美國銀行 (BAC) 2003 Q4 法說會逐字稿

Good morning.

Welcome to the Countrywide Financial Corporation's fourth quarter earning's conference call.

At this time all phone lines are in a muted or listen-only mode.

However, after today's presentation, we will be taking questions and we certainly encourage your participation at that time.

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Also, should you require assistance during today's earnings report, you may reach an AT&T operator by pressing star then 0.

And as a reminder, today's call is being recorded for replay purposes.

We ask that you stay online at the conclusion of today's meeting to receive the replay information.

With that being said, here now is your host with our opening remarks.

Countrywide's Chairman, Chief Executive Officer, Mr. Angelo Mozilo.

Please go ahead, sir.

Thank you.

Good morning and welcome to Countrywide's earnings teleconference for the fourth quarter and year end of 2003.

We strongly encourage all participants to view the fourth quarter earnings and performance report while listening to this call.

This report can be accessed on our website at www.countrywide.com by clicking on Investor Relations on the home page and then clicking on the supporting slide show text link for the fourth quarter 2003 earnings teleconference.

On Page 2 of the earnings and performance report we provide an agenda for today's teleconference.

First, I will provide a brief overview of our actual results.

This will include a summary of some of our most noteworthy accomplishments during the year as well as a tabular presentation of key financial and operational statistics for the 3-month and 12-month periods just ended.

Next, I will provide you an overview of current market conditions.

And finally, we will take a look at 2004 and beyond and how Countrywide has built a solid foundation for future growth.

Page 3 lists some of our 2003 operational milestones.

We achieved total fundings of $435 billion which substantially exceeds the total for the previous two years combined.

Purchase fundings alone were $130 billion which nearly maxed Countrywide's total fundings, purchase and refinanced from just over two years ago.

Countrywide's servicing portfolio reached $645 billion which is more than two times the size of our portfolio at the start of the refi boom.

Bank assets reached $19.3 billion which is almost four times our total a year ago.

Securities trading volume in our capital market subsidiary was $2.9 trillion, nearly $1 trillion more than the total for 2002.

Earnings accomplishments are highlighted on page 4.

(Inaudible) Earnings per share were $12.47 which is greater than the last three years combined.

I would like to emphasize that all numbers in this presentation reflect the 4-for-3 stock split completed in December.

Net earnings reached $2.4 billion which nearly tripled last year's previous record of $842 million.

Our diversification businesses combined to reduce $984 million in pretax earnings, nearly 2.5 times last year's total and more than the entire company earned in any year before 2002.

The table on page 5 focuses on our performance in the fourth quarter.

Net earnings were $564 million, up 121% above last year's fourth quarter.

Earnings per diluted share increased 89% to $2.74.

Diversification pretax earnings increased 122% to $246 million.

Fundings were $76 billion, down 25% from the same quarter last year when refinance activity was much higher.

But as we noted later in this presentation, we became the number one mortgage originator during the fourth quarter.

The pipeline of applications and process fell significantly from December 31, 2002, but remained robust $33 billion.

Later in this presentation I will go into full detail about where we stand today.

The servicing portfolio grew 43%, concluding the year at $645 billion.

Page 6 compares our 12-month financial measures with the prior year.

Net earnings rose 182% to $2.4 billion.

Earnings per diluted share of $12.40 were 56% higher than last year.

Diversification pretax earnings, which were $368 million last year, grew 143% to $894 million, and fundings increased by 73% to $435 billion.

In the wake of Countrywide's remarkable 2003 accomplishments, what happens next?

Countrywide has gone beyond simply capturing the short term benefits of refinance boom conditions.

We view these environments as opportunities to build lasting foundations for future growth.

This is reflected in our 2004 earnings guidance shown on Page 7.

Guidance for 2004 is $9 to $12 per diluted share.

This range falls below 2003 PS of $12.47 but 2003 was obviously an extraordinary year.

It is more informative to compare 2004 guidance with prior years.

Even at the low end of the range, $9 per diluted share, the applied compounded annual growth rate from the beginning of the decade would be 40%.

Management believes that a substantial portion of the growth achieved during the refinance boom was built upon a lasting foundation and can be sustained in the future.

Investors that held our stock during 2003 were obviously well rewarded.

As the chart on Page 8 indicates, Countrywide significantly out-performed both the S&P 500 index and the S&P 500 financials.

Other major companies in the mortgage base did not keep pace with us.

Countrywide's stock price appreciated 90% during the year which is 22%, on average, for the companies listed in the table on the right hand side of this page.

In a moment I will describe the strategies we have in place to continue to deliver outstanding performance for 2004 and beyond.

But first I would like to provide you a brief overview with current market conditions and how Countrywide's position to capitalize on the opportunities they present.

Turning to Page10, this table highlights something I mentioned earlier that management believes Countrywide moved into the top spot amongst mortgage originators in the fourth quarter with $56 billion.

This exceeded our closest competitors, Wells Fargo and Washington Mutual, who funded $71 billion and $70 billion, respectively, per their recent press releases.

Looking back to the previous quarter, there is no evidence that both companies funded more than Countrywide when the refinance boom was still at extremely high levels.

Countrywide held more of the market during the decline of the fourth quarter as a result of our reputation for quality, our solid operational foundation and our ability to expand our sales force in the changing market conditions.

In the post-boom world, we believe the continuing industry consolidation is a great opportunity for Countrywide, as many high-quality salespeople throughout the industry will see advantages in joining the winning team at Countrywide with a post-boom strategy is to continue to aggressively pursue market share.

There has been a great deal of interest in recent months in the status and origination margins in the industry and at Countrywide.

Page 11 addresses this point.

Margins achieved during the peak volume levels of the refinance boom are not likely to be sustainable as the market contracts, that Countrywide consistently maintained with the market dynamics as such that margins will be sustainable at reasonable levels after the boom ends.

The chart on Page 11 shows the -- during the fourth quarter when Countrywide moved to the number one spot among mortgage originators our margins remained healthy despite a significant contraction in total market volume.

Thus, the facts continued to support our belief in a rational post-boom environment.

But speculation about a greatly diminished mortgage market may be premature.

Last week's MBA application indicated highly positive trends as shown on Page 12.

The purchase index is shown on the left.

This index hit 502, the highest level recorded since the survey began in 1990.

And there is even talk about a resurgence in the recurrent refinance boom.

The chart on the right shows a sudden spike in the refinance index to over 3300 as refinance applications hit their highest level in nearly 6 months.

Immediately before that, the refinance index had reached its lowest level in recent times around 1700, which was still substantially above the range of 5 to 700 that would be expected in a normal purchase market.

For Countrywide, specifically, as of the end of January, end of the day, January 23rd, our month-to-date average-day applications were $1.7 billion, up $1.4 billion month-to-date on December 23rd.

The next topic is Countrywide's future and how we have built a solid foundation of growth in the years ahead.

Turning to Page 14, you can see some of the key foundational elements that have come out of growth during the boom.

Total originations grew more than seven fold since the beginning of the boom.

Much of this was refinance volume which was not sustainable when rates rise.

But note that purchase volume increased by 172%.

This was driven by strategic expansion of our sales force which grew to 7500 people at December 31, 2003.

Our overall market share grew 112% during that same period.

On the servicing side, our portfolio grew by 126%, representing a 63% growth in market share share and driving an increase of 117% in fee-based revenue.

This, too, represents sustainable growth as the weighted average coupon on this production was reduced from 7.8% to 6.1%, meaning our servicing portfolio would be unlikely to experience high prepayments which rates rise rise again.

The chart on Page 15 shows another perspective on sustainable growth.

This chart plots Countrywide's origination volume and market share since 1990 and also breaks out the 13-year period into refinance boom and purchase market cycles.

Countrywide's market share rose during each of three refinance booms and as the chart shows, this was lasting growth.

In none of these cases did post-boom market share fall back to pre-boom levels.

The servicing side of our business has also achieved sustainable growth, as shown on Page 16.

Our servicing portfolio shows consistent growth in all types of rate environments.

During the most recent refinance boom our portfolio, which generates a stream of cash, has grown substantially.

At our quarter end, November 30, 2000, which coincides roughly with the refinancing boom, the portfolio stood at $282 billion.

Today the balance is $645 billion.

Due to (inaudible) of financial perspective, comparative fee-based revenue for the November 30, 2000 quarter versus the fourth quarter 2003, back then fee-based revenue, servicing fee plus miscellaneous servicing portfolio fees before armortization or (inaudible) activities was $288 million with an annualized run rate of about $1.2 billion.

In Q4, that amount was $631 million or annualized run rate of more than $2.5 billion.

Please note, that this analysis relates to revenue and does not translate directly into a bottom line which is impacted by other factors such as amortization and impairment.

This is an example of I mean when I talk about building a sustainable model or sustainable foundation.

Now let's look at some of our specific strategies at 2004 on Page 17.

As I mentioned earlier, we have very aggressive market share goals.

These goals are supported by a sales force that is financially incented to build businesses.

Our sales force numbers over 7500 today and our plans are to grow that number to 10,000 by year end.

We want an active presence in a distribution capability to every material customer segment within each of our channels.

In our retail division, for example, that means targeting the first-time home buyer, the affluent home buyer with jumbos, and we're merging market segment.

We're also focusing on the consumers who prefer to transact business on the internet as well as B-to-B customers like relocation companies, builders and realtors who want to form joint ventures.

We have similar proactive strategies and focus across all origination channels.

Another key component of our strategy is to maintain the industry's broadest product menu.

Many of our competitors have limited product lines.

Our strategy is to be able to offer one-stop-shop solutions to to our business partners, mortgage brokers, realtors and builders, for example.

So if they have a customer who can qualify for a loan, we will have a product that meets their needs.

And finally, we have a scalable interest structure that can expand quickly to meet peak demand periods, which we may see again soon through use temps and commission-exemptive sales force.

Our broad product menu is supported by Countrywide Bank which will specialize in ARM and hybrid products.

We have 31 financial centers today housed within our retail branches and the plan is to bring that number to about 60 by the end of 2004.

It is important to note that these centers average only 304 square feet in size and staffing is usually limited to two employees with low operating costs in comparison to conventional bank branches.

Taking into account the bank's current pace of growth and business activities, bank assets are estimated to be approximately $35 billion by year end.

The bank's target ROA is 1.1% and 17% return on average equity is -- sorry, and its return on equity average is expected to be 18%.

Turning to Slide 18 and capital markets.

The strategy is one of growth and diversification.

While some of the subsidiary's profitability is tied to mortgage origination volume, it is branching out into new business segments and markets to reduce this reliance.

One example is our recent announcement that Countrywide Securities Corporation is now a primary dealer of U.S. Treasuries.

This expands our access to institutional investors and allows us to direct participation to open market operations in securities lending.

In addition, capital markets plan to expand its product and service offerings both within the residential mortgage arena and in other fixed debt income securities.

This will be supported by an expanded sales force and by international expansion as well.

In our insurance business, one of the more recent developments was the hiring of 25-year industry veteran, (inaudible) CEO of Balboa Life and Casualty.

This will strengthen our management branch and enhance the growth and prospects of this very important subsidiary.

In a nonrefinance environment, the insurance business should not be negatively impacted as lender placed business is insulated from the (inaudible) origination cycle and reinsurance premiums historically have grown in line with the servicing portfolio and we expect that portfolio to increase.

Next, let's turn to Countrywide's long-term goals.

On Slide 19, you will see three of our most important five-year goals.

As I have said many times before, the quality of the execution capabilities of our time-tested management team gives me great confidence that our 2008 target goals will be achieved.

Our goal is market dominance, and we are talking 30% origination market share by 2008 to support our macro hedge strategy.

Our goal as a servicing portfolio of at least $1.5 trillion by 2008.

Growth in our diversification businesses should continue to be strong with the bank being a significant contributor.

Based on the bank's current pace of growth and business activities, assets are estimated to be $120 billion by year end 2008.

In summary, 2003 was an outstanding year on all fronts and I am proud of, and grateful for, the more than 34,000 employees who helped deliver these results for our valued investors.

For Countrywide, 2003 was a year of opportunity where we enhanced our foundation for future growth.

We always emerged from boom times larger, stronger and well prepared for the transition to normal marketing conditions.

For 2004, we are reaffirming our earnings guidance, which is $9 to $12 per diluted share.

This is significantly higher than any year before 2003 and it represents 40% compound annual growth since the beginning of the decade.

To see the assumptions behind our earnings guidance, please refer to our third quarter 2003 earnings teleconference presentation.

We are reaffirming these assumptions after adjustments for 4-for-3 stock split completed December, 2003.

Beyond 2004, we are well positioned for growth as both our mortgage banking operations and (inaudible) have sound strategies and foundations in place.

I would now like to open the lines for any questions you might have.

Ladies and gentlemen, as a reminder, please queue up with any questions that you have at this time by pressing star followed by the 1.

Thank you.

Our first question is from the line of Bob Napoli with Piper Jaffray.

Please go ahead.

Good Good morning.

I will ask two questions, if I may.

The first, the bank, $120 billion bank by 2008.

That's a pretty big bank in a pretty short period of time.

Would putting these targets out there, does it suggest that regulatory constraints are no longer an issue as far as the growth of the bank?

These are all -- all banks put out their (inaudible) on the basis that the regulators are comfortable with our growth plans.

Okay.

Then, secondly, on the hedging for the quarter.

Just trying to understand the write up of the MSR and the hedging.

It seems like the hedge loss was a little bit higher than last quarter although rates were a little less volatile.

I was just kind of wondering, you know, why the hedge loss may have been what it was this quarter and kind of the outlook into early '04?

And then, lastly, would you care to venture a range for first quarter earnings, given the resumption of a refund?

I will take the last part.

We don't give quarterly earnings.

We are off of that, Bob.

Okay.

With regard to the servicing of the hedge performance in the fourth quarter, we did have impairment recovery which offset the -- more than offset the -- loss on the hedge instruments.

Although as you noted, the performance was not as great as it was in the third quarter.

In the third quarter we had excellent performance, there was considerable volatility in opportunities created, and we, in a way that we operated the hedge resulted in, you know, excellent activity in the third quarter, and, frankly, very respectable performance in the fourth quarter as well.

The fourth quarter had a little bit of mortgage tightening to treasuries and swaps which is one of the reasons that the hedge didn't perform, you know, quite as well.

We also had a couple of the strata of our servicing asset that was actually cast out, and so we couldn't increase the impairment recovery, and further on those strata.

In other words, they were capped out at their cost.

But all in all, the hedge performed well, weller than the targets than we provided.

And, you know, we continue to operate it, you know, in pretty much the same fashion in the current, in the current year.

Thank you.

And we have a question from the line of Mike McMann, Sandler O'Neill.

Please go ahead.

Hi.

My banking question was just asked, but a more minute question.

The servicing fees as a percentage of the portfolio declined to about 47 bits annualized in the fourth quarter.

I assume that came from the miscellaneous fees.

I am just wondering, how volatile is the miscellaneous fee line on the servicing item?

Mike, Keith is going to answer that question.

Yeah, Mike.

As you know, a portion of those miscellaneous fees contain prepayment penalties and other pay off related fees.

The level of the pay offs, as you know, declined in the fourth quarter so we saw commensurate reduction in those fees.

Also in the fourth quarter, we did see a reduction in income from our other retained interest, and, if you think of those other retained interest, a portion of them are, in effect, squeeze IOs.

You know, the portion that relate to our sub-prime securitizations where we're securitizing hybrid ARMs.

And so perhaps somewhat counter intuitively in a rising rate environment, the yields on those retained interests actually decline because of the squeeze effect and there being less projected future cash flow related to those.

Reduction in income from those sub-prime retained interests.

And that was a drop there.

Thanks, Keith.

The next question, Eric Wasserman, UBS.

Great.

Thank you.

Two questions, please.

The first question is, can you give any color about why there seems to be some very distinct disparity between your production margin results and maybe some of those, also in the industry, who have shown quote, unquote, reductions in a 60, 70, 80 basis-point range.

And, secondarily, can you also comment, following up on the question that was just asked.

Of the bank assets, how much of those are residual interests versus other kinds of assets?

The bank has no residual assets.

In so far as -- I don't mean to be curt here, but you're the analyst.

You figure out what our competition is doing.

We have no idea what drives their margins.

We can tell you what drives ours.

We can't -- we aren't able to tell you why there is a difference.

I can speculate, but it would just strictly be speculation.

Okay.

So perhaps differently, are you seeing certain players priced in a perhaps not all, but certain player's price in a particularly competitive way or all the large players?

Yes.

Yes.

Yes.

You know, we are seeing, in particular, to be very specific here, we have seen Chase be very aggressive on the corresponding side of the business, and that would be the one that would stand out in my mind, you know, as I review it with Dave (inaudible), that is the one area where we have seen some aggressiveness.

That again would be speculative, but based upon what we know about the business, that would certainly tighten their margins overall on their production.

All right.

Thank you.

That is, you know, I want to point out that, you know, operating structure makes a big difference in the over all composition of margins.

You know, clearly, as you come out of refinance market, you are going to lose part of the pricing margin that you have, or pricing strength that you have, and that's something that we anticipate and expect, and expected.

The other side of it is how you build the structure.

How versatile is it to respond to changes in volumes, and, you know, as we have indicated throughout this refinance market, we have been very careful in how we have built that structure in terms of hiring more individuals that are on a variable comp and in terms of our profiting staff, we have filled many temps and dealt with this overtime.

And these things are very easy for us to contract the way we had, you know, situated it.

And so you are seeing in our operations, you know, the results that we have been talking about for, you know, quite some time, that we think that, first of all, the market will be very rational, versus pricing in particular, versus the values attributed to servicing, and we are seeing, basically, that, if they are also seeing the success of the very versatile operations that we built.

And the branch.

And the branch, yes.

You know, I think we have incredible technology in product as we mentioned, and clearly we are attracting salespeople from the industry and that is also showing up activity as well.

So, you know, as Angelo said, we can't really take responsibilities, nor do we really analyze what goes on with our competitors, but the market is very much, you know, acting in the most rational manner that I think we have ever seen in the history of mortgage banking.

I agree.

And I think that's attributable to the consolidation in the fact that its in the hands of rational players who have responsibilities as shareholders.

Thank you.

There is a question from Brad (inaudible), Prudential .

Thanks.

Angelo, you mentioned an interest or a capability of taking advantage of consolidation in the marketplace.

I am wondering if you have an appetite to acquire servicing, and whether or not there is any servicing out there at reasonable value that you may have an interest in?

Well, yes.

I think that, you know, our basis is always can we buy it equal to or better than what it cost us to create it.

It's been our guiding principle all these years.

And financing, we are always looking for opportunities to utilize the tremendous capacity that Countrywide enjoys today because of our technology.

And what is happening, the disruption is the result of the fall off in applications is providing us at least some opportunities to look at it -- where it will go from here, I am not sure but we certainly are looking to increase both our production capability and our over all servicing portfolio, because there's no question about the tremendous economies of scale you get by a large servicing portfolio.

We have, now, the capability to really double, at least our technology has the capability of taking on double the servicing portfolio we have in place today.

And, so, we have the ability, we have the intellectual asset, we have the technological capability, we have the financial capability to look at opportunities today, and, it's a long way to answer your question.

Yes, we will look at it and we are seeing some.

Some things happened in the industry which are interesting to us.

Where it will go, I don't know.

Okay.

And separately, in your press release you talked about your basically supporting your guidance given to us back in October.

And in that guidance, you indicated that you would expect to recapture net impairments of about $800 million over the fourth quarter and '04 period.

Do we still have roughly $800 million of net recapture available?

Is that --

Yes.

I think at that time we said it would be '03, '04, '05, is my recollection, I don't remember exactly what we said.

What was the balance on that reserve?

Yeah, I think that number still holds.

We have an impairment reserve (inaudible) of $1.21 billion.

You know, keep in mind the rising rate environment we may recover the full amount of that reserve.

There also might be some hedge loss that would offset that.

So the net amount of $800 million I think is still a reasonable figure.

Okay.

Your impairment reserve at the end of the third quarter was $1.7 billion?

It is down to 1.2 now.

It is down to 1.2 now, but there is still $800 million of net net impairment you could recapture?

Assuming the estimate, you will have some hedge losses in there.

Okay.

And then just finally, back in acquisitions, the big number you start out with in the bank, would you consider doing anything in the bank, buying a bank, or more of a branch-based delivery system?

Are there any products that you don't have or can't build internally that you would want to add to that bank?

The answer to the first part of that question is no.

That (inaudible) is easily achieved, again, only conditioned upon with the regulators being comfortable our infrastructure of our, you know, our governments and our management team which we are comfortable with.

We can do that internally.

There is no model out there.

Remember I described our model.

It's very unique. 300 square feet, one person, using our branch, these are micro sites by the way.

These are not legal branches.

They don't need permission to open or close them.

At this juncture, management doesn't, doesn't see any reason for us to enter into the buy branches to get exposure.

We have 550 branches to go yet that we can open in tremendous communities, well located, you know, that have been there for 15, 20 and 30 years with a brand.

So, I think, all the growth plans we put out relative to the bank are organic, and I think that's the way we are going to keep it.

Thanks.

Mike Vinsecura, Raymond James.

Thank you.

Good morning.

I will follow up with another question or two on the bank if I may.

One question I have, is just looking at the balance sheet, your investments grew to about $26 billion on the balance sheet, you know, we know $19 billion or so at the bank.

That was a big increase.

I guess it's a holding company.

Can you explain to me -- is there a dynamic going on where they haven't been transferred over to the bank at this point?

How does that work out?

And then second of all, as you grow to that $120 billion, are there any thoughts to diversify your loan holdings away from home equity or mortgage?

Or is that going to be strictly where you guys focus?

Thank you.

First, let me respond generally and then I will have Keith and Stan intervene if they wish.

In terms of product line, our core competency rests within the home mortgage arena so single family, primarily single family, related.

Again trying to get a asset liabilities max.

So it has to be a product that has, that is a variable product.

So, you know, I don't see any major change, you no know, in that -- you know, in that strategy.

In terms of the growth in the growth in the assets of the parent, that's purposeful, and it's not a matter of assets that have to be transferred over to the bank.

We have said in previous teleconferences that our objective is to create split income, within the parent.

We have about $30 billion net increase over the year in our assets, which are basically mortgage loans held for investment, in the parent.

So the growth of that, the balance sheet, is that -- is in the loan category held for investment.

Do you want to comment on that?

Yes, I will just expand it.

You know, we haven't sold our (inaudible)production for some time.

The bank at this point has not had the capacity to absorb all of those (inaudible), or a portion of those (inaudible) have ended up on the mortgage bank's balance sheet.

There's about $11 billion I believe, in total, on the mortgage balance sheet as of December 31.

Great.

Thanks, guys.

And we have a question from the line of Jonathan Gray, Sanford Bernstein.

Please go ahead.

Yes.

First of all, thanks a million for providing us with such a fantastically exciting business to follow and analyze.

It is just breathtaking.

I have to ask my usual picayune mechanical questions.

Can you tell us the volume of helocks and sub-prime loans sold in the fourth quarter and perhaps give us some idea of what the gain on the sale of those was?

Thank you for for that comment, Jonathan.

I'll turn it over to Keith.

Do you want to take that?

Sure.

Jonathan, as I just mentioned, we didn't sell any home equity loans in the fourth quarter.

We sold approximately $5 billion of sub prime mortgages in the fourth quarter, realized a gain roughly on the sale of $180 million related to that.

Okay.

Thank you very much.

Thank you.

Our next question is from Bruce Harding, Lehman Brothers.

The, you know, competitive strengths of your business model, coming at this business from, you know, starting with the mortgage bank and now building into a bank.

Can you just talk about that a little bit?

I mean, it seems to me you have much more streamlined operation to now build into the bank, and then, you know, the bank grew to $120 billion.

How should we think about the company as it is growing to that size?

Are you an institutional mortgage oriented finance company, with, you know, more of a capital markets investment banking tilt in the future?

Should we think of of you as a customer bank that will be cross selling through your branch network other customer banking products?

And you said that you can do this organically.

I am just fascinated on how, you know, we should think about you, and it seems like the buildup of the capital markets is going so successfully, it almost feels like, you know, you have as much a shot at becoming becoming more of an investment banking business model than, you know, a traditional commercial bank model.

Thanks.

Bruce, let me just tell you, we have a mission statement at Countrywide which we all share in this mission.

This vision, you know, we are a financial services company that serves both customers and institutions with mortgage banking at its core, and that's how we view ourselves.

Now we look at, for example, capitalize markets separately.

We don't merge it, you know, in the way you just described it, investment banking entity, we look at it separately.

It is certainly linked to the mortgage bank operation as well as to the bank.

It lends great efficiencies to both of those operations, and streamlines it, makes those operations seamless.

But it is a, on its own, a very powerful capital markets operation, at least in our minds, the management team, we look at it, although linked, separately.

We look at ourselves as the -- we view ourselves as the dominant force in mortgage banking, which primarily will be single family but but won't be limited to single family over the balance of this decade.

And we look at the bank playing a more major role in terms of its participation in our mortgage banking activities.

So you could view us as a -- the bank emerging as a major player and owning some of our mortgage-banking activities, which it does not own today.

But it had to do with the size, scope of the bank and also, again, the regulators being comfortable with our business plan.

But I would not, you know, as you described it Bruce, are are we an investment bank, are we this or that.

I try to look at each of these businesses separates, we focus on each of them separately.

We are concerned, always concerned about the quality of the management team in each of these entities, and at the end of the day, if our mission served us well to the point.

That is, again, a financial services company, the customers in the institution, plus with mortgage banking at its core.

Could that change at the end of this decade as we go into the next decade?

Possibly.

But that's how we view ourselves today.

Is that a fair statement, Stan?

Yeah, I think, you know, we are talking about two entities that fit, you know, very well into our strategic initiative.

When we talk about capital markets, and we mention that our goal is to have 30% of the origination of mortgages by 2008, and so when you think about a capital market, are capital markets-type activity or investment banking niche, we have tremendous and will have a building control of the distribution of mortgage mortgage investments, looking forward to, you know, an operation that basically controls 30% of the -- of new investments in mortgage backs.

And, you know, clearly that generates customers, relationships and the ability to participate further in fixed income.

So it's a great addition, and synergistically fits very well with our operations, and as Angelo mentioned, you know, the bank is, in terms of expanding our capabilities, as a mortgage originator, particularly on the ARM side, adds a great dimension to the company, and we have the unique ability, given the ability to create assets, and the customers that we have, and the brand recognition, to continue to build a great bank.

And does deposit growth just, in the quarter, I am curious if you can comment on deposit growth.

And then as you get to 120, is deposit growth keeping pace at, you know, half that rate, two/thirds that rate, you know, 100% of that rate?

Also, I'm just curious.

And this is my last question, implications of 30% market share on long quality, you know, if you are capturing 30% of the market, you know, are you going to get your proportionate share of all types of loans by FICO score, or are you just going to try to get the highest quality and then implications of your relationships with loan brokers, GSIs, MIs?

Just in terms of pricing, thinking through that.

I would think that those are advantageous as your gain their -- share.

Thanks.

Going for 30% mortgage share here is totally unrelated to quality of loans we go after.

We originate all type of loans, from sub-prime, all the way up to prime-prime, jumbo, super-jumbos.

So as we cover the entire marketplace today.

There will be no compromise by this company in the over all quality of the product line, you know, which manifests itself in delinquencies and foreclosures.

There will be no compromise in that as we grow market share.

Nor is there a necessity to do that.

And you're talking about a market that by 2008, very consolidated.

There will probably be five players that will dominate it.

Also, there is no deterioration in the relationship with each of our channels.

We intend to grow that 30% market share through the channels that we have today, you know, which is the internet, which is mortgage broker , correspondents, real estate broker, consumers direct, call centers.

So we are not going to give up one or the other.

We need all of those channels to achieve the market share.

So I think we will be a better provider for all of those constituencies better than we are now.

We will have to be in order to get that 30% market share.

What was the other part of that question?

What was the other part of it?

Oh, you know, relationships.

GSEs?

GSEs.

You know, GSEs, first of all, you have to satisfy yourself that the GSE is going to be okay with all of the issues that have been surrounding them in the last couple of years.

We believe they will be okay.

We believe that they will still remain a major force, and a lot of solid reasons for that justification, that they will be okay.

You know, I want to take your time to enumerate.

But if you go through it logically, they must exist, they must be vibrant and healthy for the sake of this country.

So, based upon that, we believe that they will continue to be a very, very important partner of ours, as will the bank be an important part of it, of ours, as well as some unique and exotic securitizations with super jumbos and other products that were not very strong in today.

So, again, that whole segment, I think, will be strengthened as we get to the 30% market share.

The 30% market share is very achievable.

Let me say to you we sat down and set five-year goals for us, you know, seven times.

In between those five-years maybe it didn't look so great great, but at the end of every one of those five-year segments we exceeded the goals we set for ourselves and I am confident we will do it this time.

And there is a question from the line of Paul Miller, SBR.

Yes.

Thank you very much.

One or two quick questions, Angelo.

On your $9.2 billion of deposits on the bank side, are they all deposits gathered from your micro branches or are any of them broker deposits in that number?

They are small broker deposit component.

You know, it's a very small part of our deposits are brokers, and, you know, the major portion of the deposits come from escrow balances that we control, about $6 billion comes from escrow deposits.

That is one of the great synergies that we have with our servicing operation, and then our retail deposits are about, almost close to about $3.5 billion.

And those are steadily growing, but, you know, one of the -- a great value that we achieved with this synergy both in our mortgage operation and both our ability to move escrow balances to the bank, as well as our future ability to solicit the portfolio for retail deposits.

I might point out also, although these, although the model in terms of a micro site for us which is the two people, 1.5 persons and 300 square feet, has turned out to be a very effective model in gathering deposits.

Our earlier branches, micro sites that we opened up had deposited in excess of $90 million in that 1.5 person, 300-square foot branch, which exceeds that of the average commercial bank branch of 5,000 square feet and seven people.

So it is an extraordinarily effective model and because it is working so well, we will just continue to leverage off of that model.

How many of these micro branches do you currently have in operation?

30, 31.

And you plan to go to 550 what you said earlier?

No, what I said 2004 we will open up 60.

What I said was we have now over over 550 mortgage branches, that's where we'll locate.

Got you.

Got you.

So we have all of that potential to grow into into.

So the potential is 550, you plan to open 60 at the end of '04.

We plan to have 60 at the end of '04.

At the end of '04.

Thanks very much.

And the other question, if it is immaterial, tell me, Angelo.

There are a lot of (inaudible) letters coming out on both how-to accounts for mortgage production and also how to account for SSRs, the one letter that might come out from the SEC might come out soon, is that commitments had to account for as a liability.

And secondly, I read somewhere that hedging might have to be mark-to-market which might smooth out your MSR evaluations.

Can you comment about those things?

Yes.

Actually, no, I don't think that it's immaterial.

I think these are material issue, I am going to have Keith comment on something, watching and observing.

And Keith's been in communication.

We have a few people on it, so Keith why don't you talk about what you know about it?

Sure.

With regard to interest rate lock commitments, as most people probably know the SEC recently came out with some guidance, if you will, of how those should be accounted for.

There's been significant diversity and practice in the industry about how to account for those interest rate lock commitments ever since FASB 133 came out and said that those were derivatives and had to be mark-to -market.

The issue is, how do you mark those things to market?

So what the SEC has said essentially is that those things in their eyes, those are written options.

As you know, when you have a written option, you never have an asset, you only have a liability.

So the way they see it if you enter into an interest rate commitment and rates rise you have to recognize the decline in value of that commitment to you.

Conversely, if rates fall, even though economically there is a gain that we do realize in that event, that SEC has said you cannot you cannot recognize that gain until it's realized, ultimately when the loan is sold.

So the SEC has given, I think, a window for the industry and for the FASB to step in and attempt to modify their proposal and the industry is working actively with the SEC at this point on that.

If, at the end of the day, the SEC prevails in their thinking, and it has to be accounted for as a written option, what that means to Countrywide, because Countrywide has not ever recognized the profit embedded in those locks, which some industry have, we have never done that.

We have only recognized the changes changes in market value, be they positive or negative.

The impact on us will not be as great.

We would expect the exposure, given that we would not be able to recognize gains in any period, to be in the order of magnitude of about $50 million.

Keep in mind that's very short-term, you know, because those gains will be realized ultimately when the loan is sold, so you are talking about an effect that lasts no more than a quarter in duration.

All that said, we are hopeful that the SEC will, will see it our way, in the industry's way and essentially permit the accounting that we currently employ which is not to recognize the profit that's embedded in the lock, but to recognize the changes in values due to underlying changes in market rates that occur.

So that's what we are looking forward to on the lock commitments.

Now, in terms of mortgage servicing rights, the FASB has decided to take up the accounting for mortgage servicing rights again basically to determine whether they should be mark-to-market as opposed to the current accounting which is lower cost-to-market.

That would be a positive development for us and for the industry because as it stands now, given the lower cost-of-market constraints, the only way that you can recognize appreciation of the MSRs, is if you apply hedge accounting, which is not impossible but difficult to do with respect to MSRs.

So this would make it easier for us to reflect what we think of the economics of the business and to offset the economic effects of the MSRs and the hedging on the MSRs.

So that is a positive development on the MSRs and we're hopeful that FASB will change the accounting there.

What provoked this SEC issue, we believe, was that some of the people in this industry recognized the gain on sale at the time of loan application, which we had never practiced.

We believe that you should recognize gain on sale when the loan is sold.

That seems to be logical to us.

And so because of the fact that certain of the participants in the marketplace were recognizing significant gains at the time the loan applications were taken, that created a concern, and, therefore, created this issue.

We will have to see how it comes out.

But we believe that it should be that it is logical way and the proper way to do it is the way we do it, had done it and that is to recognize gain upon the sale of the loan.

Thank you.

And we have a question from the line of Robert Hatinson, Goldman Sachs.

Angelo, this is Jason Nichols .

Just two question.

On the insurance business.

Premium earned growth looked pretty strong but expenses, whether it was claims or operating looked pretty well contained.

So I just want to get your sense of how that should look in 2004.

(Inaudible.)

I will give you question 2.

On the loan production sector statement break down, you guys used to break out loan origination fees and direct pricing costs, but they are not on this quarterly statement.

So I was wondering, first of all, if you could let us what they were and let us know possibly, include that in future releases?

Let me take the assurances and I will have Keith and Stan address the other issue.

In terms of 2004, I am extremely optimistic concerning the entire insurance segment, which is Balboa Life and Casualty, Balboa (inaudible) and the agency.

They have really (inaudible) turned around in the fourth quarter, particularly Balboa Life and Casualty irrespective of the fact that we had fires here and approximately $10 million, $10 million in reserves for the site for the fire and smoke damage.

We have (inaudible) spent all of 2003 restructuring Balboa Life and Casualty.

We have in that entity an excellent team, a very motivated, experienced and time tested managers. .

The foundation has been established, in my opinion, for this entity to really have an impact on the over all company in 2004, both in terms of its base business that it is in now and some new businesses that it is entertaining getting into.

And we have, the gentleman I mentioned in my presentation, Robert James of C and A, 25 years in the business, just came to us as new CEO of Balboa life and Casualty.

We are very impressed with him.

We have a team above him in the parent, who is now experienced.

I am very pleased where we are in the insurance operation.

I will just include that in global.

I just got back from London.

Our global operation is shaping up beautifully as we restructured again and spent 2003 restructuring global operations, so both of those entity, insurance and global, I expect some great performance in 2004.

As to the spinoff of the costs, Keith, do you want to to go through that with him?

We had them in there at one time and they're not in there now?

Is that what you're saying?

It has been there historically and up through the third quarter.

You broke out loan pricing costs and loan origination fees, and it's not in the fourth quarter release.

Yeah.

What is on the website in fourth quarter?

What we did is we conformed the presentation on the website to be consistent with the external presentation.

You remember about a year ago we combined loan origination income and gain on sale together on the external reporting because in our mind they are fairly interchangeable.

Uh-huh.

And in this current quarter we conformed the production website to be consistent with that.

As you will notice, we restated all of the prior periods so they would be comparable.

Okay.

So you won't be releasing that any more in the segment break down?

Right.

That's correct.

Well, but if you want to get at the MSRs that were capitalized during the period, you can do that by referring to the footnotes, which flowed --

Right, the value of the servicing booked?

Uh-huh.

I have got that.

I didn't know the direct pricing costs.

I usually look at that relative to primary to secondary spreads in rates and sort of look at the correlation there to get an idea of those pricing costs may be there.

You know, rationally, I have broken those out in the in the model.

Keith, do you want to respond to that?

Well, yes, I think you can essentially still format that analysis once you know the MSRs and retained interest will be capitalized as part of the gain on sale.

Yes, well, and too, if I knew the breakout of the origination fees too from the gain on sales, that's the other change in disclosure.

Right.

Well the announcements can still be be done.

You would have to recast it essentially for the numbers stated for this historical period.

Okay.

I just bring this up because you guys have great disclosure relative to any other mortgage bank out there.

Keep up the good work.

That is the one suggestion I have, I like having the expended disclosure.

Okay.

We will take note of that and address it internally here.

Okay.

Thanks, Angelo.

You are very welcome.

There is a question from the line of Vincent Daniels with KBW.

Thanks and good afternoon, almost.

Two questions.

One, since you seem to be a taxpayer on a consistent basis, should we see continue going forward, and any initial thoughts on the new auditor on board?

I expect that Countrywide will be a consistent taxpayer going forward.

Any thoughts on the new auditor?

We went through a very arduous, diligent process, in making the, what we believe to be the best choice for the shareholders of the company in terms of a firm that had depth and a structure that could accommodate all of the needs of Countrywide, which is now, you know, relatively complex in terms of all of the businesses we have, you know, the intellectual strength and the geographic diversification to provide, you know, what we need.

And so all of us in in management are very pleased and with the choice so far with the interaction that we have had with KPMG.

Are the auditing an '03 event, or '04 event?

'04.

Thanks, guys.

And the next question is from the line of Ed Groshins with Morris Cabot.

Good afternoon.

How are you all doing?

Good.

I just have a couple of quick questions.

Branch openings you said you will have 60 by year end.

I was wondering if you could elaborate on the regions you are targeting there or MSAs?

Yes.

You know, I can't.

But I think it's a good question.

I have to sit down with Jim (inaudible), unless you know the area.

Do you know the area?

We don't know the geographic areas, that they are opening.

We are trying to get diversified.

You know, we opened up California first.

Obviously, it was our home base.

We wanted to test this model.

It worked well.

We then moved into Florida and to Texas.

Again, we find that the model works wherever we place it.

I think we just opened up in Illinois, Chicago area.

But what I will do, I will put out in the operations release in March, that the business plan for the balance of the year for the opening of the branches.

Also, with the capital markets, you talked about one being a primary (inaudible) going into the sales force, going into national.

Would you be looking for the volumes to maybe stable for this year or is this year so out sized that volumes will come down next year?

When I talked about $2.9 trillion in capital markets?

I didn't hear that, I'm sorry.

Is that the number you're talking about?

Yeah.

I didn't hear that $2.9 trillion.

(Inaudible) 2003.

Was that the number that you were talking about?

Will that increase or decrease going forward?

Yeah, yeah.

It is hard to tell right now.

I mean, obviously being a primary dealer will help us, not only in the treasuries, but it brings to us prestige but it also brings to us other customers that will buy the product from us, and even though the mortgage bank, as you know, you have seen the activities slow down because of the increase in rates and slow in refinancing, we have not seen that yet in capital markets.

So the capital markets continue to expand its market share.

I wouldn't hazard a guess as to what their buying will be but they are certainly not following the pattern of the mortgage bank.

Excellent.

Thank you very much.

Just on behalf of first quarter branch openings, so I can kind of give you the next 8 bank branches.

Okay, good.

We have five of the branches will be in the Texas area, Houston, Ft. Myers area.

Then the remaining branches are targeted for between Los Angeles, Orange County and San Francisco.

And then just on that, you said, you mentioned you had $3.5 billion in retail deposits so far which is a pretty good growth rate.

Is your pricing on the CD product, is it a little bit above market, at the market, top or in the middle level?

I would say mid-range but you have to take into consideration that our operating costs are over 125 basis points less than the average commercial branch.

So we have a lot of room to play with to in terms of being aggressive in pursuing the CDs market in the communities in which we serve.

Excellent.

Thank you very much.

Darrell Halk with Wachovia Securities.

Thanks.

Good afternoon.

On the issue of disclosure, I would vote for continuing to break (inaudible) gain on sale and while we are on that issue, given the projected growth of bank assets, obviously the economy will continue to grow and be important part in the revenue mix, it would be helpful if the company could provide the components used to analyze and project the margin, like (inaudible) yield, average interest liabilities, cost of funds, more of a comment than anything else.

Okay, all right.

Could you make note of that, Laura?

Okay.

We are making noted of all of these.

What we like to do is provide you with as much information you need in order to make, you know, your analysis of the company.

So this is helpful to us by letting us know what you need.

All right.

Thanks, Angelo.

Okay.

(Inaudible), Sonic Capital.

Hi, congratulations.

Nobody has actually congratulated you on a fantastic year.

Thank you, I appreciate that.

I have been saying that to my mother all morning.

And congratulations to Stan and the rest of the team that have gotten promotions recently.

Thank you.

I would like to throw my hat in and agree and say that certainly the loan origination fee disclosure is helpful because you are one of the banks that actually provides a clean gain on sale number as opposed to a number that is more close to the production margins, and that's, you know, the breakdown is helpful.

A few odds and ends.

For the lines that are now --

I have got Keith McLaughlin wrestled to the floor but he hasn't given in yet.

For the lines that are now convertible, how much of that liability is still in the liability is still in the balance sheet and how much do you think that will be going into the next year?

Alliance? $500 million.

That has a convert feature on it which has been triggered, obviously, with the price in stock.

But it's an issue that we are addressing as to how that best can be managed. $500 million.

Because right now it is being doubled in the share account and the liabilities, right?

Yeah.

We are kind of in the worst world right now where we have a liabilities on the balance sheet but we have the full effect of our dilution in our earnings.

Right.

Right.

So we are working on strategies to address that, resolve it and it's going to be okay.

Okay.

And, Keith, with respect to the fair value versus the lower cost of market for the MSO.

What is the fair value of the MSO right now?

It's as stated on the balance sheet, about $6.9 billion.

Didn't Stan say earlier he had some strata levels so you you couldn't write it above the cost?

Yes, there's a modest amount there of about $50 million, I would say.

Okay.

So it's not a significant issue yet?

Not yet.

And, finally, I noticed that, you know, there's very significant excess capital on the balance sheet and I really think you guys should be driving towards 30+% return on equity as opposed to 20% and I think a billion or two in a tender offer for a stock would be a helpful way to do that because I don't think that the acquisition opportunities, you know, with the price of the market out there, I don't think that that is attractive.

Do you have some comments on that, please?

Yes, comments are that we have been pretty effective managers over 35 years now, and pretty efficient user of capital, and I think we know how to run this business.

And, to date, we have not found, giving back capital to be an effective way of growing this business to where we want it to be over the next, over the balance of this decade and into the next one.

There's lots of opportunities out there, despite how you may feel about it.

We want to be sure that we hold our powder to take advantage of those opportunities.

Well you certainly have a lot more powder today than you did a year ago, would you agree with that?

Yes, powder is good.

Thank you very much.

Mike Zelster with Barclays.

Hi, Angelo.

A question on the balance sheet in general with the forecast for 2008 or the goals for 2008 for bank assets and servicing portfolio.

Can you walk us through the funding requirements, the capital requirements for both servicing and bank assets and where they will be coming from?

I think, well, we go from one guy who wants to give back the capital and another another guy who says where the hell are you going to get the capital.

That shows you why we have to keep our heads steady and focused each and every day and crowed out the noise.

We believe at least at this time this can be done organically.

All the growth plans that you see for 2008, (inaudible) $1.5 trillion, the support of that asset, MRS assets, the growth of the bank, can be done with generating with capital, we are now in a cash generator that we can do this internally.

It's not a guarantee, we have to assess this as time goes on to see the most effective way of funding these growth plans.

But I believe that, we currently believe, we can do this internally.

We have nothing on the horizon, unless a unique opportunity came along as to the alliance at the time we did it, to do anything other than continue to generate capital and use their own organic capital to do what we are doing.

Stan, do you want to comment on it?

Yes, I think it's absolutely correct.

You know, our modeling demonstrates that we can, in combination with our capital, that we have today and the earnings that we will retain that our operations support the plans out to 2008.

What is the leverage ratio that you are targeting for the bank side?

We are presently at a, I think the regulatory is 5%?

Yes.

Capital?

We are still in a de novo stage.

That stage is over in May.

And I think we are currently, what, 8 or 9%? 8%.

We would expect, again, the ones that dictate this, our partners, the regulators, but we would expect that at the end of our de novo period that we would have a lower leverage requirement, and, so, we anticipate that they would be at around 5% in the bank.

Okay, and most of the fundings would be from deposits, escrow deposit?

Yes, escrow deposits, federal home loan bank bonds which is very significant for us.

We are the largest borrower from the Fed today and the consumer deposits.

Okay. $120 billion is a pretty big balance sheet.

Excuse me?

$120 billion is a pretty big balance sheet.

You know, I am wondering if there are enough deposits out there.

This is a big country and a great one.

You know, we actually went through those studies in terms of money market accounts, PE accounts, and where they are projected to be, the type of share growth that we would have.

It's very reasonable.

You have to remember this too, just to give you an example.

The growth of wealth in the United States continues to accelerate.

So that numbers, you would be making a mistake, you use the numbers today is a static number, project that forward.

I'll give you an example.

Today, there's about $6.5 billion, close to $7 billion, trillion, rather, trillion in mortgage outstanding in the United States.

By the end of this decade it will be $12 trillion mortgages outstanding.

So the whole basis of everything that's being done in the country, whether it be deposit base, CD base, mortgage based, all of that is increasing at a very rapid pace.

So what is existing today, in terms of the CD market, for example, versus where it is going to be say in 2007, 8, 9 and 10.

Okay.

And the asset side will primarily be ARMs?

Yes, ARM-related, hybrid, hybrids, ARMs.

You know, there may be some other type of product.

We are looking at activities at the moment that may fit the criteria for the bank.

Again, the bank, has to be several criteria.

One, it has to be our -- meet our thresholds, management thresholds.

It has to meet the regulatory thresholds and it has to meet the economic thresholds within the bank as to its return on investment.

Okay, and straight risk management, basically if you are holding less product or less product that is refinancable?

That's correct.

That will allow you to to manage --.

That's right, gives us a lot of flexibility, has to date.

Plus, the quality, we are now 2.5 years, almost three-years into this.

We are enjoying very, very low delinquency ratio, extremely low, virtually no repositions that I am aware of to date.

Clearly the quality of the assets in the bank are very, very high.

Thanks very much, gentlemen.

There is a question from the line of Matthew Lindenbaum with Vastwood Partners.

Hi.

Thanks a lot.

My first question on the page where you have (inaudible) #1.5 trillion servicing portfolio.

Is that purely end or average, because I am having trouble getting to the number.

The same for bank assets, is that period ends or the average for '08?

Period end.

And servicing?

$1.5 trillion?

Yes, the average.

That looks like an average to me.

It is for that year.

Right, and the same cash as period ends?

Yes.

Okay.

What was the question?

In terms of disclosure, I wonder, I asked in the past, now that the bank will become a bigger part, I wanted to ask again and just elaborate on what someone else mentioned.

In terms of the disclosure, I think it would be helpful honestly to have all of the disclosure posted earlier for the bank but also interest rate disclosure, because, you know, I think we want to just get our hands around.

I know what you said about it, and I understand it.

I just want to be able to confirm with some disclosure what the gap is, maybe, duration, mismatch, anything like that so we can get our hands around what kind of interest rate management is being taken within the bank.

Okay, I think we have it.

We'll make note of that

Thank you.

Thank you.

There is a question from (inaudible), Jeffries and Company.

Good morning, guys.

Your pretax production margin of 90 basis points, given that we are done with about a month in this quarter.

Is that still a sustainable run rate for this quarter?

Margins are very much in line with what we saw in the fourth quarter.

Okay, and just a couple of other follow up.

Your servicing strip, is the spread there still around 30 basis points as the last quarter?

And also do you track your cash earnings for this quarter and the last?

Thanks.

The net servicing fee is down to about 33 basis points. 33.

So it's about 33?

Okay.

And what was the question on the-- ?

What was the second part of that?

Cash earnings.

Do you track cash earnings, what was it this quarter and what was it last quarter?

Yes.

I don't have those numbers off the top of my head.

But you can get there.

You can get there by referring to the sector P&L.

That is on the web.

Okay.

I will do that.

Thanks.

And the next question is from Don Meador, Bear Stearns.

I would like to add congratulations on a great year.

It was exciting to see the end, Angelo and Stan.

Thank you, Don.

I would like to (inaudible) recognize as a primary dealer, you've had some names that we are familiar with.

You should be very familiar with them.

That's right.

It's good, it's good for Countrywide.

I assume that the headquarters of that division will be in Calabasas but how large do you expect the office to be in New York City and perhaps Chicago?

Right now in Calabasas probably -- We don't have anyone in Chicago or New York now but it's very possible that we'll have one person in New York, I am not sure about Chicago, it is possible to have one person in London.

There is no expectation of a large presence in New York?

A lot of traders and what have you.

No, no.

We want the traders, we want to be close to the traders, right at their hip.

Make sure (inaudible), right, Angelo?

Right.

I notice that your sales count is 7500, you mentioned that a couple of times.

Last quarter I think it was closer to 6,000.

Right.

In the 7500, does that include all personnel in your bank, your mortgage offices, treasuries, all in mortgage selling?

No, it just relates to the mortgage banking operation, which is in each of our channels, the mortgage operation, which would be correspondent, wholesale, in the consumer markets division.

And along those lines, since you mentioned that, what we are finding now, that we are clearly the lender of choice.

Yes.

In the United States, where salesmen want to come to, salespeople want to come to.

So, you know, initially, several years ago we had to go out and aggressively pursue these salespeople.

They are calling us, and that's a good position to be in.

Those are bonus, salary bonus or commission?

No, no, commission.

I'm sorry, I meant commission only.

I also want to add congratulations to Stan and Dave their promotions and I look forward to the next quarter.

Enjoy.

Thank you.

Thanks a lot.

Bob Napoli, Piper Jaffray.

He recycled.

Ma'am, are you recycling?

That was the first one to ask questions.

And we have Thomas Denslow, Hamilton Investment Management.

Mr. Denslow, your line is open.

Not there.

Next, we have Stanford Park, (inaudible).

Hi, guys.

Thanks for taking my question.

In your presentation, you mention take your production pretax margins were 12.5%.

Given your expansion plans and the rising rate environment and how it produces revenues in ARMs, do you think that these margins are sustainable past '04?

Yes, I don't know.

Where did you get that 12.5% from?

12.5%, it's on Page 11 of your presentation.

Your overall production margin.

Market share.

Estimated market share.

That's your market share.

Yes.

Okay.

Well, given the rising rate of the environment do you think that your margins will be sustainable past '04?

Past '04?

Correct.

Well, we are just addressing '04, and I think Stan expressed, you know, our feeling at the moment.

This is not actually an edict, but our feeling is that it has been at least sustained at this point in time, that the players that are left in the industry are acting very responsibly on average.

And we believe that we will enjoy solid margins throughout this year irrespective the movement of interest rates.

That is certainly the expectation that Stan alluded to in the first quarter, certainly so far, we have seen the conduct of our competitors to be, you know, very rational.

Okay.

Thanks.

That does conclude our question and answers for today.

Mr. Mozilo?

Thank you very much.

Okay.

Thank you, appreciate it.

Talk to you next next quarter.

And, ladies and gentlemen, this conference will be available for replay after 3:00 p.m. today until February 15th at midnight.

You may access the replay service by dialing 1-800-475- 6701 and entering the access code 715497.

International participants may dial 1-320-365-3844 and entering the same access code, 715497.

That does conclude your teleconference for today.

Thank you for your participation.

You may now disconnect.