization and the sale of various financial instruments that comprise
the Servicing Hedge. In the quarter ended August 31, 1998, the Company
recognized a net benefit of $289.2 million from its Servicing Hedge. The net
benefit included unrealized gains of $268.0 million and net realized gains of
$21.2 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, 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.
The Swaptions consist of options to enter into a receive-fixed, pay-floating
interest swap ("Receiver Swaption") and options to enter into a pay-fixed,
receive-floating interest rate swap ("Payor Swaption") 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 was not a party to any futures contracts at August 31,
1999. With respect to the Interest Rate Swaps contracts entered into by the
Company as of August 31, 1999, the Company estimates that its maximum exposure
to loss over the contractual term is $41 million. With respect to the Capped
Swaps contracts entered into by the Company as of August 31, 1999, the Company
estimates that its maximum exposure over the contractual term is $12 million.
Salaries and related expenses are summarized below for the quarters ended August
31, 1999 and 1998.
<TABLE>
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Quarter Ended August 31, 1999
thousands)
---- --------------------------- - -- ------ ------------------------------------------------- ----- -- ---- -----
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
<S> <C> <C> <C> <C> <C>
Base Salaries $62,934 $15,353 $26,607 $14,232 $119,126
Incentive Bonus 30,097 801 5,222 6,043 42,163
Payroll Taxes and Benefits 12,912 3,230 5,146 1,752 23,040
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $105,943 $19,384 $36,975 $22,027 $184,329
============ ============= ============= ============= ------------
Average Number of 6,076 2,182 2,225 780 11,263
Employees
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Quarter Ended August 31, 1998
thousands)
---- --------------------------- -- ------ ------------------------------------------------- ----- -- ---- -----
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
Base Salaries $49,618 $11,475 $22,414 $10,361 $93,868
Incentive Bonus 37,658 151 4,769 5,030 47,608
Payroll Taxes and Benefits 12,121 2,499 4,048 1,609 20,277
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $99,397 $14,125 $31,231 $17,000 $161,753
============ ============= ============= ============= ------------
Average Number of 5,122 1,750 1,764 744 9,380
Employees
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
</TABLE>
The amount of salaries increased during the quarter ended August 31, 1999
reflecting the Company's strategy of expanding and enhancing its Consumer
Markets branch network, including new retail sub-prime branches. This was
partially offset by a reduction in loan processing personnel resulting from the
decline in refinance activity.
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 August 31, 1999 decreased primarily due
to the decline in production volume.
Occupancy and other office expenses for the quarter ended August 31, 1999
increased to $69.7 million from $64.4 million for the quarter ended August 31,
1998. This was primarily due to: (i) the continued effort by the Company to
expand its Consumer Markets branch network, including new retail sub-prime
branches; (ii) a larger servicing portfolio and (iii) growth in the Company's
non-mortgage banking activities.
Guarantee fees represent fees paid to Fannie Mae, Freddie Mac, and Ginnie
Mae("GSEs") toguarantee 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 August 31, 1999, guarantee fees increased
6% to $48.0 million, up from $45.4 million for the quarter ended August 31,
1998. The increase resulted from an increase in the servicing portfolio, changes
in the mix of the portfolio guaranteed by the GSEs and terms negotiated at the
time of loan sales.
Marketing expenses for the quarter ended August 31, 1999 increased 35% to
$21.1 million as compared to $15.6 million for the quarter ended August 31,
1998. This increase supported the larger Consumer Markets branch network,
including the retail subprime branches.
Other operating expenses were $39.3 million for the quarter ended August 31,
1999 as compared to $39.2 million August 31, 1998.
Profitability of Loan Production Segment
In the quarter ended August 31, 1999, pre-tax earnings from loan production
segment activities (which include loan origination and purchases, warehousing
and sales) were $100.2 million. In the quarter ended August 31, 1998, comparable
pre-tax earnings were $146.6 million. The decrease of $46.4 million was
primarily attributable to decreased production combined with reduced margins on
prime credit quality mortgages which in turn was attributable to the decline in
refinance acitivitity. These factors were partially offset by increased sales of
higher margin home equity and subprime loans.
Profitability of Loan Servicing Segment
In the quarter ended August 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 $63.8 million as
compared to a $2.4 million loss in the quarter ended August 31, 1998. The
increase of $66.2 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 attributable to the decline in
refinance activity. These positive factors were partially offset by higher
servicing costs.
Profitability of Capital Markets Segment
In the quarter ended August 31, 1999, pre-tax earnings from the capital
markets segment were $7.6 million. In the quarter ended August 31, 1998,
comparable pre-tax earnings were $6.8 million. The increase of $0.8 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 August
31, 1999, LandSafe Inc. contributed $3.9 million to the Company's pre-tax income
compared to $5.8 million for the quarter ended August 31, 1998. The decrease in
the profitability of LandSafe Inc. resulted primarily from decreased title
business attributable to the decline in refinance activity.
The Company's other activities consist primarily of the operations of its
holding company. The operations of other activities, excluding LandSafe Inc.,
incurred pre-tax losses of $0.9 million during the quarter ended August 31, 1999
compared to pre-tax loss of $0.9 million during the quarter ended August 31,
1998.
RESULTS OF OPERATIONS
Six Months Ended August 31, 1999 Compared to Six Months Ended August 31, 1998
Revenues for the six months ended August 31, 1999 increased 15% to $1,074.0
million, up from $932.4 million for the six months ended August 31, 1998. Net
earnings increased 13% to $209.9 million for the six months ended August 31,
1999, up from $185.8 million for August 31, 1998. The increase in revenues and
net earnings for the six months ended August 31, 1999 compared to the six months
ended August 31, 1998 was primarily attributed to improved profitability in the
loan servicing segment, along with an increased contribution from non
traditional loan products (home equity and sub-prime loans). This was partially
offset by a decline in earnings contribution from the Company's traditional
prime loan origination business, attributable to the decline in loan
refinancings.
The total volume of loans produced by the Company decreased 2% to $42.8
billion for the six months ended August 31, 1999, down from $43.8 billion for
the six months ended August 31, 1998. The decrease in loan production was
primarily due to a decrease in the mortgage market, driven largely by a
reduction in refinances, partially offset by an increase in the Company's market
share. Purchase fundings increased 24% to $25.4 billion, or 59% of total
fundings, for the six months ended August 31, 1999 as compared to $20.5 billion,
or 47% of total fundings, for the six months ended August 31, 1998. Fixed-rate
mortgage loan production totaled $38.4 billion, or 90% of total fundings, for
the six months ended August 31, 1999 as compared to $41.1 billion, or 94% of
total fundings, for the six months ended August 31, 1998.
Total loan volume in the Company's production Divisions is summarized below.
<TABLE>
- -------------------------------------------- ------------------------------------ --------
(Dollar amounts in millions) Loan Production
Six Months Ended August 31,
- -------------------------------------------- ------------------------------------ --------
1999 1998
------------- -------------
<S> <C> <C>
Consumer Markets Division $13,089 $ 13,259
Wholesale Lending Division 12,580 14,989
Correspondent Lending Division 16,446 15,249
Full Spectrum Lending, Inc. 703 313
============= =============
Total Loan Volume $42,818 $ 43,810
============= =============
- -------------------------------------------- ------------- -------- ------------- --------
</TABLE>
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 $1.9 billion of
home equity loans funded in the six months ended August 31, 1999 and $1.1
billion funded in the six ended August 31, 1998. Sub-prime loan production,
which is also included in the Company's total production volume, was $2.1
billion in the six months ended August 31, 1999 and $1.4 billion in the six
months ended August 31, 1998.
Loan origination fees decreased in the six months ended August 31, 1999 as
compared to the six months ended August 31, 1998 primarily due to lower
production and a change in the Divisional mix. The Wholesale Lending Division
(which, due to its cost structure, charges higher origination fees per dollar
loaned than the Correspondent Division), comprised a lower percentage of total
production in the six month ended August 31, 1999 than in the six months ended
August 31, 1998. Gain on sale of loans also decreased in the six months ended
August 31, 1999 as compared to the six months ended August 31, 1998 primarily
due to lower production volume and reduced margins on prime credit quality
mortgages partially offset by increased sales during the six months ended August
31, 1999 of higher margin home equity and sub-prime loans.
Net interest income (interest earned net of interest charges) increased to
$59.0 million for the six months ended August 31, 1999, up from $21.2 million
for the six months ended August 31, 1998. Net interest income is principally a
function of: (i) net interest income earned from the Company's mortgage loan
warehouse ($94.7 million and $61.8 million for the six months August 31, 1999
and the six months ended August 31, 1998, respectively); (ii) interest expense
related to the Company's investment in servicing rights ($158.7 million and
$174.2 million for the quarter ended August 31, 1999 and the six months ended
August 31, 1998, respectively) and (iii) interest income earned from the
custodial balances associated with the Company's servicing portfolio ($112.6
million and $130.9 million for the six months ended August 31, 1999 and the six
months ended August 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 an increase in inventory levels as a result of a longer
warehouse period combined with a higher net earnings rate during the quarter
ended August 31, 1999. The decrease in interest expense on the investment in
servicing rights resulted primarily from a decrease in (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 six months ended August 31, 1999, loan servicing income before
amortization increased primarily due to growth of the loan servicing portfolio.
The growth in the Company's servicing portfolio since August 31, 1998 was the
result of loan production volume and the acquisition of bulk servicing rights.
This was partially offset by prepayments, partially prepayments and scheduled
amortization.
During the six months ended August 31, 1999, the annual prepayment rate of
the Company's servicing portfolio was 18%, compared to 27% for the six months
ended August 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 Company recorded amortization and net recovery of its MSRs for the six
months ended August 31, 1999 totaling $39.3 million (consisting of amortization
amounting to $245.1 million and recovery of previous impairment of $205.8
million), compared to $590.3 million of amortization and impairment (consisting
of amortization amounting to $269.0 million and impairment of $321.3 million)
for the six months ended August 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 six months ended August 31, 1999, the Company recognized a net
expense of $237.0 million from its Servicing Hedge. The net expense included
unrealized net losses of $219.9 million and realized net expense of $17.1
million from the sale of various financial instruments that comprise the
Servicing Hedge net of premium amortization. In the six months ended August 31,
1998, the Company recognized a net benefit of $289.2 million from its Servicing
Hedge. The net benefit included unrealized gains of $272.7 million and net
realized gains of $17.2 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.
Salaries and related expenses are summarized below for the six months ended
August 31, 1999 and 1998.
<TABLE>
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Six Months Ended August 31, 1999
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
<S> <C> <C> <C> <C> <C>
Base Salaries $125,408 $30,333 $51,683 $27,184 $234,608
Incentive Bonus 62,953 1,495 11,072 12,428 87,948
Payroll Taxes and Benefits 27,393 6,410 9,749 3,647 47,199
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $215,754 $38,238 $72,504 $43,259 $369,755
============ ============= ============= ============= ------------
Average Number of 6,228 2,172 2,159 821 11,380
Employees
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Six Months Ended August 31, 1998
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
---- --------------------------- -- ------------ -- ------------- -- ------------- -- ------------- -- ------------
Base Salaries $93,103 $23,435 $42,625 $18,168 $ 177,331
Incentive Bonus 71,196 481 9,892 8,669 90,238
Payroll Taxes and Benefits 24,183 5,325 8,321 2,842 40,671
------------ ------------- ------------- ------------- ------------
Total Salaries and Related
Expenses $188,482 $29,241 $60,838 $29,679 $308,240
============ ============= ============= ============= ------------
Average Number of 4,859 1,795 1,693 625 8,972
Employees
</TABLE>
The amount of salaries increased during the six months ended August 31, 1999
reflecting the Company's strategy of expanding and enhancing its Consumer
Markets and Wholesale branch networks, including new retail sub-prime branches.
This was partially offset by a reduction in loan processing personnel resulting
from the decline in refinance activity.
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 six months ended August 31, 1999 decreased primarily
due to the reduction in production.
Occupancy and other office expenses for the six months ended August 31, 1999
increased to $143.3 million from $125.3 million for the six months ended August
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) a larger servicing portfolio; and (iii) growth in the
Company's non-mortgage banking activities.
Guarantee fees represent fees paid to Fannie Mae, Freddie Mac, and Ginnie
Mae 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 six months ended August 31, 1999, guarantee fees increased 4%
to $93.8 million, up from $90.0 million for the six months ended August 31,
1998. The increase resulted from an increase in the servicing portfolio, changes
in the mix of the portfolio guaranteed by the GSEs and terms negotiated at the
time of loan sales.
Marketing expenses for the six months ended August 31, 1999 increased 35% to
$40.6 million compared to from $30.1 million for the six months ended August 31,
1998. This increase supported the larger Consumer Markets branch network,
including the retail subprime branches.
Other operating expenses for the six months ended August 31, 1999 increased
from the six months ended August 31, 1998 by $8.4 million, or 11%. This increase
was due primarily to the expansion of the production branch networks, a larger
servicing portfolio and growth in the Company's non-mortgage banking
subsidiaries in the six months ended August 31, 1999 as compared to the six
months ended August 31, 1998.
Profitability of Loan Production Segment
In the six months ended August 31, 1999, pre-tax earnings from loan
production segment activities (which include loan origination and purchases,
warehousing and sales) were $226.2 million. In the six months ended August 31,
1998, comparable pre-tax earnings were $282.6 million. The decrease of $56.4
million was primarily attributable to higher production costs and reduced
margins on prime credit quality mortgages. These factors were partially offset
by increased warehouse spread and greater originations and sales of higher
margin home equity and subprime loans.
Profitability of Loan Servicing Segment
In the six months ended August 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 $93.8 million as
compared to $3.0 million loss in the six months ended August 31, 1998. The
increase of $96.8 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 attributable to the declinein refinance
activity. These positive factors were partially offset by higher servicing
costs.
Profitability of Capital Markets Segment
In the six months ended August 31, 1999, pre-tax earnings from the capital
markets segment were $15.4 million. In the six months ended August 31, 1998,
comparable pre-tax earnings were $12.0 million. The increase of $3.4 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 six months ended
August 31, 1999, LandSafe Inc. contributed $10.3 million to the Company's
pre-tax income compared to $10.8 million for the six months ended August 31,
1998.
The Company's other activities consist primarily of the operations of its
holding company. The operations of other activities, excluding LandSafe Inc.,
incurred pre-tax losses of $1.6 million during the six months ended August 31,
1999 compared to pre-tax income of $2.2 million during the six months ended
August 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 August 31, 1999,
the Company estimates that a permanent 0.50% reduction in interest rates, all
else being constant, would result in a $0.02 million after-tax loss related to
its trading securities and a $7.4 million after-tax loss related to its other
financial instruments. As of August 31, 1999, the Company estimates that this
combined after-tax loss of $7.5 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 six months ended August 31, 1999, the Company's
operating activities provided cash of approximately $0.5 billion. In the six
months ended August 31, 1998, operating activities provided approximately $0.1
billion.
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 $0.8 billion for the six months ended August 31, 1999 and $0.9 billion for
the six months ended August 31, 1998.
Financing Activities Net cash provided by financing activities amounted to
$0.3 billion for the six months ended August 31, 1999. Net cash provided by
financing activities amounted to $0.8 billion for the six months ended August
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 September 30, 1999, the Company received new loan
applications at an average daily rate of $314 million. As of September 30, 1999,
the Company's pipeline of loans in process was $9.8 billion. This compares to a
daily application rate for the month ended in September 30, 1998 of $625 million
and a pipeline of loans in process as of September 31, 1998 of $15.9 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 September 30,
1999 was $2.3 billion and as of September 30, 1998 was $1.5 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 decreased 14% from the quarter ended August 31, 1998 to
quarter ended August 31, 1999. This decrease was primarily due to a smaller
mortgage market, driven by reduced refinances. Loan purchase production
increased by 20% to $13.7 billion during the same period driven by a strong
purchase market and an increase in the Company's market share.
The prepayment rate in the servicing portfolio decreased from 26% for the
quarter ended August 31, 1998 to 15% for the quarter ended August 31, 1999. This
was due primarily to decreases in refinances.
The loan origination segment has recently experienced increased pricing
competition. The Company attributes this to excess capacity currently in the
marketplace caused by the significant drop in refinance activity. This pricing
competition is being exacerbated by increased consumer demand for adjustable
rate mortgages, which certain banks and thrifts are currently pricing very
competitively. The Company expects this heightened pricing competition to
continue until remaining excess capacity in the marketplace is eliminated.
Elimination of the remaining excess capacity should be aided by continued growth
in the purchase loan market.
The Company's California mortgage loan production (as measured by principal
balance) constituted 21% of its total production during the quarter ended August
31, 1999 and 25% during the quarter ended August 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 3.36% at August 31, 1999 from 3.64% as of August 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 August 31, 1999 and August 31, 1998, respectively. In addition,
the weighted average age of the portfolio was 25 months at August 31, 1999, down
from 29 months as of August 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 0.28% as of August 31, 1999
from 0.36% as of August 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 August 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 August 31,
1999, the Company had investments in such subordinated interests amounting to
$388.1 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 and nearly all of its less
critical Client Server application have been forward-date tested.
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 approximately five 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 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 $31.4 million had been incurred through August 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 32
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.7.2 Second Amendment to the Deferred Compensation Plan.
10.8.6 Short Term Facility Extension on Revolving Credit
10.23.3 Second Amendment to the Supplemental Executive Retirement
Plan.
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.
<PAGE>
33
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: October 14, 1999 /s/ Stanford L. Kurland
--------------------------------------
Senior Managing Director and
Chief Operating Officer
DATE: October 14, 1999 /s/ Carlos M. Garcia
--------------------------------------
Managing Director; Chief Financial
Officer and Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
SECOND AMENDMENT
TO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
Originally Effective August 1, 1993
Amended and Restated Effective January 1,1998
Countrywide Credit Industries, Inc., a Delaware corporation (the
"Company"), pursuant to the power granted to it by Section 11.2 of the
Countrywide Credit Industries, Inc. Amended and Restated Deferred Compensation
Plan (the "Plan"), hereby amends the Plan, by action of its board of directors,
as follows, effective as of June 30, 1999:
1. Section 3.12 is amended and restated in its entirety to read as follows:
"3.12 FICA and Other Taxes.
(a) Annual Deferral Amounts. For each Plan Year in which
an Annual Deferral Amount is being withheld from a
Participant, the Participant's Employer(s) shall
withhold from that portion of the Participant's Base
Annual Salary and Annual Bonus that is not being
deferred, in a manner determined by the Employer(s),
the Participant's share of FICA and other employment
taxes on such Annual Deferral Amount and/or on
benefits due under any other nonqualified employee
benefit plan(s) of the Employer. If necessary, the
Committee may reduce the Annual Deferral Amount
in order to comply with this Section 3.11.
(b) Annual Stock Option Amounts.For each Plan Year in which
an Annual Stock Option Amount is being first
withheld from a Participant, the Participant's
Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary, Annual Bonus and
Qualifying Gains that are not being deferred, in a
manner determined by the Employer(s), the
Participant's share of FICA and other employment
taxes on such Annual Stock Option Amount. If
necessary, the Committee may reduce the Annual Stock
Option Amount in order to comply with this Section
3.11.
(c)
Distributions. The Participant's Employer(s), or the
trustee of the Trust, shall withhold from any
payments made to a Participant under this Plan all
federal, state and local income, employment and other
taxes required to be withheld by the Employer(s), or
the trustee of the Trust, in connection with such
payments, and/or in connection with any other
nonqualified benefit plan(s) of the Employer, in
amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the
Trust."
2. Section 3.11 shall be deleted in its entirety.
The Company has caused this Amendment to be signed, by action
of its board of directors and by its duly authorized officer as of the date
written below.
Countrywide CreditIndustries, Inc.
By:
Anne D. McCallion
Managing Director
Chief Administrative Officer
Date:
<PAGE>
SHORT TERM FACILITY EXTENSION AMENDMENT
(September, 1999)
THIS SHORT TERM FACILITY EXTENSION AMENDMENT (the "Amendment")
is made and dated as of the 22nd day of September, 1999 by and among COUNTRYWIDE
HOME LOANS, INC. (the "Company"), the Short Term Lenders under (and as that term
and capitalized terms not otherwise defined herein are defined in) the Revolving
Credit Agreement described below and BANKERS TRUST COMPANY, as Credit Agent (in
such capacity, the "Credit Agent").
RECITALS
A. Pursuant to that certain Revolving Credit Agreement dated
as of September 24, 1997 by and among the Company, the Lenders party thereto,
including, without limitation, the Short Term Lenders, the Credit Agent and
others (as amended, extended and replaced from time to time, the "Revolving
Credit Agreement"), the Short Term Lenders agreed to extend credit to the
Company in the form of a 364-day revolving credit facility.
B. The Company has requested that the Short Term Lenders
currently party to the Revolving Credit Agreement agree to extend the Short Term
Facility Maturity Date and certain of such Short Term Lenders have agreed to do
so on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the above 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
1. Extension of Maturity Date. To reflect the agreement of the
Short Term Lenders to extend the Short Term Facility Maturity Date, effective as
of the Amendment Effective Date (as defined in Paragraph 6 below), the
definition of "Short Term Facility Maturity Date" set forth in the Glossary
attached to the Revolving Credit Agreement is hereby amended to delete the date
"September 22, 1999" appearing therein and to replace the same with the date
"September 20, 2000".
2. Extension of Short Term Facility Fee Letter. To reflect the
agreement of the Company to continue to pay to the Short Term Lenders a facility
fee during the period from the current Short Term Facility Maturity Date to the
Short Term Facility Maturity Date as extended hereunder, the Company hereby
reaffirms the Short Term Facility Fee Letter dated as of September 24, 1997 and
agrees that the "Short Term Facility Maturity Date" referred to therein shall
mean the Short Term Facility Maturity Date as extended hereunder.
3. Revised Commitment Schedule. To reflect certain changes in
the financial institutions which will be participating in the Short Term
Facility as extended hereby and other modifications in the Short Term Facility
Credit Limit and the Short Term Facility Percentage Shares of the Short Term
Lenders participating in the Short Term Facility as extended hereby, the
Commitment Schedule is hereby revised as of the Amendment Effective Date
consistent with Amendment Schedule I attached hereto.
4. Reaffirmation of Loan Documents. The Company hereby affirms
and agrees that (a) the execution and delivery by the Company 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 rights of the Credit Agent, the Lenders or any other Person under the
Revolving Credit Agreement or any other Credit Document, (b) the term
"Obligations" as used in the Credit Documents includes, without limitation, the
Obligations of the Company under the Revolving Credit Agreement as amended
hereby, and (c) the Revolving Credit Agreement as amended hereby and the other
Credit Documents remain in full force and effect.
5. Reaffirmation of Guaranty and Subordination Agreement. By
executing this Amendment as provided below, the Parent acknowledges the terms
and conditions of this Amendment and affirms and agrees that (a) the execution
and delivery by the Company and the performance of its obligations under this
Amendment shall not in any manner or to any extent affect any of the obligations
of the Parent or the rights of the Credit Agent, the Lenders or any other Person
under the Guaranty, the Subordination Agreement or any other document or
instrument made or given by the Parent in connection therewith, (b) the term
"Obligations" as used in the Guaranty and the Subordination Agreement includes,
without limitation, the Obligations of the Company under the Revolving Credit
Agreement as amended hereby, and (c) the Guaranty and the Subordination
Agreement remain in full force and effect.
6. Amendment Effective Date. This Amendment shall be effective
as of the day and year first above written upon the date (the "Amendment
Effective Date") that there has been delivered to the Credit Agent:
(a) A copy of this Amendment, duly executed by each party hereto
and acknowledged by the Parent; and
(b) Such corporate resolutions, incumbency certificates and other
authorizing documentation as the Credit Agent may request.
As required pursuant to Paragraph 13(b) of the Revolving Credit Agreement,
following the Amendment Effective Date the Credit Agent shall provide a copy of
this Amendment, including the Commitment Schedule effective as of the Amendment
Effective Date, to all parties to the Credit Documents.
7. Representations and Warranties. The Company hereby
represents and warrants to the Credit Agent and each of the Short Term Lenders
that at the date hereof and at and as of the Amendment Effective Date:
(a) Each of the Company and the Parent has the corporate power and
authority and the legal right to execute, deliver and perform this Amendment and
has taken all necessary corporate action to authorize the execution, delivery
and performance of this Amendment. This Amendment has been duly executed and
delivered on behalf of the Company and the Parent and constitutes the legal,
valid and binding obligation of such Person, enforceable against such Person in
accordance with its terms.
(b) Both prior to and after giving effect hereto: (1) the representations and
warranties of the Company and the Parent 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.
8. No Other Amendment. Except as expressly amended hereby, the Credit
Documents shall remain in full force and effect as written and amended to date.
9. 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 HOME LOANS, INC.,
a New York corporation
By
Name
Title
BANKERS TRUST COMPANY,
as Credit Agent
By
Name
<PAGE>
SECOND AMENDMENT
TO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Originally Effective March 1, 1994
Amended Effective September 13, 1996
Amended and Restated Effective July 1, 1998
Countrywide Credit Industries, Inc., a Delaware corporation (the
"Company"), pursuant to the power granted to it by Section 5.2 of the
Countrywide Credit Industries, Inc. Supplemental Executive Retirement Plan, 1998
Amendment and Restatement (the "Plan"), hereby amends the Plan, as follows,
effective as of June 30, 1999:
1. Section 3.3 is amended and restated in its entirety to read as follows:
"3.3 Withholding and Payroll Taxes. When a Participant becomes vested hereunder
and/or at such other time as taxes must be withheld and paid by the
Employer in connection with benefits due hereunder and/or under any other
nonqualified employee benefit plan(s) of the Employer, the Participant's
Employer(s) shall withhold from the Participant's regular salary or bonus,
in a manner determined by the Employer(s), the Participant's share of FICA
and other employment taxes. In addition, the Participant's Employer(s), or
the trustee of any Trust, shall withhold from any and all of the
Participant's benefits distributed under this Article 3 and, if necessary,
the Participant's wages, all federal, state and local income, employment
and other taxes required to be withheld by the Employer(s) in connection
with the benefits hereunder and/or under any other nonqualified employee
benefit plan(s) of the Employer, in amounts to be determined in the sole
discretion of the Employer."
The Company has caused this Amendment to be signed by its duly
authorized officer as of the date written below.
Countrywide Credit
Industries, Inc.
By:
Anne D. McCallion
Managing Director
Chief Administrative Officer
Date:
<PAGE>
Page 41
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Six Months
Ended August 31,
1999 1998
----------------- -- ----------------
(Amounts in thousands,
except per share data)
Basic
<S> <C> <C>
Net earnings applicable to common stock $209,882 $ 185,831
================ =================
Average shares outstanding 112,871 110,640
================ =================
Per share amount $ 1.86 $1.68
================ =================
Diluted
Net earnings applicable to common stock $209,882 $185,831
================ =================
Average shares outstanding
Net effect of dilutive stock options -- 112,871 110,640
based on the treasury stock method using
the average market price. 4,568 6,260
---------------- -----------------
Total average shares 117,439 116,900
================ =================
Per share amount $ 1.79 $ 1.59
================ =================
</TABLE>
<PAGE>
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 six months ended August 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>
Six Months Ended
August 31, Fiscal Years Ended February 29(28),
-------------------------- ------------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------------ ------------- ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $209,882 $185,831 $385,401 $344,983 $257,358 $195,720 $ 88,407
Income tax expense 134,187 118,810 246,404 220,563 164,540 130,480 58,938
Interest charges 481,572 474,887 983,829 568,359 423,447 337,655 267,685
Interest portion of rental
Expense 4,488 3,436 14,898 10,055 7,420 6,803 7,379
------------ ------------- ------------ ------------- ------------ ------------ -------------
Earnings available to cover
fixed charges $830,129 $782,964 $1,630,532 $1,143,960 $852,765 $670,658 $422,409
============ ============= ============ ============= ============ ============ =============
Fixed charges
Interest charges $481,572 $474,887 $983,829 $568,359 $423,447 $337,655 $267,685
Interest portion of rental
Expense 4,488 3,436 14,898 10,055 7,420 6,803 7,379
------------ ------------- ------------ ------------- ------------ ------------ -------------
Total fixed charges $486,060 $478,323 $998,727 $578,414 $430,867 $344,458 $275,064
============ ============= ============ ============= ============ ============ =============
Ratio of earnings to fixed
Charges 1.71 1.64 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> 6-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 48,024
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 347,292
<DEPRECIATION> 191,451
<TOTAL-ASSETS> 16,231,445
<CURRENT-LIABILITIES> 13,034,450
<BONDS> 0
0
0
<COMMON> 5,652
<OTHER-SE> 2,696,995
<TOTAL-LIABILITY-AND-EQUITY> 16,231,445
<SALES> 0
<TOTAL-REVENUES> 1,074,018
<CGS> 0
<TOTAL-COSTS> 729,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 344,069
<INCOME-TAX> 134,187
<INCOME-CONTINUING> 209,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,882
<EPS-BASIC> 1.86
<EPS-DILUTED> 1.79
</TABLE>
