Letter to Shareholders| Letter to Shareholders | |
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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 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 network, 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 softening 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 environment. 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 shareholders. On behalf of all the people at Countrywide, we thank you for your continued interest and support.
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