COUNTRYWIDE CREDIT INDUSTRIES, INC.
4500 Park Granada
Calabasas, California 91302-1613
WWW.COUNTRYWIDE.COM
CCI 2001 ANNUAL REPORT
WWW.COUNTRYWIDE.COM
Countrywide Credit Industries, Inc.
2001 Annual Report
Shareholder Information
Inquiries Regarding Your Stock Holdings
In all correspondence or telephone inquiries,
please mention Countrywide Credit Industries,
your name as printed on your stock certificate,
your social security number, your address and
your telephone number.
Registered Shareholders
(Shares held in your name)
Address shareholder inquiries to:
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
(800) 524-4458
E-mail Address:
Shareowner[email protected].com
Send certificates for transfer and address
changes to:
The Bank of New York
Receive and Deliver Department-11W
P.O. Box 11002
Church Street Station
New York, NY 10286-1002
(800) 524-4458
Beneficial Shareholders
(Shares held by your broker in the name
of the brokerage house)
Questions should be directed to your broker.
Employee Stock Option Participants
Questions regarding your account, outstanding
options or shares received through option
exercises should be addressed to:
Countrywide Credit Industries, Inc.
Equity Benefit Plan Administration
4500 Park Granada
MSN CH-56
Calabasas, CA 91302-1613
(818) 225-3456
Employee 401(k) Benefit Plan Participants
Questions regarding your 401(k) statements, loan
provisions, fund transfers or other matters should
be addressed to:
Countrywide Credit Industries, Inc.
Human Resources: Benefits Department
1515 Walnut Grove
MSN RM-56
Rosemead, CA 91770
(800) 881-4968, Ext. 3999
Dividend Reinvestment Plan
By enrolling in Countrywide Credit Industries,
Inc.’s Dividend Reinvestment and Optional Cash
Stock Purchase Plan, shareholders may reinvest
cash dividends on all, or some portion, of their
common stock and may purchase the Company’s
common stock on a monthly basis with optional
cash payments. Information on this plan is
available from:
The Bank of New York
Securities Transfer Division
Dividend Reinvestment
P.O. Box 1958
Newark, NJ 07101-9774
(800) 524-4458
Company Information
Shareholders with questions regarding Countrywide
Credit Industries, Inc., or who are interested in
obtaining a copy of the Company’s Form 10-K
without exhibits for Fiscal 2001, or a copy of the
corporate annual report of Balboa Life & Casualty
may contact:
Countrywide Credit Industries, Inc.
Investor Relations
4500 Park Granada
MSN CH-19
Calabasas, CA 91302-1613
(818) 225-3550
You may also reach us through the Internet at
www.countrywide.com
Annual Shareholders’ Meeting
The Annual Meeting of Shareholders
will be held on Thursday, July 12, 2001
at 10:00 a.m. (
PDT) at
Hyatt Westlake Plaza
880 South Westlake Boulevard
Westlake Village, CA 91361
Mortgage Financing and Insurance Products
If you are in the process of purchasing a new
home, are interested in refinancing or obtaining
a home equity loan or would like to know about
our diversified financial products and services,
we are ready to serve you. A special unit of
our company is dedicated to responding to your
inquiries and ensuring that you are satisfied.
Please call the Shareholder Hotline at
(800) 544-8191.
Countrywide Insurance Services, Inc. is also
pleased to offer you personally tailored and
competitive insurance products and services.
Please call (800) 669-6656, Ext. 3175, for
a quote.
You may also reach us through the Internet at
www.countrywide.com or www.cwinsurance.com
Fiscal Year Ended February 28 (29),
Dollar amounts in millions, except per-share data 2001 2000 1999
Revenues $ 2,056 $ 1,871 $ 1,804
Net earnings $ 374 $ 410 $ 385
Total assets $ 22,954 $ 15,822 $ 15,648
Common shareholders’ equity $ 3,559 $ 2,888 $ 2,519
Earnings per share — diluted
(1) (2)
$ 3.14 $ 3.52 $ 3.29
Common shareholders’ equity per share
(at year-end) $ 30.23 $ 25.45 $ 22.37
(1)
Based on weighted average diluted common shares outstanding.
(2)
Earnings per share for Fiscal Year 2000 include a $25.0 million tax benefit primarily related to a corporate reorganization.
Excluding the non-recurring tax benefit, diluted earnings per share would have been $3.31.
Financial Highlights
Table of Contents
IBC 60 58 55 54 17 06 04 02 01 IFC
Financial Highlights
Company Profile
Letter to Shareholders
Countrywide at a Glance
Countrywide’s Transformation
and Senior Management Team
Financial Information
Common Stock and Dividend Information
Production Office Locations
Subsidiaries
Corporate Information
Shareholder Information
Company Profile
Founded in 1969, Countrywide Credit Industries, Inc. is a member of the S&P 500 and the Forbes 500.
The company provides consumer and business-to-business financial services in domestic and international
markets. Consumer businesses include residential mortgages, loan closing services, consumer insurance and
other financial products. Business-to-business activities encompass capital markets, processing and technology,
and insurance products. The company is headquartered in Calabasas, California and has more than 12,000
employees. Principal subsidiaries of the company include:
• Countrywide Home Loans, Inc., which originates, purchases, securitizes, sells and services home loans
• Full Spectrum Lending, Inc., a sub-prime residential lender
• LandSafe, Inc., a provider of loan closing services
• Countrywide Insurance Services, Inc., a full service insurance agency
• Countrywide Capital Markets, a mortgage-related investment banker
• Balboa Life and Casualty, a national provider of property, liability and life insurance
• Countrywide owns 50 percent of Global Home Loans, Limited, a European mortgage banking joint venture
For more information, please visit Countrywide’s website at www.countrywide.com.
Certain of the information included in this Annual Report may contain forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from historical results or those anticipated due to a number of factors such as the direction and level of interest rates, competitive and
general economic conditions in each of our business sectors, expense and loss levels in our mortgage, insurance and other business sectors, general economic conditions in the United
States and abroad and in the domestic and international areas in which we do business, regulatory and legislative environments in which the company operates, changes in accounting
and financial reporting standards, decisions by the company to change its business mix, and other risks detailed in documents filed by the company with the Securities and Exchange
Commission from time to time. Words like “believe,” “expect,” “should,” “may,” “could,” “anticipated,” “promising” and other expressions which indicate future events and trends
identify forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements.
02 CCI
Letter to Shareholders
In last year’s Annual Report, we focused on Countrywide’s strategic transformation. Once a singularly focused mortgage bank,
we have made significant strides in implementing our strategy of becoming a diversified financial services provider to both retail
and institutional customers, domestically and internationally. This year’s Annual Report will describe how Countrywide achieved
this transformation by leveraging the unmatched expertise and robust work ethic of our dedicated employees and seasoned
management team.
Countrywide’s Transformation Strategy Founded in 1969, Countrywide Credit Industries, Inc., built itself into an industry
leader through an unwavering focus on its core business of mortgage banking and a relentless dedication to furthering the
American dream of homeownership. This highly focused strategy enabled the company to emerge as one of the nation’s home
finance leaders during the mid-1990’s.
Over the last five years, however, Countrywide has sought to create additional value for its shareholders by broadening
its mission to include new businesses and markets. Today, the company is a diversified financial services powerhouse in the
U.S. with a foothold to operate in international markets as well. Countrywide’s array of businesses includes a range of
consumer and institutional products and services. Consumer businesses include mortgage banking, consumer insurance and
other retail financial services. Our
B2B activities include processing and technology, capital markets and insurance. The
powerful combination of our core business strength and our innovative diversification strategy has propelled Countrywide into
the S&P 500 and Forbes 500.
Countrywide’s success would not have been possible without the outstanding efforts of our employees, who we believe are
the smartest, best-trained and hardest-working people in our industry. In this year’s Annual Report, we are pleased to introduce
you to our four new Senior Managing Directors, who embody Countrywide’s creativity and work ethic. These four — Kevin Bartlett,
Tom Boone, Carlos Garcia and Dave Sambol — have overseen the implementation of our strategic transformation. We invite you
to learn more about the company, its strategies and its future as described in the following pages by these key individuals.
Countrywide’s Senior Management Team The last few years have brought increasing complexity to our business. Although
our infrastructure has been strong enough to manage this complexity, nevertheless it became clear that high-level organizational
changes were needed to prepare us for the rapid growth and continued diversification which we expect in the coming years.
Therefore, we made the decision to realign our top-level management structure into four newly developed Senior Managing
Director roles. Each Senior Managing Director has responsibilities for carrying out elements of both our core business and
diversification strategies.
Kevin Bartlett is Senior Managing Director and Chief of Secondary Markets for Countrywide. As such, he is responsible for
the securitization and sale of the mortgages we originate. He oversees our mortgage-backed securities trading desk as well as
all mortgage pricing and hedging activities. Among his other accomplishments, he was responsible for brokering the unique
strategic alliance between Countrywide and Fannie Mae in 1999. Kevin joined the company in 1986 after a six-year career
in public accounting. In his previous role at Countrywide, he served as Managing Director, Secondary Markets.
Tom Boone is Senior Managing Director and Chief of Global Processing. He now oversees domestic loan servicing and sub-
servicing, international processing and consulting, and other transaction processing. He has been integral to the formation of
Angelo R. Mozilo Stanford L. Kurland
03 CCI
Countrywide’s European mortgage banking joint venture, Global Home Loans, Ltd., and serves on its Board of Directors.
Previously, Tom was Managing Director of Loan Administration. He came to Countrywide in 1984 from Chase Manhattan Bank.
Carlos Garcia is the Senior Managing Director of Finance and Chief Financial Officer for Countrywide, and Chief Operating
Officer for its subsidiary Countrywide Home Loans, Inc. He is responsible for all corporate operations including finance,
administration, human resources and technology. In addition, he oversees Countrywide’s insurance and banking subsidiaries.
Previously he served as Chief Financial Officer of Countrywide Home Loans, Inc. Carlos joined the company in 1984. Prior to
joining Countrywide, Carlos worked in public accounting.
David Sambol is Senior Managing Director and Chief of Production. He oversees all segments of our loan origination net-
work, including our retail branches, telemarketing, and Internet production; our mortgage broker operations; our correspondent
lending division; and our subprime lending operations. In addition, he is in charge of our investment banking subsidiary,
Countrywide Capital Markets. Dave came to Countrywide in 1985 and has served in various capacities. Most recently, he was
Managing Director of Capital Markets. He has an accounting background.
Fiscal Year 2001 Performance During the latter part of the fiscal year ended February 28, 2001 (“Fiscal 2001”), a soft-
ening of the U.S. economy resulted in a falling interest rate environment, which spurred refinance activity throughout the
mortgage industry. Countrywide capitalized on this opportunity, producing $69 billion in mortgages, the second-highest annual
total in company history. At the end of Fiscal 2001, our mortgage-servicing portfolio stood at $294 billion, representing nearly
3 million borrowers.
Net earnings for Fiscal 2001 were $374 million as compared to $410 million for the prior fiscal year (“Fiscal 2000”).
Diluted earnings per share were $3.14 as compared to $3.52 in Fiscal 2000. The decline in earnings this year from last year’s
record-setting levels was primarily a result of a slow market for loan originators in the early part of Fiscal 2001. In addition,
Fiscal 2000 earnings included a non-recurring tax benefit of $25 million or $0.22 per diluted share. Earnings from non-core
operations (which include insurance, capital markets, loan closing services and international operations) accounted for 27
percent of earnings in Fiscal 2001, compared to 13 percent in Fiscal 2000.
Among our consumer businesses, the consumer mortgage origination sector accounted for 32 percent of consolidated
earnings in Fiscal 2001, compared to 35 percent in Fiscal 2000. The mortgage-related investments sector contributed
28 percent of earnings, compared to 39 percent in Fiscal 2000. B2C insurance provided 1 percent of earnings, the same
as the previous fiscal year.
Among our institutional businesses, the processing and technology sector accounted for 11 percent of Countrywide’s
earnings in Fiscal 2001, compared to 6 percent in Fiscal 2000. Capital Markets contributed 16 percent of earnings this
year, compared to 14 percent in Fiscal 2000. B2B insurance provided 12 percent of earnings, versus 5 percent last year.
Market Outlook As we begin Fiscal 2002, the key driver of the mortgage market continues to be the low interest rate environ-
ment. Should this environment be sustained, the mortgage industry can expect to see a total origination market which approaches
or even exceeds record volume. As of April 2001, the Mortgage Bankers Association of America, Fannie Mae and Freddie Mac
have projected the total market for calendar year 2001 to approach or break the previous record of $1.5 trillion set in 1998.
Countrywide’s mortgage origination business should benefit from these conditions, and our previous record for annual
origination volume, $93 billion in Fiscal 1999, could be within reach. On the servicing side, the risk of portfolio erosion would
be mitigated by the massive surge in loan originations, as the company has seen historically. In the fourth quarter of Fiscal
2001, for example, originations exceeded prepayments by $10.3 billion.
Over the near term, this environment creates opportunities for accelerated growth. Over the longer term, our well-developed
strategy of diversification and globalization provides the potential for enhanced stability and further upside in our income stream.
The Future As Countrywide’s strategic transformation takes us into diverse businesses and new markets around the globe,
Countrywide will face new challenges. We are confident that the employees of Countrywide, under the direction of our Senior
Managing Director team, will rise to these challenges and take the company to new heights, while creating value for our share-
holders. On behalf of all the people at Countrywide, we thank you for your continued interest and support.
Angelo R. Mozilo
Chairman, CEO & President
Stanford L. Kurland
Executive Managing Director & COO
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CONSUMER INSURANCE
Countrywide at a Glance
Consumer Loans
Consumer Markets Division
• Lends directly to consumers. Borrowers who are buying or refinancing a home make
contact through a branch office, over the telephone or through the Internet.
• Funded $19.0 billion in loans in Fiscal 2001.
Wholesale Lending Division
• Lends to consumers through a network of nearly 15,000 mortgage brokers.
• Funded $19.9 billion in loans in Fiscal 2001.
Full Spectrum Lending, Inc.
• Lends directly to sub-prime consumers through a nationwide network of 41 branches.
• Funded $1.6 billion in loans in Fiscal 2001.
Note: e-Commerce, which includes telemarketing and Internet fundings, is a growing
and important component of our consumer lending businesses. Consumer e-commerce
loan fundings represented 44 percent of total consumer loan fundings in Fiscal 2001.
Loan Closing Services
Through LandSafe, Inc., Countrywide offers an array of loan closing services for residen-
tial mortgage loan transactions, including property appraisals, credit reporting services,
flood zone determinations, pre-purchase home inspections, title searches and escrow and
closing documentation.
• Completed more than 2.6 million appraisal, credit reporting, flood zone determination
and title orders in Fiscal 2001.
Countrywide offers retail property and casualty insurance, as well as life and disability
insurance products, directly to consumers through Countrywide Insurance Services, Inc.
• $226.6 million in annualized premiums at February 28, 2001.
• Over 514,000 policies in force at February 28, 2001.
In connection with Countrywide’s mortgage banking activities, the company retains
certain mortgage-related assets, which include capitalized mortgage servicing rights
and residual interests. In addition, the company also manages a servicing hedge
which is designed to protect these investments against prepayment risk.
CONSUMER MORTGAGE ORIGINATIONS
MORTGAGE-RELATED INVESTMENTS
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Correspondent Lending
• Countrywide purchases closed loans from mortgage bankers, commercial banks,
and other financial institutions.
• Funded $28.4 billion in Fiscal 2001.
• Countrywide Warehouse Lending provides warehouse lines of credit to mortgage
originators to finance their origination or acquisition of residential mortgage loans.
Countrywide Capital Markets (CCM)
Countrywide Securities Corporation
• Specializes in trading and underwriting of fixed income products, with an emphasis on
mortgages and mortgage-related products, agency and corporate debt, and certificates
of deposit.
• Total trading volume for Fiscal 2001 was $742 billion.
Countrywide Servicing Exchange
• Brokers bulk servicing for third parties and arranges mortgage servicing purchases
for Countrywide Home Loans (
CHL).
Countrywide Asset Management Corporation
• Specializes in the purchase, acquisition, servicing, management and disposition
of residential mortgage assets, including mortgage servicing rights.
Services total domestic loan portfolio of $293.6 billion
• $285 billion portfolio for
CHL at February 28, 2001.
• $8.6 billion portfolio for sub-servicing for other lenders at February 28, 2001.
50 percent ownership of Global Home Loans, Limited (
GHL)
• GHL services over 750,000 loans for our joint venture partner, Woolwich, plc.
• GHL processes over 10,000 loans per month for Woolwich, plc.
Countrywide serves the insurance needs of institutional clients, business partners, and
their customers through Balboa Life and Casualty (“Balboa”), a national property, liability,
and life insurance carrier, and DirectNet Insurance, which offers a wide array of insurance
products through its website, call centers, and direct-mail efforts.
• Balboa’s net written premiums for the twelve month period ending February 28, 2001
were $244 million. Countrywide acquired Balboa on November 30, 1999.
PROCESSING AND TECHNOLOGY
CAPITAL MARKETSB2B INSURANCE
Angelo R. Mozilo
Stanford L. Kurland
Q&A Countrywide’s Transformation and Senior Management Team
In 1969, Angelo Mozilo co-founded Countrywide Credit Industries, Inc. Today, he serves as Chairman,
Chief Executive Officer and President of the company, which has grown from a small lender into a
diversified financial services provider and a member of the S&P 500 and Forbes 500. In 1979, Angelo
hired Stan Kurland to serve as Countrywide’s controller. Stan is now Executive Managing Director and Chief
Operating Officer for Countrywide, and also serves as
CEO and President of Countrywide Home Loans, Inc.
Together, Angelo and Stan provide the leadership and vision for the company.
Since the mid 1990’s, Countrywide’s pace of diversification and growth has accelerated dramatically. In
addition, the company now operates in markets outside the U.S. As a result, the task of running Countrywide’s
operations has become much more challenging. In 2000, Angelo and Stan made a decision to realign the
company’s management infrastructure, handing off portions of the day-to-day operational control to four newly-
promoted Senior Managing Directors. This new structure will provide enhanced operational strength and
flexibility as the company continues to become larger and more complex.
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07 CCI
Our company is in the midst of a dramatic and far-reaching transformation. Evidence of
this strategic shift is everywhere. At the corporate level, for example, nearly one half of
our earnings are now derived from business lines which didn’t exist at Countrywide ten
years ago. The change is also illustrated by the company’s decisive entries into the
B2B
insurance and banking markets, as well as our dramatic growth in capital markets (as a
niche investment banker focused on mortgage products) and our globalization initiative
in the European mortgage market. Change is taking place at all levels within the company.
Our aim is not just to withstand change, but to embrace it. Historically, our ability to do
so has been one of our greatest competitive advantages.
To meet the demands of the growing marketplace, not to mention the increasing com-
plexity of our own operations, we realized that we must realign our senior management
structure into four functional areas of expertise. Each one of the newly created senior
managing directors is accountable for different elements of our core businesses, as well
as major parts of our diversification strategies. We feel strongly that this realignment will
enhance our ability to manage complexity and change. However, our transformation is far
from complete. Our objectives are to maintain a dominant position in our core mortgage
banking business, to become a strong player in the insurance, banking and capital markets
industries, and to develop a leadership position in the European mortgage markets. In
support of these goals, we now have a strong, deep team in place, consisting of these four
key individuals who will help keep us focused on our mission and assist Angelo and me
in leading the company forward.
“Our company is in the midst
of a dramatic and far-reaching
transformation. Evidence of this
strategic shift is everywhere.”
ANGELO
STAN
What progress is
being made in the
effort to transform
Countrywide?
Why did the company
promote four new
Senior Managing
Directors last year
?
Countrywide is not a portfolio lender, so all of our loan production must be sold. The
majority of the company’s loan production is securitized and sold in sizes that range from
$1 million to over $1 billion. Our role is to make sure we get the best possible execution,
meaning the highest price while minimizing risk. We develop products that can be sold
into the secondary market, then we provide underwriting guidelines and prices to
Countrywide’s production personnel. Once the loans are in the pipeline, we hedge them
against changes in the interest rate environment until they’re settled with investors.
Since Countrywide is a very large producer of mortgage loans, we run one of the largest
mortgage trading positions in the nation.
Dave Walker, Executive Vice President, Credit Risk Management, is responsible for
developing products and underwriting guidelines, as well as loan quality control. In addi-
tion, he oversees much of the securitization process for products of lesser credit grade.
David Spector, Executive Vice President, Loan Sales, runs our trading desk and related
operations. Nick Krsnich, Executive Vice President, Secondary Marketing Trading,
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Kevin Bartlett
Senior Managing Director
and Chief of Secondary Markets
Kevin Bartlett is Senior Managing Director and Chief of Secondary Markets for Countrywide. In this role, he oversees pricing and
administration of all loan products, securitization and sale of loans, hedging, quality control and relationships with government-
sponsored entities including Fannie Mae, Freddie Mac and Ginnie Mae (“the GSEs”). Among his accomplishments, he was
responsible for brokering Countrywide’s unique strategic alliance with Fannie Mae in 1999.
KEVIN
KEVIN
What is the role of
Secondary Markets
operations at
Countrywide?
Who are some of the
key people in your
operations?
09 CCI
handles the financial pricing and execution strategy. Jeff Speakes, Managing Director of
Risk Management, and Mike Smith, Executive Vice President, Portfolio Risk Management,
focus on hedging our servicing asset. Jeff, Mike, David Spector and Nick oversee a diverse
risk management team which is responsible for protecting our pipeline of loans in process,
our inventory of mortgages and mortgage-backed securities, and our portfolio of mortgage
servicing rights. This team performs quantitative analysis of our exposure to interest rate
risk and develops proprietary, cost effective strategies for mitigating this risk.
Fannie Mae, Freddie Mac, Ginnie Mae and, most recently, the Federal Home Loan
Banks (
FHL Banks), are important business partners for us. They offer a method of mort-
gage securitization which usually provides the best execution for the majority of the loans
we originate. We have an especially strong relationship with Fannie Mae, resulting from
the strategic alliance we signed with them in 1999. This historic agreement provided us
with a number of benefits, including new securitization structures to enhance our capital
efficiency; new products and processes to create greater efficiency and lower cost; and
opportunities to accelerate the growth of some of our ancillary businesses. While the
volume we do with each of the GSEs and the
FHL Banks can vary over time, we share
their commitment to and passion for making home financing more affordable and
accessible to all Americans.
“Since Countrywide is a very
large producer of mortgage
loans, we run one of the largest
mortgage trading positions in
the nation.”
KEVIN
Could you tell us
about Countrywide’s
relationships with
the
GSEs?
Countrywide is one of the largest mortgage loan servicers in the U.S., with a portfolio
of $294 billion at the end of Fiscal 2001, which represents nearly 3 million borrowers.
Servicing is one of our core business lines, generating over $1.2 billion in revenues in
Fiscal 2001, but it has strategic importance beyond that. Servicing is the part of our
business which has the most contact with our customers. It also presents opportunities
to realize economies of scale. Furthermore, it performs well in high interest rate environ-
ments, serving as a natural counterbalance to the cycles of loan production, our other
core business line.
We believe we have the most efficient mortgage servicing operation in existence. Richard
DeLeo, Managing Director of Domestic Loan Administration, heads up a management
team which is focused on continuous process improvement in all functions. We have a
heavy focus on automation and technology. For example, we’ve migrated much of our
customer service to the Internet or to automated telephonic prompting.
TOM
TOM
Tom Boone
Senior Managing Director
and Chief of Global Processing
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Tom Boone is Senior Managing Director and Chief of Global Processing for Countrywide. He oversees domestic loan servicing
and subservicing, international processing and servicing operations, international consulting, and other transaction processing
businesses. One of Tom’s most notable accomplishments was his integral role in the establishment of Global Home Loans, Ltd.,
the European mortgage banking joint venture Countrywide formed in 1999 with UK-based Woolwich plc.
Can you describe
Countrywide’s
domestic servicing
operations and their
importance?
What’s the secret
to Countrywide’s
success in the
servicing business?
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The starting point was Europe. We believe Countrywide has the world’s foremost operating
expertise and technology relative to mortgage processing and servicing, but we were seek-
ing a partner with a strong market presence. We found that partner in Woolwich plc, one
of the largest lenders in the UK, and we established a joint venture called Global Home
Loans (
GHL). We provide GHL with technology and operational expertise, and Woolwich
signed a contract to outsource all their loan processing and servicing to the joint venture.
Recently, Woolwich was acquired by Barclays plc, a large UK-based international bank,
and we view this as an opportunity to increase our share in that market. Meanwhile, we
continue to look for other European opportunities, using
GHL as a platform. We also have
an international consulting operation which provides fee income and helps us identify
opportunities in markets outside of Europe and the U.S. Current or recent consulting
assignments have taken place in Japan, Korea, Singapore, Mexico and Colombia.
Michael Keating, Executive Vice President of Global Markets, manages various aspects
of our European operations, including our technology development efforts and our rela-
tionships with existing and potential European business partners. Kevin Meyers, from
our domestic servicing operations, will soon be joining
GHL as its new Chief Executive
Officer. Michael Lea is President of Countrywide International Consulting Services.
“We believe we have the most
efficient mortgage servicing
operation in existence...
We have a heavy focus on
automation and technology.”
TOM
TOM
How did Countrywide
enter the international
arena?
Who are some of
the key people in
your international
operations?
For many years, our captive insurance agency, Countrywide Insurance Services (CIS), has
marketed property, casualty and life insurance to our mortgage customers. This entity is
now one of the largest of its kind, with over 500,000 customers. Two years ago, we acquired
Balboa Life and Casualty, which is an insurance carrier focusing on meeting the needs
of financial institutions. There’s been a strong synergy between the two companies, with
CIS’s powerful retail sales force and Balboa’s capability to design product and market
coverage to institutional clients. We also have been successful in generating income in
the private mortgage insurance arena, with a captive reinsurance subsidiary called Second
Charter. Marshall Gates, Managing Director, oversees all of our insurance operations.
In April 2001, we cleared two regulatory hurdles, obtaining approval from the
OCC to
acquire a small company called Treasury Bank, and gaining Federal Reserve Board approval
to operate as a bank and financial holding company. The strategic intent is to further
diversify our consumer offerings by marketing traditional bank products to our 3 million
mortgage customers and 500,000 insurance customers. This will enable us to better serve
their needs, and it will enhance our potential to retain these customers. In addition, we
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Carlos Garcia is Senior Managing Director of Finance and Chief Financial Officer for Countrywide and Chief Operating Officer of its
principal subsidiary, Countrywide Home Loans, Inc. He oversees all major support and administrative areas of the company, including
finance, human resources, administration and technology. In addition, he oversees our insurance operations, which represent one of
our largest non-core business lines, and our banking subsidiary, which is one of our newest businesses.
CARLOS
CARLOS
Carlos Garcia
Senior Managing Director of Finance
and Chief Financial Officer
Countrywide is
growing rapidly in
the insurance sector.
Can you describe
these operations?
Countrywide recently
made headlines by
moving closer to
obtaining a bank
charter. What are your
plans in this business?
13 CCI
will seek to bring in-house certain functions which historically Countrywide outsourced to
banks. Clay Simmons, President and Chief Operating Officer of Countrywide Financial
Holding Company, Inc., heads up the effort to build our banking operations.
Countrywide is fortunate to have outstanding managers in its support areas. Keith
McLaughlin serves as Managing Director and Chief Financial Officer of
CHL, overseeing
all finance, accounting and treasury functions. Anne McCallion, Managing Director and
Chief Administrative Officer of
CHL, oversees human resources, facilities, procurement
and other administrative areas. Richard Jones, Managing Director and Chief Technology
Officer, leads our central
IT function, and links our divisional development efforts to the
corporate strategy. Rich Lewis, Managing Director of Profitability Enhancement Initiatives,
recently returned after a term in Europe as
Chief Executive Officer of Global Home
Loans. Paul Decoff, Executive Vice President, Corporate Operations Officer, leads a
team that provides consulting services and analytical tools to enhance the productivity
of all areas of the company. Lisa Novacek, Executive Vice President of New Business
Development, supports new initiatives and directs the integration of new acquisitions.
“Two years ago, we acquired
Balboa Life and Casualty,
which is an insurance carrier
focusing on meeting the needs
of financial institutions.”
CARLOS
In addition to
overseeing these
non-core businesses,
you are the Chief
Operating Officer for
Countrywide Home
Loans. How do
you manage these
additional duties?
DAVE
DAVE
Countrywide is one of the largest mortgage lenders in the U.S. In Fiscal 2001, we originated
$69 billion in home loans, the second-highest annual total in company history. We source
these loans through various channels. Our retail arm is the Consumer Markets Division,
which encompasses some 400 local branches, plus state-of-the-art call centers and the
industry’s leading Internet presence. The Wholesale Lending Division serves nearly
15,000 mortgage brokers nationwide. Both of these divisions report to Greg Lumsden,
Managing Director of Originations, and Greg also oversees Full Spectrum Lending, Inc.,
our retail sub-prime subsidiary. On the institutional side, our Correspondent Lending
Division, under the direction of Doug Jones, Executive Vice President, purchases closed
loans from a network of 1,900 financial institutions. Doug also manages Countrywide
Warehouse Lending, which provides inventory financing to several of our mortgage
banking clients.
On the retail side, we have a powerful retail brand, backed by a nationwide branch network
and one of the industry’s best-known websites. In all channels, we provide a compelling
value proposition highlighted by a broad product line, outstanding service and competitive
Dave Sambol
Senior Managing Director
and Chief of Production
14 CCI
Dave Sambol is Senior Managing Director and Chief of Production. In this role, he oversees Countrywide’s consumer and institutional
loan production, which includes retail, mortgage broker and correspondent channels, as well as related loan closing services. In
addition, he leads Countrywide Capital Markets, Inc., one of the company’s most successful non-core businesses, which provides
mortgage-related investment banking services to institutional clients.
Loan origination
is Countrywide’s
highest-profile
business. Could
you describe your
operations in
this area?
What are the keys
to Countrywide’s
success in this arena?
“In Fiscal 2001, we originated
$69 billion in home loans, the
second-highest annual total in
company history.”
15 CCI
What is Countrywide
Capital Markets
(
CCM), and what
is its significance
to the company?
DAVE
pricing, all of which are made possible in part because of our emphasis on automation
and technology. Years ago, for example, Countrywide was the first lender to launch an
artificial intelligence underwriting program
(CLUES). Our comprehensive product line
contains virtually every loan program available in the U.S., including conventional, govern-
ment, conforming, jumbo, fixed, adjustable, sub-prime and home equity loans. We have
also expanded into loan closing services through our subsidiary LandSafe, Inc., under the
direction of Marshall Gates, Managing Director, which provides title, appraisal, credit
reporting, pre-purchase home inspections, escrow and closing documentation, and flood
determination services. This increases the profitability of each loan we originate, and
also allows us to better control the quality of service we provide to our customers.
CCM is a fixed income investment banking firm engaged in sales, trading and under-
writing of mortgage and other debt securities, as well as related research and advisory
activities.
CCM consists of three subsidiaries directed by Ranjit Kripalani, President:
Countrywide Securities Corporation, an
NASD regulated broker-dealer; Countrywide
Servicing Exchange, one of the nation’s largest brokerage firms specializing in mortgage
servicing rights transactions; and Countrywide Asset Management Corporation, a manager
of distressed mortgage related assets. Through its offices in Los Angeles, New York, Fort
Lauderdale, and London,
CCM primarily serves institutional fixed income investors and
other financial institutions. The creation and growth of
CCM has represented one of
Countrywide’s most successful diversification efforts, accounting for 8 percent of
Countrywide’s total income in Fiscal 2001.
STAN
ANGELO
They should understand the quality of our people. We’ve focused on our four newly pro-
moted Senior Managing Directors, who are among the most accomplished and experienced
people in the financial services industry. Kevin Bartlett, Tom Boone, Carlos Garcia and
Dave Sambol collectively have over 60 years of experience with Countrywide, and they’ve
been responsible for building new businesses and forming strategic alliances which set us
apart from our competition. We’ve also described some of the Senior Managing Directors’
key direct reports, including Managing Directors and Executive Vice Presidents who are
recognized experts in their respective disciplines or functions.
There are other senior managers who are important to Countrywide’s success who report
directly to me or Angelo who have not yet been mentioned. These include four Managing
Directors: Andy Bielanski, Managing Director of Marketing, who oversees all branding,
direct marketing and public relations activities; Sandy Samuels, Managing Director and
General Counsel, who manages all legal matters; Sidney Lenz, one of our longest-tenured
employees, with extensive industry experience as Managing Director of Industry Affairs;
and Eric Sieracki, Managing Director of Corporate Finance, who directs our Investor
Relations, Strategic Planning and enterprise corporate finance functions.
As strong as this senior management team is, these individuals represent just the tip of
the iceberg. Working with them are some 12,000 men and women who work hard every day
to make Countrywide one of the top financial services firms in the nation, as well as the
small but growing number of expatriates who are taking our expertise into foreign markets.
Within five years, our strategic objective is to achieve at least 10 percent market share in our
core domestic businesses – mortgage origination and servicing. In our non-core businesses,
which include insurance, capital markets, loan closing services and banking, our goal is to
achieve even more rapid growth than that of our core businesses, which would result in a
shift in the composition of earnings toward a more diverse mix. On the international scene,
we plan to continue expanding our already considerable presence in the UK market, and
to use
GHL as a platform to penetrate the mortgage markets in continental Europe. Five
years from now, we also expect to be capitalizing on opportunities in non-European markets,
including countries in Asia and Latin America.
These are lofty goals. But we believe the company has the best operational team in the
business, across all levels of the organization. It’s the quality of these people that gives us
confidence we can meet the challenging objectives we’ve set for Countrywide.
■
16 CCI
“It’s the quality of these people
that gives us confidence we can
meet the challenging objectives
we’ve set for Countrywide.”
What is the key
message that
readers should take
away from this
Annual Report?
What’s in store for
Countrywide over
the next few years?
Final Thoughts: Angelo Mozilo and Stan Kurland
Financial Table of Contents
54 53 34 33 32 31 30 29 19 18
Selected Consolidated Financial Data
Management’s Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statement of
Common Shareholders’ Equity
Consolidated Statements of Cash Flows
Consolidated Statements of
Comprehensive Income
Notes to Consolidated Financial Statements
Report of Independent Certified
Public Accountants
Common Stock and Dividend Information
Year ended February 28 (29),
(Dollar amounts in thousands, except per share data) 2001 2000 1999 1998 1997
Statement of Earnings Data
(1)
:
Revenues:
Loan origination fees $ 398,544 $ 406,458 $ 623,531 $ 301,389 $ 193,079
Gain on sale of loans 611,092 557,743 699,433 417,427 247,450
Loan production revenue 1,009,636 964,201 1,322,964 718,816 440,529
Interest earned 1,341,402 998,646 1,029,066 584,076 457,005
Interest charges (1,348,242) (922,225) (977,326) (564,640) (418,682)
Net interest income (6,840) 76,421 51,740 19,436 38,323
Loan servicing revenues 1,201,177 996,861 842,583 734,982 614,355
Amortization and impairment/recovery of mortgage
servicing rights, net of servicing hedge (617,153) (445,138) (600,766) (328,845) (226,686)
Net loan administration income 584,024 551,723 241,817 406,137 387,669
Net premiums earned 274,039 75,786 12,504 5,643 1,995
Commissions, fees and other income 195,462 198,318 175,363 132,574 89,351
Gain on sale of subsidiary — 4,424 — 57,381 —
Total revenues 2,056,321 1,870,873 1,804,388 1,339,987 957,867
Expenses:
Salaries and related expenses 769,287 689,768 669,686 424,321 286,884
Occupancy and other office expenses 275,074 270,015 264,575 179,308 126,261
Marketing expenses 71,557 72,930 64,510 42,320 34,255
Insurance net losses 106,827 23,420 — — —
Other operating expenses 247,541 183,542 173,812 128,492 88,569
Total expenses 1,470,286 1,239,675 1,172,583 774,441 535,969
Earnings before income taxes 586,035 631,198 631,805 565,546 421,898
Provision for income taxes 211,882 220,955 246,404 220,563 164,540
Net earnings $ 374,153 $ 410,243 $ 385,401 $ 344,983 $ 257,358
Per Share Data
(2)
:
Basic
(3)
$ 3.26 $ 3.63 $ 3.46 $ 3.21 $ 2.50
Diluted
(3)
$ 3.14 $ 3.52 $ 3.29 $ 3.09 $ 2.44
Cash dividends per share $ 0.40 $ 0.40 $ 0.32 $ 0.32 $ 0.32
Weighted average shares outstanding:
Basic 114,932,000 113,083,000 111,414,000 107,491,000 103,112,000
Diluted 119,035,000 116,688,000 117,045,000 111,526,000 105,677,000
Selected Balance Sheet Data at End of Period
(1)
:
Total assets $ 22,955,907 $ 15,822,328 $ 15,648,256 $ 12,183,211 $ 7,689,090
Short-term debt $ 7,300,030 $ 2,529,302 $ 3,982,435 $ 3,279,489 $ 2,345,663
Long-term debt $ 7,643,991 $ 7,253,323 $ 5,953,324 $ 4,195,732 $ 2,367,661
Common shareholders’ equity $ 3,559,264 $ 2,887,879 $ 2,518,885 $ 2,087,943 $ 1,611,531
Operating Data (dollar amounts in millions):
Loan servicing portfolio
(4)
$ 293,600 $ 250,192 $ 215,489 $ 182,889 $ 158,585
Volume of loans originated $ 68,923 $ 66,740 $ 92,881 $ 48,772 $ 37,811
(1)
Certain amounts in the Consolidated Financial Statements have been reclassified to conform to current year presentation.
(2)
Adjusted to reflect subsequent stock dividends and splits.
(3)
Earnings per share for Fiscal 1998 include a $57.4 million gain on sale of subsidiary. Excluding the non-recurring gain on sale of subsidiary, basic and diluted
earnings per share would have been $2.88 and $2.78, respectively.
(4)
Includes warehoused loans and loans under subservicing agreements.
Selected Consolidated Financial Data
18 CCI
General
The Company’s businesses fall into six general categories: consumer mortgage originations, mortgage-related investments, B2C insurance, processing
and technology, capital markets and B2B insurance. See “Business – Mortgage Originations Segment,” “Business – Mortgage-Related Investments
Segment,” “Business – B2C Insurance Segment,” “Business – Processing and Technology Segment,” “Business – Capital Markets Segment”
and “Business – B2B Insurance Segment.” The Company intends to continue its efforts to expand its operations in each of these areas. A strong
production capability and a growing servicing portfolio are the primary means used by the Company to reduce the sensitivity of its earnings to
changes in interest rates because the effect of interest rate changes on loan production income is countercyclical to their effect on servicing income.
The operations of the B2C Insurance Segment includes acting as an agent in the sale of insurance, including homeowners, fire, flood, earthquake,
life and disability and creditor-placed auto and homeowner insurance. The operations of the Capital Markets Segment include trading MBS and
other mortgage-related assets as well as brokering service contracts and bulk purchases and sales of whole loans. In addition, the Capital Markets
Segment also purchases closed loans from mortgage bankers, commercial banks and other financial institutions through the Correspondent
Division. The operations of the B2B Insurance Segment includes underwriting insurance, including homeowners, fire, flood, earthquake, life and
disability and creditor-placed auto and homeowner insurance.
The Company’s results of operations historically have been influenced primarily by the level of demand for mortgage loans, which is affectedby
such external factors as the level and direction of interest rates, and the strength of the overall economy and the economy in each of the Company’s
lending markets.
The fiscal year ended February 28, 1999 (“Fiscal 1999”) was a then record year for the Company in terms of revenues and net earnings. Loan
production increased to $92.9 billion, an all-time Company record, up from $48.8 billion in the prior fiscal year. The Company attributed the increase
in production to: (i) an increase in the overall mortgage market driven largely by refinances; (ii) the generally strong economy and home purchase
market; and (iii) an increase in the Company’s market share, driven largely by the expansion of its Home Finance Network and Consumer Markets
Division and Wholesale branch networks, including new retail sub-prime branches. For calendar 1998, the Company ranked second in the amount
of single-family mortgage originations nationwide. During calendar 1998, the Company’s market share increased to approximately 6.1%, up from
approximately 5.1% in calendar 1997. During Fiscal 1999, the Company’s loan servicing portfolio grew to $215.5 billion, up from $182.9 billion
at the end of Fiscal 1998. This growth resulted from the Company’s loan production during the year and bulk servicing acquisitions amounting
to $4.6 billion. This growth in the loan servicing portfolio was partially offset by prepayments, partial prepayments and scheduled amortization of
$53.2 billion and the transfer out of $6.5 billion of subservicing. The prepayment rate in the servicing portfolio was 28%, up from the prior year
due to increased refinance activity driven by the lower mortgage interest rate environment in Fiscal 1999.
The fiscal year ended February 29, 2000 (“Fiscal 2000”) was again a record year for the Company in terms of revenues and net earnings. Loan
production decreased to $66.7 billion, down from $92.9 billion in the prior fiscal year. The Company attributed the decrease in production primarily
to a decrease in the overall mortgage market driven largely by a decrease in refinance activity, combined with a slight decrease in the Company’s
market share. For calendar 1999 the Company ranked third in the amount of single-family mortgage originations nationwide. During calendar 1999
the Company’s market share decreased to approximately 5.8% down from approximately 6.1% in calendar 1998. During Fiscal 2000, the Company’s
loan servicing portfolio grew to $250.2 billion, up from $215.5 billion at the end of Fiscal 1999. This growth resulted from the Company’s loan pro-
duction during the year and bulk servicing acquisitions amounting to $2 billion. This growth in the loan servicing portfolio was partially offset by
prepayments, partial prepayments and scheduled amortization of $28.5 billion. The prepayment rate in the servicing portfolio was 13%, down from
28% the prior year due to the higher mortgage interest rate environment in Fiscal 2000.
The fiscal year ended February 28, 2001 (“Fiscal 2001”) was another strong year for the Company in terms of revenues and net earnings. Loan
production increased slightly to $68.9 billion, up from $66.7 billion in the prior fiscal year. The Company attributed the increase in production to an
increase in the Company’s market share. For calendar 2000, the Company ranked third in the amount of single-family mortgage originations nation-
wide. During calendar 2000 the Company’s market share increased to approximately 5.9% up from approximately 5.8% in calendar 1999. During
Fiscal 2001, the Company’s loan servicing portfolio grew to $293.6 billion, up from $250.2 billion at the end of Fiscal 2000. This growth resulted
from the Company’s loan production during the year and bulk servicing acquisitions amounting to $8.7 billion. This growth in the loan servicing
portfolio was partially offset by prepayments, partial prepayments and scheduled amortization of $28.7 billion. The prepayment rate in the servicing
portfolio was 11%, down from 13% the prior year.
19 CCI
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
19 CCI 19 CCI
Fiscal 2001 Compared with Fiscal 2000
Operating Segment Results
The Company’s pre-tax earnings by segment is summarized below.
Pre-Tax Earnings
(Dollar amounts in thousands) Fiscal 2001 Fiscal 2000
Consumer Businesses:
Consumer Mortgage Originations $ 190,411 $ 218,121
Mortgage-Related Investments 166,944 250,296
B2C Insurance 4,158 6,041
Total Consumer Businesses 361,513 474,458
Institutional Businesses:
Processing and Technology 62,540 35,924
Capital Markets 94,373 87,028
B2B Insurance 69,874 31,759
Total Institutional Businesses 226,787 154,711
Other (2,265) 2,029
Pre-Tax Earnings $ 586,035 $ 631,198
Consumer Mortgage Originations Segment
The Consumer Mortgage Originations Segment activities include loan origination through the Company’s retail branch network (Consumer Markets
Division and Full Spectrum Lending, Inc.) and the Wholesale Division, the warehousing and sales of such loans and loan closing services.
Total Consumer Mortgage Originations Segment loan production by Division is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2001 Fiscal 2000
Consumer Mortgage Originations:
Consumer Markets Division $ 18,976 $ 19,967
Wholesale Division 19,940 19,116
Full Spectrum Lending, Inc. 1,605 1,417
Total $ 40,521 $ 40,500
The decline in pre-tax earnings of $27.7 million in Fiscal 2001 as compared to Fiscal 2000 was primarily attributable to reduced margins and
increased price competition throughout Fiscal 2001. The lower net earnings rate on the inventory was due to an increase in short-term rates during
Fiscal 2001 combined with a decrease in long-term rates. The declines were partially offset by improved margins on home equity and sub-prime
loan production and increased profits from loan closing services.
Mortgage-Related Investments Segment
Mortgage-Related Investment Segment activities include investments in assets retained in the mortgage securitization process, including MSRs,
residual interests in asset-backed securities and other mortgage-related assets.
The decrease in pre-tax earnings of $83.4 million in Fiscal 2001 as compared to Fiscal 2000 was primarily due to increased amortization and
impairment of the MSRs net of servicing hedge expense, increased interest expense related to financing the mortgage-related investments and higher
servicing expenses driven by the growth in the servicing portfolio, including the subservicing fee paid to the Processing and Technology Segment. These
factors offset an increase in revenues generated from a larger servicing portfolio and improved performance of the residual investments. The growth
in the Company’s servicing portfolio since Fiscal 2000 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 Fiscal 2001, the Company recorded gains of $208.3 million in accumulated other comprehensive income related to the available-for-sale
securities included in its Servicing Hedge.
During Fiscal 2001, the annual prepayment rate of the Company’s servicing portfolio was 11%, compared to 13% for Fiscal 2000. In general,
the prepayment rate is affected by the level of refinance activity, which in turn is driven primarily by the relative level of mortgage interest rates. The
weighted average interest rate of the mortgage loans in the Company’s servicing portfolio as of February 28, 2001 was 7.8% compared to 7.5% as
of February 29, 2000.
B2C Insurance Segment
B2C Insurance Segment activities include the operations of CIS, an insurance agency that provides homeowners, life, disability and automobile as
well as other forms of insurance, primarily to the Company’s mortgage customers. The decrease in pre-tax earnings of $1.9 million in Fiscal 2001
as compared to Fiscal 2000 was primarily due to a decline in new policies sold.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
20 CCI
Processing and Technology Segment
Processing and Technology Segment activities include internal sub-servicing of the Company’s portfolio, as well as mortgage subservicing and sub-
processing for other domestic and foreign financial institutions. The increase in pre-tax earnings of $26.6 million in Fiscal 2001 as compared to Fiscal
2000 was primarily due to growth in the servicing portfolio and subprocessing for foreign financial institutions. As of February 28, 2001 Global Home
Loans subserviced approximately $40 billion of mortgage loans for the Company’s joint venture partner, Woolwich, plc.
Capital Markets Segment
Capital Markets Segment activities include primarily the operations CSC, a registered broker-dealer specializing in mortgage-related securities, and
the Correspondent Division, through which the Company purchases closed loans from mortgage bankers, commercial banks and other financial
institutions. The increase in pre-tax earnings of $7.3 million in Fiscal 2001 as compared to Fiscal 2000 was primarily due to increased profitability of
CSC driven by higher trading volumes.
B2B Insurance Segment
B2B Insurance Segment includes the activities of Balboa, an insurance carrier that offers property and casualty insurance (specializing in creditor
placed insurance), and life and disability insurance together with the activities of Second Charter Reinsurance Company, a mortgage reinsurance
company. The increase in pre-tax earnings of $38.1 million in Fiscal 2001 as compared to Fiscal 2000 was due to the acquisition of Balboa (on
November 30, 1999) and increased mortgage reinsurance premium volume.
Other
In Fiscal 2000, the Company sold Countrywide Financial Services, Inc. which resulted in a $4.4 million pre-tax gain.
Consolidated Earnings Performance
Revenues for Fiscal 2001 increased to $2.1 billion, up from $1.9 billion for Fiscal 2000. The increase in revenues for Fiscal 2001 compared to
Fiscal 2000 was primarily due to the acquisition of Balboa on November 30, 1999. Revenues for Fiscal 2001, excluding Balboa, decreased 1%
compared to Fiscal 2000. The decline in revenues, excluding Balboa, for Fiscal 2001 compared to Fiscal 2000 was primarily due to a reduction
in production margins, an increase in net servicing hedge expense and increased interest expense related to financing the mortgage-related invest-
ments. The decline was partially offset by increased revenues from the Processing and Technology, Capital Markets and B2B Insurance Segments.
Net earnings decreased 9% to $374.2 million for Fiscal 2001, down from $410.2 million for Fiscal 2000. The decrease in net earnings for Fiscal
2001 was primarily due to a reduction in revenues and a nonrecurring tax benefit of $25 million that related primarily to a corporate reorganization
during Fiscal 2000.
The total volume of loans produced by the Company increased 3% to $68.9 billion for Fiscal 2001, up from $66.7 billion for Fiscal 2000. The
increase in loan production was driven largely by an increase in market share.
Total loan production by purpose and by interest rate type is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2001 Fiscal 2000
Purchase $ 49,696 $ 43,594
Refinance 19,227 23,146
Total $ 68,923 $ 66,740
Fixed Rate $ 59,349 $ 57,178
Adjustable Rate 9,574 9,562
Total $ 68,923 $ 66,740
Total loan production by Segment is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2001 Fiscal 2000
Consumer Mortgage Originations $ 40,521 $ 40,500
Correspondent Division 28,402 26,240
Total $ 68,923 $ 66,740
The factors which affect the relative volume of production among the Company’s Segments include the price competitiveness of each
Segment’s various product offerings, the level of mortgage lending activity in each Segment’s market and the success of each Segment’s sales
and marketing efforts.
Non-traditional loan production (which is included in the Company’s total volume of loans produced) is summarized below.
Non-Traditional Loan Production
(Dollar amounts in millions) Fiscal 2001 Fiscal 2000
Sub-Prime $ 5,360 $ 4,156
Home Equity 4,659 3,636
Total $ 10,019 $ 7,792
21 CCI
Loan production revenues increased in Fiscal 2001 as compared to Fiscal 2000 due to increased trading activity in the Capital Markets Segment
and improved margins on home equity and sub-prime loan production partially offset by reduced margins on prime credit quality, first lien mort-
gages. Sub-prime loans contributed $256.3 million to the gain on sale of loans in Fiscal 2001 and $185.7 million in Fiscal 2000. The sale of home
equity loans contributed $122.5 million and $86.9 million to gain on sale of loans in Fiscal 2001 and Fiscal 2000, respectively. In general, loan
production revenue is affected by numerous factors including the volume and mix of loans produced and sold, the level of competition in the
market place and changes in interest rates.
Net interest expense (interest earned net of interest charges) of $6.8 million for Fiscal 2001 was down from net interest income of $76.4 million
for Fiscal 2000. Net interest income (expense) is principally a function of: (i) net interest income earned from the Company’s mortgage loan inventory
($92.5 million and $157.5 million for Fiscal 2001 and Fiscal 2000, respectively); (ii) interest expense related to the Company’s mortgage-related
investments ($392.3 million and $280.0 million for Fiscal 2001 and Fiscal 2000, respectively); (iii) interest income earned from the custodial
balances associated with the Company’s servicing portfolio ($232.2 million and $172.2 million for Fiscal 2001 and Fiscal 2000, respectively); and
(iv) interest income earned from investments in the Capital Markets and
B2B Insurance Segments ($55.3 million and $15.8 million for Fiscal 2001
and Fiscal 2000, respectively).
The decrease in net interest income from the Company’s mortgage loan inventory was primarily attributable to lower inventory levels combined
with a lower net earnings rate during Fiscal 2001, which resulted from an increase in short-term rates. The increase in interest expense related to
mortgage-related investments resulted primarily from an increase in amounts financed coupled with an increase in short-term interest rates. The
increase in net interest income earned from the custodial balances was primarily due to an increase in the earnings rate and an increase in the
average custodial balances. The increase in net interest income from the investments in the Capital Markets and
B2B Insurance Segments was
primarily due to the acquisition of Balboa on November 30, 1999.
The Company recorded MSR amortization for Fiscal 2001 totaling $518.2 million compared to $459.3 million for Fiscal 2000. The Company
recorded impairment of $896.1 million Fiscal 2001 compared to recovery of previous impairment of $278.3 million for Fiscal 2000. The primary
factors affecting the amount of amortization and impairment or impairment recovery of MSRs recorded in an accounting period are the level of pre-
payments during the period and the change, if any, in estimated future prepayments. 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”).
In Fiscal 2001, the Company recognized a net benefit of $797.1 million from its Servicing Hedge. The net benefit included unrealized net gains
of $520.9 million and realized net gain of $276.2 million from the sale of various financial instruments that comprise the Servicing Hedge net of
premium amortization. In addition, the Company recorded additional gains of $208.3 million in accumulated other comprehensive income related
to the available-for-sale securities included in its Servicing Hedge. In Fiscal 2000, the Company recognized a net expense of $264.1 million from its
Servicing Hedge. The net expense included unrealized net losses of $230.9 million and realized net loss of $33.2 million from the sale of various
financial instruments that comprise the Servicing Hedge net of premium amortization. In addition, the Company recorded additional losses of $50.0
million in accumulated other comprehensive income related to the available-for-sale securities included in its Servicing Hedge.
The financial instruments that comprised the Servicing Hedge included interest rate floors, principal only securities (“P/O Securities”), options
on interest rate swaps (“Swaptions”), options on MBS, options on interest rate futures, interest rate swaps, interest rate swaps with the Company’s
maximum payment capped (“Capped Swaps”), principal only swaps (“P/O Swaps”) and interest rate caps.
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 interest rate floors, options on interest rate futures and MBS, interest rate caps, and Swaptions, the Company is not exposed to
loss beyond its initial outlay to acquire the hedge instruments plus any unrealized gains recognized to date. With respect to the interest rate swaps,
Capped Swaps and P/O Swaps contracts entered into by the Company as of February 28, 2001, the Company estimates that its maximum exposure
to loss over the remaining contractual terms is $1 million.
Salaries and related expenses are summarized below for Fiscal 2001 and Fiscal 2000.
Fiscal 2001
Consumer Institutional Corporate
(Dollar amounts in thousands) Businesses Businesses Administration Total
Base Salaries $ 248,416 $ 150,527 $ 106,691 $ 505,634
Incentive Bonus and Commissions 119,605 42,192 18,682 180,479
Payroll Taxes and Benefits 41,129 23,817 18,228 83,174
Total Salaries and Related Expenses $ 409,150 $ 216,536 $ 143,601 $ 769,287
Average Number of Employees 6,069 3,942 1,693 11,704
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
22 CCI
Fiscal 2000
Consumer Institutional Corporate
(Dollar amounts in thousands) Businesses Businesses Administration Total
Base Salaries $ 266,120 $ 101,402 $ 101,514 $ 469,036
Incentive Bonus 98,759 26,533 20,659 145,951
Payroll Taxes and Benefits 41,231 15,345 18,205 74,781
Total Salaries and Related Expenses $ 406,110 $ 143,280 $ 140,378 $ 689,768
Average Number of Employees 6,321 2,837 1,776 10,934
The amount of salaries increased during Fiscal 2001 as compared to Fiscal 2000 primarily due to an increase in staff in the institutional busi-
nesses due to a larger servicing portfolio and the acquisition of Balboa on November 30, 1999. Incentive bonuses and commissions earned during
the Fiscal 2001 increased primarily due to an increase in production volume, the addition of commissioned sales personnel in the Consumer
Mortgage Originations Segment and increased activity in the Capital Markets Segment.
Occupancy and other office expenses for Fiscal 2001 increased to $275.1 million from $270.0 million for Fiscal 2000. The increase was primarily
due to the acquisition of Balboa and growth in the Processing and Technology Segment.
Marketing expenses for Fiscal 2001 decreased 2% to $71.6 million as compared to $72.9 million for Fiscal 2000.
Insurance net losses are attributable to insurance claims in the B2B Insurance Segment. Insurance losses were $106.8 million for Fiscal 2001.
These losses will increase or decrease during a period depending primarily on the volume of claims caused by natural disasters. The increase in
losses for Fiscal 2001 is due to the acquisition of Balboa on November 30, 1999.
Other operating expenses were $247.5 million for Fiscal 2001 as compared to $183.5 million for Fiscal 2000. The increase was primarily due
to the acquisition of Balboa.
Fiscal 2000 Compared with Fiscal 1999
Operating Segment Results
The Company’s pre-tax earnings by segment is summarized below.
Pre-Tax Earnings
(Dollar amounts in thousands) Fiscal 2000 Fiscal 1999
Consumer Businesses:
Consumer Mortgage Originations $ 218,121 $ 517,827
Mortgage-Related Investments 250,296 (26,319)
B2C Insurance 6,041 3,325
Total Consumer Businesses 474,458 494,833
Institutional Businesses:
Processing and Technology 35,924 33,367
Capital Markets 87,028 90,140
B2B Insurance 31,759 13,084
Total Institutional Businesses 154,711 136,591
Other 2,029 381
Pre-Tax Earnings $ 631,198 $ 631,805
Consumer Mortgage Originations Segment
The Consumer Mortgage Originations Segment activities include loan origination through the Company’s retail branch network (Consumer Markets
Division and Full Spectrum Lending, Inc.) and the Wholesale Division, the warehousing and sales of such loans and loan closing services.
Total consumer mortgage loan production by division is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2000 Fiscal 1999
Consumer Mortgages:
Consumer Markets Division $ 19,967 $ 28,508
Wholesale Division 19,116 30,917
Full Spectrum Lending, Inc. 1,417 708
Total $ 40,500 $ 60,133
The decline in pre-tax earnings of $299.7 million in Fiscal 2000 as compared to Fiscal 1999 was primarily attributable to lower prime credit
quality first mortgage loan production and margins driven by a significant reduction in refinances. These declines were partially offset by increased
loan production and increased sales of higher margin home equity and sub-prime loans.
Mortgage-Related Investments Segment
Mortgage-Related Investment Segment activities include investments in assets retained in the mortgage securitization process, including mortgage
servicing rights, residual interests in asset-backed securities and other mortgage-related assets.
23 CCI
The increase in pre-tax earnings of $276.6 million in Fiscal 2000 as compared to Fiscal 1999 was primarily due to an increase in servicing
revenues resulting from servicing portfolio growth combined with a reduction in amortization and a recovery of previous impairment of the MSRs,
and improved performance of the residual investments. These factors were partially offset by higher servicing expenses driven by growth in the
servicing portfolio, including the subservicing fee paid to the Processing and Technology Segment. The growth in the Company’s servicing portfolio
since Fiscal 1999 was the result of loan production volume and the acquisition of bulk servicing rights. This growth was partially offset by prepay-
ments, partial prepayments and scheduled amortization.
During Fiscal 2000, the annual prepayment rate of the Company’s servicing portfolio was 13%, compared to 28% for Fiscal 1999. In general,
the prepayment rate is affected by the level of refinance activity, which in turn is driven primarily by the relative level of mortgage interest rates.
B2C Insurance Segment
B2C Insurance Segment activities include the operations of CIS, an insurance agency that provides homeowners, life, disability and automobile as
well as other forms of insurance, primarily to the Company’s mortgage customers. The increase in pre-tax earnings of $2.7 million in Fiscal 2000
as compared to Fiscal 1999 was primarily due to an increase in renewal policies.
Processing and Technology Segment
Processing and Technology Segment activities include internal sub-servicing of the Company’s portfolio, as well as mortgage subservicing and sub-
processing for other domestic and foreign financial institutions. The increase in pre-tax earnings of $2.6 million in Fiscal 2000 as compared to Fiscal
1999 was primarily due to growth in the sub-servicing portfolio and in sub-processing activities.
Capital Markets Segment
Capital Markets Segment activities include primarily the operations of CSC, a registered broker-dealer specializing in mortgage-related securities, and
the Correspondent Division, through which the Company purchases closed loans from mortgage bankers, commercial banks and other financial
institutions. The decrease in pre-tax earnings of $3.1 million in Fiscal 2000 as compared to Fiscal 1999 was primarily due to CLD’s decreased pro-
duction volume and reduced margins on prime credit quality first mortgages driven primarily by the decline in refinance activity. This decline was
partially offset by increased profitability of CSC due to higher trading volumes.
B2B Insurance Segment
B2B Insurance Segment includes the activities of Balboa, an insurance carrier that offers property and casualty insurance (specializing in creditor
placed insurance) and life and disability insurance, together with the activities of Second Charter Reinsurance Company, a mortgage reinsurance
company. The increase in pre-tax earnings of $18.7 million in Fiscal 2000 as compared to Fiscal 1999 was due to the acquisition of Balboa (on
November 30, 1999) and increased mortgage reinsurance premium volume.
Consolidated Earnings Performance
Revenues for Fiscal 2000 increased 4% to $1.9 billion, up from $1.8 billion for Fiscal 1999. Net earnings increased 6% to $410.2 million for Fiscal
2000, up from $385.4 million for Fiscal 1999. The slight increase in revenues for Fiscal 2000 compared to Fiscal 1999 was primarily attributed to
the Mortgage-Related Investments and
B2B Insurance Segments, together with increased production of non traditional loan products (i.e., home
equity and sub-prime loans). This increase was largely offset by a decline in traditional prime loan originations, which was attributable to a market-
wide decline in refinance activity. Included in net earnings in Fiscal 2000 was a nonrecurring tax benefit of $25 million that related primarily to a
corporate reorganization.
The total volume of loans produced by the Company decreased 28% to $66.7 billion for Fiscal 2000, down from $92.9 billion for Fiscal 1999.
The decrease in loan production was primarily due to a decrease in the mortgage market, driven largely by a reduction in refinances.
Total loan production by purpose and by interest rate type is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2000 Fiscal 1999
Purchase $ 43,594 $ 39,681
Refinance 23,146 53,200
Total $ 66,740 $ 92,881
Fixed Rate $ 57,178 $ 88,334
Adjustable Rate 9,562 4,547
Total $ 66,740 $ 92,881
Total loan production by Segment is summarized below.
Loan Production
(Dollar amounts in millions) Fiscal 2000 Fiscal 1999
Consumer Mortgages $ 40,500 $ 60,133
Correspondent Division 26,240 32,748
Total $ 66,740 $ 92,881
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
24 CCI
The factors that affect the relative volume of production among the Company’s Segments include the price competitiveness of each Segment’s
product offerings, the level of mortgage lending activity in each Segment’s market and the success of each Segment’s sales and marketing efforts.
Non-traditional loan production (which is included in the Company’s total volume of loans produced) is summarized below.
Non-Traditional Loan Production
(Dollar amounts in millions) Fiscal 2000 Fiscal 1999
Sub-Prime $ 4,156 $ 2,496
Home Equity 3,636 2,221
Total $ 7,792 $ 4,717
Loan production revenues decreased in Fiscal 2000 as compared to Fiscal 1999 due to lower production and reduced margins on prime credit
quality, first lien mortgages. This decrease was partially offset by improved margins on home equity and sub-prime loan production. Sub-prime loans
contributed $186 million to the gain on sale of loans in Fiscal 2000 and $92 million in Fiscal 1999. The sale of home equity loans contributed $87
million and $65 million to gain on sale of loans in Fiscal 2000 and Fiscal 1999, respectively. In general, loan production revenue is affected by
numerous factors including the volume and mix of loans produced and sold, and the level of pricing competition.
Net interest income (interest earned net of interest charges) increased to $76.4 million for Fiscal 2000, up from net interest income of $51.7
million for Fiscal 1999. Net interest income is principally a function of: (i) net interest income earned from the Company’s mortgage loan inventory
($157.5 million and $124.7 million Fiscal 2000 and Fiscal 1999, respectively); (ii) interest expense related to the Company’s mortgage-related
investments ($280.0 million and $265.5 million for Fiscal 2000 and Fiscal 1999, respectively); and (iii) interest income earned from the custodial
balances associated with the Company’s servicing portfolio ($172.2 million and $184.6 million for Fiscal 2000 and Fiscal 1999, respectively).
The increase in net interest income from the Company’s mortgage loan inventory 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 Fiscal 2000. The increase in interest expense on the
investment in servicing rights resulted from a larger servicing portfolio. 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 mortgage prepayments.
The Company recorded MSR amortization for Fiscal 2000 totaling $459.3 million compared to $556.4 million for Fiscal 1999. The Company
recorded recovery of previous impairment of $278.3 million for Fiscal 2000 compared to impairment of $457.2 million for Fiscal 1999. The primary
factors affecting the amount of amortization and impairment or impairment recovery of MSRs recorded in an accounting period are the level of
prepayments during the period and the change, if any, in estimated future prepayments. 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 con-
tracts, that increase in aggregate value when interest rates decline.
In Fiscal 2000, the Company recognized a net expense of $264.1 million from its Servicing Hedge. The net expense included unrealized net
losses of $230.9 million and realized net loss of $33.2 million from the sale of various financial instruments that comprise the Servicing Hedge, net
of premium amortization. In Fiscal 1999, the Company recognized a net gain of $412.8 million from its Servicing Hedge. The net gain included
unrealized net gains of $26.1 million and net realized gain of $386.7 million from the sale of various financial instruments that comprise the Servicing
Hedge, net of premium amortization.
Salaries and related expenses are summarized below for Fiscal 2000 and Fiscal 1999.
Fiscal 2000
Consumer Institutional Corporate
(Dollar amounts in thousands) Businesses Businesses Administration Total
Base Salaries $ 266,120 $ 101,402 $ 101,514 $ 469,036
Incentive Bonus 98,759 26,533 20,659 145,951
Payroll Taxes and Benefits 41,231 15,345 18,205 74,781
Total Salaries and Related Expenses $ 406,110 $ 143,280 $ 140,378 $ 689,768
Average Number of Employees 6,321 2,837 1,776 10,934
Fiscal 1999
Consumer Institutional Corporate
(Dollar amounts in thousands) Businesses Businesses Administration Total
Base Salaries $ 245,131 $ 78,609 $ 90,597 $ 414,337
Incentive Bonus 149,376 19,877 20,107 189,360
Payroll Taxes and Benefits 40,790 12,556 12,643 65,989
Total Salaries and Related Expenses $ 435,297 $ 111,042 $ 123,347 $ 669,686
Average Number of Employees 6,013 2,328 1,606 9,947
The amount of salaries and related expenses increased during the Fiscal 2000 as compared to Fiscal 1999 primarily due to expansion of the
consumer branch network, including the retail sub-prime branches and an increase in staff in the institutional businesses due to a larger servicing
portfolio and the acquisition of Balboa on November 30, 1999. The increase was partially offset by a decline in consumer businesses as a result of
a decline in mortgage originations. Incentive bonuses earned during Fiscal 2000 decreased primarily due to the reduction in loan production.
25 CCI
Occupancy and other office expenses for Fiscal 2000 increased to $270.0 million from $264.6 million for Fiscal 1999. This was primarily due
to expansion of the consumer branch network, a larger servicing portfolio and growth in the Company’s institutional businesses primarily due to the
acquisition of Balboa, partially offset by a reduction in temporary personnel expense as a result of decreased production.
Marketing expenses for Fiscal 2000 increased 13% to $72.9 million, up from $64.5 million for Fiscal 1999. The increase was primarily related
to the growth in the Company’s origination volume of non-traditional loan products.
Insurance net losses are attributable to insurance claims in the B2B Insurance Segment. Insurance losses were $23.4 million for Fiscal 2000
and are due to the acquisition of Balboa on November 30, 1999. These losses will increase or decrease during a period depending primarily on
the volume of claims caused by natural disasters.
Other operating expenses were $183.5 million for Fiscal 2000 as compared to $173.8 million for Fiscal 1999. The increase was primarily
due to the acquisition of Balboa, partially offset by a reduction in reserves for bad debt due primarily to improved property values nationally.
In Fiscal 2000, the Company initiated a corporate reorganization related to its servicing operations. As a result of the reorganization, future state
income tax liabilities are expected to be less than the amounts that were previously recorded as deferred income tax expense and liability in the
Company’s financial statements. The expected reduction in tax liabilities was reflected as a reduction in deferred state income tax expense in
Fiscal 2000.
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 (consumer and institutional) operations and mortgage-related investments, which are counter cyclical in nature. In addi-
tion, 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, MBS 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 loans, 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 February 29, 2001, the Company estimates that a permanent 0.50% reduction in interest
rates, all else being constant, would result in no after-tax loss related to its trading securities or to its other financial instruments and MSRs combined.
These sensitivity analyses are limited by the fact that they are performed at a particular point in time, are subject to the accuracy of various
assumptions used, including prepayment forecasts, and do not incorporate other factors that would impact the Company’s overall financial perfor-
mance in such a scenario. Consequently, the preceding estimates should not be viewed as a forecast.
An additional, albeit less significant, market risk facing the Company is foreign currency risk. The Company has issued foreign currency-
denominated medium-term notes (See Note F). 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
U.S. dollars, thereby eliminating the associated foreign currency risk (subject to the performance of the various counterparties to the currency
swaps). As a result, potential 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 Consumer Mortgage Originations, Mortgage-Related Investments and Capital Markets
Segments. 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 primarily from over capacity in the market. In a higher interest
rate environment, mortgage-related investment 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, 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 prevailing
mortgage rates), thereby decreasing the average life of the Company’s servicing portfolio and adversely impacting its mortgage-related investment
earnings primarily due to increased amortization and impairment of the MSRs, and decreased earnings from residual investments. The Servicing
Hedge is designed to mitigate the impact of changing interest rates on mortgage-related investment earnings.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
26 CCI
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 mortgage 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 temporarily in the winter months.
Liquidity and Capital Resources
The Company’s principal financing needs related to its mortgage banking operations are the financing of its mortgage loan inventory, investment in
MSRs and available-for-sale securities. To meet these needs, the Company currently utilizes commercial paper supported by revolving credit facili-
ties, medium-term notes,
MBS repurchase agreements, subordinated notes, pre-sale funding facilities, redeemable capital trust pass-through
securities, convertible debentures, securitization of servicing fee income 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 revolving credit facilities and public offerings of common and preferred stock. The Company strives to maintain sufficient liquidity
in the form of unused, committed lines of credit to meet anticipated short-term cash requirements as well as to provide for potential sudden increases
in business activity driven by changes in the market environment.
Certain of the debt obligations of CCI and CHL contain various provisions that may affect the ability of CCI 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
CCI and CHL to pay dividends.
The principal financing needs of CCM consist of the financing of its inventory of securities and mortgage loans and its underwriting activities. Its
securities inventory is financed primarily through repurchase agreements. CCM also has access to a $200 million secured bank loan facility and a
secured lending facility with
CHL.
The primary cash needs for the B2B Insurance Segment are to meet short-term and long-term obligations to policyholders (i.e., payment of policy
benefits), costs of acquiring new business (principally commissions) and the purchases of new investments. To meet these needs, Balboa currently
utilizes cash flow provided from operations as well as through partial liquidation of its investment portfolio from time to time.
The Company continues to investigate and pursue alternative and supplementary methods to finance its operations through the public and pri-
vate 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 additional 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 Fiscal 2001, the Company’s operating activities used cash of approximately $3.3 billion on a short-term basis to support an
increase in trading securities and other financial instruments, primarily securities purchased under agreements to resale. In Fiscal 2000, operating
activities provided cash of approximately $4.0 billion.
Investing Activities The primary investing activity for which cash was used by the Company was the investment in MSRs and available-for-sale
securities. Net cash used by investing activities was $2.4 billion for Fiscal 2001 and $3.1 billion for Fiscal 2000.
Financing Activities Net cash provided by financing activities amounted to $5.8 billion for Fiscal 2001 and net cash used by financing activities
amounted to $0.9 billion for Fiscal 2000. The increase in cash flow from financing activities was primarily used to fund the Company’s investment
in MSRs and available-for-sale securities and the increase in trading securities and other financial instruments.
Prospective Trends
Applications and Pipeline of Loans in Process
For the month ended April 30, 2001, the Company received new loan applications at an average daily rate of $675 million. As of April 30, 2001,
the Company’s pipeline of loans in process was $18.6 billion. This compares to a daily application rate for the month ended April 30, 2000 of $344
million and a pipeline of loans in process as of April 30, 2000 of $9.2 billion. The size of the pipeline is generally an indication of the level of near-
term future fundings, as historically 41% to 77% of the pipeline of loans in process has funded. In addition, at April 30, 2001, the Company had
committed to make loans in the amount of $2.2 billion, subject to property identification and approval of the loans (the “LOCK ’N SHOP
®
Pipeline”).
At April 30, 2000, the LOCK ’N SHOP
®
Pipeline was $3.2 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 mortgage rates, seasonal factors and
general economic conditions.
27 CCI
Market Factors
Loan production increased 3% from Fiscal 2000 to Fiscal 2001. This increase was primarily due to an increase in loan purchase production of 14%
to $49.7 billion during the same period driven by an increase in the Company’s market share.
The prepayment rate in the servicing portfolio decreased from 13% for Fiscal 2000 to 11% for Fiscal 2001.
The Company’s California mortgage loan production (as measured by principal balance) constituted 26% and 22% of its total production during
Fiscal 2001 and Fiscal 2000, respectively. 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, increased to 4.68% as of February 28, 2001 from 3.97% as
of February 29, 2000. This increase was primarily the result of changes in portfolio mix and aging. Sub-prime loans (which tend to experience higher
delinquency rates than prime loans) represented approximately 5% of the total portfolio as of February 28, 2001, up from 3% as of February 29,
2000. In addition, the weighted average age of the
FHA and VA loans (which also tend to experience higher delinquency sales than conventional
loans) in the portfolio increased to 36 months at February 28, 2001 from 31 months in February 29, 2000. Delinquency rates tend to increase as
loans age, reaching a peak at three to five years of age. Related late charge income has historically been sufficient to offset incremental servicing
expenses resulting from increased loan delinquencies.
The percentage of loans in the Company’s servicing portfolio, excluding sub-servicing, that are in foreclosure increased to 0.54% as of February 28,
2001 from 0.39% as of February 29, 2000. Because the Company services substantially all conventional loans on a non-recourse basis, related
credit 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 will be borne by the Company. Similarly, government loans serviced by the Company
(22% of the Company’s servicing portfolio as of February 28, 2001) are insured by the
FHA or partially guaranteed against loss by the VA. The
Company is exposed to credit losses to the extent that the partial guarantee provided by the VA is inadequate to cover the total credit losses incurred.
For Fiscal 2001, 2000 and 1999, the losses on VA loans in excess of the VA guaranty were approximately $4.1 million, $8.5 million and $13.2 million,
respectively. The Company retains credit risk on the home equity and sub-prime loans it securitizes, through retention of a subordinated interest
or through a corporate guarantee of losses up to a negotiated maximum amount. As of February 28, 2001, the Company had investments in such
subordinated interests amounting to $763.6 million and had reserves amounting to $56.3 million related to such corporate guarantees.
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. The historical correlation of the Servicing Hedge and the MSRs has been very high.
However, given the complexity and uncertainty inherent in hedging MSRs, there can be no assurance that future results will match or approximate
the historical performance of the Servicing Hedge.
Implementation of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, amended by Statement No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment to FASB Statement No. 133 (collectively, “FAS 133”). FAS 133
requires companies to record derivatives on their balance sheets at fair value. Changes in the fair values of those derivatives would be reported in
earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value of assets or liabilities or
cash flows from forecasted transactions. This statement was effective for the Company on March 1, 2001. At the date of initial application, the
Company recorded certain transition adjustments as required by FAS 133. There was no impact on net income as a result of such transition adjust-
ments. However, such adjustments resulted in the Company reducing the carrying amount of derivative assets by $94 million and recognizing $107
million of derivative liabilities on its balance sheet. Management believes that the Company’s hedging activities are highly effective over the long
term. However, the implementation of FAS 133 could result in more volatility in quarterly reported earnings as a result of market conditions that
temporarily impact the value of the derivatives while not reducing their long term hedge effect.
In September 2000, the
FASB issued Statement No. 140 (“FAS 140”), Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces FAS 125 (of the same title). FAS 140 revises certain standards in the accounting for securitizations
and other transfers of financial assets and collateral, and requires some disclosures relating to securitization transactions and collateral that were
not required by FAS 125; however, FAS 140 carries over most of FAS 125’s provisions. The collateral and disclosure provisions of FAS 140 are effec-
tive for fiscal years ending after December 15, 2000. The February 28, 2001 financial statements for the Company include the disclosures required
by FAS 140. The other provisions of FAS 140 are effective for transfers and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. Management does not expect that the adoption of this statement will have a material impact on the Company.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
28 CCI
29 CCI
February 28 (29),
(Dollar amounts in thousands, except per share data) 2001 2000
Assets
Cash $ 126,496 $ 59,890
Mortgage loans and mortgage-backed securities held for sale 1,964,018 2,653,183
Trading securities, at market value ($309,089 pledged as collateral) 4,050,082 1,984,031
Mortgage servicing rights, net 5,767,748 5,396,477
Investments in other financial instruments 4,160,314 3,174,194
Securities purchased under agreements to resell 3,109,556 435,593
Property, equipment and leasehold improvements, net 396,943 410,899
Other assets 3,380,350 1,708,061
Total assets $ 22,955,507 $ 15,822,328
Borrower and investor custodial accounts (segregated in special accounts — excluded from corporate assets) $ 5,553,143 $ 2,852,738
Liabilities and Shareholders’ Equity
Notes payable $ 11,402,791 $ 8,281,216
Securities sold under agreements to repurchase 3,541,230 1,501,409
Drafts payable issued in connection with mortgage loan closings 932,931 382,108
Accounts payable, accrued liabilities and other 1,449,288 997,405
Deferred income taxes 1,570,003 1,272,311
Total liabilities 18,896,243 12,434,449
Commitments and contingencies ——
Company-obligated mandatorily redeemable capital trust pass-through securities of subsidiary
trusts holding solely Company guaranteed related subordinated debt 500,000 500,000
Shareholders’ equity
Preferred stock — authorized, 1,500,000 shares of $0.05 par value; issued and outstanding, none ——
Common stock — authorized, 240,000,000 shares of $0.05 par value; issued and outstanding,
117,732,249 shares in 2001 and 113,463,424 shares in 2000 5,887 5,673
Additional paid-in capital 1,307,679 1,171,238
Accumulated other comprehensive income (loss) 173,249 (33,234)
Retained earnings 2,072,449 1,744,202
Total shareholders’ equity 3,559,264 2,887,879
Total liabilities and shareholders’ equity $ 22,955,507 $ 15,822,328
Borrower and investor custodial accounts $ 5,553,143 $ 2,852,738
The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets
Year ended February 28 (29),
(Dollar amounts in thousands, except per share data) 2001 2000 1999
Revenues
Loan origination fees $ 398,544 $ 406,458 $ 623,531
Gain on sale of loans, net of commitment fees 611,092 557,743 699,433
Loan production revenue 1,009,636 964,201 1,322,964
Interest earned 1,341,402 998,646 1,029,066
Interest charges (1,348,242) (922,225) (977,326)
Net interest (6,840) 76,421 51,740
Loan servicing revenues 1,201,177 996,861 842,583
Amortization and impairment/recovery of mortgage
servicing rights, net of servicing hedge (617,153) (445,138) (600,766)
Net loan administration income 584,024 551,723 241,817
Net premiums earned 274,039 75,786 12,504
Commissions, fees and other income 195,462 202,742 175,363
Total revenues 2,056,321 1,870,873 1,804,388
Expenses
Salaries and related expenses 769,287 689,768 669,686
Occupancy and other office expenses 275,074 270,015 264,575
Marketing expenses 71,557 72,930 64,510
Insurance net losses 106,827 23,420 —
Other operating expenses 247,541 183,542 173,812
Total expenses 1,470,286 1,239,675 1,172,583
Earnings before income taxes 586,035 631,198 631,805
Provision for income taxes 211,882 220,955 246,404
Net Earnings $ 374,153 $ 410,243 $ 385,401
Earnings per share
Basic $ 3.26 $ 3.63 $ 3.46
Diluted $ 3.14 $ 3.52 $ 3.29
The accompanying notes are an integral part of these statements.
Consolidated Statements of Earnings
30 CCI
Three years ended February 28 (29),
Accumulated
Additional Other
Number Common Paid-in- Comprehensive Retained
(Dollar amounts in thousands) of Shares Stock Capital Income (Loss) Earnings Total
Balance at February 28, 1998 109,205,579 $ 5,460 $ 1,049,365 $ 3,697 $ 1,029,421 $ 2,087,943
Cash dividends paid – common ——— —(35,648) (35,648)
Stock options exercised 1,239,662 62 20,047 ——20,109
Tax benefit of stock options exercised ——11,456 ——11,456
Dividend reinvestment plan 2,048,062 103 66,669 ——66,772
401(k) Plan contribution 126,010 6 6,136 ——6,142
Other comprehensive loss, net of tax ———(23,290) — (23,290)
Net earnings for the year ——— —385,401 385,401
Balance at February 28, 1999 112,619,313 5,631 1,153,673 (19,593) 1,379,174 2,518,885
Cash dividends paid – common ——— —(45,215) (45,215)
Stock options exercised 602,021 31 6,709 ——6,740
Tax benefit of stock options exercised ——1,883 ——1,883
Dividend reinvestment plan 61,869 2 1,986 ——1,988
401(k) Plan contribution 180,221 9 6,987 ——6,996
Other comprehensive loss, net of tax ———(13,641) — (13,641)
Net earnings for the year ——— —410,243 410,243
Balance at February 29, 2000 113,463,424 5,673 1,171,238 (33,234) 1,744,202 2,887,879
Cash dividends paid – common ——— —(45,906) (45,906)
Stock options exercised 2,797,939 140 57,468 ——57,608
Tax benefit of stock options exercised ——17,375 ——17,375
Dividend reinvestment plan 1,133,101 57 51,720 ——51,777
401(k) Plan contribution 264,018 13 7,865 ——7,878
Issued to employee stock purchase plan 73,767 4 2,013 ——2,017
Other comprehensive income, net of tax ———206,483 — 206,483
Net earnings for the year ——— —374,153 374,153
Balance at February 28, 2001 117,732,249 $ 5,887 $ 1,307,679 $ 173,249 $ 2,072,449 $ 3,559,264
The accompanying notes are an integral part of this statement.
Consolidated Statement of Common Shareholders’ Equity
31 CCI
Year ended February 28 (29),
(Dollar amounts in thousands) 2001 2000 1999
Cash flows from operating activities:
Net earnings $ 374,153 $ 410,243 $ 385,401
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Gain on sale of available-for-sale securities (56,965) (12,332) (56,801)
Gain on sale of subsidiary — (4,424) —
Gain on sale of securitized service fees — (2,650) —
Amortization and impairment/recovery of mortgage servicing rights 1,414,388 181,101 1,013,578
Depreciation and other amortization 70,736 65,947 49,210
Deferred income taxes 211,882 220,955 246,404
Origination and purchase of loans held for sale (68,923,245) (66,739,744) (92,880,538)
Principal repayments and sale of loans 69,612,410 70,317,781 91,941,509
Decrease (increase) in mortgage loans and mortgage-backed securities held for sale 689,165 3,578,037 (939,029)
(Increase) decrease in other financial instruments (20,345) 438,069 (269,711)
Increase in trading securities (2,066,051) (523,585) (1,216,499)
Increase in securities purchased under agreements to resale (2,673,963) (359,347) (22,686)
Increase in other assets (1,705,133) (33,722) (32,763)
Increase in accounts payable and accrued liabilities 451,883 6,263 35,259
Net cash provided (used) by operating activities (3,310,250) 3,964,555 (807,637)
Cash flows from investing activities:
Additions to mortgage servicing rights, net (1,785,659) (1,299,909) (1,898,007)
Additions to available-for-sale securities (1,480,079) (1,519,545) (195,828)
Proceeds from sale of securitized service fees — 197,616 —
Acquisition of insurance company — (425,000) —
Purchase of property, equipment and leasehold improvements, net (38,721) (150,537) (119,507)
Proceeds from sale of available-for-sale securities 895,736 96,200 231,555
Proceeds from sale of subsidiary — 21,053 —
Net cash used by investing activities (2,408,723) (3,080,122) (1,981,787)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings 3,252,032 (790,117) (1,122,273)
Issuance of long-term debt 3,417,237 2,224,354 4,044,121
Repayment of long-term debt (957,050) (2,288,762) (142,096)
Issuance of common stock 119,266 16,449 93,361
Cash dividends paid (45,906) (45,215) (35,648)
Net cash provided (used) by financing activities 5,785,579 (883,291) 2,837,465
Net increase in cash 66,606 1,142 48,041
Cash at beginning of period 59,890 58,748 10,707
Cash at end of period $ 126,496 $ 59,890 $ 58,748
Supplemental cash flow information:
Cash used to pay interest $ 1,336,506 $ 902,491 $ 876,236
Cash used to pay income taxes $ 14,799 $ 7,084 $ 1,407
Noncash financing activities:
Unrealized gain (loss) on available-for-sale securities, net of tax $ 206,483 $ (13,641) $ (23,290)
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
32 CCI
Year ended February 28 (29),
(Dollar amounts in thousands) 2001 2000 1999
Net Earnings $ 374,153 $ 410,243 $ 385,401
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during the period, before tax 381,587 (9,356) 18,556
Income tax (expense) benefit (138,876) 3,331 (7,237)
Unrealized holding gains (losses) arising during the period, net of tax 242,711 (6,025) 11,319
Less: reclassification adjustment for gains included in net earnings, before tax (56,965) (12,332) (56,801)
Income tax expense 20,737 4,716 22,192
Reclassification adjustment for gains included in net earnings, net of tax (36,228) (7,616) (34,609)
Other comprehensive income (loss) 206,483 (13,641) (23,290)
Comprehensive Income $ 580,636 $ 396,602 $ 362,111
The accompanying notes are an integral part of these statements.
Consolidated Statements of Comprehensive Income
33 CCI
Note A — Summary of Significant Accounting Policies
Countrywide Credit Industries, Inc. (the “Company”) is a holding company, which through its principal subsidiary, Countrywide Home Loans, Inc.
(“CHL”), is engaged primarily in the mortgage banking business and as such originates, purchases, sells and services mortgage loans throughout
the United States. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying consolidated financial
statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent and all wholly-owned subsidiaries that are required to be consolidated
under generally accepted accounting principles. All material intercompany accounts and transactions have been eliminated.
Mortgage Loans and Mortgage-Backed Securities Held for Sale
Mortgage loans held for sale are carried at the lower of cost or market, which is computed by the aggregate method (unrealized losses are offset by
unrealized gains). The cost of mortgage loans and the carrying value of mortgage-backed securities (“MBS”) held for sale in the near term are
adjusted by gains and losses generated from corresponding hedging transactions entered into to protect the value of the mortgage loans and MBS
held for sale from increases in interest rates. Hedging transactions also are entered into to protect the value of the Company’s short-term rate and
point commitments to fund mortgage loan applications in process (the “Committed Pipeline”) from increases in interest rates. Gains and losses
generated from such hedging transactions are deferred. Hedging losses are recognized currently if deferring such losses would result in mortgage
loans and MBS held for sale and the Committed Pipeline being effectively valued in excess of their estimated net realizable value.
The Company’s MBS held for sale in the near term are classified as trading. Trading securities are recorded at fair value, with the change in
fair value during the period included in earnings. The fair value of MBS held for sale in the near term is based on quoted market prices.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Leasehold
improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method.
Transfers and Servicing of Financial Assets
A transfer of financial assets is accounted for as a sale when control is surrendered over the assets transferred. The Company typically retains mort-
gage servicing rights (“MSRs”) and may retain interest-only strips, principal-only strips and one or more subordinated interests. MSRs and other
assets retained are recognized as separate assets by allocating total costs incurred between the loan sold and MSRs and other assets retained based
on their relative fair values. The Company estimates the fair value of retained interests based upon the present value of the expected future cash
flows. This entails estimates of prepayment speeds, credit losses, discount rates and other factors that impact the value of the retained interests.
The Company recognizes as separate assets the rights to service mortgage loans for others, whether the servicing rights are acquired through a
separate purchase or through securitization. Amortization of MSRs is based on the ratio of net servicing income received in the current period to
total net servicing income projected to be realized from the MSRs. Projected net servicing income is in turn determined by the estimated future bal-
ance of the underlying mortgage loan portfolio, which declines over time from prepayments and scheduled loan amortization. The Company estimates
future prepayment rates based on current interest rate levels, other economic conditions and market forecasts, as well as relevant characteristics of
the servicing portfolio, such as loan types, note rate stratification and recent prepayment experience.
MSRs are periodically evaluated for impairment, which is recognized in the statement of earnings during the applicable period through additions
to an impairment reserve. For purposes of performing its impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain
risk characteristics including loan type (fixed or adjustable) and note rate.
Other retained interests are classified as available-for-sale securities.
Servicing Hedge
To mitigate the effect on earnings of MSR impairment that may result from increased current and projected prepayment activity that generally
occurs when interest rates decline, the Company acquires financial instruments, including derivatives, that increase in aggregate value when inter-
est rates decline (the “Servicing Hedge”). These financial instruments include interest rate floors, principle-only securities (“P/O Securities”), options
on interest rate swaps (“Swaptions”), options on MBS, options on interest rate futures, interest rate futures, interest rate swaps with the Company’s
maximum payment capped (“Capped Swaps”), interest rate swaps and interest rate caps. The value of the interest rate floors, options on interest
rate futures and MBS, Capped Swaps, interest rate caps and Swaptions, is derived from an underlying instrument or index; however, the notional or
contractual amount is not recognized on the balance sheet. The cost of these instruments is charged to expense (and deducted from net loan admini-
stration income) over the life of the contract. Unamortized costs are included in Investments in Other Financial Instruments on the balance sheet.
The basis of the MSRs is adjusted for realized and unrealized gains and losses in the derivative financial instruments that qualify for hedge accounting.
Notes to Consolidated Financial Statements
34 CCI
Qualitative Disclosures 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 Mortgage-Related Investments Segment with the Production Divisions, 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.
To qualify for hedge accounting, the derivative contract positions must be designated as a hedge and be effective in reducing the market risk of
an existing asset, liability or the Committed Pipeline. The effectiveness of the derivative contracts is evaluated on an initial and ongoing basis using
quantitative measures of correlation. If a derivative contract no longer qualifies as a hedge, any subsequent changes in fair value are recognized
currently in earnings.
If a derivative contract that qualifies as a hedge is sold, matures or is terminated, any resulting intrinsic gain or loss adjusts the basis of the
hedged item and any gain or loss resulting from unamortized premiums associated with the time value of such contracts are recognized in income.
If a designated underlying item is no longer held, any previously unrecognized gain or loss on the related derivative is recognized in earnings and
the derivative contract is subsequently accounted for at fair value.
Trading Securities
Trading securities consists of financial instruments held by the Company’s broker-dealer subsidiary. These financial instruments, including derivative
contracts, are recorded at fair value on a trade date basis, and gains and losses, both realized and unrealized, are included in Gain on Sale of Loans.
Securities Purchase Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase are accounted for as
collateralized financing except where the Company does not have an agreement to sell (or purchase) the same or substantially the same securities
before maturity at a fixed or determinable price. It is the policy of the Company to obtain possession of collateral with a market value equal to or in
excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit
additional collateral or return collateral pledged when appropriate.
At February 28, 2001, the market value of the collateral received related to securities purchased under agreements to resell was $2,201 million
of which $723 million was pledged as collateral.
Collateral
The Company continues to report assets it has pledged as collateral in secured borrowings and other arrangements when the secured party cannot
sell or repledge the assets or the Company can substitute collateral or otherwise redeem it on short notice. The Company generally does not report
assets received as collateral in secured lending and other arrangements since the debtor typically has the right to redeem the collateral on short notice.
Available-for-Sale-Securities
The Company has designated its investments in P/O Securities, certain other equity securities, mortgage-backed securities retained in the Company’s
securitizations and insurance company investment portfolio as available for sale securities, which are included in Investments in Other Financial
Instruments. Mortgage-backed securities retained in the Company’s securitizations consist of sub-prime and home equity residual interests (“Residuals”)
and interest-only and principal-only certificates related to the Company’s non-conforming private label mortgage-backed securities. The timing and
amount of cash flows on these securities are significantly influenced by prepayments on the underlying loans and estimated foreclosure losses to
the extent the Company has retained the risk of such losses. The fair value of these securities is determined by discounting future cash flows using
discount rates that approximate current market rates.
The insurance company investment portfolio includes primarily fixed income securities, as well as other short-term securities.
The available for sale securities are measured at fair value. Unrealized gains or losses, net of deferred income taxes, are excluded from earnings
and reported as a separate component of shareholders’ equity until realized. Realized gains and losses on sales of securities are computed by the
specific identification method at the time of disposition and are recorded in earnings. Unrealized losses that are other than temporary are recog-
nized in earnings.
Loan Origination Fees
Loan origination fees, as well as discount points and certain direct origination costs are initially recorded as an adjustment of the cost of the loan
and reflected in earnings when the loan is sold.
Interest Income Recognition
Interest income is accrued as earned. Loans are placed on non-accrual status when any portion of principal or interest is ninety days past due or
earlier when concern exists as to the ultimate collectibility of principal or interest. Loans return to accrual status when principal and interest become
current and are anticipated to be fully collectible.
Loan Servicing Income
Loan servicing income represents fees earned for servicing residential mortgage loans for investors and related ancillary income, including late
charges. Servicing income is recognized as earned, unless collection is doubtful.
35 CCI
Interest Rate Swap Agreements
The amount to be received or paid under the interest rate swap agreements associated with the Company’s debt and custodial accounts is accrued
and is recognized as an adjustment to net interest income. The related amount payable to or receivable from counterparties is included in accounts
payable and accrued liabilities.
Advertising Costs
The Company generally charges to expense the production costs of advertising the first time the advertising takes place, except for direct-response
advertising, which is capitalized and amortized over the expected period of future benefits. Advertising expense was $55.5 million, $53.5 million
and $46.0 million for the years ended February 28 (29), 2001, 2000 and 1999, respectively.
Stock-Based Compensation
The Company generally grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company recognizes compensation cost related to its stock option plans only to the extent that the fair value of the shares
at the grant date exceeds the exercise price.
Income Taxes
The Company utilizes an asset and liability approach in its accounting for income taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary differences between the financial statement and tax basis carrying
amounts of assets and liabilities.
Earnings Per Share
Basic earnings per share (“EPS”) 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 years ended February 28 (29), 2001, 2000 and 1999.
Year ended February 28 (29),
2001 2000 1999
(Amounts in thousands, Net Per Share Net Per Share Net Per Share
except per share data) Earnings Shares Amount Earnings Shares Amount Earnings Shares Amount
Net earnings $ 374,153 $ 410,243 $ 385,401
Basic EPS
Net earnings available to
common shareholders $ 374,153 114,932 $ 3.26 $ 410,243 113,083 $ 3.63 $ 385,401 111,414 $ 3.46
Effect of Dilutive Stock Options 4,103 3,605 5,631
Diluted EPS
Net earnings available to
common shareholders $ 374,153 119,035 $ 3.14 $ 410,243 116,688 $ 3.52 $ 385,401 117,045 $ 3.29
During the years ended February 28 (29), 2001 and 2000, options to purchase 3.3 million shares and 3.2 million shares, respectively, were
outstanding but not included in the computation of EPS because they were antidilutive.
Financial Statement Reclassifications and Restatement
Certain amounts reflected in the Consolidated Financial Statements for the years ended February 29 (28), 2000 and 1999 have been reclassified to
conform to the presentation for the year ended February 28, 2001.
Note B — Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consisted of the following.
February 28 (29),
(Dollar amounts in thousands) 2001 2000
Buildings $ 190,109 $ 183,134
Office equipment 393,721 362,346
Leasehold improvements 55,822 55,281
639,652 600,761
Less: accumulated depreciation and amortization (271,505) (218,828)
368,147 381,933
Land 28,796 28,966
$ 396,943 $ 410,899
Depreciation and amortization expense amounted to $54.6 million, $48.8 million and $40.3 million for the years ended February 28 (29), 2001,
2000 and 1999, respectively.
Notes to Consolidated Financial Statements
36 CCI
Note C — Mortgage Servicing Rights
Entries to mortgage servicing rights for the years ended February 28 (29), 2001, 2000 and 1999 were as follows.
February 28 (29),
(Dollar amounts in thousands) 2001 2000 1999
Mortgage Servicing Rights
Balance at beginning of period $ 5,420,239 $ 4,591,191 $ 3,653,318
Additions, net 1,785,659 1,299,909 1,898,007
Securitization of service fees — (218,770) —
Scheduled amortization (518,199) (459,308) (556,373)
Hedge losses (gains) applied (811,578) 207,217 (403,761)
Balance before valuation reserve at end of period 5,876,121 5,420,239 4,591,191
Reserve for Impairment of Mortgage Servicing Rights
Balance at beginning of period (23,762) (94,752) (41,308)
Reductions (additions) (84,611) 70,990 (53,444)
Balance at end of period (108,373) (23,762) (94,752)
Mortgage Servicing Rights, net $ 5,767,748 $ 5,396,477 $ 4,496,439
The estimated fair value of mortgage servicing rights was $5.8 billion and $5.7 billion as of February 28 (29), 2001 and 2000, respectively. The
fair value was determined by discounting estimated net future cash flows from mortgage servicing activities using discount rates that approximate
current market rates.
Note D — Investments in Other Financial Instruments
Investments in other financial instruments as of February 28 (29), 2001 and 2000 included the following.
February 28 (29),
(Dollar amounts in thousands) 2001 2000
Servicing hedge instruments $ 2,407,799 $ 1,784,315
Mortgage-backed securities retained in securitization 1,202,093 823,196
Insurance company investment portfolio 550,422 520,490
Equity securities, restricted and unrestricted — 46,193
$ 4,160,314 $ 3,174,194
Note E — Available For Sale Securities
Amortized cost and fair value of available for sale securities as of February 28 (29), 2001 and 2000 were as follows:
February 28, 2001
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
Mortgage-backed securities retained in securitization $ 1,108,557 $ 107,627 $ (14,091) $ 1,202,093
Principal only securities 1,190,281 159,318 (605) 1,348,994
Insurance company investment portfolio 531,983 21,637 (3,198) 550,422
$ 2,830,821 $ 288,582 $ (17,894) $ 3,101,509
February 29, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
Mortgage-backed securities retained in securitization $ 807,948 $ 39,411 $ (24,163) $ 823,196
Principal only securities 1,002,496 2,372 (52,028) 952,840
Insurance company investment portfolio 523,012 483 (3,005) 520,490
Equity securities 63,136 3,193 (20,136) 46,193
$ 2,396,592 $ 45,459 $ (99,332) $ 2,342,719
37 CCI
Note F — Notes Payable
Notes payable consisted of the following.
February 28 (29),
(Dollar amounts in thousands) 2001 2000
Commercial paper $ — $ 103,829
Medium-term notes, various series, and Euro Notes 10,435,510 7,975,324
Convertible debentures 500,717 —
Subordinated notes 200,000 200,000
Unsecured notes payable 264,196 —
Other notes payable 2,368 2,063
$ 11,402,791 $ 8,281,216
Commercial Paper and Backup Credit Facilities
As of February 28, 2001, 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 $5.3 billion. The facilities included a $4.3 billion
revolving credit facility with forty-two 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 $1.3 billion, which expires on September 19, 2001. As consideration for the facility, CHL pays annual commitment fees
of $3.8 million. There is an additional one-year facility, which expires April 11, 2001, with thirteen of the forty-two banks referenced above for total
commitments of $1.0 billion. As consideration for the facility, CHL pays annual commitment fees of $0.8 million. CHL has renewed this facility.
(See Note Q – “Subsequent Events”) 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 February 28, 2001. The weighted average borrowing rate on commercial paper
borrowings for the year ended February 28, 2001 was 6.40%. In addition, CHL has entered into a $1.1 billion asset-backed commercial paper con-
duit facility with four commercial banks. This facility has a maturity date of November 20, 2001. As consideration for this facility, CHL pays annual
commitment fees of $1.4 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.
Medium-Term Notes
As of February 28, 2001, 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.
Outstanding Balance Interest Rate Maturity Date
(Dollar amounts in thousands) Floating-Rate Fixed-Rate Total From To From To
Series A $ — $ 96,500 $ 96,500 7.41% 8.79% Aug. 2001 Mar. 2002
Series B — 251,000 251,000 6.65% 6.98% Mar. 2003 Aug. 2005
Series C 105,000 127,000 232,000 4.84% 7.75% Mar. 2001 Mar. 2004
Series D — 385,000 385,000 6.05% 6.88% Mar. 2001 Sept. 2005
Series E — 655,000 655,000 6.94% 7.45% Sept. 2003 Oct. 2008
Series F 311,000 1,244,000 1,555,000 5.35% 7.13% Sept. 2001 May 2013
Series G — 271,000 271,000 6.90% 7.00% Aug. 2018 Nov. 2018
Series H 611,500 2,049,000 2,660,500 5.43% 8.25% May 2001 Oct. 2019
Series I 1,622,300 566,950 2,189,250 5.40% 8.00% June 2001 Aug. 2015
Euro Notes 627,406 1,512,854 2,140,260 5.52% 7.88% Mar. 2001 Jan. 2009
Total $ 3,277,206 $ 7,158,304 $ 10,435,510
As of February 28, 2001 substantially all of the outstanding fixed-rate notes had been effectively converted through interest rate swap agreements
to floating-rate notes. The weighted average rate on medium-term notes for the year ended February 28, 2001, including the effect of the interest
rate swap agreements, was 6.95%. As of February 28, 2001 $1,511 million foreign currency-denominated medium-term notes 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.
Convertible Debentures
During the year ended February 28, 2001, the Company received $500 million from the issuance of zero coupon Liquid Yield Option Notes
(“LYONs”) with a face value of $675 million at maturity of LYONs due February 8, 2031. The LYONs were issued at $741.37 per LYON. At maturity,
February 8, 2031, a holder will receive $1,000 per LYON. The issue price of each LYON represents a yield to maturity of 1.0%. The LYONs are
senior indebtedness of the Company.
Notes to Consolidated Financial Statements
38 CCI
Holders of LYONs may require the Company to repurchase all or a portion of their LYONs at the original issue price plus accrued original issue
discount on the following dates.
Repurchase Date Repurchase Price
February 8, 2004 $ 763.89
February 8, 2006 $ 779.28
February 8, 2011 $ 819.14
February 8, 2016 $ 861.03
February 8, 2021 $ 905.06
February 8, 2026 $ 951.35
The Company may pay the purchase price in cash, common stock or a combination thereof.
Beginning on February 8, 2006 and on any date thereafter, the Company may redeem the LYONs at the original issue price plus accrued original
issue discount.
Holders of LYONs may surrender LYONs for conversion into 11.57 shares of the Company’s common stock per LYON in any calendar quarter, if,
as of the last day of the preceding calendar quarter, the closing sale price of the Company’s common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of such preceding calendar quarter is more than a specified percentage, beginning at
135% and declining 0.21% per quarter thereafter, of the accreted conversion price per share of common stock on the last day of trading of such
preceding calendar quarter. The accreted conversion price per share is equal to the original issue price of a LYON plus the accrued original issue
discount, with that sum divided by the number of shares issuable upon a conversion of a LYON.
Holders may also surrender a LYON for conversion during any period in which the credit rating assigned to the LYONs by either Moody’s or
Standard & Poor’s falls below an investment grade level.
Subordinated Notes
As of February 28, 2001, CHL had $200 million of 8.25% subordinated notes (the “Subordinated Notes”) due July 15, 2002. Interest on the
Subordinated Notes is payable semi-annually on each January 15 and July 15. The Subordinated Notes are not redeemable prior to maturity and
are not subject to any sinking fund.
Pre-Sale Funding Facilities
As of February 28, 2001, CHL had uncommitted revolving credit facilities that are secured by conforming mortgage loans which are in the process
of being pooled into MBS. As of February 28, 2001, the Company had no outstanding borrowings under any of these facilities.
Maturities of notes payable are as follows.
Year ending February 28 (29), (Dollar amounts in thousands)
2002 $ 3,758,800
2003 1,696,500
2004 828,000
2005 1,533,685
2006 1,165,944
Thereafter 2,419,862
$ 11,402,791
Note G — Securities Sold Under Agreements to Repurchase
The Company routinely enters into short-term financing arrangements to sell MBS under agreements to repurchase. The weighted average borrow-
ing rate for the year ended February 28, 2001 was 6.33%. The weighted average borrowing rate on repurchase agreements outstanding as of
February 28, 2001 was 5.53%. 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 H — Company-Obligated Capital Securities of Subsidiary Trusts
In December 1996, Countrywide Capital I (the “Subsidiary Trust I”), a subsidiary of the Company, issued $300 million of 8% Capital Trust Pass-
through Securities (the “8% Capital Securities”). In connection with the Subsidiary Trust I issuance of the 8% Capital Securities, CHL issued
to the Subsidiary Trust I, $309 million of its 8% Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debt Securities I”). The
Subordinated Debt Securities I are due on December 15, 2026 with interest payable semi-annually on June 15 and December 15 of each year.
The Company has the right to redeem at par, plus accrued interest, the 8% Capital Securities any time on or after December 15, 2006. The sole
assets of the Subsidiary Trust I are, and will be, the Subordinated Debt Securities I.
In June 1997, Countrywide Capital III (the “Subsidiary Trust III”), a subsidiary of the Company, issued $200 million of 8.05% Subordinated
Capital Income Securities, Series A (the “8.05% Capital Securities”). In connection with the Subsidiary Trust III issuance of 8.05% Capital Securities,
CHL issued to the Subsidiary Trust III, $206 million of its 8.05% Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debt
Securities III”). The Subordinated Debt Securities III are due on June 15, 2027 with interest payable semi-annually on June 15 and December 15
of each year. The sole assets of the Subsidiary Trust III are, and will be, the Subordinated Debt Securities III.
39 CCI
In December 1997, Subsidiary Trust III completed an exchange offer pursuant to which newly issued capital securities (the “New 8.05% Capital
Securities”) were exchanged for all of the outstanding 8.05% Capital Securities. The New 8.05% Capital Securities are identical in all material respects
to the 8.05% Capital Securities, except that the New 8.05% Capital Securities have been registered under the Securities Act of 1933, as amended.
In relation to Subsidiary Trusts I and III,
CHL has the right to defer payment of interest by extending the interest payment period, from time to
time, for up to 10 consecutive semi-annual periods. If interest payments on the Debentures are so deferred, the Company and
CHL may not
declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock.
Note I — Income Taxes
Components of the provision for income taxes were as follows.
Year ended February 28 (29),
(Dollar amounts in thousands) 2001 2000 1999
Federal expense – deferred $ 204,262 $ 220,955 $ 204,186
State expense – deferred 7,620 — 42,218
$ 211,882 $ 220,955 $ 246,404
The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate as reflected in the consolidated state-
ments of earnings.
Year ended February 28 (29),
2001 2000 1999
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income and franchise taxes, net of federal tax effect 3.0 4.0 4.0
Change in expected state tax rate (1.8) (4.0) —
Effective income tax rate 36.2% 35.0% 39.0%
In Fiscal 2000, the Company initiated a corporate reorganization related to its servicing operations. Further refinements to the reorganization plan
were made in Fiscal 2001. As a result of the reorganization, future state income tax liabilities are expected to be less than the amounts that were
previously recorded as deferred income tax expense and liability in the Company’s financial statements. The expected reduction in tax liabilities was
reflected as a reduction in deferred state income tax expense in Fiscal 2000 and Fiscal 2001.
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below.
February 28 (29),
(Dollar amounts in thousands) 2001 2000
Deferred income tax assets:
Net operating losses $ 154,069 $ 139,288
State income and franchise taxes 57,958 53,625
Reserves, accrued expenses and other 66,376 48,336
Losses (gains) on available-for-sale securities — 1,150
Total deferred income tax assets 278,403 242,399
Deferred income tax liabilities:
Mortgage servicing rights 1,722,960 1,493,297
Gains (losses) on available-for-sale securities 125,446 —
Gain on sale of subsidiary — 21,413
Total deferred income tax liabilities 1,848,406 1,514,710
Deferred income taxes $ 1,570,003 $ 1,272,311
As of February 28, 2001, the Company had net operating loss carryforwards for federal income tax purposes totaling $435.7 million that expire
as follows: $19.6 million in 2009, $74.3 million in 2010, $41.3 million in 2011, $84.7 million in 2012, $72.8 million in 2013, $95.9 million in
2019, and $47.1 million in 2021.
Notes to Consolidated Financial Statements
40 CCI
Note J — Financial Instruments
Derivative Financial Instruments
The Company utilizes a variety of derivative financial instruments to manage interest-rate risk. These instruments include interest rate floors,
MBS mandatory forward sale and purchase commitments, options to sell or buy MBS, treasury futures and interest rate futures, interest rate caps,
Capped Swaps, Swaptions, interest rate futures and interest rate swaps. These instruments involve, to varying degrees, elements of interest-rate
and credit risk. In addition, the Company manages foreign currency exchange rate risk with foreign currency swaps.
The Company has potential exposure to credit loss in the event of nonperformance by the counterparties to the various over-the-counter instru-
ments. The Company manages this credit risk by selecting only well established, financially strong counterparties, spreading the credit risk amongst
many such counterparties, and by placing contractual limits on the amount of unsecured credit risk from any one counterparty. The Company’s
exposure to credit risk in the event of default by a counterparty is the current cost of replacing the contracts net of any available margins retained
by the Company, a custodian or the Mortgage-Backed Securities Clearing Corporation (the “MBSCC”), which is an independent clearing agent.
The total amount of counterparty credit exposure as of February 28, 2001, before and after applicable margin accounts held, was as follows:
(Dollar amounts in millions) As of February 28, 2001
Total credit exposure before margin accounts held $ 1,095.5
Less: Margin accounts held (622.4)
Net unsecured credit exposure $ 473.1
Hedge of Committed Pipeline and Mortgage Loan Inventory
As of February 28, 2001, the Company had $2.0 billion of closed mortgage loans and MBS held in inventory, including $1.7 billion fixed-rate and
$0.3 billion adjustable-rate (the “Inventory”). In addition, as of February 28, 2001, the Company had short-term rate and point commitments
amounting to approximately $7.1 billion (including $6.4 billion fixed-rate and $0.7 billion adjustable-rate) to fund mortgage loan applications in
process and an additional $2.3 billion (including $2.2 billion fixed-rate and $0.1 billion adjustable-rate) like commitments subject to property identifi-
cation and borrower qualification (together the “Committed Pipeline”). Substantially all of these commitments are for periods of 60 days or less.
(After funding and sale of the mortgage loans, the Company’s exposure to credit loss in the event of nonperformance by the mortgagor is limited as
described in Note L).
In order to mitigate the risk that a change in interest rates will result in a decline in the value of the Company’s Committed Pipeline or Inventory,
the Company enters into hedging transactions. The Inventory is hedged with forward contracts for the sale of loans and net sales of MBS, including
options to sell MBS where the Company can exercise the option on or prior to the anticipated settlement date of the MBS.
Due to the variability of closings in the Company’s Committed Pipeline, which is driven primarily by interest rates, the Company’s hedging policies
require that substantially all of the Committed Pipeline be hedged with a combination of options for the purchase and sale of MBS and treasury
futures and forward contracts for the sale of MBS. As of February 28, 2001, the notional amount of options to purchase and sell MBS aggregated
$3.1 billion and $3.8 billion, respectively. There were no treasury futures options in place at February 28, 2001. The Company had net forward
contracts to sell MBS that amounted to $5.8 billion (including forward contracts to sell MBS of $16.0 billion and to purchase MBS of $10.2 billion).
The MBS that are to be delivered under these contracts and options are either fixed or adjustable-rate, and generally correspond with the composi-
tion of the Company’s Inventory and Committed Pipeline.
The Company is generally not exposed to significant losses nor will it realize significant gains related to its Inventory or Committed Pipeline due to
changes in interest rates, net of gains or losses on associated hedge positions. The correlation between the Inventory, the Committed Pipeline and the
associated hedge instruments is very high due to their similarity. However, the Company is exposed to the risk that the actual closings in the Committed
Pipeline may deviate from the estimated closings for a given change in interest rates. Although interest rates are the primary determinant, the actual
loan closings from the Committed Pipeline are influenced by many factors, including the composition of the Committed Pipeline and remaining com-
mitment periods. The Company’s estimated closings are based on historical data of loan closings as influenced by recent developments.
Servicing Hedge
The Company manages its exposure to interest rate risk primarily through balancing its loan production and loan servicing operations, which are
counter cyclical in nature. In order to further mitigate the effect on earnings of MSR impairment that may result from increased current and projected
prepayment activity that generally occurs when interest rates decline, the Company maintains a portfolio of financial instruments, including derivative
contracts, that increase in aggregate value when interest rates decline (the “Servicing Hedge”). The financial instruments that form the Servicing
Hedge include interest rate floors, options on interest rate futures, interest rate swaps, interest rate caps, Capped Swaps, Swaptions, options on
MBS, principal-only swaps and P/O securities.
41 CCI
The following table summarizes the notional amounts of derivative contracts included in the Servicing Hedge.
Balance, Balance,
February 29, Dispositions/ February 28,
(Dollar amounts in millions) 2000 Additions Expirations 2001
Interest Rate Floors $ 50,500 5,000 (23,500) $ 32,000
Long Call Options on Interest Rate Futures $ 15,000 16,300 (26,700) $ 4,600
Long Put Options on Interest Rate Futures $ 1,750 7,500 (9,250) —
Long Call Options on
MBS $ 8,561 1,500 (4,000) $ 6,061
Capped Swaps $ 1,000 — (1,000) —
Interest Rate Swaps $ 1,500 ——$ 1,500
Interest Rate Cap $ 2,500 1,500 (1,500) $ 2,500
Swaptions $ 36,250 25,000 (19,000) $ 42,250
Principal-Only Swaps — 1,250 (1,125) $ 125
The Servicing Hedge is intended to protect the value of the investment in MSRs from the effects of increased prepayment activity that generally
results from declining interest rates. Should interest rates increase, the value of the
MSRs generally will increase while the value of the Servicing
Hedge will decline. With respect to the options on interest rate futures and MBS, Swaptions, interest rate floors, interest rate caps, Principal-only
swaps and P/O Securities included in the Servicing Hedge, the Company is not exposed to loss beyond its initial outlay to acquire the instruments
plus any unrealized gains recognized to date. With respect to the Swap contracts entered into by the Company as of February 28, 2001, the
Company estimates that its maximum exposure to loss over the remaining contractual term is $1 million.
Interest Rate Swaps
As of February 28, 2001, CHL had interest rate swap contracts, in addition to those included in the Servicing Hedge, with certain financial institu-
tions having notional principal amounts totaling $8.8 billion. The effect of these contracts is to enable CHL to convert its fixed-rate long term debt
borrowings to LIBOR-based floating-rate cost borrowings (notional amount $6.1 billion), to convert its foreign currency denominated fixed rate medium-
term notes to U.S. dollar LIBOR-based floating-rate cost borrowings (notional amount $1.5 billion) and to convert a portion of its medium-term note
borrowings from one floating-rate index to another (notional amount $1.2 billion). Payments are due periodically through the termination date of
each contract. The agreements expire between March 2001 and June 2027.
The interest rate swap agreements related to debt had an average fixed rate (receive rate) of 6.03% and an average floating rate indexed to
3-month LIBOR (pay rate) of 6.17% on February 28, 2001.
Broker-Dealer Financial Instruments
Countrywide Securities Corporation (“CSC”) utilizes a variety of financial instruments for trading purposes and to manage interest-rate risk. These
instruments include MBS mandatory forward sale and purchase commitments as well as short sales of cash market U.S. Treasury securities. At
February 28, 2001, CSC had forward contracts to sell MBS that amounted to $7.5 billion and forward contracts to purchase MBS that amounted
to $4.0 billion. During the year ended February 28, 2001, the average fair value of the forward contracts to sell MBS amounted to a gain of $6.0
million and the average fair value of forward contracts to purchase MBS amounted to a gain of $13.7 million.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments as of February 28 (29), 2001 and 2000 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.
Notes to Consolidated Financial Statements
42 CCI
February 28, 2001 February 29, 2000
Carrying Estimated Carrying Estimated
(Dollar amounts in thousands) Amount Fair Value Amount Fair Value
Assets:
Mortgage loans and mortgage-backed securities held for sale $ 1,964,018 $ 1,964,018 $ 2,653,183 $ 2,653,183
Trading securities 4,050,082 4,050,082 1,984,031 1,984,031
Securities purchased with agreements to resell 3,109,556 3,109,556 435,593 435,593
Items included in investments in other financial instruments:
Principal-only securities purchased 1,348,994 1,348,994 952,840 952,840
Mortgage-backed securities retained in securitizations 1,202,093 1,202,093 823,196 823,196
Insurance Company investment portfolio 550,422 550,422 520,490 520,490
Equity Securities – restricted and unrestricted ——46,193 46,193
Items included in other assets:
Rewarehoused
FHA and VA loans 790,876 790,876 336,273 336,273
Loans held for investment 269,942 269,942 177,330 177,330
Receivables related to broker-dealer activities 318,739 318,739 22,612 22,612
Liabilities:
Notes payable 11,402,791 11,159,777 8,281,216 7,957,602
Securities sold under agreements to repurchase 3,541,230 3,541,230 1,501,409 1,501,409
Securities sold not yet purchased 260,151 260,151 181,903 181,903
Corporate guarantees 56,312 56,312 ——
Company-obligated mandatorily redeemable Capital trust pass-through securities of
subsidiary trusts holding solely Company guaranteed related subordinated debt 500,000 521,929 500,000 489,744
Derivatives:
Interest rate floors 349,002 343,151 411,278 180,360
Forward contracts on
MBS (8,673) (40,312) (11,080) (13,511)
Options on
MBS 78,386 54,759 75,950 32,415
Options on interest rate futures 7,660 6,625 8,921 6,032
Interest rate caps 15,216 2,310 47,348 39,088
Capped Swaps ——(5,619) (8,040)
Swaptions 644,181 590,906 341,039 76,254
Interest rate swaps (3,682) (110,852) (23,228) (457,051)
Principal-only swaps ————
Short-term commitments to extend credit — 35,200 — 52,500
The fair value estimates as of February 28 (29), 2001 and 2000 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.
The following describes the methods and assumptions used by the Company in estimating fair values.
Mortgage Loans and Mortgage-Backed Securities Held for Sale
Fair value is estimated using the quoted market prices for securities backed by similar types of loans and dealer commitments to purchase loans
on a servicing-retained basis.
Trading Securities
Fair value is estimated using quoted market prices.
Principal Only Securities
Fair value is estimated using quoted market prices and by discounting future cash flows using discount rates that approximate current market rates
and market consensus prepayment rates.
Mortgage-Backed Securities Retained in Securitization
Fair value is estimated by discounting future cash flows using discount rates that approximate current market rates, market consensus and internally
developed prepayment rates.
43 CCI
Insurance Company Investment Portfolio
Fair value is estimated using quoted market prices.
Derivatives
Fair value is defined as the amount that the Company would receive or pay to terminate the contracts at the report date. Market or dealer quotes
are available for many derivatives; otherwise, pricing or valuation models are applied to utilizing current market information to estimate fair value.
Notes Payable
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Note K — Securitizations
The Company routinely originates, securitizes and sells mortgage loans into the secondary market. As a result of this process, the Company typi-
cally retains the MSRs and may retain interest-only strips, principal-only strips and one or more subordinated interests. In general, conventional
securitizations are structured without recourse to the Company. Government loans serviced by the Company are insured by the Federal Housing
Administration or partially guaranteed against loss by the Department of Veterans Affairs. The Company is exposed to credit losses to the extent
that the partial guarantee provided by the Department of Veterans Affairs is inadequate to cover the total credit losses incurred. The Company
retains primary credit risk on the home equity and sub-prime loans it securitizes through retention of a subordinated interest or through a corpo-
rate guarantee of losses up to a negotiated maximum amount. In general, there are no restrictions on the Company’s retained interests. The
Company recognized gains of $444.8 million from sales of financial assets in securitizations in the year ended February 28, 2001.
Key economic assumptions used in determining the fair value of MSRs and other retained interests at the time of securitization were as follows.
Year ended February 28, 2001
Other Retained
MSRs Interests
Weighted-average life (in years) 8.2 4.1
Weighted-average prepayment speed (annual rate) 11.0% 24.3%
Weighted-average discount rate (annual rate) 10.3% 15.4%
Weighted-average anticipated credit losses 0.01% 2.5%
The following table summarizes cash flows between the Company and securitization special purpose entities.
(Dollar amounts in thousands) Year ended February 28, 2001
Proceeds from new securitizations $ 60,494,596
Proceeds from collections reinvested in securitizations $ 707,460
Service fees received $ 821,836
Purchases of delinquent loans $ (2,610,563)
Servicing advances $ (468,602)
Repayment of servicing advances $ 405,097
Other cash flows received on retained interest
(a)
$ 295,698
(a)
Represents cash flows received on retained interests other than servicing fees.
Key economic assumptions used in subsequently measuring the fair value of the Company’s retained interests at February 28, 2001 and the
effect on the fair value of those retained interests from adverse changes in those assumptions are as follows:
Year ended February 28, 2001
Other Retained
(Dollar amounts in thousands) MSRs Interest
Fair value of retained interests $ 5,834,058 $ 1,202,093
Weighted-average life (in years) 6.1 4.4
Weighted-average Prepayment speed (annual rate) 16.1% 23.3%
Impact of 10% adverse change $ 263,080 $ 62,058
Impact of 20% adverse change $ 500,464 $ 113,446
Weighted-average Discount rate (annual rate) 9.8% 16.6%
Impact of 10% adverse change $ 209,159 $ 30,728
Impact of 20% adverse change $ 404,732 $ 59,179
Weighted-average Lifetime Credit Losses 0.02% 3.3%
Impact of 10% adverse change $ 3,082 $ 18,223
Impact of 20% of adverse change $ 6,163 $ 35,423
Notes to Consolidated Financial Statements
44 CCI
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in
assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.
Also, in the above table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently
without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment
speed estimates could result in changes in discount rates), which might magnify or counteract the sensitivities.
The following table presents information about delinquencies and components of securitized and other managed assets.
Year ended February 28, 2001
Total Principal Amount
Principal 60 Days or
(Dollar amounts in thousands) Amount More Past Due
Sub-prime and Home Equity loans $ 11,695,059 $ 441,129
Comprised of:
Assets securitized $ 11,510,760
Assets held for sale 184,299
$ 11,695,059
The Company incurred credit losses of $43.6 million related to the assets above during the year ended February 28, 2001.
Note L — Commitments and Contingencies
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.
Commitments to Buy or Sell Mortgage-Backed Securities and Other Derivatives Contracts
In connection with its open commitments to buy or sell MBS and other derivative contracts, the Company may be required to maintain margin
deposits. With respect to the MBS commitments, these requirements are generally greatest during periods of rapidly declining interest rates. With
respect to other derivative contracts, margin requirements are generally greatest during periods of increasing interest rates.
Lease Commitments
The Company leases office facilities under lease agreements extending through December 2011. Future minimum annual rental commitments
under these non-cancelable operating leases with initial or remaining terms of one year or more are as follows.
Year ending February 28 (29), (Dollar amounts in thousands)
2002 $ 38,228
2003 32,095
2004 24,008
2005 15,799
2006 13,701
Thereafter 52,201
$ 176,032
Rent expense was $53.2 million, $57.2 million and $44.7 million for the years ended February 28 (29), 2001, 2000 and 1999, respectively.
Restrictions on Transfers of Funds
The Company and certain of its subsidiaries are subject to regulatory and/or credit agreement restrictions which limit their ability to transfer funds to
the Company through intercompany loans, advances or dividends. Pursuant to the revolving credit facilities as of February 28, 2001, the Company is
required to maintain $1.3 billion in consolidated net worth and CHL is required to maintain $1.2 billion of net worth, as defined in the credit agreement.
Loan Servicing
As of February 28 (29), 2001, 2000 and 1999, the Company serviced loans totaling approximately $293.6 billion, $250.2 billion and $215.5 billion,
respectively. Included in the loans serviced as of February 28 (29), 2001, 2000 and 1999 were loans being serviced under subservicing agreements
with total principal balances of $8.6 billion, $5.5 billion and $3.8 billion, respectively. The loans are serviced under a variety of servicing contracts.
In general, these contracts include guidelines and procedures for servicing the loans, remittance requirements and reporting requirements, among
other provisions.
Conforming conventional loans serviced by the Company (56% of the servicing portfolio as of February 28, 2001) are primarily included in either
Fannie Mae MBS or Freddie Mac participation certificates (“PCs”). Such servicing is done on a non-recourse basis, whereby credit losses are generally
borne by Fannie Mae or Freddie Mac and not the Company. The government loans serviced by the Company are included in either Ginnie Mae MBS,
Fannie Mae MBS, or Freddie Mac PCs. The government loans are either insured against loss by the Federal Housing Administration (16% of the
servicing portfolio as of February 28, 2001) or partially guaranteed against loss by the Department of Veterans Affairs (6% of the servicing portfolio
as of February 28, 2001). In addition, non-conforming mortgage loans (22% of the servicing portfolio as of February 28, 2001) are primarily included
in “private label” MBS and serviced on a non-recourse basis.
45 CCI
Properties securing the mortgage loans in the Company’s servicing portfolio are geographically dispersed throughout the United States. As of
February 28, 2001, approximately 27%, 6% and 5% of the mortgage loans (measured by unpaid principal balance) in the Company’s servicing
portfolio are secured by properties located in California, Texas and Florida respectively. No other state contains more than 5% of the properties
securing mortgage loans.
Generally, the Company is not exposed to credit risk. Because the Company services substantially all conventional loans on a non-recourse
basis, credit losses are normally borne by the investor or insurer and not the Company. The Company retains credit risk on the home equity and
sub-prime loans it securitizes, through retention of a subordinated interest or through a corporate guarantee of losses up to negotiated maximum
amount. As of February 28, 2001, the Company had investments in such subordinated interests amounting to $763.6 million and had reserves
amounting to $56.3 million related to the corporate guarantees. While the Company generally does not retain credit risk with respect to the con-
ventional 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 the 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 (22%
of the Company’s servicing portfolio as of February 28, 2001) are insured by the Federal Housing Administration or partially guaranteed against
loss by the Department of Veterans Affairs. The Company is exposed to credit losses to the extent that the partial guarantee provided by the
Department of Veterans Affairs is inadequate to cover the total credit losses incurred.
Note M — Employee Benefits
Stock Option Plans
The Company has stock option plans (the “Plans”) that provide for the granting of both qualified and non-qualified options to employees and directors.
Options are generally granted at the average market price of the Company’s common stock on the date of grant and are exercisable beginning one
year from the date of grant and expire up to ten years from the date of grant.
Stock options transactions under the Plans were as follows.
Year ended February 28 (29),
2001 2000 1999
Number of Shares:
Outstanding options at beginning of year 14,059,515 11,497,044 11,151,799
Options granted 2,631,140 3,643,111 1,648,647
Options exercised (2,797,939) (602,021) (1,239,662)
Options expired or cancelled (460,069) (478,619) (63,740)
Outstanding options at end of year 13,432,647 14,059,515 11,497,044
Weighted Average Exercise Price:
Outstanding options at beginning of year $ 27.44 $ 24.81 $ 20.57
Options granted 26.60 35.27 46.71
Options exercised 22.06 13.45 15.90
Options expired or canceled 33.05 37.64 25.11
Outstanding options at end of year $ 28.24 $ 27.44 $ 24.81
Options exercisable at end of year 7,457,090 8,299,892 6,514,039
Options available for future grant 5,919,027 2,673,480 5,840,713
Status of the outstanding stock options under the Plans as of February 28, 2001 was as follows:
Outstanding Options Exercisable Options
Weighted
Exercise Average Remaining Weighted Average Weighted Average
Price Range Contractual Life Number Exercise Price Number Exercise Price
$ 2.80 – $15.90 2.2 years 636,459 $ 14.66 636,459 $ 14.66
$15.91 – $21.20 3.2 1,556,501 17.45 1,556,501 17.46
$21.21 – $26.50 4.7 5,205,745 23.56 3,048,653 23.04
$26.51 – $31.80 5.3 2,478,545 27.52 814,019 27.08
$31.81 – $42.40 3.5 2,134,194 40.07 651,032 40.94
$42.41 – $53.00 7.0 1,421,203 46.75 750,426 46.75
$ 2.80 – $53.00 4.6 years 13,432,647 $ 28.24 7,457,090 $ 25.55
Notes to Consolidated Financial Statements
46 CCI
Had the estimated fair value of the options granted during the period been included in compensation expense, the Company’s net earnings and
earnings per share would have been as follows:
Year ended February 28 (29),
(Dollar amounts in thousands, except per share data) 2001 2000 1999
Net Earnings
As reported $ 374,153 $ 410,243 $ 385,401
Pro forma $ 346,026 $ 379,632 $ 366,118
Basic Earnings Per Share
As reported $ 3.26 $ 3.63 $ 3.46
Pro forma $ 3.01 $ 3.36 $ 3.29
Diluted Earnings Per Share
As reported $ 3.14 $ 3.52 $ 3.29
Pro forma $ 2.91 $ 3.25 $ 3.13
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model that has been modified to
consider cash dividends to be paid. The following weighted-average assumptions were used for grants in Fiscal 2001, 2000 and 1999, respectively:
dividend yield of 1.57%, 1.29% and 0.72%; expected volatility of 38%, 34% and 40%; risk-free interest rates of 6.4%, 6.0% and 5.5% and expected
lives of five years for options granted in all three years. The average fair value of options granted during Fiscal 2001, 2000 and 1999 was $10.69,
$13.66 and $19.20, respectively.
Pension Plan
The Company has a defined benefit pension plan (the “Plan”) covering substantially all of its employees. The Company’s policy is to contribute the
amount actuarially determined to be necessary to pay the benefits under the Plan, and in no event to pay less than the amount necessary to meet
the minimum funding standards of ERISA.
The following table sets forth the Plan’s funded status and amounts recognized in the Company’s financial statements.
Year ended February 28 (29),
(Dollar amounts in thousands) 2001 2000
Change in benefit obligation
Benefit obligation at beginning of year $ 32,593 $ 29,777
Service cost 6,284 5,535
Interest cost 2,615 2,204
Transfer of plan assets — (453)
Actuarial loss (gain) 386 (41)
Benefits paid (367) (401)
Change in discount rate 4,690 (4,028)
Benefit obligation at end of year $ 46,201 $ 32,593
Change in plan assets
Fair value of plan assets at beginning of year $ 30,877 $ 22,775
Actual return on plan assets (4,189) 3,110
Employer contribution 8,318 5,846
Transfer of plan assets — (453)
Benefits paid (368) (401)
Fair value of plan assets at end of year $ 34,638 $ 30,877
Funded status at end of year $ (11,562) $ (1,716)
Unrecognized net actuarial loss (gain) 7,146 (4,977)
Unrecognized prior service cost 824 924
Unrecognized transaction asset (71) (142)
Net amount recognized $ (3,663) $ (5,911)
The following table sets forth the components of net periodic benefit cost for 2001 and 2000.
Year ended February 28 (29),
(Dollar amounts in thousands) 2001 2000
Service cost $ 6,284 $ 5,535
Interest cost 2,615 2,204
Expected return on plan assets (2,768) (2,051)
Amortization of prior service cost 99 99
Amortization of unrecognized transition asset (71) (70)
Recognized net actuarial gain (89) —
Net periodic benefit cost $ 6,070 $ 5,717
47 CCI
The weighted-average assumptions used in calculating the amounts above were:
Year ended February 28 (29),
2001 2000
Discount rate 7.50% 8.00%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 4.00% 4.00%
Pension expense for the years ended February 28 (29), 2001, 2000 and 1999 was $6.1 million, $5.7 million and $4.9 million, respectively. The
Company makes contributions to the Plan in amounts that are deductible in accordance with federal income tax regulations.
Defined Contribution Plan
The Company has a defined contribution plan covering all full-time employees of the Company who have at least one year of service and are
age 21 or older. Participants may contribute up to 16% of pre-tax annual compensation, as defined in the plan agreement. Participants may
also contribute, at the discretion of the plan administrator, amounts representing distributions from other qualified defined benefit or contribution
plans. The Company makes a discretionary matching contribution equal to 50% of the participant contributions up to a maximum of 6% of the
participants’ base compensation, as defined in the plan agreement. The defined contribution plan is subject to the provisions of ERISA.
Note N — Shareholders’ Equity
In January, 2000, the Company entered into a three year equity put option agreement with National Indemnity Company (“National Indemnity”), a
property casualty insurance company which is a subsidiary of Berkshire Hathaway, Inc. The purpose of the agreement is to provide up to $100
million of additional capital and surplus in the event that property and casualty insurance companies of Balboa Life Insurance Company and Balboa
Insurance Company (collectively “Balboa”) incur a certain level of catastrophic property and casualty losses.
Upon the occurrence of one or more catastrophic events and two trigger events, the Company will have the option to require National Indemnity
to purchase up to one million shares of non voting Series B Cumulative Preferred Stock, par value $0.05 per share, of the Company (the “Series B
Preferred Stock”), at a price of $100 per share, with a dividend rate to be determined in accordance with the agreement, resetting annually. The Series
B Preferred Stock is convertible into shares of common stock of the Company at a price which is 20% above the average price of the common
stock in the 30 day period prior to the issuance of the Series B Preferred Stock. Upon issuance of the Series B Preferred Stock and for so long as
National Indemnity owns at least 50% of the outstanding Series B Preferred Stock, the Company will not be able to increase quarterly dividends
on its common stock. If issued, the Series B Preferred Stock will pay an annual dividend rate determined at the time of issuance, and such rate
would increase by 50 basis points each year if the Series B Preferred Stock remained outstanding for more than three years. The Series B
Preferred Stock is redeemable by the Company at the purchase price plus any then unpaid dividend yield.
A catastrophic event that would trigger the option is one which results in Balboa sustaining losses in excess of $97 million, net of reinsurance
recoverable, or the occurrence in any calendar year of multiple catastrophic events which results in Balboa sustaining losses in excess of $194
million, net of reinsurance recoverable. In addition, for the option to be triggered the consolidated net loss ratio of the Balboa property and casualty
operations must exceed 60% for the applicable calendar year and Balboa property and casualty operations must have a net loss for such year.
In the event of a default in the payment of dividends on Series B Preferred Stock, National Indemnity has the right to purchase shares of the
Company’s common stock having a market value of $1 million at a price per share of 10% below the closing price of the Company’s common stock
on the business day prior to such purchase. This purchase option may be exercised quarterly until all unpaid dividends and interest are paid.
In February 1988, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (“Right”) for
each outstanding share of the Company’s common stock. As a result of stock splits and stock dividends, 0.399 of a Right is presently associated
with each outstanding share of the Company’s common stock issued prior to the Distribution Date (as defined below). Each Right, when exercisable,
entitles the holder to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock, par value $0.05 per
share, of the Company (the “Series A Preferred Stock”), at a price of $145, subject to adjustments in certain cases to prevent dilution.
The Rights are evidenced by the common stock certificates and are not exercisable or transferable, apart from the common stock, until the date
(the “Distribution Date”) of the earlier of a public announcement that a person or group, without prior consent of the Company, has acquired 20%
or more of the common stock (“Acquiring Person”), or ten days (subject to extension by the Board of Directors) after the commencement of a tender
offer made without the prior consent of the Company.
In the event a person becomes an Acquiring Person, then each Right (other than those owned by the Acquiring Person) will entitle its holder to
purchase, at the then current exercise price of the Right, that number of shares of common stock, or the equivalent thereof, of the Company which,
at the time of such transaction, would have a market value of two times the exercise price of the Right. The Board of Directors of the Company may
delay the exercisability of the Rights during the period in which they are exercisable only for Series A Preferred Stock (and not common stock).
Notes to Consolidated Financial Statements
48 CCI
In the event that, after a person has become an Acquiring Person, the Company is acquired in a merger or other business combination, as
defined for the purposes of the Rights, each Right (other than those held by the Acquiring Person) will entitle its holder to purchase, at the then
current exercise price of the Right, that number of shares of common stock, or the equivalent thereof, of the other party (or publicly-traded parent
thereof) to such merger or business combination which at the time of such transaction would have a market value of two times the exercise price
of the Right. The Rights expire on the earlier of February 28, 2002, consummation of certain merger transactions or optional redemption by the
Company prior to any person becoming an Acquiring Person.
Note O — Related Party Transactions
In July 1997, the Company sold the assets, operations and employees of Countrywide Asset Management Corporation (“CAMC”), a then wholly-
owned subsidiary of the Company, to IndyMac Mortgage Holdings, Inc. (formerly INMC Mortgage Holdings, Inc.) (“INMC”). CAMC was formerly
the manager of INMC. As consideration, the Company received 3,440,800 newly issued common shares of INMC.
Subsequent to the sale, the Company entered into an agreement with INMC whereby the Company and certain affiliates agreed to provide certain
services to INMC during a transition period. During the year ended February 28, 2001, no such services were provided. During the year ended
February 29, 2000, CHL received $3.9 million from INMC related to services provided in accordance with the agreement. Additionally, during the
years ended February 28 (29), 2001 and 2000 the Company received $2.1 million and $4.1 million, respectively, of net sublease income from INMC.
During the year ended February 28, 1999, CHL entered into an agreement pursuant to which CHL assumed certain INMC recourse obligations with
respect to certain mortgage loans that INMC had previously sold to Freddie Mac. In consideration of CHL’s assumption of these recourse obligations,
CHL received $6.0 million, which Management believes will exceed the actual loss experience. A portion of the $6.0 million is subject to reimburse-
ment to INMC based upon actual loss experience on the loans.
In January 2000, CHL sold their entire investment in IndyMac, Inc., which consisted of all of the outstanding common stock and 1% of the
economic interest in IndyMac, Inc., to INMC for $1.8 million.
During the year ended February 29, 2000, the Company sold 780,000 shares of INMC common stock, which resulted in a pre-tax gain of
$0.4 million.
In August 2000, the Company sold the remaining 3.6 million shares of INMC stock back to INMC at a price of $18.70 per share which resulted
in a $4.9 million pre-tax gain.
During the year ended February 28, 2001, CHL sub-serviced mortgage loans issued by INMC, for which CHL received $2.0 million in
sub-servicing fees.
During the years ended February 28 (29), 2001 and 2000, the Company’s broker-dealer subsidiary purchased $3,275.4 million and $872.6
million of MBS from INMC, respectively, and sold $1,504.6 million and $100.0 million of MBS to INMC, respectively.
Note P — Segments and Related Information
The Company has six major segments that are grouped into Consumer and Institutional businesses. Consumer Businesses include Mortgage
Originations, Mortgage-Related Investments and Business to Consumer (“B2C”) Insurance. Institutional Businesses include Processing and
Technology, Capital Markets and Business to Business (“B2B”) Insurance.
The Mortgage Originations Segment originates mortgage loans through the Company’s retail branch network (Consumer Markets Division and
Full Spectrum Lending, Inc.) and the Wholesale Division. This segment also provides other complementary services offered as part of the origination
process through LandSafe, Inc., including title, escrow, appraisal, credit reporting and flood determination services. The Mortgage-Related Investments
Segment consists of investments in assets retained in the mortgage securitization process, including MSRs and residual interests. The B2C
Insurance Segment, through Countrywide Insurance Services, Inc., acts as an agent in the sale of insurance, including homeowners, fire, flood,
earthquake, life and disability insurance, primarily to the Company’s mortgage customers.
The Processing and Technology Segment activities include internal sub-servicing of the Company’s portfolio, as well as mortgage subservicing and
subprocessing for other domestic financial institutions and foreign financial institutions (through Global Home Loans, Limited). The Capital Markets
Segment purchases mortgage loans through the Correspondent Lending Division, acts as a broker/dealer specializing in mortgages and mortgage-
related securities through Countrywide Securities Corporation (“CSC”), and as an agent, facilitates the purchase and sale of bulk servicing rights
through Countrywide Servicing Exchange, Inc. (“CSE”). The B2B Insurance Segment includes the activities of Balboa Life Insurance Company and
Balboa Insurance Company (collectively “Balboa”), an insurance carrier that offers property and casualty insurance (specializing in creditor-placed
insurance), and life and disability insurance, along with Second Charter, Inc., a mortgage reinsurance company. Included in the tables below labeled
“Other” is the holding company activities and certain reclassifications to conform management reporting to the consolidated financial statements.
For the fiscal year ended February 28, 2001
Consumer Businesses Institutional Businesses
Mortgage- Processing
Mortgage Related
B2C and Capital B2B
(Dollars in thousands) Originations Investments Insurance Total Technology Markets Insurance Total Other Total
External revenues $ 954,249 $ 434,976 $ 37,650 $ 1,426,875 $ 58,821 $ 263,214 $ 304,606 $ 626,641 $ 2,805 $ 2,056,321
Intersegment revenues — (261,086) — (261,086) 261,086 ——261,086 ——
Total revenues $ 954,249 $ 173,890 $ 37,650 $ 1,165,789 $ 319,907 $ 263,214 $ 304,606 $ 887,727 $ 2,805 $ 2,056,321
Segment earnings
(pre-tax) $ 190,411 $ 166,944 $ 4,158 $ 361,513 $ 62,540 $ 94,373 $ 69,874 $ 226,787 $ (2,265) $ 586,035
Segment assets $ 2,165,901 $ 10,990,807 $ 76,662 $ 13,233,370 $ 171,074 $ 8,455,834 $ 934,758 $ 9,561,666 $ 160,471 $ 22,955,507
49 CCI
For the fiscal year ended February 29, 2000
Consumer Businesses Institutional Businesses
Mortgage- Processing
Mortgage Related
B2C and Capital B2B
(Dollars in thousands) Originations Investments Insurance Total Technology Markets Insurance Total Other Total
External revenues $ 985,411 $ 470,914 $ 32,955 $ 1,489,280 $ 48,614 $ 233,941 $ 82,742 $ 365,297 $ 16,296 $ 1,870,873
Intersegment revenues — (205,212) — (205,212) 205,212 ——205,212 ——
Total revenues $ 985,411 $ 265,702 $ 32,955 $ 1,284,068 $ 253,826 $ 233,941 $ 82,742 $ 570,509 $ 16,296 $ 1,870,873
Segment earnings
(pre-tax) $ 218,121 $ 250,296 $ 6,041 $ 474,458 $ 35,924 $ 87,028 $ 31,759 $ 154,711 $ 2,029 $ 631,198
Segment assets $ 1,981,795 $ 8,764,810 $ 47,436 $ 10,794,041 $ 151,075 $ 3,846,676 $ 832,505 $ 4,830,256 $ 198,031 $ 15,822,328
For the fiscal year ended February 28, 1999
Consumer Businesses Institutional Businesses
Mortgage- Processing
Mortgage Related
B2C and Capital B2B
(Dollars in thousands) Originations Investments Insurance Total Technology Markets Insurance Total Other Total
External revenues $ 1,324,374 $ 160,529 $ 22,784 $ 1,507,687 $ 49,165 $ 212,927 $ 13,244 $ 275,336 $ 21,365 $ 1,804,388
Intersegment revenues — (163,250) — (163,250) 163,250 ——163,250 ——
Total revenues $ 1,324,374 $ (2,721) $ 22,784 $ 1,344,437 $ 212,415 $ 212,927 $ 13,244 $ 438,586 $ 21,365 $ 1,804,388
Segment earnings
(pre-tax) $ 517,827 $ (26,319) $ 3,325 $ 494,833 $ 33,367 $ 90,140 $ 13,084 $ 136,591 $ 381 $ 631,805
Segment assets $ 4,474,571 $ 6,532,760 $ 23,200 $ 11,030,531 $ 106,280 $ 4,356,474 $ 27,862 $ 4,490,616 $ 127,109 $ 15,648,256
Note Q — Subsequent Events
On March 23, 2001, the Company declared a cash dividend of $0.10 per common share payable April 30, 2001 to shareholders of record on
April 11, 2001.
On April 11, 2001, CHL renewed its one-year revolving credit facility with a limit of $1.0 billion. The new facility expires on April 10, 2002.
Note R — Quarterly Financial Data (Unaudited)
Summarized quarterly data was as follows.
Three months ended
(Dollar amounts in thousands, except per share data) May 31 August 31 November 30 February 28 (29)
Year ended February 28, 2001
Revenue $ 474,566 $ 512,301 $ 520,620 $ 548,834
Expenses 343,641 370,086 370,993 385,566
Provision for income taxes 47,466 51,180 54,214 59,022
Net earnings $ 83,459 $ 91,035 $ 95,413 $ 104,246
Earnings per share
(1)
Basic $ 0.73 $ 0.80 $ 0.83 $ 0.89
Diluted $ 0.72 $ 0.77 $ 0.80 $ 0.85
Year ended February 29, 2000
Revenue $ 492,867 $ 491,074 $ 443,061 $ 443,871
Expenses 323,393 316,479 278,321 321,482
Provision for income taxes 66,095 68,092 64,176 22,592
Net earnings $ 103,379 $ 106,503 $ 100,564 $ 99,797
Earnings per share
(1)
Basic $ 0.92 $ 0.94 $ 0.89 $ 0.88
Diluted $ 0.88 $ 0.91 $ 0.87 $ 0.87
(1)
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share amounts may not equal the
annual amount. This is caused by rounding and the averaging effect of the number of share equivalents utilized throughout the year, which changes with the market
price of the common stock.
Notes to Consolidated Financial Statements
50 CCI
Note S — Summarized Financial Information
Summarized financial information for Countrywide Credit Industries, Inc. and subsidiaries was as follows:
February 28, 2001
Countrywide Countrywide
Credit Home Other
(Dollar amounts in thousands) Industries, Inc. Loans, Inc. Subsidiaries Eliminations Consolidated
Balance Sheets:
Mortgage loans and mortgage-backed securities held for sale $ — $ 1,964,018 $ — $ — $ 1,964,018
Mortgage servicing rights, net — 5,767,748 ——5,767,748
Other assets 4,343,853 9,155,120 8,336,417 (6,611,649) 15,223,741
Total assets $ 4,343,853 $ 16,886,886 $ 8,336,417 $ (6,611,649) $ 22,955,507
Company-obligated mandatorily redeemable capital
trust pass-through securities $ — $ — $ 500,000 $ — $ 500,000
Short- and long-term debt 736,630 11,435,760 5,959,565 (3,187,934) 14,944,021
Other liabilities 47,959 3,068,888 835,658 (283) 3,952,222
Equity 3,559,264 2,382,238 1,041,194 $ (3,423,432) 3,559,264
Total liabilities equity $ 4,343,853 $ 16,886,886 $ 8,336,417 $ (6,611,649) $ 22,955,507
Year ended February 28, 2001
Countrywide Countrywide
Credit Home Other
(Dollar amounts in thousands) Industries, Inc. Loans, Inc. Subsidiaries Eliminations Consolidated
Statements of Earnings:
Revenues $ (9,649) $ 1,273,529 $ 794,846 $ (2,405) $ 2,056,321
Expenses 7,680 927,371 537,640 (2,405) 1,470,286
Provision for income taxes (6,324) 126,344 91,862 — 211,882
Equity in net earnings of subsidiaries 385,158 ——(385,158) —
Net earnings $ 374,153 $ 219,814 $ 165,344 $ (385,158) $ 374,153
February 29, 2000
Countrywide Countrywide
Credit Home Other
(Dollar amounts in thousands) Industries, Inc. Loans, Inc. Subsidiaries Eliminations Consolidated
Balance Sheets:
Mortgage loans and mortgage-backed securities held for sale $ — $ 2,653,183 $ — $ — $ 2,653,183
Mortgage servicing rights, net — 5,396,477 ——5,396,477
Other assets 3,717,770 5,240,247 2,866,833 (4,052,182) 7,772,668
Total assets $ 3,717,770 $ 13,289,907 $ 2,866,833 $ (4,052,182) $ 15,822,328
Company-obligated mandatorily redeemable
capital trust pass-through securities $ — $ — $ 500,000 $ — $ 500,000
Short- and long-term debt 766,697 8,842,848 1,041,501 (868,421) 9,782,625
Other liabilities 63,194 2,014,214 614,750 (40,334) 2,651,824
Equity 2,887,879 2,432,845 710,582 $ (3,143,427) 2,887,879
Total liabilities equity $ 3,717,770 $ 13,289,907 $ 2,866,833 $ (4,052,182) $ 15,822,328
February 29, 2000
Countrywide Countrywide
Credit Home Other
(Dollar amounts in thousands) Industries, Inc. Loans, Inc. Subsidiaries Eliminations Consolidated
Statements of Earnings:
Revenues $ 1,445 $ 1,409,832 $ 460,129 $ (533) $ 1,870,873
Expenses 3,614 923,419 313,175 (533) 1,239,675
Provision for income taxes (127) 168,729 52,353 — 220,955
Equity in net earnings of subsidiaries 412,285 ——(412,285) —
Net earnings $ 410,243 $ 317,684 $ 94,601 $ (412,285) $ 410,243
51 CCI
Note T — Business Acquisitions
On November 30, 1999, the Company acquired all of the outstanding common stock of Balboa Life Insurance Company and Balboa Insurance
Company (collectively “Balboa”) for a cash price of $441 million. The purchase price is subject to adjustment based upon completion of a post-
closing audit.
Balboa is a leading writer of credit-related insurance, specializing in creditor-placed auto and homeowner insurance. Balboa is licensed
to underwrite in all 50 states.
The acquisition of Balboa was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated
to assets acquired and liabilities assumed based on their estimated fair market value at the date of acquisition. The fair value of identifiable assets
acquired and liabilities assumed was $895 million, respectively. Goodwill of $36 million is amortized over a period of 25 years.
The results of operations for Balboa are included in the Company’s consolidated results of operations from December 1, 1999. The following table
sets forth certain unaudited consolidated earnings data for the years ended February 29, 2000, and February 28, 1999, as if the acquisition of
Balboa had been consummated March 1, 1998.
Year ended February 29 (28),
(Dollar amounts in millions) 2000 1999
Statements of Earnings: (Unaudited)
Revenues $ 2,193,550 $ 2,245,253
Net Earnings $ 422,309 $ 404,717
Per Share
Basic $ 3.73 $ 3.63
Diluted $ 3.62 $ 3.46
In management’s opinion, these unaudited pro forma amounts are not necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at March 1, 1998.
Note U — Implementation of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, amended by Statement No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment to FASB Statement No. 133 (collectively “FAS 133”). FAS 133
requires companies to record derivatives on their balance sheets at fair value. Changes in the fair values of those derivatives would be reported in
earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value of assets or liabilities or
cash flows from forecasted transactions. This statement was effective for the Company on March 1, 2001. At the date of initial application, the
Company recorded certain transition adjustments as required by FAS 133. There was no impact on net income as a result of such transition adjust-
ments. However, such adjustments resulted in the Company reducing the carrying amount of derivative assets by $94 million and recognizing
$107 million of derivative liabilities on the balance sheet. Management believes that the Company’s hedging activities are highly effective over the
long term. However, the implementation of FAS 133 could result in more volatility in quarterly reported earnings as a result of market conditions
that temporarily impact the value of the derivatives while not reducing their long term hedge effect.
In September 2000, the FASB issued Statement No. 140 (“FAS 140”), Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces FAS 125 (of the same title). FAS 140 revises certain standards in the accounting for securitizations
and other transfers of financial assets and collateral, and requires some disclosures relating to securitization transactions and collateral, but it carries
over most of FAS 125’s provisions. The collateral and disclosure provisions of FAS 140 are effective for fiscal years ending after December 15,
2000. The February 28, 2001 financial statements include the disclosures required by FAS 140. The other provisions of this Statement are effective
for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Management does not expect that
the adoption of this statement will have a material impact on the Company.
Notes to Consolidated Financial Statements
52 CCI
Board of Directors and Shareholders
Countrywide Credit Industries, Inc.
We have audited the accompanying consolidated balance sheets of Countrywide Credit Industries, Inc. and Subsidiaries as of February 28, 2001
and February 29, 2000, and the related consolidated statements of earnings, common shareholders’ equity, cash flows and comprehensive income
for each of the three years in the period ended February 28, 2001. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Countrywide
Credit Industries, Inc. and Subsidiaries as of February 28, 2001 and February 29, 2000, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended February 28, 2001, in conformity with accounting principles generally
accepted in the United States.
Los Angeles, California
April 25, 2001
Report of Independent Certified Public Accountants
53 CCI
Market for the Company’s Common Stock and Related Stockholder Matters
The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) and the Pacific Stock Exchange (Symbol: CCR). The following table
sets forth the high and low sales prices (as reported by the NYSE) for the Company’s common stock and the amount of cash dividends declared for
the fiscal years ended February 28 (29), 2001 and 2000.
Fiscal 2001 Fiscal 2000 Fiscal 2001 Fiscal 2000
Quarter High Low High Low Cash Dividends Declared
First $ 35.00 $ 22.31 $ 48.00 $ 36.56 $ 0.10 $ 0.10
Second 39.75 30.00 45.25 31.63 0.10 0.10
Third 41.69 31.50 35.25 27.75 0.10 0.10
Fourth 52.00 36.31 29.25 23.00 0.10 0.10
The Company has declared and paid cash dividends on its common stock quarterly since 1982. For the fiscal years ended February 28 (29),
2001 and 2000, the Company declared quarterly cash dividends aggregating $0.40 per share. On March 23, 2001, the Company declared a
quarterly cash dividend of $0.10 per common share, which was paid on April 30, 2001.
The ability of the Company to pay dividends in the future is limited by various restrictive covenants in the debt agreements of the Company, the
earnings, cash position and capital needs of the Company, general business conditions and other factors deemed relevant by the Company’s Board
of Directors. The Company is prohibited under certain of its debt agreements, including its guarantee of CHL’s revolving credit facility, from paying
dividends on any capital stock (other than dividends payable in capital stock or stock rights), except that so long as no event of default or potential
event of default under the agreements exists at the time, the Company may pay dividends in an aggregate amount not to exceed the greater of:
(i) the after-tax net income of the Company, determined in accordance with generally accepted accounting principles, for the fiscal year to the end
of the quarter to which the dividends relate and (ii) the aggregate amount of dividends paid on common stock during the immediately preceding
year. The primary source of funds for payments to stockholders by the Company is dividends received from its subsidiaries. Accordingly, such
payments by the Company in the future also depend on various restrictive covenants in the debt obligations of its subsidiaries, the earnings, the
cash position and the capital needs of its subsidiaries, as well as laws and regulations applicable to its subsidiaries. Unless the Company and
CHL each maintain specified minimum levels of net worth and certain other financial ratios, dividends cannot be paid by the Company and CHL
in compliance with certain of CHL’s debt obligations (including its revolving credit facility). See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources.”
As of May 15, 2001, there were 2,301 shareholders of record of the Company’s common stock, with 118,826,957 common shares outstanding.
Common Stock and Dividend Information
54 CCI 54 CCI
55 CCI
Production Office Locations
55 CCI 55 CCI 55 CCI 55 CCI
Region 5
Regional Vice President
Mark Huddleston
Chico, CA
Fair Oaks, CA
Fairfield, CA
Folsom, CA
Medford, OR
Modesto, CA
Roseville, CA
Sacramento, CA
Salem, OR
Santa Rosa, CA
Stockton, CA
Tracy, CA
Region 6
Regional Vice President
Joe Riggio
Arcadia, CA
Glendale, CA
La Canada, CA
Lancaster, CA
Northridge, CA
Pasadena, CA
Santa Clarita, CA
Santa Maria, CA
Thousand Oaks, CA
Ventura, CA
Woodland Hills, CA
Region 7
Regional Vice President
Lisa Harding
Carlsbad, CA
Chula Vista, CA
Corona, CA
El Cajon, CA
Escondido, CA
Fountain Valley, CA
Fullerton, CA
Irvine, CA
Laguna Niguel, CA
Mission Viejo, CA
Riverside, CA
San Diego, CA (2)
Santa Ana, CA
Temecula, CA
Region 8
Regional Vice President
Garry Rankin
Brea, CA
Highland, CA
Lakewood, CA
Long Beach, CA
Los Angeles, CA
Monterey Park, CA
Palm Desert, CA
Rowland Heights, CA
San Dimas, CA
South Gate, CA
Torrance, CA
Victorville, CA
Whittier, CA
Region 9
Regional Vice President
Dave Porter
Anchorage, AK
Beaverton, OR
Bellevue, WA
Everett, WA
Federal Way, WA
Lakewood, WA
Lynnwood, WA
Seattle, WA (2)
Spokane, WA
Region 29
Regional Vice President
Vanna Conrady
Antioch, CA
Bakersfield, CA
Castro Valley, CA
Concord, CA
Cupertino, CA
Fremont, CA
Fresno, CA
Honolulu, HI
Oakland, CA
Pleasanton, CA
Reno, NV
Salinas, CA
San Jose, CA
Visalia, CA
Region 12
Regional Vice President
Sherrie Brozovich
Aurora, CO
Boulder, CO
Broomfield, CO
Castle Rock, CO
Cheyenne, WY
Colorado Springs, CO (2)
Denver, CO
Evergreen, CO
Fort Collins, CO
Grand Junction, CO
Greeley, CO
Lakewood, CO
Littleton, CO
Pueblo, CO
Region 16
Regional Vice President
Tom O’Neill
Arlington Heights, IL
Chicago, IL (2)
Crystal Lake, IL
Elgin, IL
Glenview, IL
Joliet, IL
Libertyville, IL
Naperville, IL
Orland Park, IL
Peoria, IL
Rockford, IL
Springfield, IL
Region 17
Regional Vice President
Linda O’Connor
Albuquerque, NM (2)
Flagstaff, AZ
Gilbert, AZ
Glendale, AZ
Goodyear, AZ
Lake Havasu City, AZ
Phoenix, AZ
Prescott, AZ
Scottsdale, AZ
Sierra Vista, AZ
Tempe, AZ
Tucson, AZ (2)
Region 25
Regional Vice President
Edward Henson
Arlington, TX
Dallas, TX (2)
DeSoto, TX
Fayetteville, AR
Fort Worth, TX
Garland, TX
Lewisville, TX
Little Rock, AR
Plano, TX
Southlake, TX
Tyler, TX
Region 26
Regional Vice President
Cherry Scott-Trigalet
Apple Valley, MN
Eden Prairie, MN
Edmond, OK
Lawrence, KS
Lawton, OK
Lincoln, NE
Norman, OK
Oklahoma City, OK
Omaha, NE
Topeka, KS
Tulsa, OK (2)
Wichita, KS
Woodbury, MN
Region 34
Regional Vice President
Diane Bond
Billings, MT
Boise, ID
Henderson, NV
Las Vegas, NV (3)
Nampa, ID
Ogden, UT
Orem, UT
Salt Lake City, UT
Sandy, UT
Region 35
Regional Vice President
Rick Monley
Cedar Rapids, IA
Columbia, MO
Davenport, IA
Dellwood, MO
Kansas City, KS
Kansas City, MO
Lee’s Summit, MO
Lenexa, KS
Mehlville, MO
O’Fallon, MO
Overland Park, KS
Springfield, MO
Urbandale, IA
Region 41
Regional Vice President
David Cook
Abilene, TX
Amarillo, TX
Austin, TX (2)
Corpus Christi, TX
El Paso, TX
Killeen, TX
Lubbock, TX
Midland, TX
San Antonio, TX (2)
Consumer Markets Division
Western Division
Central Division
56 CCI
Production Office Locations
continued
56 CCI
Consumer Markets Division (continued)
Midwest/Northeast Division
Region 36
Regional Vice President
Alina Garcia
Boynton Beach, FL
Bradenton, FL
Fort Myers, FL
Lakeland, FL
Miami, FL
Miami Lakes, FL
Naples, FL
Pembroke Pines, FL
Plantation, FL
Port Charlotte, FL
Port St. Lucie, FL
West Palm Beach, FL
Region 40
Regional Vice President
David Jones
Ashville, NC
Cary, NC
Charlotte, NC (3)
Gastonia, NC
Greensboro, NC
Jacksonville, NC
New Bern, NC
Raleigh, NC
Wilmington, NC
Winston-Salem, NC
Region 3
Regional Vice President
Wayne Rogers
Bel Air, MD
Cherry Hill, NJ
Cockeysville, MD
Englishtown, NJ
Ephrata, PA
Hamilton, NJ
Mays Landing, NJ
Mechanicsburg, PA
Sewell, NJ
Shrewsbury, NJ
Toms River, NJ
York, PA
Region 11
Regional Vice President
Michael Garmone
Canton, OH
Cleveland, OH
Cuyahoga Falls, OH
Erie, PA
Grove City, OH
Hilliard, OH
Mentor, OH
Monroeville, PA
Pittsburgh, PA
Scott Depot, WV
Strongsville, OH
Upper St. Clair, PA
Warren, OH
West Worthington, OH
Westlake, OH
Woodmere, OH
Region 19
Regional Vice President
Mary Turel
Burlington, MA
Jamaica Plain, MA
Merrimack, NH
Milford, CT
North Easton, MA
Portland, ME
Shrewsbury, MA
Somersworth, NH
Southington, CT
Warwick, RI
West Springfield, MA
Region 20
Regional Vice President
Beth Grossman
Ann Arbor, MI
Appleton, WI
Brookfield, WI
Clarkston, MI
Detroit, MI
Grand Rapids, MI
Kalamazoo, MI
Madison, WI
Novi, MI
Okemos, MI
Racine, WI
Shelby Township, MI
Toledo, OH
Woodhaven, MI
Region 24
Regional Vice President
Edmond Roncone
Amherst, NY
Broomall, PA
Clifton Park, NY
Frazer, PA
Huntingdon Valley, PA
Lansdale, PA
Latham, NY
Newark, DE
North Syracuse, NY
Philadelphia, PA
Reading, PA
Trexlertown, PA
Webster, NY
Wyoming, PA
Region 33
Regional Vice President
Eric Declercq
Brooklyn, NY
East Brunswick, NJ
Forest Hills, NY
Huntington Station, NY
Morristown, NJ
Newark, NJ
Newburgh, NY
Raritan, NJ
Staten Island, NY
Wantagh, NY
Wayne, NJ
Westfield, NJ
Yorktown Heights, NY
Region 39
Regional Vice President
Steve Boland
Centerville, OH
Cincinnati, OH (2)
Evansville, IN
Indianapolis, IN
Lexington, KY
Louisville, KY
Mishawaka, IN
New Albany, IN
Schererville, IN
Speedway, IN
Troy, OH
Region 10
Regional Vice President
Cathy Ann Gibb
Baton Rouge, LA
Beaumont, TX
Covington, LA
Hattiesburg, MS
Houston, TX (4)
Jackson, MS
Kingwood, TX
Metairie, LA
New Orleans, LA
Shreveport, LA
Sugar Land, TX
The Woodlands, TX
Region 14
Regional Vice President
Larry Gunnin
Birmingham, AL
Ft. Walton Beach, FL
Huntsville, AL
Johnson City, TN
Knoxville, TN
Madison, TN
Memphis, TN
Mobile, AL
Montgomery, AL
Murfreesboro, TN
Nashville, TN
Panama City, FL
Prattville, AL
Region 18
Regional Vice President
Kerry Rainey
Atlanta, GA (2)
Charleston, SC
Chattanooga, TN
Columbia, SC
Duluth, GA
Fayetteville, NC
Greenville, SC
Hilton Head, SCC
Marietta, GA
Myrtle Beach, SC
Peachtree City, GA
Riverdale, GA
Roswell, GA
Stone Mountain, GA
Woodstock, GA
Region 22
Regional Vice President
Sherry May
Alexandria, VA
Charlottesville, VA
Easton, MD
Falls Church, VA
Gaithersburg, MD
Laurel, MD
Manassas, VA
Owings Mills, MD
Richmond, VA (2)
Roanoke, VA
Severna Park, MD
Virginia Beach, VA
Washington, D.C.
Yorktown, VA
Region 28
Regional Vice President
Frankie McGrew
Brandon, FL
Clearwater, FL
Daytona Beach, FL
Jacksonville Beach, FL
Jacksonville, FL
Longwood, FL
Merritt Island, FL
New Port Richey, FL
Ocoee, FL
Orlando, FL
Satellite Beach, FL
Tampa, FL
Winter Park, FL
Winter Springs, FL
Southeast Division
57 CCI
Production Office Locations
continued
57 CCI
Region 492
Regional Vice President
Scott Bridges
Alta Loma, CA
Brea, CA
Burbank, CA
Honolulu, HI
Las Vegas, NV
Long Beach, CA
Northridge, CA
San Diego, CA
Region 493
Regional Vice President
Michael Kadair
Brookfield, WI
Cincinnati, OH
Dublin, OH
Indianapolis, IN
Troy, MI
Westland, MI
Region 494
Regional Vice President
Dan Eason
Dallas, TX
Denver, CO
Oaklawn, IL
Overland Park, KS
Phoenix, AZ
St. Louis, MO
Salt Lake City, UT
Region 495
Regional Vice President
Carl D’Onofrio
Altamonte Springs, FL
Jacksonville, FL
Madison, TN
Marietta, GA
Metairie, LA
South Miami, FL
Tampa, FL
Region 497
Regional Vice President
John Mauk
Braintree, MA
Ellicott City, MD
Falls Church, VA
Forest Hills, NY
Philadelphia, PA
Springfield, NJ
Region 499
Regional Vice President
Steven Hauser
Bothell, WA
Federal Way, WA
Milpitas, CA
Sacramento, CA
San Mateo, CA
Vancouver, WA
Walnut Creek, CA
Region 81
Regional Vice President
Tom Mozilo
Austin, TX
Dallas, TX
Houston, TX
Kansas City, KS
Oklahoma City, OK
Region 85
Regional Vice President
Keith Ryan
Alamo, CA
Fresno, CA
Las Vegas, NV
Marin County, CA
Sacramento, CA
San Jose, CA
Region 89
Regional Vice President
Bradley Greene
Colorado Springs, CO
Denver, CO
Phoenix, AZ
Salt Lake City, UT
Region 91
Regional Vice President
R.J. Arnett
El Segundo, CA
Pasadena, CA
Rancho Cucamonga, CA
San Diego, CA
Santa Ana, CA
Woodland Hills, CA
Region 98
Regional Vice President
Debbie Hood
Boise, ID
Honolulu, HI
Portland, OR
Seattle, WA
Region 78
Regional Vice President
Tim Koger
Detroit, MI
Grand Rapids, MI
Indianapolis, IN
Lisle, IL
Milwaukee, WI
Minn/St. Paul, MN
St. Louis, MO
Region 83
Regional Vice President
Ira Goldberg
Boca Raton, FL
East Hanover, NJ
Jacksonville, FL
Long Island, NY
Miami, FL
Orlando, FL
Tampa, FL
Region 95
Regional Vice President
Dennis Patchett
Cleveland, OH
Columbus, OH
Danvers, MA
Hartford, CT
Louisville, KY
Philadelphia, PA
Pittsburgh, PA
Region 96
Regional Vice President
Jim Ford
Atlanta, GA
Birmingham, AL
Charlotte, NC
Fairfax, VA
Nashville, TN
New Orleans, LA
Raleigh, NC
Full Spectrum Lending, Inc.
Eastern Division
Wholesale Lending Division
Western Division
Offices
Regional Sales Manager
Tom Williams
West Hills, CA
Regional Sales Manager
Rex Adams
Plano, TX
Regional Sales Manager
Joseph Kresser
Pittsburgh, PA
Correspondent Lending Division
58 CCI
Subsidiaries
58 CCI
Countrywide
Home Loans, Inc.
Angelo R. Mozilo
Chairman of the Board of Directors
Stanford L. Kurland
President and Chief Executive Officer
Administration/Operations
Carlos M. Garcia
Senior Managing Director of Finance
and Chief of Operations
Sidney Lenz
Managing Director, Industry Affairs
Richard S. Lewis
Managing Director,
Profitability Enhancement Initiatives
Anne D. McCallion
Managing Director,
Chief Administrative Officer
Sandor E. Samuels
Managing Director, Legal,
General Counsel and Secretary
Craig Baingo
Executive Vice President,
Strategic & Financial Planning
Robert Barbarowicz
Executive Vice President and
Deputy General Counsel
Patrick Benton
Executive Vice President, Administration
Frederick J. Budig
Executive Vice President and
Director of Internal Audit
Paul Decoff
Executive Vice President,
Corporate Operations Officer
Jordan D. Dorchuck
Executive Vice President and
Deputy General Counsel
Leora Goren
Executive Vice President,
Human Resources
Michael Keating
Executive Vice President,
Global Markets
Susan E. Kelsey
Executive Vice President and
Deputy General Counsel
Mark Upson
Executive Vice President, Administration
Richard B. Wentz
Executive Vice President,
Deputy General Counsel and
Chief Compliance Officer
Randy Willox
Executive Vice President,
Global Business Development
Finance
Thomas K. McLaughlin
Managing Director and
Chief Financial Officer
Eric P. Sieracki
Managing Director, Corporate Finance
Jeffrey K. Speakes
Managing Director, Risk Management
David J. Bigelow
Executive Vice President,
Strategic Planning
Mark E. Elbaum
Executive Vice President,
Chief Financial Officer of Mortgage
Loan Production
Laura K. Milleman
Executive Vice President and
Chief Accounting Officer
Lisa Novacek
Executive Vice President,
New Business Development
Jennifer Shiley Sandefur
Executive Vice President and Treasurer
Michael Smith
Executive Vice President,
Portfolio Risk Management
Steven Sylvers
Executive Vice President,
Taxation
Loan Administration
Thomas H. Boone
Senior Managing Director and
Chief of Global Processing
Richard DeLeo
Managing Director and Chief of
Domestic Loan Administration
Steve R. Bailey
Executive Vice President,
Chief Operations Officer
Dorianne Cotter
Executive Vice President, Loan
Administration Systems Development
Rick Hildebrand
Executive Vice President,
Bankruptcy, Foreclosure and
Real Estate Management
Kevin Leon Meyers
Executive Vice President,
Chief Financial Officer
Marketing
Andrew S. Bielanski
Managing Director, Marketing
Stephen Douglass
Executive Vice President,
Market Research & Finance
Production and Information Technology
David Sambol
Senior Managing Director and
Chief of Production
Marshall M. Gates
Managing Director, Developing Markets
Richard Jones
Managing Director and
Chief Technology Officer
Gregory A. Lumsden
Managing Director, Originations
Paul Abbamonto
Divisional Executive Vice President,
Subprime Production, Wholesale
Lending Division
Farzad Abolfathi
Executive Vice President,
Application Development
Joe D. Anderson
Executive Vice President,
Consumer Markets Division
Scott D. Anderson
Executive Vice President,
Production Support
G. Richard Bright
Executive Vice President,
Product Development and Support
Robert A. Brown
Executive Vice President,
Division Consumer Production
Phyllis Bucklew
Executive Vice President,
Division Consumer Production,
Southeast Division
William S. Cobb, Jr.
Division Executive Vice President,
Information Technology
Mike Cunningham
Executive Vice President,
Infrastructure
Todd A. Dal Porto
Executive Vice President,
Wholesale Lending Division
David Doyle
Executive Vice President,
Consumer Direct Production
Angel Garcia
Chief Financial Officer and
Executive Vice President,
Information Technology Finance
Daniel Garcia, Sr.
Executive Vice President,
Chief Operating Officer,
Information Technology
Tom Halley
Executive Vice President,
Division Consumer Production,
Central Division
Joanne B. Hannaman
Executive Vice President,
Consumer Markets Division, Operations
Chuck Hoffmans
Chief Financial Officer,
Wholesale Lending Division
Douglas E. Jones
Executive Vice President,
Correspondent Lending Division
Mark Kemp
Executive Vice President,
Division Consumer Production,
Western Division
Michael M. Lamka
Division Executive Vice President,
Wholesale Branch Support
Sam Ourfalian
Executive Vice President,
Information Technology
Brian Robinett
Executive Vice President of Production,
Wholesale Lending Division
Jack W. Schakett
Executive Vice President,
Chief Operating Officer,
Correspondent Lending Division
Omer Simeon
Executive Vice President,
Global Servicing Development
Stephen Smith
Executive Vice President and
Chief Executive Officer,
Consumer Markets Division
Mike Spalter
Executive Vice President,
Network/Data Center
Mike Taliaferro
Executive Vice President
and Head of Production, Builder Division
and National Branch System
Peter G. Wyman
Executive Vice President,
Consumer Markets Division,
Finance and Technology
Secondary Markets
Kevin W. Bartlett
Senior Managing Director and
Chief of Secondary Markets
Nicholas Krsnich
Executive Vice President,
Secondary Marketing Trading
David A. Spector
Executive Vice President, Loan Sales
David M. Walker
Executive Vice President,
Credit Risk Management
Countrywide
Capital Markets, Inc.
Angelo R. Mozilo
Chairman
Stanford L. Kurland
Vice Chairman
David Sambol
Chief Executive Officer
Ranjit Kripalani
President and Chief Operating Officer
J. Grant Couch, Jr.
Chief Operations Officer
Steven Hively
Executive Vice President,
Chief Financial Officer and Treasurer
Countrywide Asset
Management Corporation
David Sambol
President
Michael Schloessman
Executive Vice President
Countrywide
Financial Holding Company, Inc.
Clarence Simmons, III
President and Chief Operating Officer
Countrywide Securities Corporation
Stanford L. Kurland
Chairman
59 CCI 59 CCI
David Sambol
Chief Executive Officer
Ranjit Kripalani
President and Chief Operating Officer
Anand Bhattacharya
Executive Vice President,
Fixed Income Strategies
Kim Campbell
Executive Vice President
J. Grant Couch, Jr.
Executive Vice President and
Chief Operations Officer
Nancy DeLiban
Executive Vice President,
Manager Structured Finance Department
Steven Hively
Executive Vice President,
Chief Financial Officer and Treasurer
Alfred MacArthur Humphries
Executive Vice President
Michael Moore
Executive Vice President,
Information Technology
Thomas P. O’Hallaron
Executive Vice President
John S. Radtke
Executive Vice President
Michael Schloessmann
Executive Vice President,
Director of Transaction Management
Countrywide
Servicing Exchange
Angelo R. Mozilo
Chairman
Stanford L. Kurland
Vice Chairman and
Chief Financial Officer
David Sambol
Chief Executive Officer
Ranjit Kripalani
President and Chief Operating Officer
J. Grant Couch, Jr.
Executive Vice President and
Chief Operations Officer
Steven Hively
Executive Vice President,
Chief Financial Officer and Treasurer
Steven Tannehill
Executive Vice President
Countrywide
Field Services Corporation
Thomas H. Boone
Chairman and Chief Executive Officer
Richard DeLeo
Vice Chairman and
Chief Operations Officer
Catherine Beaman
President
Thomas Dixon
Executive Vice President
Countrywide
Home Loans Servicing, LP
Angelo R. Mozilo
Chairman
Stanford L. Kurland
President and Chief Executive Officer
Countrywide
Insurance Group, Inc.
Stanford L. Kurland
Chairman
Carlos M. Garcia
President and Chief Executive Officer
Nicholaus Lannutti
Chief Financial Officer
Balboa Life and Casualty
Carlos M. Garcia
Chairman
Neal Aton
President and Chief Executive Officer
Andrew Gissenger III
President,
Balboa Institutional Marketing Group
D. David Cissel
Executive Vice President and
Chief Operating Officer
Kristine McKay
Chief Financial Officer
Countrywide Insurance Services, Inc.
Steven D. Phillips
Vice Chairman, President and
Chief Executive Officer
DirectNet Insurance Agency, Inc.
Steven D. Phillips
President and Chief Executive Officer
Countrywide
International Consulting
Services, LLC
Michael Lea
President and Chief Executive Officer
CCM International Limited
David Sambol
Chairman
Ranjit Kripalani
Chief Operating Officer
Countrywide
International Technology
Holdings, Limited
Thomas H. Boone
Director
CW TechSolutions Limited
Thomas H. Boone
Chairman
Michael Keating
President
Countrywide
Realty Partners, Inc.
Richard DeLeo
Chief Executive Officer and President
Kevin Leon Meyers
Executive Vice President
Angela Hess
Chief Financial Officer
Countrywide
Tax Services Corporation
Richard DeLeo
President
Countrywide
Warehouse Lending
Stanford L. Kurland
Chairman and President
David Sambol
President and Chief Executive Officer
Steven Hively
Executive Vice President and
Chief Financial Officer
J. Grant Couch, Jr.
Executive Vice President
Jack Schakett
Executive Vice President
CTC Real Estate Services
Thomas H. Boone
Chairman and Chief Executive Officer
Richard DeLeo
Vice Chairman
Catherine Beaman
President
Edward Skornik
Executive Vice President
CW Securities
Holdings, Inc.
Kevin W. Bartlett
President
Carlos M. Garcia
Chief Financial Officer
Thomas Keith McLaughlin
Executive Vice President
Effinity Financial
Corporation
Edward Furash
Chairman and Chief Executive Officer
James Furash
President and Chief Operating Officer
Full Spectrum
Lending, Inc.
Gregory A. Lumsden
Chairman
Lloyd Sargeant
Executive Vice President,
Sales and Marketing
Global Home Loans
Limited
Stanford L. Kurland
Chairman
Trevor Henderson
Chief Executive Officer
LandSafe, Inc.
Marshall M. Gates
Executive Vice Chairman and
Chief Executive Officer
Michael Faine
President and Chief Operating Officer
John Mann
Chief Financial Officer
LandSafe Appraisal Services, Inc.
Greg Dennis
President and Chief Operating Officer
LandSafe Credit, Inc.
Brian Hershkowitz
President
LandSafe Flood Determination, Inc.
Marshall M. Gates
Chief Executive Officer
LandSafe Home Inspection Services, Inc.
Marshall M. Gates
Chairman and Chief Executive Officer
LandSafe Title Companies
Kevin Weaver
Executive Vice President
Second Charter
Reinsurance Company
Stanford L. Kurland
Chairman
Marshall M. Gates
President
60 CCI
Corporate Information
Board of Directors
Angelo R. Mozilo
Chairman, Chief Executive Officer and President
Jeffrey M. Cunningham
Chairman, Corvida Holdings,
Private Investment Firm
Robert J. Donato
Senior Vice President, Branch Manager
Paine Webber, Incorporated
Securities/Investment Advisory Services
Michael E. Dougherty
Co-Founder and Chairman
Dougherty Financial Group,
LLC
Financial Services Firm
Ben M. Enis, Ph.D.
Marketing Consultant,
Professor Emeritus of Marketing
University of Southern California
Edwin Heller
Attorney, Of Counsel,
Fried, Frank, Harris, Shriver and Jacobson,
Law Firm
Stanford L. Kurland
Executive Managing Director,
Chief Operating Officer
Oscar P. Robertson
President
Orchem Corporation, Orflex, Ltd.
and Orpack Stone Corp.
Harley W. Snyder
Real Estate Consultant
and Private Investor
Corporate Officers
Angelo R. Mozilo
Chairman, Chief Executive Officer and President
Stanford L. Kurland
Executive Managing Director,
Chief Operating Officer
Kevin W. Bartlett
Senior Managing Director and
Chief of Secondary Markets
Thomas H. Boone
Senior Managing Director and
Chief of Global Processing
Carlos M. Garcia
Senior Managing Director of Finance
and Chief Financial Officer
David Sambol
Senior Managing Director and
Chief of Production
Andrew S. Bielanski
Managing Director, Marketing
Richard DeLeo
Managing Director,
Domestic Loan Administration
Marshall M. Gates
Managing Director,
Developing Markets,
Chairman and Chief Executive Officer
of LandSafe, Inc.
Richard K. Jones
Managing Director and
Chief Technology Officer
Sidney Lenz
Managing Director, Industry Affairs
Richard S. Lewis
Managing Director
Gregory A. Lumsden
Managing Director, Originations
Anne D. McCallion
Managing Director and
Chief Administrative Officer
Thomas K. McLaughlin
Managing Director and Treasurer
Sandor E. Samuels
Managing Director, Legal,
General Counsel and Secretary
Eric P. Sieracki
Managing Director, Corporate Finance
Jeffrey K. Speakes
Managing Director, Risk Management
Accountants
Grant Thornton LLP
1000 Wilshire Boulevard
Los Angeles, CA 90017-2464
Registrar and Transfer Agent
The Bank of New York
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
(800) 524-4458
Corporate Headquarters
4500 Park Granada
Calabasas, CA 91302-1613
Countrywide Regional Centers
5220 Las Virgenes Road
Calabasas, CA 91302-1064
(818) 871-4000
(800) 669-6609
18581 Teller Avenue
Irvine, CA 92621-1627
(949) 553-0700
(800) 854-6115
5898 Condor Drive
Moorpark, CA 93021-2603
(805) 553-6000
35 North Lake Avenue
Pasadena, CA 91101-1892
(624) 304-8400
(800) 881-4968
7105 Corporate Drive
Buildings A and B
Plano, TX 75024-4100
(972) 608-6000
(800) 669-6688
6400 Legacy Drive
Plano, TX 75024-3697
(972) 608-6000
(800) 669-6688
1515 Walnut Grove
Rosemead, CA 91770-3710
(626) 927-3000
(800) 585-1502
450 American Street
Simi Valley, CA 93065-6285
(805) 520-5100
(800) 758-5465
400 Countrywide Way
Simi Valley, CA 93065-6298
(805) 520-5100
(800) 758-5465
994 Flower Glen
Simi Valley, CA 93056-1900
(805) 955-3200
(800) 669-6607
1800 Tapo Canyon Road
Simi Valley, CA 93063-6712
(805) 577-4200
8501 Fallbrook Avenue
West Hills, CA 91304
(818) 316-8000
Shareholder Information
Inquiries Regarding Your Stock Holdings
In all correspondence or telephone inquiries,
please mention Countrywide Credit Industries,
your name as printed on your stock certificate,
your social security number, your address and
your telephone number.
Registered Shareholders
(Shares held in your name)
Address shareholder inquiries to:
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
(800) 524-4458
E-mail Address:
Shareowner[email protected].com
Send certificates for transfer and address
changes to:
The Bank of New York
Receive and Deliver Department-11W
P.O. Box 11002
Church Street Station
New York, NY 10286-1002
(800) 524-4458
Beneficial Shareholders
(Shares held by your broker in the name
of the brokerage house)
Questions should be directed to your broker.
Employee Stock Option Participants
Questions regarding your account, outstanding
options or shares received through option
exercises should be addressed to:
Countrywide Credit Industries, Inc.
Equity Benefit Plan Administration
4500 Park Granada
MSN CH-56
Calabasas, CA 91302-1613
(818) 225-3456
Employee 401(k) Benefit Plan Participants
Questions regarding your 401(k) statements, loan
provisions, fund transfers or other matters should
be addressed to:
Countrywide Credit Industries, Inc.
Human Resources: Benefits Department
1515 Walnut Grove
MSN RM-56
Rosemead, CA 91770
(800) 881-4968, Ext. 3999
Dividend Reinvestment Plan
By enrolling in Countrywide Credit Industries,
Inc.’s Dividend Reinvestment and Optional Cash
Stock Purchase Plan, shareholders may reinvest
cash dividends on all, or some portion, of their
common stock and may purchase the Company’s
common stock on a monthly basis with optional
cash payments. Information on this plan is
available from:
The Bank of New York
Securities Transfer Division
Dividend Reinvestment
P.O. Box 1958
Newark, NJ 07101-9774
(800) 524-4458
Company Information
Shareholders with questions regarding Countrywide
Credit Industries, Inc., or who are interested in
obtaining a copy of the Company’s Form 10-K
without exhibits for Fiscal 2001, or a copy of the
corporate annual report of Balboa Life & Casualty
may contact:
Countrywide Credit Industries, Inc.
Investor Relations
4500 Park Granada
MSN CH-19
Calabasas, CA 91302-1613
(818) 225-3550
You may also reach us through the Internet at
www.countrywide.com
Annual Shareholders’ Meeting
The Annual Meeting of Shareholders
will be held on Thursday, July 12, 2001
at 10:00 a.m. (
PDT) at
Hyatt Westlake Plaza
880 South Westlake Boulevard
Westlake Village, CA 91361
Mortgage Financing and Insurance Products
If you are in the process of purchasing a new
home, are interested in refinancing or obtaining
a home equity loan or would like to know about
our diversified financial products and services,
we are ready to serve you. A special unit of
our company is dedicated to responding to your
inquiries and ensuring that you are satisfied.
Please call the Shareholder Hotline at
(800) 544-8191.
Countrywide Insurance Services, Inc. is also
pleased to offer you personally tailored and
competitive insurance products and services.
Please call (800) 669-6656, Ext. 3175, for
a quote.
You may also reach us through the Internet at
www.countrywide.com or www.cwinsurance.com
Fiscal Year Ended February 28 (29),
Dollar amounts in millions, except per-share data 2001 2000 1999
Revenues $ 2,056 $ 1,871 $ 1,804
Net earnings $ 374 $ 410 $ 385
Total assets $ 22,954 $ 15,822 $ 15,648
Common shareholders’ equity $ 3,559 $ 2,888 $ 2,519
Earnings per share — diluted
(1) (2)
$ 3.14 $ 3.52 $ 3.29
Common shareholders’ equity per share
(at year-end) $ 30.23 $ 25.45 $ 22.37
(1)
Based on weighted average diluted common shares outstanding.
(2)
Earnings per share for Fiscal Year 2000 include a $25.0 million tax benefit primarily related to a corporate reorganization.
Excluding the non-recurring tax benefit, diluted earnings per share would have been $3.31.
Financial Highlights
COUNTRYWIDE CREDIT INDUSTRIES, INC.
4500 Park Granada
Calabasas, California 91302-1613
WWW.COUNTRYWIDE.COM
CCI 2001 ANNUAL REPORT
WWW.COUNTRYWIDE.COM
Countrywide Credit Industries, Inc.
2001 Annual Report
