<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
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 1-8972
CWM MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3983415
(State or other jurisdiction (I. R. S. Employer Identification No.)
incorporation or organization)
35 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-1857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 669-2300
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
requirements for the past 90 days. Yes X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Common stock outstanding as of March 31, 1997: 52,600,148 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Mortgage assets
Mortgage loans held for investment, net $1,452,367 $1,210,891
Mortgage loans held for sale - prime 495,629 404,346
Mortgage loans held for sale - subprime 173,711 177,913
Manufactured housing loans held for sale 109,515 74,949
Manufactured housing loans held for investment 26,463 25,822
Construction loans receivable, net 580,847 460,546
Collateral for CMOs 280,408 289,054
Mortgage securities 234,254 231,780
Revolving warehouse lines of credit, net 197,286 251,032
Investment in and advances to Indy Mac 175,316 170,609
Cash and cash equivalents 3,709 12,450
Other assets 60,932 46,667
---------- ----------
Total assets $3,790,437 $3,356,059
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Repurchase agreements and other credit facilities $2,902,346 $2,531,509
Collateralized mortgage obligations 256,070 264,080
Senior unsecured notes 59,790 59,759
Accounts payable and accrued liabilities 31,384 22,287
---------- ----------
Total liabilities 3,249,590 2,877,635
Commitments and contingencies - -
Shareholders' equity
Common stock - authorized, 100,000,000 shares of
$.01 par value; issued and outstanding, 52,600,148 shares
at March 31, 1997 and 50,200,146 at December 31, 1996 526 502
Additional paid-in capital 541,174 490,695
Net unrealized gain (loss) on available-for-sale mortgage
securities held by CWM (3,329) (7,166)
held by Indy Mac (1,160) (8,427)
Cumulative earnings 240,479 219,135
Cumulative distributions to shareholders (236,843) (216,315)
---------- ----------
Total shareholders' equity 540,847 478,424
---------- ----------
Total liabilities and shareholders' equity $3,790,437 $3,356,059
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------- --------------
1997 1996
-------------- --------------
<C> <S> <S>
Interest income
Mortgage loans held for investment $26,933 $27,081
Mortgage loans held for sale 15,172 13,975
Manufactured housing loans 2,893 -
Construction loans 14,713 4,483
Collateral for CMOs 5,400 5,334
Mortgage securities 3,323 2,467
Revolving warehouse lines of credit 4,029 3,819
Advances to Indy Mac 2,710 1,773
Other 45 84
--------- ---------
Total interest income 75,218 59,016
Interest expense
Repurchase agreements and other credit facilities 41,567 33,547
Collateralized mortgage obligations 5,203 5,608
Senior unsecured notes 1,378 1,368
--------- ---------
Total interest expense 48,148 40,523
--------- ---------
Net interest income 27,070 18,493
Provision for loan losses 3,900 2,403
--------- ---------
Net interest income after provision for loan loss 23,170 16,090
Equity in earnings of Indy Mac 4,257 3,546
Other, net 1,312 208
--------- ---------
Net revenues 28,739 19,844
EXPENSES
Salaries, general and administrative 5,086 2,415
Management fees to affiliate 2,309 2,069
--------- ---------
Total expenses 7,395 4,484
--------- ---------
NET EARNINGS $21,344 $15,360
========= ==========
EARNINGS PER SHARE $ 0.42 $ 0.36
========= ==========
Weighted average shares outstanding 51,291,755 43,105,573
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CWM Mortgage Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 21,344 $ 15,360
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Amortization and depreciation 6,433 5,510
Provision for loan losses 3,900 2,403
Equity in earnings of Indy Mac (4,257) (3,546)
Purchases of mortgage loans held for sale, net of repayments (916,462) (1,094,540)
Principal repayments and proceeds from sale of mortgage loans 767,742 993,839
Purchases of manufactured housing loans held for sale, net of repayments (34,566) (581)
Investment in mortgage securities classified as trading, net (1,359) -
Change in accrued assets and liabilities 4,639 1,389
-------------- --------------
Net cash provided by (used in) operating activities (152,586) (80,166)
Cash flows from investing activities:
Collateral for CMOs:
Principal payments on collateral 7,582 10,746
Net change in GICs held by trustees 197 (644)
-------------- --------------
7,779 10,102
Purchases of mortgage loans held for investment (276,309) -
Net increase in construction loans receivable (120,734) (31,865)
Investment in mortgage securities available for sale, net of repayments (3,115) -
Purchases of manufactured housing loans held for investment, net of repayme (641) -
Principal payments on mortgage loans held for investment 87,914 102,123
Net increase (decrease) in revolving warehouse lines of credit 53,596 (15,145)
Advances to Indy Mac, net of cash repayments 6,817 (7,558)
Change in other assets (6883) 1,430
-------------- --------------
Net cash provided by (used in) investing activities (251,576) 59,087
Cash flows from financing activities:
Collateralized mortgage obligations:
Proceeds from issuance of securities - 146,931
Principal payments on securities (7,913) (10,400)
-------------- --------------
(7,913) 136,531
Net increase (decrease) in repurchase agreements and other credit facilitie 370,837 (126,865)
Net proceeds from issuance of common stock 50,503 24,245
Cash dividends paid (20,528) (14,997)
Change in other liabilities 2,472 (2,449)
-------------- --------------
Net cash provided by financing activities 395,371 16,465
-------------- --------------
Net decrease in cash and cash equivalents (8,741) (4,614)
Cash and cash equivalents at beginning of period 12,450 8,049
-------------- --------------
Cash and cash equivalents at end of period $ 3,709 $ 3,435
============== ==============
Supplemental cash flow information:
Cash paid for interest $42,262 $38,338
============== ==============
Supplemental disclosure of non-cash activity:
During the first quarter of 1996, $154.6 million of mortgage loans held for investment were transferred to
collateral for CMOs in 1996 in association with the issuance of a CMO.
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The consolidated financial statements include the accounts of CWM
Mortgage Holdings, Inc. and its qualified REIT subsidiaries ("CWM"). The
mortgage loan conduit operations are primarily conducted through Independent
National Mortgage Corporation, Inc. ("Indy Mac"), a taxable corporation, which
is not consolidated with CWM for financial reporting purposes. CWM owns all of
the preferred stock and a 99% economic interest in Indy Mac. CWM's investment
in Indy Mac is accounted for under a method similar to the equity method. In
addition, Indy Mac is not consolidated for income tax purposes. As used herein,
the "Company" includes CWM and Indy Mac and their respective subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation of CWM. Certain reclassifications have been made to the financial
statements for the period ended March 31, 1996 to conform to the March 31, 1997
financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in CWM's annual report on Form 10-K for the year
ended December 31, 1996.
NOTE B - ALLOWANCE FOR CREDIT LOSSES
During the three months ended March 31, 1997, CWM added $3.9 million to its
allowance for credit losses. The allowance for credit losses totaled $17.5
million at March 31, 1997, and includes reserves for mortgage loans held for
investment, construction loans, warehouse lines of credit and CMO collateral in
the amounts of $13.2 million, $2.7 million, $1.4 million and $200,000,
respectively. CWM recorded chargeoffs of $1.7 million and $23,000 during the
three months ended March 31, 1997 and 1996, respectively.
NOTE C - MORTGAGE SECURITIES
Mortgage securities consist of mortgage derivative products including
subordinated securities, principal-only and interest-only securities and inverse
floater securities. Interest-only securities are comprised primarily of excess
master servicing fees sold by Indy Mac to CWM and subsequently securitized by
CWM, which are classified and accounted for as available for sale, and also
include securitized master servicing fees acquired by CWM in connection with the
securitization of mortgage loans held for sale by Indy Mac, which are classified
and accounted for as trading securities. Contractual maturities on the mortgage
securities range from 10 to 30 years.
5
<PAGE>
NOTE C - MORTGAGE SECURITIES - CONTINUED
Following is the estimated fair value of CWM's mortgage securities as of March
31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands) ---- ----- ------ -----
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997
Securitized Master Servicing Fees $ 24,747 $ - $ - $ 24,747
Other Mortgage Securities 7,306 - - 7,306
-------- ------ -------- --------
Total Trading 32,053 - - 32,053
Securitized Master Servicing Fees 83,933 2,293 (6,747) 79,479
Other Mortgage Securities 121,597 1,674 (549) 122,722
-------- ------ -------- --------
Total Available for sale 205,530 3,967 (7,296) 202,201
-------- ------ -------- --------
Total $237,583 $3,967 $ (7,296) $234,254
======== ====== ======== ========
December 31,1996
Securitized Master Servicing Fees $ 25,570 $ - $ - $ 25,570
Other Mortgage Securities 7,439 - - 7,439
-------- ------ -------- --------
Total Trading 33,009 - - 33,009
Securitized Master Servicing Fees 87,459 1,157 (10,486) 78,130
Other Mortgage Securities 118,482 2,206 (47) 120,641
-------- ------ -------- --------
Total Available for sale 205,941 3,363 (10,533) 198,771
-------- ------ -------- --------
Total $238,950 $3,363 $(10,533) $231,780
======== ====== ======== ========
As of March 31, 1997, all of CWM's mortgage securities were pledged to secure repurchase borrowings totaling $189 million.
</TABLE>
NOTE D - INVESTMENT IN INDY MAC (Unaudited)
- -------------------------------------------
Summarized financial information for Indy Mac follows (in thousands).
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------------------------------
<S> <C> <C>
Loans held for sale, net $100,037 $ 86,962
Mortgage securities 591,977 541,672
Master servicing fees receivable 44,089 44,239
Other assets 38,435 38,232
--------------------------------------
Total assets $774,538 $711,105
======================================
Repurchase agreements and other credit facilities $545,126 $496,052
Due to CWM 123,337 130,153
Accounts payable and accrued liabilities 53,571 44,243
Shareholders' equity 52,504 40,657
--------------------------------------
Total liabilities and
shareholders' equity $774,538 $711,105
======================================
</TABLE>
6
<PAGE>
NOTE D - INVESTMENT IN INDY MAC (Unaudited) - continued
-------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended
March 31,
------------------------
1997 1996
------------------------
(as adjusted)
<S> <C> <C>
Interest income
Loans held for sale $ 1,528 $ 1,478
Mortgage securities 10,207 9,223
Master servicing fees receivable, net 1,988 746
------------------------
Total interest income 13,723 11,447
Interest expense 10,727 8,742
------------------------
Net interest income 2,996 2,705
Gain on sale of loans and securities 16,510 8,881
Other 332 248
------------------------
Net revenues 19,838 11,834
Salaries, general and administrative expense 11,293 5,566
Management fees to affiliate 757 443
------------------------
Total expenses 12,050 6,009
------------------------
Earnings before income tax provision 7,788 5,825
Income tax provision 3,281 2,545
------------------------
Net earnings $ 4,507 $ 3,280
========================
</TABLE>
Allowance for Credit Losses. Indy Mac's allowance for credit losses related to
loans held for sale totaled $1.3 million at March 31, 1997. Indy Mac recorded
chargeoffs of $436,000 and $18,000 during the three months ended March 31, 1997
and 1996, respectively.
Mortgage Securities. Mortgage securities consist of mortgage derivative products
including subordinated securities, principal-only and interest-only securities
and inverse floater securities. Interest-only securities are comprised
primarily of securitized master servicing fees retained in connection with the
securitization of mortgage loans held for sale. Indy Mac restated its 1996
financial statements to classify and account for certain subordinated
securities, principal-only and interest-only securities retained in connection
with Indy Mac's securitization activities as trading in, accordance with SFAS
No. 115.
Indy Mac reclassified its portfolio of principal-only securities, totaling $63
million, from available for sale to trading securities during the quarter ended
March 31, 1997. The gross unrealized holding losses associated with these
principal-only securities was $15 million, net of tax, at the time of transfer,
which was recognized in gain on sale of loans and securities.
7
<PAGE>
NOTE D - INVESTMENT IN INDY MAC (Unaudited) - continued
- -------------------------------------------------------
Contractual maturities on the mortgage securities range from 10 to 30 years.
Following is the estimated fair value of Indy Mac's mortgage securities as of
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands) ---- ----- ------ -----
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997
Securitized Master Servicing Fees $241,497 $ - $ - $241,497
Other Mortgage Securities 264,854 - - 264,854
-------- ------ -------- --------
Total Trading 506,351 - - 506,351
Other Mortgage Securities Available for sale 87,647 626 (2,647) 85,626
-------- ------ -------- --------
Total $593,998 $ 626 $ (2,647) $591,977
======== ====== ======== ========
December 31,1996
Securitized Master Servicing Fees $209,190 $ - $ - $209,190
Other Mortgage Securities 199,676 - - 199,676
-------- ------ -------- --------
Total Trading 408,866 - - 408,866
Other Mortgage Securities Available for sale 147,482 2,815 (17,491) 132,806
-------- ------ -------- --------
Total $556,348 $2,815 $(17,491) $541,672
======== ====== ======== ========
</TABLE>
During the quarter ended March 31, 1997, Indy Mac sold mortgage securities
classified as available-for-sale with an amortized cost of $20.4 million (based
upon specific identification) for proceeds of $20.5 million, resulting in gross
realized gains of $92,000. There were no realized losses during the three
months ended March 31, 1997. For the three month period ended March 31, 1996,
Indy Mac sold mortgage securities available-for-sale with an amortized cost of
$22.5 million for proceeds of $26.7 million, resulting in a gross realized gain
of $4.2 million. There were no realized losses during the three months ended
March 31, 1996. The estimated fair value as of March 31, 1997 in the above table
reflects increases in market interest rates during the first three months of
1997.
As of March 31, 1997, all of Indy Mac's mortgage securities were pledged to
secure repurchase borrowings totaling $413 million.
8
<PAGE>
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share, which will be
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing
income by the weighted average number of common shares outstanding, while
diluted EPS reflects the potential dilution from the exercise or conversion of
securities into common stock, such as stock options. Management does not expect
CWM's basic EPS or diluted EPS as measured under SFAS No. 128 to be materially
different than CWM's primary EPS as measured under APB Opinion 15.
NOTE F - SUBSEQUENT EVENTS
On November 4, 1996, CWM and CCI announced that they reached a preliminary
Agreement and Plan of Merger whereby CWM will acquire all of the outstanding
stock of its manager, Countrywide Asset Management Corporation ("CAMC"), from
CCI in exchange for 3.6 million new shares of common stock of CWM (subject to
certain adjustments). Subsequent to December 31, 1996, the Agreement and Plan of
Merger, and a related Registration Rights Agreement were approved by the boards
of directors of both CWM and CCI and executed and delivered by the respective
parties thereto. If the transaction is consummated, CAMC will be merged into
CWM, and CWM will become a self-managed REIT. Assuming receipt of regulatory
approvals, the merger will be presented to CWM's shareholders for final approval
pursuant to a definitive proxy statement.
On April 23, 1997, the Board of Directors declared a cash dividend of $0.42 per
share to be paid on June 2, 1997 to shareholders of record on May 2, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
CWM Mortgage Holdings, Inc. was incorporated in the state of Maryland in July
1985 and reincorporated in the state of Delaware in March 1987. References to
"CWM" mean either the parent company alone or the parent company and the
entities consolidated for financial reporting purposes, while references to the
"Company" mean the parent company, its consolidated subsidiaries and Indy Mac
and its subsidiaries, which are not consolidated with CWM for financial
reporting or tax purposes.
In its mortgage loan conduit business, the Company acts as an intermediary
between the originators of mortgage loans and permanent investors in mortgage-
backed securities ("MBS") secured by or representing an ownership interest in
such mortgage loans. The Company purchases "jumbo" and other "nonconforming"
mortgage loans from mortgage originators, including subprime mortgage loans
(i.e., "A- through D paper" mortgages). The Company and its sellers negotiate
whether such sellers will retain, or the Company will purchase the rights to
service the mortgage loans delivered by such sellers to the Company. All loans
purchased by CWM, for which a Real Estate Mortgage Investment Conduit ("REMIC")
transaction or whole loan sale is contemplated, are committed for sale to Indy
Mac at the same price at which the loans were acquired by CWM. At present, Indy
Mac does not purchase any loans from entities other than CWM. Additionally,
conduit operations include the purchase or origination, securitization and sale
of consumer and mortgage loans secured by manufactured housing.
The Company's principal sources of income from its conduit operations are gains
recognized on the sale or securitization of loans, the net spread between
interest earned on mortgage loans and the interest costs associated with the
borrowings used to finance such loans pending their sale or securitization, and
master servicing fee income.
In addition to its conduit operations, the Company earns fee income and net
interest income through its construction and warehouse lending programs and its
investment portfolio of mortgage and manufactured housing loans and mortgage
securities. The construction lending operation consists of two distinct
divisions: (i) the Builder Division, which provides subdivision construction,
builder custom home, model home, land acquisition and development and certain
condominium loan financing on a nationwide basis to builders, and (ii) the
Consumer Division, which provides construction-to-permanent, home improvement
and residential lot financing to individual borrowers who wish to construct or
remodel their principal or secondary residences. The Company's warehouse
lending operation provides financing to small-to-medium-size mortgage
originators for the origination and sale of mortgage loans.
FINANCIAL CONDITION
CONDUIT OPERATIONS: During the first three months of 1997, CWM purchased $1.2
billion of non-conforming mortgage loans, including $47 million of subprime
mortgage loans. In addition, the Company purchased $39 million of manufactured
housing loans. These loans were financed on an interim basis using equity and
short-term financing in the form of repurchase agreements and other credit
facilities. In general, the Company, through Indy Mac, sells the loans in the
form of REMIC securities or whole loan sales or, alternatively, through CWM,
invests in the loans on a long-term basis using financing provided by CMOs or
repurchase agreements and other credit facilities. During the first three
months of 1997, Indy Mac sold $732 million of its prime mortgage loans through
the issuance of three series of multiple-class MBS in the form of REMIC
securities and two whole loan sales. There were no subprime or manufactured
housing loan securitizations or loan sales during the first quarter of 1997. At
March 31, 1997, the Company had committed to purchase $608.4 million of mortgage
loans from various mortgage originators. The Indy Mac master servicing portfolio
at March 31, 1997 had an aggregate outstanding principal balance of $11.4
billion with a weighted average coupon of 8.51%.
10
<PAGE>
MORTGAGE LOANS HELD FOR INVESTMENT: CWM's $1.5 billion portfolio of mortgage
loans held for investment at March 31, 1997 consisted of $1.1 billion of
adjustable-rate products which contractually reprice in monthly, semi-annual or
annual periods, $288.2 million of mortgage loans which have a fixed rate for a
period of three to ten years and subsequently convert to adjustable-rate
mortgage loans that reprice annually, and $125.2 million of fixed-rate mortgage
loans. The weighted average coupon of mortgage loans held for investment by CWM
at March 31, 1997 was 8.44%. CWM finances mortgage loans held for investment
with repurchase agreements and other credit facilities which reprice at
intervals ranging from overnight to two months as of March 31, 1997. CWM also
utilizes interest rate swap agreements to manage interest rate exposure on its
portfolio of mortgage loans held for investment. The allowance for losses
related to mortgage loans held for investment totaled $13.2 million at March 31,
1997. Chargeoffs related to mortgage loans held for investment totaled $1.6
million for the three months ended March 31, 1997.
CONSTRUCTION LENDING OPERATIONS: At March 31, 1997, CWM's Builder Division had
commitments to fund construction loans of $863 million with outstanding
principal balances of $434 million. The Consumer Division had commitments to
fund construction-to-permanent and home improvement loans of $242 million at
March 31, 1997 with outstanding principal balances of $147 million. The
allowance for losses related to construction loans totaled $2.7 million at March
31, 1997. Chargeoffs totaled $70,000 related to construction loans during the
three months ended March 31, 1997. The Company had outstanding borrowings under
a revolving credit facility totaling $274 million at March 31, 1997 associated
with the financing of construction loans.
WAREHOUSE LENDING OPERATIONS: At March 31, 1997, CWM had extended commitments
to make warehouse and related loans in an aggregate amount of $730 million, of
which $197 million was outstanding, net of reserves. The allowance for loan
losses related to warehouse lines of credit totaled $1.4 million at March 31,
1997. There were no chargeoffs against such allowance during the three months
ended March 31, 1997. Repurchase agreements associated with CWM's financing of
these warehouse lines of credit totaled $170 million at March 31, 1997.
CMO PORTFOLIO: As of March 31, 1997, the CMO Portfolio was comprised of 11
series of CMOs. Collateral for CMOs decreased to $280 million at March 31, 1997
from $289 million at December 31, 1996. This decrease of $8.7 million is
primarily the result of repayments (including prepayments and premium and
discount amortization) of $7.6 million, a decrease in guaranteed investment
contracts ("GICs") held by trustees of $197,000 and a decrease in accrued
interest receivable of $900,000. The fair value of the collateral for CMOs
totaled $281 million and $282 million at March 31, 1997 and December 31, 1996,
respectively. CWM's CMOs outstanding decreased to $256 million at March 31,
1997 from $264 million at December 31, 1996. This decrease of $8.0 million
resulted from principal payments and discount amortization on CMOs of $7.6
million and a decrease in accrued interest payable on CMOs of $434,000.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
NET EARNINGS: CWM's net earnings were $21.3 million or $0.42 per share, based on
51,291,755 weighted average shares outstanding for the quarter ended March 31,
1997, compared to $15.4 million or $0.36 per share, based on 43,105,573 weighted
average shares outstanding for the quarter ended March 31, 1996.
The increase of $6.0 million in first quarter earnings resulted primarily from
an increase in net interest income of $8.6 million and an increase of $711,000
in equity in earnings from Indy Mac, offset by an increase of $2.7 million, $1.5
million and $240,000 in salaries, general and administrative expenses, the
provision for loan losses and management fees, respectively.
11
<PAGE>
INTEREST INCOME: Total interest income was $75.2 million for the quarter ended
March 31, 1997 and $59.0 million for the quarter ended March 31, 1996. The
increase in interest income of $16.2 million is primarily due to increases in
interest earnings on construction loans, manufactured housing loans, mortgage
loans held for sale, advances to Indy Mac and mortgage securities of $10.2
million, $2.9 million, $1.2 million, $937,000, and $856,000, respectively,
offset by a decrease of $148,000 in interest income earned on mortgage loans
held for investment.
Interest income on mortgage loans held for investment, consisting primarily of
adjustable rate mortgages, totaled $26.9 million and $27.1 million, resulting
in effective yields of 8.05% and 8.48%, for the quarters ended March 31, 1997
and 1996, respectively. The average outstanding balance of such loans increased
to $1.4 billion for the first quarter of 1997 from $1.3 billion during the first
quarter of 1996.
Interest income earned on mortgage loans held for sale totaled $15.2 million and
$14.0 million, resulting in effective yields of 8.69% and 8.68%, for the
quarters ended March 31, 1997 and 1996, respectively. The average outstanding
balance of such loans rose to $708.3 million for the quarter ended March 31,
1997 from $647.4 million for the quarter ended March 31, 1996.
Interest income on manufactured housing loans totaled $2.9 million during the
three months ended March 31, 1997 at an effective yield of 10.07%. The Company
completed its first purchase of manufactured housing loans during March of 1996.
Accordingly interest income on these loans was immaterial for the quarter ended
March 31, 1996.
Interest income on construction loans totaled $14.7 million and $4.5 million,
with interest earned at effective yields of 12.75% and 12.58%, for the quarters
ended March 31, 1997 and 1996, respectively. The average outstanding balance of
such loans increased to $467.9 million during the first quarter of 1997 from
$143.4 million during the first quarter of 1996.
Interest income on collateral for CMOs was $5.4 million and $5.3 million for the
quarters ended March 31, 1997 and 1996, respectively. The increase was
primarily attributable to an increase in the effective yield earned on the
collateral for CMOs to 7.77% in the first quarter of 1997 from 7.45% in the
first quarter of 1996, offset by a decrease in the average aggregate principal
amount of collateral for CMOs outstanding to $281 million for the quarter ended
March 31, 1997 compared to $288 million for the quarter ended March 31, 1996.
Interest income on collateral for CMOs includes the impact of amortization of
premiums paid in connection with acquiring the loan portfolio, the delay in the
receipt of prepayments and the temporary investment of cash payments in lower
yielding short-term holdings (GICs) until such amounts are used to make payments
on CMOs.
Mortgage securities consist of mortgage derivative products including
subordinated securities, principal-only and interest-only securities and inverse
floater securities. Interest-only securities are comprised primarily of excess
master servicing fees sold by Indy Mac to CWM and subsequently securitized by
CWM, which are classified and accounted for as available for sale, and also
include securitized master servicing fees acquired by CWM in connection with the
securitization of mortgage loans held for sale by Indy Mac which are classified
and accounted for as trading securities. Net income related to mortgage
securities totaled $3.3 million during the first quarter of 1997 as compared to
$2.5 million for the first quarter of 1996.
The value of securitized master servicing fees or other interest-only securities
tend to decline as market interest rates decline and prepayment rates increase.
Accordingly, the yield on such investments could decline considerably as a
result of rapid actual or projected future prepayments occasioned by declining
interest rates. It is also possible that under certain high prepayment
scenarios the Company would not recoup its initial investment in such assets.
In such circumstances, the Company would write down its securitized master
servicing fees available for sale so that the remaining asset does not exceed
the estimated present value of future net master servicing income.
12
<PAGE>
Interest income earned on revolving warehouse lines of credit totaled $4.0
million and $3.8 million, at effective yields of 9.15% and 8.71%, for the
quarters ended March 31, 1997 and 1996, respectively.
INTEREST EXPENSE: For the quarters ended March 31, 1997 and 1996, total
interest expense was $48.1 million and $40.5 million, respectively. This
increase in interest expense of $7.6 million was primarily due to an increase in
interest expense on repurchase agreements and other credit facilities of $8.0
million, offset by a decline in interest expense related to CMOs of $405,000.
Interest expense on repurchase agreements and other credit facilities used to
finance mortgage loans held for sale and investment, revolving warehouse lines
of credit, construction loans and master servicing fees receivable totaled $41.6
million for the quarter ended March 31, 1997, compared to $33.5 million for the
quarter ended March 31, 1996. This increase was principally the result of an
increase in the aggregate average balance of indebtedness outstanding for the
period to $2.9 billion for the quarter ended March 31, 1997 compared to $2.1
billion for the quarter ended March 31, 1996. Such increase was offset, in
part, by a decrease in the weighted average effective rate applicable to such
indebtedness to 5.90% for the quarter ended March 31, 1997 from 6.37% for the
quarter ended March 31, 1996.
Interest expense on senior unsecured notes totaled $1.4 million for each of the
periods ending March 31, 1997 and 1996, resulting in effective rates of 9.22%
and 9.22% for the first quarter of 1997 and 1996, respectively.
Interest expense on CMOs was $5.2 million and $5.6 million for the quarters
ended March 31, 1997 and 1996, respectively. This decrease was primarily
attributable to an decrease in average aggregate CMOs outstanding to $259.2
million for the quarter ended March 31, 1997 from $263.6 million for the quarter
ended March 31, 1996, combined with a decrease in the effective rate on the CMOs
to 8.14% in the first quarter of 1997 from 8.56% in the first quarter of 1996.
EQUITY IN EARNINGS OF INDY MAC: The 1997 first quarter earnings of $4.5 million
for Indy Mac, in which CWM has a 99% economic interest, resulted principally
from net interest income of $3.0 million and gain on sale of mortgage loans and
securities of $16.5 million, offset by salaries, general and administrative
expenses of $11.3 million; management fees of $757,000; and income taxes of $3.3
million. Additionally, Equity in Earnings of Indy Mac, in CWM's consolidated
statement of earnings, was adjusted during the first quarter by $205,000 to
reflect the cumulative effect on Indy Mac's earnings through December 31, 1996
of Indy Mac's restatement of its financial statements for its portfolio of
mortgage securities retained in connection with the securitization of loans from
both available for sale and held to maturity to trading securities. Because the
effect of these changes was not material to CWM's earnings, CWM did not restate
its earnings at December 31, 1996.
During the first quarter of 1996, Indy Mac's earnings totaled $3.3 million which
resulted principally from net interest income of $2.7 million and gain on sale
of mortgage loans and securities of $8.9 million, offset by salaries, general
and administrative expenses of $5.6 million, management fees of $443,000 and
income taxes of $2.5 million.
Indy Mac's interest income related to mortgage securities consist of mortgage
derivative products including subordinated securities, principal-only and
interest-only securities and inverse floater securities. Interest-only
securities are comprised primarily of securitized master servicing fees retained
in connection with the securitization of mortgage loans held for sale. Net
gains related to mortgage securities totaled $10.2 million during the first
quarter of 1997 compared to $9.2 million during the first quarter of 1996.
SALARIES, GENERAL AND ADMINISTRATIVE EXPENSE: The increase of $2.7 million for
the three months ended March 31, 1997 compared to the three months ended March
31, 1996 is primarily the result of the increased personnel and expenses
required to support the growth in the operations of CWM and its qualified REIT
subsidiaries.
13
<PAGE>
MANAGEMENT FEES: For the three months ended March 31, 1997, management fees
paid to CAMC were $2.3 million compared to $2.1 million for the three months
ended March 31, 1996. The increase in the management fees was primarily due to
an increase in incentive compensation for CAMC for the first quarter of 1997,
directly related to the increase in CWM's earnings in comparison to the first
quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses proceeds from the issuance of CMOs, repurchase agreements, bank
debt, other borrowings and common stock to meet its liquidity requirements. In
addition, in connection with its mortgage conduit operations, Indy Mac issues
REMIC securities from time to time to help meet such requirements.
The Company has established a revolving financing facility with Merrill Lynch,
Pierce, Fenner & Smith Inc. and certain of its affiliates, in an aggregate
principal amount of $1 billion. The facility is committed for a period of at
least two years from its date of execution and currently permits the Company to
finance its mortgage conduit, mortgage portfolio, warehouse lending, consumer
construction lending and manufactured housing lending assets and operations.
This facility carries a floating rate of interest based on LIBOR, plus an
applicable margin, which varies by the type of asset financed.
The Company has entered into a repurchase facility with Nomura Asset Capital
Corporation in an aggregate principal amount of $300 million. This financing
facility is currently under renegotiation to renew and carries a floating rate
of interest based on LIBOR, plus an applicable margin, which varies by the type
of asset financed.
The Company has entered into a repurchase facility with Lehman Commercial Paper,
Inc. in an aggregate principal amount of $500 million. Such repurchase facility
is committed until May 23, 1997, and currently permits the Company to finance
certain mortgage loan assets. This repurchase facility carries a floating rate
of interest based on LIBOR, plus an applicable margin, which varies by the type
of asset financed.
The Company has entered into a repurchase facility with Paine Webber Real Estate
Securities, Inc. in an aggregate principal amount of $500 million. Such
repurchase facility is committed for a one-year period from the date of
execution and currently permits the Company to finance its mortgage conduit,
warehouse lending and mortgage portfolio assets and operations. Such repurchase
facility carries a floating rate of interest based on LIBOR, plus an applicable
margin, which varies by the type of asset financed.
In May, 1995, the Company entered into a two-year committed credit facility with
a syndicate of commercial banks led by First Union National Bank of North
Carolina. This facility primarily finances mortgage loans, builder construction
loans, and master servicing assets. In 1996, the Company amended this credit
facility to expand the number of lenders and the available committed borrowings
from $300 million to $405 million and to increase financing available for
builder construction loans. The interest rates under this credit facility are
based, at the Company's election, on LIBOR or the federal funds rate, plus an
applicable margin, which varies by the type of asset financed.
During the fourth quarter of 1995, the Company raised $59.6 million in
connection with the private placement of senior notes with certain institutional
lenders. These senior notes are unsecured, and the proceeds are utilized by the
Company in connection with its working capital needs. The effective rate of
interest on such senior notes is fixed at 9.22% for a period of seven years from
the date of issuance. The senior notes were rated "BBB-" by Duff & Phelps Credit
Rating Co. at the time of issuance and, in December 1996, were rated "BBB-" by
Fitch Investors Service, L.P.
14
<PAGE>
The Company has from time to time raised additional capital through secondary
public offerings. Since the inception of its new business plan in 1993, the
Company has raised a total of $205 million in connection with such secondary
offerings. The Company also raises new equity capital primarily through the
optional cash payment feature of its Dividend Reinvestment Plan. During the
first quarter of 1997 the Company raised $50 million through such Dividend
Reinvestment Plan. During 1996 and 1995, the Company raised $133 million and
$25 million, respectively, through such Dividend Reinvestment Plan.
During the first quarter of 1996, the Company issued one series of CMOs in an
aggregate principal amount of $146 million, secured by collateral consisting of
mortgage loans with an aggregate principal balance of $155 million.
The REIT provisions of the Internal Revenue Code restrict CWM's ability to
retain earnings and thereby replenish the capital committed to its mortgage
portfolio, conduit, commercial lending and other operations by requiring CWM to
distribute to its shareholders substantially all of its taxable income from
operations. Certain of the Company's material businesses, including its mortgage
conduit and commercial lending operations, are known to require significant and
continuing commitments of capital resources.
The Company's liquidity and its ability to raise working capital has generally
improved during recent periods, and management believes that the Company's cash
flow from operations and the Company's existing debt and equity financing
arrangements are sufficient to meet the Company's current short-term liquidity
requirements. To the extent the Company possesses working capital in excess of
its current liquidity requirements, such working capital is as a general matter
utilized to repay borrowings under those tranches of the Company's lines of
credit which carry higher rates of interest, which borrowings would typically
remain available for reborrowing by the Company pursuant to the terms and
conditions of the applicable credit facility.
The Company's ability to meet its long-term liquidity requirements is subject to
the renewal of its repurchase and credit facilities and/or obtaining other
sources of financing, including issuing additional debt or equity from time to
time. Any decision by the Company's lenders and/or investors to make additional
funds available to the Company in the future will depend upon a number of
factors, such as the Company's compliance with the terms of its existing credit
arrangements, the Company's financial performance, industry and market trends in
the Company's various businesses, the general availability of and rates
applicable to financing and investments, such lenders' and/ or investors' own
resources and policies concerning loans and investments, and the relative
attractiveness of alternative investment or lending opportunities.
CASH FLOWS
Operating Activities - In the three months ended March 31, 1997, the Company's
operating activities required cash of approximately $153 million in comparison
to $80 million for the three months ended March 31, 1996. The primary operating
activity for which cash was used during the three months ended March 31, 1997
was the acquisition of mortgage loans and manufactured housing loans held for
sale.
Investing Activities - The primary investing activity for which cash was used
during the three months ended March 31, 1997 was the funding of construction
loans receivable and acquisition of mortgage loans held for investment. Net
cash used in investing activities totaled $252 million for the three months
ended March 31, 1997 compared to a net cash provided by investing activities of
$59 million for the three months ended March 31, 1996.
Financing Activities - Net cash provided by financing activities amounted to
$395 million for the three months ended March 31, 1997 compared to $16 million
for the three months ended March 31, 1996. The increase in cash provided by
financing activities was primarily the result of new borrowings under repurchase
agreements and other credit facilities and proceeds of common stock issuances
pursuant to the Dividend Reinvestment and Stock Purchase Plan during the three
months ended March 31, 1997.
15
<PAGE>
EFFECT OF INTEREST RATE CHANGES
Due to the characteristics of certain of the financial assets and liabilities of
the Company, and the nature of the Company's business activities, the Company's
financial position and results of operations may be affected by changes in
market interest rates. With respect to its financial assets and liabilities,
the Company has devised and implemented a general asset/liability investment
management strategy which seeks, on an economic basis, to mitigate significant
fluctuations in the financial position and results of operations of the Company
caused by changes in interest rates. This strategy attempts, among other
things, to balance investments in various types of financial instruments whose
values are expected to move inversely to each other in response to movements in
market interest rates. However, there can be no assurance that this strategy
(including assumptions concerning the correlation thought to exist between
different types of instruments) or its implementation will be successful in
every interest rate environment.
Financial assets of the Company that tend to increase in value as interest rates
increase, and decline in value as interest rates decrease, include securitized
master servicing and master servicing fees receivable. These financial assets
carry an implicit yield that is based upon estimates of future cash flows on an
underlying pool of mortgage loans. As interest rates increase, the prepayments
on the underlying pool of mortgage loans tends to slow, resulting in higher
residual cash flows than would otherwise have been obtained, and therefore
results in higher implicit yields. As of March 31, 1997, CWM and Indy Mac on a
combined basis held $390 million of securitized master servicing fees and master
servicing fees receivable. Of the $390 million aggregate amount, $266 million
of such assets are classified as trading securities in accordance with the
requirements of SFAS 115 since they were acquired in connection with the
securitization of loans held for sale by Indy Mac.
Financial instruments of the Company that tend to decrease in value as interest
rates increase, and increase in value as interest rates decline, include fixed
rate subordinated securities, principal-only securities and inverse-floater
securities. Similar to the securitized master servicing fees, the principal-
only and inverse floater securities carry an implicit yield based upon estimates
of future cash flows on an underlying pool of mortgage loans. However, the
principal-only and inverse-floater securities generally sell at a discount,
similar to a "zero-coupon" bond, in order to yield an estimated return. If
interest rates increase and prepayments slow in comparison to assumed prepayment
rates, the repayment rate of the principal-only and inverse-floater security
would tend to lengthen and thus reduce the implicit yield on the security.
Conversely, if interest rates decrease, the rate of prepayment on the underlying
pool of loans would tend to increase, resulting in a more rapid rate of
repayment on the principal-only security and inverse floater security and
therefore a higher implicit yield. To a lesser extent, any mortgage securities
held by the Company and supported by adjustable rate mortgage loans may decline
in value as interest rates increase, if the timing or absolute level of interest
rate adjustments on the underlying loans do not correspond to any increases in
market interest rates. As of March 31, 1997, CWM and Indy Mac on a combined
basis held $395 million of fixed and adjustable rate mortgage securities,
principal-only and inverse floater securities. Of the $395 million aggregate
amount, $272 million of such securities are classified as trading securities.
In addition to the inherent risks in seeking to manage fluctuations in the value
of certain assets due to interest rate changes, there may be timing differences
in the recognition of the offsetting effects of gains and losses which are
attributable to specific instruments depending upon whether a security is
classified as trading or available for sale. The unrealized holding gains and
losses on trading securities are recognized in earnings of the period for the
reporting entity. By comparison, the unrealized holding gains and losses of
securities available for sale are excluded from earnings of the reporting entity
and included as a separate component of shareholders' equity. Therefore, to the
extent that the Company is required under GAAP to classify certain securities as
trading, such identification and the resulting accounting could cause
additional volatility in the Company's future reported earnings in periods where
interest rates fluctuate.
16
<PAGE>
The Company is also subject to certain business and credit risks in connection
with interest rate changes. Increases in interest rates may discourage
potential mortgagors from borrowing or refinancing mortgage loans, thus
decreasing the volume of loans available to be purchased through the Company's
mortgage conduit operations, or financed through the Company's construction and
warehouse lending operations. Additionally, with respect to adjustable rate
loans, the rate of delinquency may increase in periods of increasing interest
rates as borrowers face higher mortgage payments.
The Company's liquidity position and net interest income could also be adversely
impacted by significant interest rate fluctuations. Each of the Company's
collateralized borrowing facilities described above in Liquidity and Capital
Resources permit the lender thereunder to require the Company to repay amounts
outstanding and/or pledge additional assets in the event that the value of the
pledged collateral declines due to changes in market interest rates. In the
event of such a decrease in collateral values, it could be necessary for the
Company to provide additional funds and/or pledge additional assets to maintain
financing for its holdings that have not been financed to maturity through the
issuance of CMOs or other debt securities. In addition, increases in short-term
borrowing rates relative to rates earned on asset holdings that have not been
financed to maturity through the issuance of CMOs or other debt securities may
also adversely affect the Company's "spread income" on such assets and thus
reduce the Company's earnings.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
10.1 Second Amendment to 1996 Amended and Extended Management Agreement dated as
of April 28, 1997 between CWM Mortgage Holdings, Inc. and Countrywide Asset
Management Corporation.
10.2 First Amendment to 1996 Amended and Extended Loan Purchase and Administrative
Services Agreement dated as of April 28, 1997 between CWM Mortgage Holdings,
Inc. and Countrywide Home Loans, Inc.
10.3 First Amendment to Employment Agreement dated as of April 1, 1997 between
Countrywide Asset Management Corporation and Michael W. Perry.
27 Financial Data Schedule
Reports on Form 8-K.
--------------------
None
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Pasadena, State of California, on May 15, 1997.
CWM MORTGAGE HOLDINGS, INC.
By: /s/Michael W. Perry
----------------------------------------
Michael W. Perry
Executive Vice President and Chief
Operating Officer
By: /s/James P. Gross
----------------------------------------
James P. Gross
Senior Vice President and Chief Financial Officer
19
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT TO
1996 AMENDED AND EXTENDED MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO 1996 AMENDED AND EXTENDED MANAGEMENT AGREEMENT
(the "Amendment") is made, dated and effective as of the 28th day of April, 1997
by and between CWM Mortgage Holdings, Inc., a Delaware corporation which has
elected to qualify as a real estate investment trust, formerly known as
Countrywide Mortgage Investments, Inc. (the "Company"), and Countrywide Asset
Management Corporation, a Delaware corporation (the "Manager"). Capitalized
terms not otherwise defined herein shall have the respective meanings given such
term in the Agreement (as defined below).
WITNESSETH
WHEREAS, the Company and the Manager have entered into that certain 1996
Amended and Extended Management Agreement dated as of June 1, 1996 (the
"Agreement"), pursuant to which the Company has retained the Manager to manage
the operations and investments of the Company and its Subsidiaries and to
perform certain administrative services for the Company and its Subsidiaries;
WHEREAS, the Company, the Manager and Countrywide Credit Industries, Inc.
have entered into an Agreement and Plan of Merger which provides for the
acquisition of the Manager by the Company on the terms and subject to the
conditions set forth therein;
WHEREAS, in view of the foregoing, it is in the best interest of the
Company to request an extension of the Agreement to a date which is the earlier
of (x) the last business day of the month in which the shareholders of the
Company approve the proposed merger between the Company and the Manager and (y)
May 31, 1998; and
WHEREAS, the Company and the Manager wish to extend the Agreement on the
terms and subject to the conditions set forth herein below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The parties hereto have agreed to extend the term of the Agreement as
set forth below. In order to effectuate this agreement, the first paragraph of
Section 14 of the Agreement is hereby amended to read as follows:
"Section 14. Term; Termination. This Agreement shall continue in force
---------- -----------------
through the earlier of (x) the last business day of the month in which the
shareholders of the Company approve the proposed merger between the Company
and the Manager and (y) May 31, 1998, and thereafter it may be extended
only with the consent of the Manager and by the affirmative vote of a
majority of the Unaffiliated Directors."
<PAGE>
2. Representations and Warranties. Each party hereto hereby represents
------------------------------
and warrants to the other party as follows:
(a) Such party 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.
(b) This Amendment has been duly executed and delivered on behalf of
such party and constitutes the legal, valid and binding obligations of such
party, enforceable against such party in accordance with its terms.
3. No Other Amendment. Except as expressly amended herein, the Agreement
------------------
shall remain in full force and effect as currently written.
4. 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 by their respective officers duly authorized as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
---------------------
Michael W. Perry
President and Chief Operating Officer
COUNTRYWIDE ASSET MANAGEMENT
CORPORATION
By: /s/ Angelo R. Mozilo
---------------------
Angelo R. Mozilo
Chief Executive Officer
-2-
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO
1996 AMENDED AND EXTENDED
LOAN PURCHASE AND ADMINISTRATIVE SERVICES AGREEMENT
THIS FIRST AMENDMENT TO 1996 AMENDED AND EXTENDED LOAN PURCHASE AND
ADMINISTRATIVE SERVICES AGREEMENT (the "Amendment") is made, dated and effective
as of April 28, 1997 by and between CWM Mortgage Holdings, Inc. (formerly known
as Countrywide Mortgage Investments, Inc.), a Delaware corporation (the
"Company"), and Countrywide Home Loans, Inc. (formerly known as Countrywide
Funding Corporation), a New York corporation ("CHL"). Capitalized terms not
otherwise defined herein shall have the respective meanings given such term in
the Agreement (as defined below).
WITNESSETH
WHEREAS, the Company and CHL have entered into that certain 1996 Amended
and Extended Loan Purchase and Administrative Services Agreement dated as of
June 1, 1996 (the "Agreement"), pursuant to which the Company, directly or
through its Subsidiaries, may purchase loans from CHL and appoint CHL to service
mortgage loans for the Company and its Subsidiaries;
WHEREAS, the Company, Countrywide Asset Management Corporation (the
"Manager), an affiliate of CHL, and Countrywide Credit Industries, Inc. have
entered into an Agreement and Plan of Merger which provides for the acquisition
of the Manager by the Company on the terms and subject to the conditions set
forth therein;
WHEREAS, in view of the foregoing, it is in the best interest of the
Company to request an extension of the Agreement to a date which is the earlier
of (x) the last business day of the month in which the shareholders of the
Company approve the proposed merger between the Company and the Manager and (y)
May 31, 1998; and
WHEREAS, the Company and the Manager wish to extend the Agreement on the
terms and subject to the conditions set forth herein below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Amendment. The parties hereto have agreed to extend the term of the
---------
Agreement. In order to effectuate this agreement, the first sentence of Section
8(a) of the Agreement is hereby amended to read as follows:
"This Agreement shall continue in force through the earlier of (x) the
last business day of the month in which the shareholders of the Company
approve the
<PAGE>
proposed merger between the Company and the Manager and (y) May 31, 1998,
and thereafter it may be extended only with the consent of CHL and by the
affirmative vote of a majority of the Unaffiliated Directors."
2. Representations and Warranties. Each party hereto hereby represents
------------------------------
and warrants to the other party as follows:
(a) Such party 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.
(b) This Amendment has been duly executed and delivered on behalf of
such party and constitutes the legal, valid and binding obligations of such
party, enforceable against such party in accordance with its terms.
3. No Other Amendment. Except as expressly amended herein, the Agreement
------------------
shall remain in full force and effect as currently written.
4. 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 by their respective officers duly authorized as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
---------------------
Michael W. Perry
President and Chief Operating Officer
COUNTRYWIDE HOME LOANS, INC.
By: /s/ Angelo R. Mozilo
---------------------
Angelo R. Mozilo
Chairman and Chief Executive Officer
-2-
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made,
dated and effective as of the 1st day of April, 1997 by and between Countrywide
Asset Management Corporation, a Delaware corporation ("Employer") and Michael W.
Perry ("Officer"). Capitalized terms not otherwise defined herein shall have
the respective meanings given such term in the Employment Agreement (as defined
below).
WITNESSETH
WHEREAS, Employer and Officer have entered into that certain Employment
Agreement dated as of November 14, 1996 (the "Employment Agreement"), pursuant
to which Officer has agreed to serve, among other positions, as President and
Chief Operating Officer of CWM Mortgage Holdings, Inc. ("Holdings");
WHEREAS, Employer has proposed and Officer has agreed to seek the approval
of the Employment Agreement from the shareholders of Holdings at their annual
meeting; and
WHEREAS, Employer and Officer wish to amend the Employment Agreement on the
terms and subject to the conditions set forth herein below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The first sentence of Section 4(b) of the Employment Agreement is
hereby amended to read in its entirety as follows:
"Employer shall pay to Officer for each of the Fiscal Years ending
during the term of this Agreement an incentive compensation award
determined pursuant to the Annual Incentive Plan and the Incentive Matrix
attached hereto as Appendix A; provided, however, that Employer shall have
no obligation to pay Officer any such compensation award for the fiscal
years 1997 through 2000 pursuant to this Section 4(b) unless such
compensation is approved by the holders of at least a majority of the
shares of common stock, par value $0.01 per share, of Holdings present in
person or represented by proxy and entitled to vote thereon at the 1997
Annual Meeting of the Stockholders."
2. The Employment Agreement is hereby amended by adding to Section 8 the
following new subsections (l) and (m):
"l. AMENDMENTS. This Agreement may be amended or modified by a
written instrument executed by the Employer (or any successor thereto) and
Michael Perry at any time; provided, however, that nothing in this
Agreement shall permit any material amendment or material modification to
Section 4(b) of this Agreement unless such amendment or modification is
approved by the stockholders of Holdings in the manner set forth in Section
4(b) hereof.
<PAGE>
m. OPTION TO RENEGOTIATE. In the event that stockholders of Holdings
do not approve the incentive compensation provisions set forth in section
4(b) of this Agreement at the 1997 Annual Meeting of the Stockholders,
Officer shall be entitled to renegotiate this Agreement in its entirety.
If after such negotiations, the parties in good faith cannot reach an
agreement on the terms of a new employment agreement, Officer will have the
right to terminate this Agreement pursuant to Sections 5(e) and (f) hereof
and the right to be released from the covenant not to compete set forth in
Section 8(k) hereof."
3. No Other Amendment. Except as expressly amended herein, the Employment
------------------
Agreement shall remain in full force and effect as currently written.
4. 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 ASSET MANAGEMENT CORPORATION
By: /s/ Angelo R. Mozilo
--------------------
Angelo R. Mozilo
Chief Executive Officer
MICHAEL W. PERRY
/s/ Michael W. Perry
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,709
<SECURITIES> 0
<RECEIVABLES> 3,804,228
<ALLOWANCES> (17,500)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,790,437
<CURRENT-LIABILITIES> 0
<BONDS> 256,070
0
0
<COMMON> 526
<OTHER-SE> 540,321
<TOTAL-LIABILITY-AND-EQUITY> 3,790,437
<SALES> 0
<TOTAL-REVENUES> 28,739<F1>
<CGS> 0
<TOTAL-COSTS> 7,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,900
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,344
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,344
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<FN>
<F1>Includes 48,148 of interest expense related to mortgage loan activities.
</FN>
</TABLE>
