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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 1-8422

Countrywide Financial Corporation

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

     Indicated by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

     Based on the closing price for shares of Common Stock as of June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Stock held by non-affiliates was $9,321,988,986. For the purposes of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates.

     As of March 8, 2004, there were 185,698,819 shares of Countrywide Financial Corporation Common Stock, $0.05 par value, outstanding.

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PART I

Overview

      Countrywide Financial Corporation is a diversified financial services holding company engaged primarily in residential mortgage banking and related businesses.

      We manage our business through five operating segments — Mortgage Banking, Capital Markets, Insurance, Banking and Global Operations. We primarily conduct the following operations in these segments:

	•	Mortgage Banking — We originate, purchase, securitize and service mortgage loans nationwide.
	•	Capital Markets — We operate an institutional broker-dealer that primarily specializes in trading and underwriting mortgage-backed securities.
	•	Banking — We operate a federally-chartered bank that primarily invests in mortgage loans and home equity lines of credit sourced through our mortgage banking operation. We also provide short-term secured financing to mortgage lenders through a non-depository lending company.
	•	Insurance — We offer property, casualty, life and credit insurance as an underwriter and as an independent agent. We also provide reinsurance coverage to primary mortgage insurers.
	•	Global Operations — We provide mortgage loan application processing and servicing on behalf of a financial institution in the United Kingdom. Currently, we provide these services through a majority-owned joint venture with Barclays plc.

      Mortgage banking continues to be our core business, generating 77% of our pre-tax earnings in 2003. The other segments generated the following percentages of our pre-tax earnings: Capital Markets — 11%; Banking — 7%; Insurance — 4%; and Global Operations — 1%. In recent years, however, we have expanded our operations beyond Mortgage Banking. We have pursued this diversification to capitalize on meaningful opportunities to leverage our core Mortgage Banking business and to provide sources of earnings that are less cyclical than the mortgage banking business. For financial information about our segments, see the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Segment Results” section of this report.

      As used in this report, references to “we,” “our,” “the Company” or “Countrywide” refer to Countrywide Financial Corporation and its consolidated subsidiaries unless otherwise indicated.

Available Information

      We have a website located at www.countrywide.com and make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports available, free of charge, on that website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Our Corporate Governance Guidelines, our Code of Business Ethics, and the charters of the committees of our Board of Directors are also available on our website and available in print upon request.

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Loan Production

      The following table summarizes our loan production by business segment and by loan type:

      For additional information about our loan production statistics, see the section in this Report entitled “Business — Loan Production Tables.”

Mortgage Banking Segment

      Our Mortgage Banking Segment produces mortgage loans through a variety of channels on a national scale. Nearly all of the mortgage loans we produce in this segment are sold into the secondary mortgage market, primarily in the form of mortgage-backed securities. We generally perform the ongoing servicing functions related to the mortgage loans that we produce. We also provide various loan closing services such as title, escrow and appraisal. These activities are grouped into three business sectors — Loan Production, Loan Servicing and Loan Closing Services.

      We originate and purchase mortgage loans that generally fall into one of the following three categories:

	•	Prime Mortgage Loans — These are prime credit quality first-lien mortgage loans secured by single- (one-to-four) family residences.
	•	Prime Home Equity Loans — These are prime credit quality second-lien mortgage loans secured by single-(one-to-four) family residences, including home equity lines of credit.
	•	Subprime Mortgage Loans — These are first-and second-lien mortgage loans secured by single- (one-to-four) family residences, made to individuals with credit profiles that do not qualify for a prime loan.

      The majority of our loan production consists of Prime Mortgage Loans. Prime Mortgage Loans include conventional mortgage loans, Federal Housing Administration-insured mortgage loans and Veterans Administration-guaranteed mortgage loans. The majority of the conventional loans qualify for inclusion in guaranteed mortgage securities backed by Fannie Mae or Freddie Mac. Some of the conventional loans we produce either have an original loan amount in excess of the current $333,700 Fannie Mae and Freddie Mac loan limit or otherwise do not meet Fannie Mae or Freddie Mac guidelines.

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      We produce mortgage loans through three divisions of Countrywide Home Loans — Consumer Markets, Wholesale Lending and Correspondent Lending — and through our retail subprime lending subsidiary, Full Spectrum Lending, Inc.

      The following table summarizes our Mortgage Banking loan production by division:

      For additional production statistics, see the section in this Report entitled “Business — Loan Production Tables.”

      Our Consumer Markets Division originates mortgage loans through three major business channels: the Branch Network channel, the Business-to-Consumer channel, and the Business-to-Business channel.

      The Branch Network channel originates mortgage loans primarily through relationships with realtors and builders. As of December 31, 2003, this network consisted of 466 branch offices in 48 states and the District of Columbia.

      The Business-to-Consumer channel originates mortgage loans through the Internet and through direct telemarketing. This channel focuses on customer retention by providing our mortgage customers with an efficient means to refinance their existing mortgage or obtain a mortgage on a new home. The Business-to-Consumer channel also markets Prime Home Equity loans to our existing mortgage customers. As of December 31, 2003, the Business-to-Consumer channel consisted of four call centers and five centralized processing centers.

      The Business-to-Business channel originates mortgage loans through three primary marketing channels: Relocation, Affinity, and Fulfillment Services. The Relocation channel targets corporate relocation departments and relocation companies. The Affinity channel targets other corporate entities to provide loan products and services to their customers and employees. The Fulfillment Services channel provides loan sales, processing and closing services to banks, thrifts and financial planners, among others.

      For 2003, our Consumer Markets Division was ranked by Inside Mortgage Finance as the third largest retail lender, in terms of volume, among residential retail mortgage lenders nationwide.

      Our Wholesale Lending Division originates mortgage loans through independent mortgage loan brokers and other financial intermediaries.

      As of December 31, 2003, our Wholesale Lending Division operated 51 branch offices and five fulfillment centers in various parts of the United States. Through this division we service approximately 31,000 independent mortgage loan brokers nationwide.

      For 2003, our Wholesale Lending Division was ranked by Inside Mortgage Finance as the largest wholesale originator, in terms of volume, among residential wholesale mortgage lenders nationwide.

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      Our Correspondent Lending Division purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders and credit unions. As of December 31, 2003, this division served approximately 1,800 approved lenders operating in all 50 states and the District of Columbia.

      For 2003, our Correspondent Lending Division was ranked by Inside Mortgage Finance as the largest correspondent lender, in terms of volume, among residential correspondent mortgage lenders nationwide.

      Full Spectrum Lending originates primarily Subprime Mortgage Loans through a nationwide network of 97 retail branch offices located in 36 states. Full Spectrum’s mortgage production is generated primarily through referrals from our other loan production divisions, direct mailings to prospective borrowers, outbound telemarketing and affinity relationships.

      Our Credit Policy establishes standards for the determination of acceptable credit risks. The standards encompass borrower and collateral quality, underwriting guidelines, and loan origination standards and procedures. The standards are designed to produce high quality loans that have been underwritten to facilitate the securitization and sale of our mortgage loans in the secondary mortgage market. For a further discussion of our loan quality standards, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk Management.”

      For more than a decade, we have pursued a variety of affordable home loan initiatives designed to increase home ownership opportunities for low- and moderate-income borrowers. Our latest initiative, known as We House America®, supports affordable housing programs undertaken by Fannie Mae and promoted by various government agencies, including the U.S. Department of Housing and Urban Development.

      We have specifically designed We House America loan programs to meet the needs of low- and moderate-income borrowers. These loan programs enable more such borrowers to qualify for a home loan by allowing, for example, lower down payments, lower cash reserves, alternative income sources and more flexible underwriting criteria than on a typical loan. The mortgage loans we produce through We House America are sold and serviced on a non-recourse basis, generally through guarantee programs sponsored by Fannie Mae.

      In addition, we are approved to participate in more than 900 programs offered by state, county and city agencies, municipalities and non-profit organizations that assist with down payments and closing costs.

      We have made other significant commitments to affordable lending and emerging markets initiatives designed to increase homeownership opportunities among minority and immigrant communities. In early 2003, we extended our five-year “We House America” Campaign, with a goal of originating $600 billion in loans to targeted homebuyers by the end of 2010. As of December 31, 2003, we had funded $242 billion toward this new goal.

      As a mortgage banker, we have historically sold substantially all the mortgage loans that we produce, generally through securitizations. We may hold as investments a small amount of the Prime Home Equity Loans produced. When we securitize our mortgage loans we retain a certain amount of credit risk. This credit risk arises through representations and warranties that we make in conjunction with all of our securitization activities, as well as through retention of limited recourse for credit losses in the case of certain securitizations. For a further discussion of our exposure to credit risk and how we manage this risk, see the section in this

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      In addition, we typically have interest rate risk from the time a loan application is taken until the related mortgage loan is sold. For a further discussion of our interest rate risk and how this risk is managed, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risk.”

      Although we sell substantially all of the mortgage loans that we produce, we generally retain the rights to service these loans. We refer to these rights as mortgage servicing rights, or MSRs. We may also retain other financial interests when we securitize mortgage loans. We include the value of these retained interests on our balance sheet, and the results of the Loan Servicing Sector include the performance of these interests as well as the operational and other financial activities related to servicing mortgage loans.

      In servicing mortgage loans, we collect and remit loan payments, respond to borrower inquiries, account for principal and interest, hold custodial (impound) funds for payment of property taxes and insurance premiums, counsel delinquent mortgagors, supervise foreclosures and property dispositions and generally administer the loans. In return for performing these functions we receive servicing fees and other remuneration.

      Our MSRs arise from contractual agreements between us and investors (or their agents) in mortgage-backed securities and mortgage loans. Although MSRs generally arise from the securitization of mortgage loans that we originate, we also occasionally purchase MSRs from other servicers. For a more complete description of MSRs, see “Note 9 — Securitizations” in the financial statement section of this Report.

      MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value when mortgage rates decline. To moderate the effect on earnings of declines in value of MSRs and other retained interests, we maintain a portfolio of financial instruments, including derivative contracts, which increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to herein as the “Servicing Hedge.” See “Note 10 — Financial Instruments — Risk Management Activities Related to Mortgage Servicing Rights (MSRs) and Other Retained Interests” in the financial statement section of this Report for a further discussion of our Servicing Hedge.

      The various functions within our loan servicing operations are briefly described in the following paragraphs. These operations are performed in three primary locations in California and Texas.

      Our Customer Service Call Centers managed over 33 million contacts with customers in 2003. These contacts were primarily handled through our Customer Service Representatives, Automated Phone System and website (www.customers.countrywide.com).

      Our Remittance Processing division processes all payments and loan payoffs. This division also provides payoff demand statements, prints monthly statements and oversees outbound customer correspondence. Approximately 31% of our customers make their monthly payments electronically using various automated payment methods. Approximately 23% of our customers have chosen to receive electronic statements, which reduces the cost and improves the timeliness of providing loan information to them.

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      Our Collection and Loss Mitigation units work with delinquent borrowers to bring their mortgages back to current status and to avoid foreclosure if possible. Workout efforts are tailored to the specific borrower circumstances, as dictated by the requirements of the underlying mortgage investor.

      Foreclosure and bankruptcy are complex processes that are subject to federal and state laws and regulations, as well as various guidelines imposed by mortgage investors and insurers. Our workflow-based systems facilitate consistent processing of defaulted mortgage loans as well as an efficient flow of data between internal and external business partners. To minimize related costs and to increase efficiency, we utilize our own companies, such as LandSafe Title, LandSafe Appraisal, CTC Real Estate Services and Countrywide Field Services, to process foreclosures and bankruptcies.

      Our Investor Accounting department reconciles custodial accounts, processes investor remittances and maintains the accounting records on behalf of our mortgage investors, including Fannie Mae, Ginnie Mae, Freddie Mac, as well as over 500 private investors.

      We perform several loan-servicing functions internally that other loan servicers commonly outsource to third parties. We believe the integration of these functions gives us a competitive advantage by lowering overall servicing costs and enabling us to provide a high level of service to our mortgage customers and mortgage investors. Our integrated services include property tax payment processing, foreclosure trustee, property inspections, and insurance tracking and premium payment processing.

      The following table sets forth certain information regarding the Company’s loan servicing portfolio, including mortgage loans and securities held for sale and residential mortgage loans subserviced for others, for the periods indicated:

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(1)	Runoff refers to scheduled principal repayments on loans and unscheduled prepayments (partial prepayments or total prepayments due to refinancing, modification, sale, condemnation or foreclosure).
(2)	Expressed as a percentage of the total number of loans serviced excluding subserviced loans and loans purchased at a discount due to their non-performing status.

      We provide loan closing products and services such as credit reports, appraisals, title reports and flood determinations through our LandSafe, Inc. group of companies. We provide these services primarily to our loan production divisions.

      In recent years, the level of complexity in the mortgage lending business has increased significantly due to several factors:

	•	The continuing evolution of the secondary mortgage market has resulted in a proliferation of mortgage products.
	•	Greater regulation imposed on the industry has resulted in increased costs and the need for higher levels of specialization.

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	•	Increasing interest rate volatility compounded by homeowners’ increasing tendency to refinance their mortgages as the refinance process has become more efficient and cost-effective, has resulted in large swings in the volume of mortgage loans originated from year to year. These swings in mortgage origination volume have placed significant operational and financial pressures on mortgage lenders.

      To compete effectively in this environment, mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage business has become more capital-intensive and therefore access to capital at a competitive cost is critical. Primarily as a result of these factors, the industry has undergone rapid consolidation.

      Today, large, sophisticated financial institutions dominate the residential mortgage industry. These industry leaders are primarily commercial banks operating through their mortgage banking subsidiaries. Today, the top 30 mortgage lenders combined have a 79% share of the mortgage origination market, up from 58% five years ago.

      This consolidation trend has carried over to the loan servicing side of the mortgage business. Today, the top 30 mortgage servicers combined have a 64% share of the total mortgages outstanding, up from 53% five years ago.

      Compared with Countrywide, the other industry leaders are less reliant on the secondary mortgage market as an outlet for adjustable-rate mortgages because they have a greater capacity to hold such mortgages in their loan portfolio. This could place us at a competitive disadvantage if the demand for adjustable-rate mortgages increases significantly, the secondary mortgage market does not provide a competitive outlet for these loans and we are unable to develop a portfolio lending capacity similar to the competition’s.

      Generally, we compete by offering a wide selection of mortgage loans through a variety of marketing channels on a national scale, by providing high-quality service and by pricing our mortgage loans at competitive rates.

Capital Markets Segment

      Our Capital Market Segment consists of Countrywide Securities Corporation and Countrywide Asset Management Corporation.

      Countrywide Securities Corporation is a broker-dealer that specializes in the mortgage securities market. The activities of Countrywide Securities Corporation consist of the following:

	•	Trading and underwriting mortgage-related fixed-income securities, including mortgage-backed securities, collateralized mortgage obligations and asset-backed securities issued by Fannie Mae, Freddie Mac, Ginnie Mae and other financial institutions, including Countrywide Home Loans
	•	Trading and underwriting callable debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank, as well as bank certificates of deposit and corporate debt issued by Countrywide Home Loans
	•	Trading of securities issued by the United States Department of the Treasury
	•	Arranging short-term financing of fixed-income securities by institutional investors
	•	Acting as broker of residential mortgage loans, including subprime loans, on behalf of Countrywide Home Loans
	•	Managing mortgage loan securitization conduits on behalf of Countrywide Home Loans

      Most of our underwriting is for Countrywide Home Loans. We trade for our own accounts and act as a broker for institutional investors, such as investment managers, pension fund companies, insurance companies, depositories and mortgage bankers, as well as regional and global broker-dealers. Countrywide Securities

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      On behalf of Countrywide Home Loans, we manage the acquisition and disposition of loans from third parties. These are typically delinquent or otherwise illiquid residential mortgage loans which have primarily been originated under FHA and VA programs. We also manage the disposition of similar loans originated by Countrywide Home Loans. We attempt to rehabilitate the loans using the servicing operations of Countrywide Home Loans with the intent to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, which includes the collection of government insurance and guarantee proceeds due from the default and liquidation of FHA and VA program loans.

      The securities industry is both highly competitive and fragmented. In the mortgage securities market, we compete with global investment banks as well as regional broker-dealers. We believe by leveraging the strengths of Countrywide Home Loans and by specializing in this market, we can offer information, products and services tailored to the unique needs of participants in the mortgage securities market. In contrast, many of our competitors offer a broad range of products and services, which may place us at a competitive disadvantage.

      For 2003, according to Inside MBS & ABS, we ranked fourth in Non-Agency MBS Underwriters.

Banking Segment

      Our Banking Segment consists of the following operations:

	•	Treasury Bank, N.A., an FDIC-insured, federally-chartered bank
	•	Countrywide Warehouse Lending, a non-depository lending company that provides short-term secured financing to mortgage lenders

      Treasury Bank primarily originates and invests in mortgage loans and home equity lines of credit, substantially all of which are sourced through our mortgage banking subsidiary, Countrywide Home Loans. Collateralized mortgage obligations and other securities are used to supplement Treasury Bank’s loan portfolio for liquidity and asset-liability management purposes.

      Through Countrywide Bank, a division of Treasury Bank, we offer deposit accounts, primarily certificates of deposit, to the retail market. We sell these products through our two-person financial centers, which are located in 31 of Countrywide Home Loan’s retail branch offices as of December 31, 2003. We also sell these deposit products on-line and through call centers. In addition, a portion of Treasury Bank’s deposit liabilities are comprised of custodial funds that relate to the loan servicing portfolio of Countrywide Home Loans. Treasury Bank borrows funds on a secured basis from the Federal Home Loan Bank of Atlanta and executes repurchase agreements to supplement its deposit liabilities.

      Treasury Bank also acts as a mortgage document custodian, primarily for our mortgage banking operations. As a document custodian, we verify, maintain and release collateral for issuers, servicers, sellers and purchasers of debt securitizations. We also provide other services including safekeeping, review/certification, release requests and customer reporting.

      At December 31, 2003, Treasury Bank had total assets of $19.4 billion, including $3.6 billion of investment securities and $14.7 billion of loans receivable. At December 31, 2003, Treasury Bank had deposits of $9.3 billion, including $5.9 billion of custodial balances controlled by Countrywide Home Loans.

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      We provide committed and uncommitted warehouse lines of credit to mortgage bankers to finance their mortgage loan inventories. Most of these mortgage bankers sell loans to our Correspondent Lending Division. All of these mortgage bankers are subject to the same initial and ongoing credit evaluation and monitoring applied to our correspondent lenders. We attempt to limit our credit risk under our warehouse lines of credit by securing the advances with mortgage loans that have a market value in excess of the balance of our advances.

      At December 31, 2003, we had total line of credit commitments of $5.0 billion, against which we had advances outstanding of $1.9 billion.

      The retail banking industry is dominated by large commercial banks with substantially more assets, significantly higher brand-name recognition and larger physical distribution networks than Treasury Bank.

      We compete with other insured depository institutions, which include approximately 7,800 commercial banks and approximately 1,400 savings institutions, in the retail deposit market. The number of commercial banks and savings institutions has decreased over the past decade due to consolidation in the banking industry. As the banking industry continues to consolidate, we expect the intensity of the competition to increase, especially as we further expand our size and geographic scope.

      We compete in the retail deposit market on the basis of price (i.e., interest rates offered on deposit accounts). Because of our low-cost structure, we are able to offer CD rates that are among the most competitive in the industry.

      Our Banking Segment’s competitive position is significantly enhanced by its synergistic relationship with our core mortgage banking operations. For example, our mortgage banking operation is the primary source of mortgage loan and home equity line of credit customers for Treasury Bank. Treasury Bank sells retail deposit products through financial centers placed within certain of Countrywide Home Loan’s retail branch offices. This economical use of space reduces the Bank’s acquisition costs. In addition, a significant portion of Treasury Bank’s deposit liabilities consists of custodial funds controlled by Countrywide Home Loans. Treasury Bank also provides mortgage document custodial services for our mortgage banking operations.

Insurance Segment

      The primary activities we conduct in our Insurance Segment include:

	•	Offering property, casualty, life and credit insurance as an underwriter and as an independent agent
	•	Providing reinsurance coverage to primary mortgage insurers

      We manage these activities through two business units — Balboa Life and Casualty Operations and Balboa Reinsurance Company.

      Life and Casualty operations include the operations of Balboa Life and Casualty Group and Countrywide Insurance Services Group, an independent insurance agency.

      We underwrite property, casualty, life and credit insurance in all 50 states through our Balboa Life and Casualty Group. This group operates under the following names: Balboa Insurance Company, Balboa Life Insurance Company, Balboa Life Insurance Company of New York, Balboa Lloyds Insurance Company, Meritplan Insurance Company and Newport Insurance Company.

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      Balboa Life and Casualty Group has the following three product lines:

	•	Lender-Placed Property and Auto — We offer lender-placed auto insurance, and lender-placed real-property hazard insurance. Such insurance is provided on behalf of auto and mortgage lenders when borrowers fail to have agreed-upon insurance coverage in place to protect the lender’s security interest. We also provide insurance tracking services, which alerts lenders when there is a lapse in a borrower’s insurance, for more than 11.8 million loans, including almost 4.6 million loans serviced within our mortgage banking operations.
	•	Homeowners — We underwrite retail homeowners’ insurance and home warranty plans for consumers.
	•	Life and Credit — We underwrite term life, credit life and credit disability insurance products.

      Our retail insurance products are offered by select general insurance agents serving the consumer market, including our Countrywide Insurance Services Group.

      The Balboa Life and Casualty Group has received an “A” rating from A.M. Best Company, an insurance company rating agency. The “A” rating is defined by the A.M. Best Company as having “an excellent ability to meet ongoing obligations to policyholders.”

      Our Countrywide Insurance Services Group operates an independent insurance agency that provides consumers, in particular our mortgage customers, with homeowners’ insurance, life insurance, disability insurance, automobile insurance and various other insurance products.

      Our Countrywide Insurance Services Group operates under the following names: Countrywide Insurance Services, Inc. (California); Countrywide Insurance Services, Inc. (Arizona); Countrywide Insurance Services of Alabama, Inc.; Countrywide Insurance Agency of Massachusetts; Countrywide Insurance Services of Texas, Inc. and Countrywide General Agency of Texas, Inc.

      We provide a mezzanine layer of non-catastrophic reinsurance coverage to the insurance companies that provide primary mortgage insurance (“PMI”) on loans in our servicing portfolio. We provide this coverage with respect to substantially all of the loans in our portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80 percent of the property’s appraised value. In return for providing this coverage, we earn a portion of the PMI premiums.

      The lender-placed insurance market is dominated by a small number of providers, competing on policy terms and conditions, service, technological innovation, compliance capability, loan tracking ability and commissions.

      The homeowners’ and credit-life and credit-disability marketplace is dominated by large, consumer brand name providers. Competition is driven by price, service, commissions and the efficiency and effectiveness of marketing and underwriting operations.

      The primary mortgage reinsurance market is dominated by large mortgage originators that have extensive business relationships with the PMI industry. We compete in this market primarily through our position in the residential mortgage loan market.

      We compete generally by providing high-quality service and pricing our products at competitive rates, as well as by leveraging our residential mortgage loan customer base.

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Global Operations Segment

      The primary activities we conduct in our Global Operations Segment include:

	•	Loan Processing and Sub-servicing — We provide mortgage loan application processing and servicing in the UK through a majority-owned joint venture with Barclays plc. In 2003, we processed over $28.7 billion in loans, all of which are subserviced for Barclays plc, our joint venture partner. At December 31, 2003, our subservicing portfolio was $106 billion.
	•	Valuation Services — We provide electronic residential property valuation services to third parties in the UK through a majority-owned joint venture.

      We also develop proprietary technology for these activities. For example, we developed proprietary automated valuation technology that we believe is the first artificial intelligence property valuation system to be introduced in the UK. We manage these activities through three companies — Global Home Loans Limited, UKValuation Limited and Countrywide International Technology Holdings Limited.

      Our competitors in this segment include commercial banks, multinational corporations and other financial institutions, which are entering global mortgage markets, particularly in Europe, in recognition of the opportunities presented by less mature mortgage markets outside of the United States. We compete by leveraging our experience and proprietary technology.

Financing of Operations

      We have significant short-term and long-term financing needs. Our short-term financing needs arise primarily from the following:

	•	Warehousing of mortgage loans pending sale
	•	Trading activities of our broker-dealer
	•	Mortgage warehouse lending

      Our long-term financing needs arise primarily from the following:

	•	Investments in mortgage loans
	•	Investments in MSRs and other interests that we retain when we securitize mortgage loans
	•	Hedging instruments associated with our investments in MSRs and other retained interests

      We meet our short- and long-term financing needs primarily through the following means:

	•	Unsecured commercial paper and medium-term notes
	•	Short-term repurchase agreements
	•	Asset-backed commercial paper
	•	Deposit-gathering and other financing activities of Treasury Bank
	•	Retained earnings

      We typically access the unsecured public corporate debt market by issuing commercial paper and medium-term notes. At times, we also issue subordinated debt, convertible debt and trust-preferred securities. Our ongoing access to the public debt markets is dependent on a high credit rating. For the last twelve years, we have consistently maintained solid investment-grade ratings. Countrywide Home Loans, our primary issuer

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      We use short-term secured financing such as repurchase agreements and asset-backed commercial paper conduits to finance a substantial portion of our mortgage loan inventory and securities trading portfolio. Treasury Bank finances its investments in mortgage loans primarily with a combination of deposit liabilities and Federal Home Loan Bank secured advances.

      Our primary source of equity capital is retained earnings. In addition, we have outstanding $1 billion in trust-preferred securities that receive varying degrees of “equity treatment” from rating agencies, bank lenders and regulators. From time to time, we issue common stock as a means of supplementing our capital base and supporting our growth.

Regulations

      As a registered bank holding company and a financial holding company under the Bank Holding Company Act (the “BHC Act”) and the Gramm-Leach-Bliley Act (the “GLB Act”), Countrywide Financial Corporation (“CFC”) is subject to the supervision and examination by the Federal Reserve Board (the “FRB”). The FRB has authority to issue cease and desist orders against bank holding companies if it determines that their actions represent unsafe and unsound practices or violations of law. In addition, the FRB is empowered to impose civil money penalties for violations of banking statutes and regulations. Regulation by the FRB is intended to protect depositors of the Bank, not the shareholders of CFC.

      The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the GLB Act, a bank holding company, all of whose controlled depository institutions are “well capitalized” and “well managed” (as defined in federal banking regulations) and which obtains “satisfactory” Community Reinvestment Act ratings, may declare itself to be a “financial holding company” and engage in a broader range of activities.

      A financial holding company that desires to engage in activities that are financial in nature or incidental to a financial activity but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. In addition, the BHC Act requires a bank holding company to obtain prior approval of the FRB before making certain acquisitions.

      If any subsidiary bank of a financial holding company ceases to be “well-capitalized” or “well-managed,” the financial holding company will not be in compliance with the requirements of the BHC Act regarding financial holding companies. If a financial holding company is notified by the FRB of such a change in the ratings of any of its subsidiary banks, it must take certain corrective actions within specified time frames.

      If any subsidiary bank of a financial holding company receives a rating under the Community Reinvestment Act of less than “satisfactory”, then the financial holding company is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations until the rating is raised to “satisfactory” or better.

      The FRB has promulgated capital adequacy guidelines for use in its examination and supervision of bank holding companies. If a bank holding company’s capital falls below minimum required levels, then the bank

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      The FRB’s capital adequacy guidelines require that a bank holding company maintain a Tier 1 Leverage ratio equal to at least 4.0% of its average total consolidated assets, a Tier 1 Risk-Based Capital ratio equal to 4.0% of its risk-weighted assets and a Total Risk-Based Capital ratio equal to 8.0% of its risk-weighted assets to be classified as “adequately capitalized.” To be classified as “well capitalized,” a bank holding company is required to maintain a Tier 1 Leverage ratio of 5.0% or greater, a Tier 1 Risk-Based Capital ratio of 6.0% or greater, and a Total Risk-Based Capital ratio of 10.0% or greater. On December 31, 2003, the Company was in compliance with all of the FRB’s capital adequacy guidelines. For further information regarding CFC’s capital ratios, see “Note 22 — Regulatory and Agency Capital Requirements” in the financial statement section of this Report .

      Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), a bank holding company is permitted to acquire the stock or substantially all of the assets of banks located in any state regardless of whether such transaction is prohibited under the laws of any state. The FRB will not approve an interstate acquisition if as a result of the acquisition the bank holding company would control more than 10% of the total amount of insured deposits in the United States or would control more than 30% of the insured deposits in the home state of the acquired bank. The 30% of insured deposits state limit does not apply if the acquisition is the initial entry into a state by a bank holding company or if the home state waives such limit. The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. Banks are also permitted to acquire and to establish de novo branches in other states where authorized under the laws of those states.

      Under the Riegle-Neal Act, individual states may restrict interstate acquisitions in two ways. A state may prohibit an out-of-state bank holding company from acquiring a bank located in the state unless the target bank has been in existence for a specified minimum period of time (not to exceed five years). A state may also establish limits on the total amount of insured deposits within the state which are controlled by a single bank holding company, provided that such deposit limit does not discriminate against out-of-state bank holding companies.

      FRB policy requires a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. Under this “source of strength doctrine,” a bank holding company is expected to stand ready to use its available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, and to maintain resources and the capacity to raise capital that it can commit to its subsidiary banks. Furthermore, the FRB has the right to order a bank holding company to terminate any activity that the FRB believes is a serious risk to the financial safety, soundness or stability of any subsidiary bank.

      Under cross-guaranty provisions of the Federal Deposit Insurance Act (the “FDIA”), bank subsidiaries of a bank holding company are liable for any loss incurred by the Bank Insurance Fund (the “BIF”), the federal deposit insurance fund for banks, in connection with the failure of any other bank subsidiary of the bank holding company.

      Treasury Bank, N.A. (the “Bank”), as a national banking association, is subject to regulation and examination by the Office of the Comptroller of the Currency (the “OCC”). The Bank is also regulated by

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      The OCC has adopted minimum capital requirements applicable to national banks, which are similar to the capital adequacy guidelines established by the FRB for bank holding companies. Federal banking laws classify an insured financial institution in one of the following five categories, depending upon the amount of its regulatory capital: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. On December 31, 2003, the Bank was in compliance with the OCC’s minimum capital requirements and satisfied the requirements to be treated as well-capitalized.

      The OCC conditioned its approval of CFC’s acquisition of the Bank in May 2001 on, among other things, the (i) the Bank’s Tier 1 capital being no less than $114.5 million on December 31, 2003 and (ii) the Bank maintaining a Tier 1 leverage ratio of no less than 8% until May 17, 2004. On December 31, 2003, the Bank’s leverage ratio was 8.6%, the Tier-1 risked based capital ratio was 12.8% and total-risk based capital ratio was 12.9%.

      The Bank must be well-capitalized and well-managed for CFC to remain a financial holding company.

      The deposits of the Bank are insured by the Bank Insurance Fund administered by the FDIC, in general up to a maximum of $100,000 per insured depositor. Under federal banking regulations, insured banks are required to pay semi-annual assessments to the FDIC for deposit insurance. The FDIC’s risk-based assessment system requires BIF members to pay varying assessment rates depending upon the level of the institution’s capital and the degree of supervisory concern over the institution. The FDIC’s assessment rates range from zero cents to 27 cents per $100 of insured deposits. The FDIC has authority to increase the annual assessment rate and there is no cap on the annual assessment rate which the FDIC may impose.

      The rate of interest a bank may charge on certain classes of loans is limited by state and federal law. At certain times in the past, these limitations have resulted in reductions of net interest margins on certain classes of loans. Federal and state laws impose additional restrictions on the lending activities of banks. The maximum amount that a national bank may loan to one borrower generally is limited to 15% of the bank’s capital, plus an additional 10% for loans fully secured by readily marketable collateral.

      The Bank is subject to federal and state laws limiting the payment of dividends. Under the Federal Deposit Insurance Act (“FDIA”), an FDIC-insured institution may not pay dividends while it is undercapitalized or if payment would cause it to become undercapitalized. The OCC also generally prohibits the declaration of a dividend out of the capital and surplus of a bank.

      The Bank is subject to the Community Reinvestment Act (the “CRA”) and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution’s record of helping to meet the credit needs of its community, including low and moderate income neighborhoods. CRA ratings are taken into account by regulators in reviewing certain applications made by the Company and its banking subsidiaries.

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      CFC and its non-bank subsidiaries are “affiliates” within the meaning of the Federal Reserve Act. The amount of loans or extensions of credit which the Bank may make to non-bank affiliates, or to third parties secured by securities or obligations of the non-bank affiliates, are substantially limited by the Federal Reserve Act and the FDIA. Such acts further restrict the range of permissible transactions between a bank and an affiliated company. A bank and subsidiaries of a bank may engage in certain transactions, including loans and purchases of assets, with an affiliated company only if the terms and conditions of the transaction, including credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered to non-affiliated companies.

      The investments and activities of the Bank are also subject to regulation by federal banking agencies, regarding investments in subsidiaries, investments for their own account (including limitations on investments in junk bonds and equity securities), loans to officers, directors and their affiliates, security requirements, anti-tying limitations, anti-money laundering, financial privacy and customer identity verification requirements, truth-in-lending, the types of interest bearing deposit accounts which it can offer, trust department operations, brokered deposits, audit requirements, issuance of securities, branching and mergers and acquisitions.

      The OCC conditioned its approval of the Company’s acquisition of the Bank in May 2001 on, among other things, the Bank obtaining the prior approval of the OCC before significantly deviating from the operating plan that the Bank had submitted to the OCC. This restriction will end on May 17, 2004.

      As discussed below, the non-bank subsidiaries of CFC are subject to the supervision of the FRB and may be subject to the supervision of other state and federal regulatory agencies. In addition, there are a number of proposed and enacted federal, state and local laws aimed at protecting a consumer’s privacy. Generally, privacy laws cover a wide range of issues including limiting a company’s ability to share information with third parties or even affiliates, providing stronger identity theft protection and victim’s assistance programs, providing the ability to avoid telemarketing solicitations through “do-not-call” lists and limiting e-mail and fax advertising. These laws also impose penalties for non-compliance.

      Our mortgage banking business is subject to the rules, regulations or guidelines of, and/or examination by, the following entities with respect to the processing, originating, selling and servicing of mortgage loans:

	•	The Department of Housing and Urban Development (“HUD”);
	•	The Federal Housing Administration (the “FHA”);
	•	The Department of Veteran Affairs;
	•	Fannie Mae, Freddie Mac, Ginnie Mae;
	•	The Federal Home Loan Bank (“FHLB”); and
	•	State regulatory authorities.

      The rules and regulations of these entities, among other things, impose licensing obligations on CFC, establish standards for processing, underwriting and servicing mortgage loans, prohibit discrimination, restrict certain loan features in some cases and fix maximum interest rates and fees.

      As an FHA lender, we are required to submit to the FHA Commissioner, on an annual basis, audited financial statements. Ginnie Mae, HUD, Fannie Mae and Freddie Mac require the maintenance of specified

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      Mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and the Home Ownership Equity Protection Act and the regulations promulgated thereunder, as well as to other federal laws. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

      Currently, there are a number of proposed and recently enacted federal, state and local laws and regulations addressing responsible banking practices with respect to borrowers with blemished credit. In general, these laws and regulations will impose new loan disclosure requirements, restrict or prohibit certain loan terms, fees and charges such as prepayment penalties and will increase penalties for non-compliance. Due to our lending practices, we do not believe that the existence of, or compliance with, these laws and regulations will have a material adverse impact on our business.

      However, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future or that the existing laws, rules and regulations will not be applied in a manner that may adversely impact our business or make compliance more difficult or expensive.

      Securities broker-dealer operations are subject to federal and state securities laws, as well as the rules of both the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. State and federal securities laws govern many aspects of the broker-dealer’s business, including the maintenance of required levels of net capital, the establishment of segregated cash accounts for the benefit of customers, the monthly and annual reporting of operating and financial data to regulators, the approval and documentation of trading activity, the retention of records and the governance of the manner in which business may be conducted with customers.

      CFC, by virtue of its affiliation with insurance companies, is a member of an insurance holding company group pursuant to the provisions of the insurance holding company acts (collectively the “Holding Company Acts”). The insurance company entities are subject to the various state insurance departments’ broad regulatory, supervisory and administrative powers. These powers relate primarily to the standards of capital and solvency which must be met and maintained, the licensing of insurers and their agents, the nature and limitation of insurer’s investments, the approval of rates, rules and form; the issuance of securities by insurers, periodic examinations of the affairs of insurers and the establishment of reserves required to be maintained for unearned premiums, losses and other purposes.

      Pursuant to the Holding Company Acts, CFC must provide state insurance departments with certain financial information. In addition, certain transactions specified by the Holding Company Acts may not be effected without the prior notice and/or approval of the applicable insurance department. Examples of transactions that may require prior approval include, but are not limited to, sales, purchases, exchanges, loans and extensions of credit, dividends and investments between the insurance company entity and other entities within the holding company group.

      Various legislation, including proposals to change substantially the financial institution regulatory system, is from time to time introduced in Congress. This legislation may change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, this legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance

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      The references in the foregoing discussion to various aspects of statutes and regulations are summaries which do not purport to be complete and which are qualified in their entirety by reference to the actual statutes and regulations.

Employees

      At December 31, 2003, we had a workforce of 34,298, including regular employees and temporary staff, engaged in the following activities:

      Other than certain Global Home Loans employees who are represented by an independent trade union in the United Kingdom, none of our employees are represented by a collective bargaining agent.

Factors That May Affect Future Results

      We make forward-looking statements in this report and in other reports we file with the SEC. In addition, we make forward-looking statements in press releases and our senior management might make forward-looking statements orally to analysts, investors, the media and others. Generally, forward-looking statements include:

	•	Projections of our revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items
	•	Descriptions of our plans or objectives for future operations, products or services
	•	Forecasts of our future economic performance
	•	Descriptions of assumptions underlying or relating to any of the foregoing

      Forward-looking statements give management’s expectation about the future and are not guarantees. Words like “believe,” “expect,” “anticipate,” “promise,” “plan” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are

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      Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. We do not undertake to update them to reflect changes that occur after the date they are made.

      For a further discussion of factors that may affect future results, see the section in this report entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Factors That May Affect Future Results.”

Additional Information

      Countrywide Financial Corporation was incorporated in New York on March 14, 1969 and on February 6, 1987 was reincorporated in Delaware. The Company was originally named OLM Credit Industries, Inc. and has also been known as Countrywide Credit Industries, Inc.

Loan Production Tables

      The following table summarizes our consolidated loan production by loan type for the periods indicated:

(1)	Percentage of total loan production based on dollar volume.

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      The following table summarizes our Mortgage Banking loan production by loan type: