WASHINGTON MUTUAL FINANCE CORP - 10-K Annual Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2001

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from......................to..........................

Commission file number 1-3521

WASHINGTON MUTUAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 95-4128205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8900 Grand Oak Circle, Tampa, FL 33637-1050
(Address of principal executive offices) (Zip Code)

(813) 632-4500
(Registrant's telephone number, including area code)

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

Name of each exchange
Title of each class on which registered

6 7/8 % Senior Notes due May 15, 2011 New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

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 X No

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 the 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:

Not applicable

The aggregate market value of Common Stock held by non-affiliates: None
As of February 28, 2002, there were 1,000 shares of Common Stock outstanding.

Documents incorporated by reference: None

Registrant meets the conditions set forth in General Instruction (I)(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.

2

WASHINGTON MUTUAL FINANCE CORPORATION

ANNUAL REPORT ON FORM 10-K

Table of Contents

Page
PART I

Item 1. Business.....................................................3
Item 2. Properties..................................................11
Item 3. Legal Proceedings...........................................11
Item 4. Submission of Matters to a Vote of Security Holders .........*

PART II

Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters..........................12
Item 6. Selected Financial Data ....................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..25
Item 8. Financial Statements and Supplementary Data.................27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................48

PART III

Item 10. Directors and Executive Officers of the Registrant ..........*
Item 11. Executive Compensation.......................................*
Item 12. Security Ownership of Certain Beneficial Owners and
Management ...............................................*
Item 13. Certain Relationships and Related Transactions...............*

PART IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................49

* Items 4, 10, 11, 12 and 13 are not included as per conditions
met by Registrant set forth in General Instruction I(1)(a) and
(b) of Form 10-K.

3

PART I

Item 1. Business

General

Washington Mutual Finance Corporation ("WMF"), incorporated in Delaware in 1986,
as Aristar, Inc., is a holding company headquartered in Tampa, Florida whose
subsidiaries are engaged in the consumer financial services business. Washington
Mutual Finance Corporation is an indirect, wholly-owned subsidiary of Washington
Mutual, Inc. ("Washington Mutual"). When we refer to "we", "our", "us", or the
"Company" in this Form 10-K, we mean Washington Mutual Finance Corporation and
its subsidiaries, all of which are wholly-owned.

Our Company's operations consist principally of a network of 449 branch offices
located in 24 states, primarily in the southeast, southwest and California
("consumer finance"). These offices operate under the name Washington Mutual
Finance. Our branch offices are typically located in small- to medium-sized
communities in suburban or rural areas and are managed by individuals who
generally have considerable consumer lending experience. We make secured and
unsecured consumer installment loans, and purchase installment contracts from
local retail establishments. The consumer credit transactions are primarily for
personal, family, or household purposes. From time to time, we purchase consumer
loans from national mortgage banking operations, servicing released, that are
secured by real estate.

We also provide consumer financial services through our industrial banking
subsidiary, First Community Industrial Bank ("FCIB"), which has 10 branches in
Colorado and Utah ("consumer banking"). In addition to making consumer loans and
purchasing retail installment contracts, FCIB also accepts deposits insured by
the Federal Deposit Insurance Corporation ("FDIC").

For consumer finance and consumer banking, combined, we have 459 physical
locations doing business in 25 states. Additionally, we have a consumer banking
credit collection office in Colorado Springs, Colorado, a consumer finance
customer care center in Pensacola, Florida ("C3"), and a headquarters facility
in Tampa, Florida to support the entire operation.

As part of our ongoing strategy, we continually review our branch network to
determine how to best deploy our capital and resources. In December 2001, we
closed 50 of our consumer finance branches. The branches were selected based
upon profitability, growth prospects for a given market, and/or geographic
proximity to other WMF branch locations. All of the accounts were transferred to
nearby branches or to C3, dependent upon proximity to other branches and/or loan
delinquency status. Many employees were offered alternative positions at other
WMF facilities and/or encouraged to seek other opportunities within the Company.

4

Portfolio Composition

The following table provides an analysis by type of our consumer finance
receivables (excluding unearned finance charges and deferred loan fees) at the
dates shown:

(Dollars in thousands) December 31,
-------------------------------------------
2001 2000 1999
Notes and contracts receivable: ----------- ------------ ------------
Type:

Real estate secured loans $ 2,100,566 $ 1,990,907 $ 1,432,841
Other installment loans 1,417,682 1,401,859 1,334,350
Retail installment contracts 337,098 335,584 294,566
----------- ----------- -----------
Total $ 3,855,346 $ 3,728,350 $ 3,061,757
=========== =========== ===========
Number of accounts 995,287 1,016,403 1,001,302
Type as a percent of total receivables:
Real estate secured loans 54.5% 53.4% 46.8%
Other installment loans 36.8 37.6 43.6
Retail installment contracts 8.7 9.0 9.6
----------- ----------- -----------
100.0% 100.0% 100.0%
=========== =========== ===========

For the year ended December 31, 2001, real estate secured loans outstanding
(excluding unearned finance charges and deferred loan fees) increased $109.7
million, or 5.5%, as compared to an increase of $558.1 million, or 38.9%, for
the prior year. Real estate loans are typically secured by first or second
mortgages and are primarily used by the customer for purchases of consumer goods
or debt consolidation. We have focused on increasing our percentage of real
estate loans portfolio due to the better credit quality inherent in the customer
base, since the primary sources of these loans are existing customers that have
maintained a high level of payment performance over an extended period of time.
In 2001, approximately 81% of the real estate secured loans originated were made
to customers with whom we had a current or former lending relationship. In
addition, the underlying security in real estate secured loans reduces our risk
of loss. Also, the larger average balance makes this loan type more cost
effective to originate and service. At December 31, 2001 and 2000, the average
balance of a real estate secured loan was approximately $30,600 and $30,400.

During 2001, other installment loans outstanding (excluding unearned finance
charges and deferred loan fees) remained relatively flat, increasing only $15.8
million, or 1.1% over 2000, as compared to an increase of $67.5 million, or
5.1%, in 2000. This slowing of growth is due primarily to our focus on growing
the real estate portfolio. Other installment loans are either secured by
consumer goods or unsecured and are primarily used by the customer to make
specific purchases of consumer goods or undertake personal debt consolidation.
At December 31, 2001 and 2000, the average balance of an other installment loan
was approximately $2,500 and $2,400.

During 2001, retail installment contracts outstanding (excluding unearned
finance charges and deferred loan fees) remained relatively flat, increasing
only $1.5 million, or 0.5%, as compared to an increase of $41.0 million, or
13.9% in 2000. This slowing of growth is due primarily to the change in consumer
purchasing habits caused by the downturn of the economy. This loan type is
generally utilized as a source for new customers, and it has been determined
that maintaining this portfolio at approximately 10% of total net outstanding
loans is the appropriate portfolio mix for generating cross-selling

5

opportunities, while minimizing the impact on yields. Retail installment
contracts are generally acquired without recourse to the originating merchant
and establish a customer relationship for developing future loan business. These
contracts result from the sale of consumer goods and, payment is secured by such
goods. Retail installment contracts are generally acquired through the
originating merchant. We had such arrangements with over 2,200 merchants at
December 31, 2001. At December 31, 2001 and 2000, the average balance of a
retail installment contract was approximately $940.

Consumer loans are typically fixed-rate and are originated by customer
application and periodic purchases of receivable portfolios. Loan originations
are a result of business development efforts consisting of direct mail,
telemarketing and branch office sales personnel. Consumer loans written in 2001
had original terms generally ranging from 12 to 240 months and averaged 76
months. Of the loans originated in 2001, approximately 72.4% were unsecured or
secured by consumer goods, automobiles or other personal property, and
approximately 27.6% were secured by real estate. In addition, the Company
purchases loan portfolios from its competitors and secondary markets. In 2001,
$270.4 million of loans were purchased. Of these, approximately 5.2% were
unsecured or secured by consumer goods, automobiles or other personal property,
and approximately 94.8% were secured by real estate.

As part of our consumer finance line of business, we make available, at the
option of our customers, various credit insurance and ancillary products. These
products include credit life insurance, credit accident and health insurance,
credit property and casualty insurance, term life protector, group debtor life
insurance, accidental death and dismemberment insurance, involuntary
unemployment insurance and appliance warranty programs. We do not sell insurance
to non-customers. Credit insurance we sell is written by unaffiliated insurance
companies, and we substantially reinsure all of these policies, and earn a
reinsurance premium thereon, except for the involuntary unemployment insurance,
for which we earn a direct commission.

Yield Written

For the years ended December 31, 2001, 2000 and 1999 the average portfolio yield
written during the year, by loan type, was as follows:
2001 2000 1999
----- ----- -----
Real estate secured loans 12.36% 12.40% 12.53%
Other installment loans 24.36 24.75 24.88
Retail installment contracts 19.60 19.08 18.94

The yield written includes the stated coupon rate of interest plus initial fees
charged at the time of loan origination. These initial finance charges are
recognized on an accrual basis, using the interest method.

6

Geographic Distribution

Geographic diversification of consumer finance receivables reduces the
concentration of credit risk associated with a recession in any one region. The
concentration of consumer finance receivables (excluding unearned finance
charges and deferred loan fees) by state was as follows (note that these results
are based on the state where the customer resides):

(Dollars in thousands) December 31,
----------------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
----------- -------- ----------- ------- ----------- -------

California $ 474,181 12% $ 388,825 10% $ 228,334 7%
Texas 422,184 11 363,407 10 295,465 10
Tennessee 345,587 9 339,852 9 291,946 10
Colorado 311,877 8 328,652 9 314,677 10
North Carolina 291,929 8 292,893 8 264,909 9
Florida 222,324 6 222,010 6 190,120 6
South Carolina 179,379 5 182,669 5 166,533 5
Virginia 157,217 4 161,247 4 144,560 5
Louisiana 145,127 4 146,147 4 133,372 4
Mississippi 127,565 3 128,653 3 116,468 4
Other 1,177,976 30 1,173,995 32 915,373 30
----------- ----- ----------- ---- ----------- ----
Total $ 3,855,346 100% $ 3,728,350 100% $ 3,061,757 100%
=========== ===== =========== ==== =========== ====

The relatively high proportion of the business in Colorado reflects the presence
of our banking subsidiary, FCIB, in that state.

Credit Loss Experience

We closely monitor portfolio delinquency and loss rates in measuring the quality
of the portfolio and the potential for ultimate credit losses. An account is
considered delinquent when a payment is 60 days or more past due, based on the
original terms of the contract. Under our policy, non-real estate secured
delinquent accounts generally are charged off (i.e. fully reserved) when they
become 180 days contractually delinquent. Real estate secured, delinquent
accounts are handled on a case-by-case basis, with foreclosure proceedings
typically beginning when the accounts are between 60 and 90 days contractually
delinquent. Collection efforts continue after an account has been charged off
until it is determined that the cost of collection efforts outweighs the
benefits received.

We attempt to control customer delinquency through careful evaluation of each
borrower's application and credit history at the time the loan is originated or
purchased, and through appropriate collection activity. We also seek to reduce
our risk by focusing on consumer lending, making a greater number of smaller
loans than would be practical in commercial markets, and maintaining disciplined
control over the underwriting process.

7

We maintain an allowance for credit losses inherent in the receivables
portfolio. The allowance is based on an ongoing assessment of the probable
estimated losses inherent in the portfolio. This analysis provides a mechanism
for ensuring that estimated losses reasonably approximate actual observed
losses. See discussion in "Allowance for Credit Losses" in Item 7.

Funding Composition

A relatively high ratio of borrowings to invested capital is customary in
consumer finance activities due to the quality and term of the assets employed
by the business. As a result, the spread between the revenues received from
loans and interest expense is a significant factor in determining our net
income.

We fund our operations principally through net cash flows from operating
activities, short-term borrowings in the commercial paper market, issuances of
senior debt, customer deposits and borrowings from the Federal Home Loan Bank of
Topeka (the "FHLB").

The Company has a commercial paper program with several investment banks which
provides $700 million in borrowing capacity. At December 31, 2001, thirty-seven
different commercial paper borrowings totaling $351.1 million were outstanding,
with an average cost of 4.93%. We also share with Washington Mutual two
revolving credit facilities: a $600 million 364-day facility and a $600 million
four-year facility, which provide back-up for our commercial paper programs. The
borrowing capacity is limited to the total amount of the two revolving credit
facilities, net of the amount of combined commercial paper outstanding. At
December 31, 2001, there was $849 million available under these facilities.
There were no direct borrowings under these facilities at any point during 2001
or 2000.

Senior notes outstanding totaled $2.67 billion at December 31, 2001, with an
average cost of 6.64%. In April 2001, we filed a $2 billion shelf registration
statement to provide additional access to the public debt markets and in May,
2001 we issued $1 billion in senior debt.

FCIB raises funds through both customer deposits and borrowings with the FHLB.
At December 31, 2001, customer deposits totaled $236.0 million, with an average
cost of 5.83%. At December 31, 2001 FHLB borrowings totaled $110.0 million, with
an average cost of 5.18%.

Employee Relations

Our number of full-time equivalent employees at December 31, 2001 was
approximately 2,650, a 10.2% decrease from December 31, 2000 due primarily to
the closing of branches in December (see Item 1. Business - General). We believe
that we have been successful in attracting and retaining quality employees and
that our employee relations are good.

8

Risk Factors

In addition to the other information in this Annual Report on Form 10-K, the
following factors should be considered carefully:

A decline of collateral value may adversely affect the credit quality of our
portfolio

Approximately 55% of our consumer finance receivables outstanding were secured
by real estate at December 31, 2001. Any material decline in real estate values
reduces the ability of borrowers to use home equity to support borrowings and
increases the loan-to-value ratios of loans previously made by us, thereby
weakening collateral coverage and increasing the possibility of a loss in the
event of a borrower default. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Any sustained period
of such increased delinquencies, foreclosures and losses could adversely affect
our results of operations and financial condition.

An increase in our delinquency rate could adversely affect our results of
operations

Our underwriting criteria or collection methods may not afford adequate
protection against the risks inherent in the loans we make to our customers. In
the event our portfolio of consumer finance receivables experiences higher
delinquencies, foreclosures or losses than anticipated, our results of
operations or financial condition could be adversely affected.

Changes in legislation or regulation could adversely affect our business
operations

Our lending activities are subject to federal consumer protection laws such as
the Amended Truth-in-Lending Act (including the Home Ownership and Equity
Protection Act of 1994), the Fair Housing Act, the Equal Credit Opportunity Act,
the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, the
Home Mortgage Disclosure Act and the Fair Debt Collection Practices Act and
regulations promulgated thereunder. In December 2001, amendments to the Home
Ownership and Equity Protection Act of 1994 ("HOEPA") were adopted. The
amendments lower the rate and fee triggers defining when the additional
disclosure requirements and term restrictions of HOEPA will apply. Effective
October 1, 2002, more of our loans are expected to be subject to HOEPA and the
disclosure requirements and substantive limitations. Also, amendments to
Regulation C implementing the Home Mortgage Disclosure Act ("HMDA") have been
adopted and further amendments proposed. Prior to the amendments, we were
generally exempt from HMDA reporting. The amendments will require us to report
certain mortgage loans and will require certain additional data that was not
previously required, such as designation of HOEPA applicability to the mortgage
loan. In addition, the Gramm-Leach-Bliley Act of 1999 ("GLBA"), and implementing
regulations that created privacy protections for our loan customers requiring us
to provide privacy notices and opportunities to opt out of information sharing
with nonaffiliated third parties continue to be defined by regulations and
administrative interpretations. We are also under the federal regulatory
oversight of the Federal Trade Commission ("FTC") which, from time to time,
promulgates rules which affect our operations.

9

Our operating subsidiaries are subject to state laws and regulatory oversight
which laws and regulations: (i) impose licensing obligations on us, (ii)
establish eligibility criteria for mortgage loans, (iii) prohibit
discrimination, (iv) provide for inspections and appraisals of properties, (v)
require credit reports on loan applicants, (vi) regulate assessment, collection,
foreclosure and claims handling, (vii) mandate certain disclosures and notices
to borrowers and (viii) in some cases, fix maximum interest rates, fees, loan
amounts, prepayment penalties and refinancing frequencies. Failure to comply
with the state and federal requirements can lead to termination or suspension of
our ability to make and collect loans, certain rights of rescission for mortgage
loans, individual civil liability, class action lawsuits and administrative
enforcement actions. Although consumer finance laws have been in effect for many
years, amending and new legislation is frequently proposed. Currently there are
approximately 130-140 subprime lending bills pending in various states, with
notable legislation in South Carolina, California, Georgia, Colorado, Florida,
Oklahoma and West Virginia. In general the bills are aimed at lending practices
considered to be "predatory" as they have an adverse effect on borrowers with
weakened credit histories and lower prepayment abilities. If passed, generally
the bills would impose additional loan disclosure requirements, restrict
prepayment penalties, prohibit frequent loan refinancings without benefit to the
borrower and increase enforcement abilities and penalties for violations.

Due to self-imposed lending guidelines, we believe that the pending state bills
would have minimum impact on our operations if passed. While the HOEPA
amendments are expected to subject more loans to the regulation, it is not
anticipated that this will have a material adverse impact on our business. In
anticipation of the HMDA amendments, we have instituted an implementation plan
to insure that we are in compliance with the regulations by the mandatory
compliance date and the regulation is not expected to have a material adverse
impact on the business. There can be no assurance that more restrictive laws,
rules and regulations will not be proposed and adopted in the future, or that
existing laws and regulations will not be interpreted in a more restrictive
manner. Such occurrences could make compliance more difficult or expensive.

Additionally, our sale of credit life, credit accident and health, and credit
casualty insurance to our customers is subject to state and federal statutes and
regulations. Failure to comply with any of the foregoing state and federal
requirements could lead to imposition of civil penalties, class action lawsuits
and administrative enforcement actions on us. The pending legislation regarding
subprime lending includes provisions further regulating the sale of insurance
products. If adopted, this legislation could adversely affect our sale of
insurance products.

10

We have been, and will continue to be, subject to regulatory enforcement actions
and private causes of action from time to time with respect to our compliance
with applicable laws and regulations. Our lending practices have in the past
been, and currently are, under regulatory review by various state authorities.
Additionally, the laws and regulations described above are subject to
administrative and judicial interpretation. Where the law or regulation has been
infrequently interpreted (or there are an insignificant number of
interpretations of recently enacted regulations) ambiguity with respect to
permitted conduct under these laws and regulations can result. Any ambiguity
under the regulations to which we are subject may lead to regulatory
investigations or enforcement actions and private causes of action, such as
class action lawsuits, with respect to our compliance with the applicable laws
and regulations.

We may be subject to litigation that could adversely affect our results of
operations or financial condition

In the ordinary course of our business, we are subject to claims made against us
by borrowers arising from, among other things, losses that are claimed to have
been incurred as a result of alleged failures by us to comply with various laws
and regulations applicable to our business. See Item 3 - "Legal Proceedings" for
more details. We believe that liability with respect to any currently asserted
claims or legal actions is not likely to be material to our consolidated results
of operations or financial condition. However, any claims asserted in the future
may result in legal expenses or liabilities that could have a material adverse
effect on our results of operations and financial condition.

Fluctuations in interest rates may adversely affect our profitability

Our profitability may be adversely affected during any period of rapid changes
in interest rates, as substantially all consumer loans outstanding are written
at a fixed rate. A substantial and sustained increase in interest rates could
adversely affect the spread between the rate of interest received by us on our
loans and the interest rates payable under our debt agreements. Such interest
rate increases could also affect our ability to originate loans. A significant
decline in interest rates could decrease the balance of the consumer finance
receivables portfolio by increasing the level of loan prepayments. See
"Asset/Liability Management" for sensitivity analysis.

Competition could adversely affect our results of operations

Competition in the consumer finance business is high. The consumer lending
market is highly fragmented and has been serviced by commercial banks, credit
unions and savings institutions, as well as by other consumer finance companies.
Many of these competitors have greater financial resources and may have
significantly lower costs of funds than we do. Even after we have made a loan to
a borrower, our competitors may seek to refinance the loan in order to offer
additional loan amounts or reduce payments. In addition, if we expand into new
geographic markets, we will face competition from lenders with established
positions in these locations. There can be no assurance that we will be able to
continue to compete successfully in these markets.

11

Item 2. Properties

On May 25, 2001, the Company sold its headquarters building in Tampa, Florida
for gross sale proceeds of $6.7 million. Concurrent with the sale of the
building, we entered into a leaseback, whereby we leased our office facilities
from the purchaser at a monthly base rent of $64,000, with annual increases
approximating 3.5% per year. The lease term is 5 years, with an additional
five-year option to renew. The gain on sale of the building totaled $1.0 million
and is being amortized over the ten-year period representing the total lease
term.

Our branch offices are leased typically for terms of three to five years with
options to renew. Typical locations include shopping centers, office buildings
and storefronts, and are generally of relatively small size sufficient to
accommodate a staff of three to eight employees.

We lease 50,000 square feet of space in Pensacola, Florida, which is used for
centralized underwriting, servicing and collections activities.

See "Notes to Consolidated Financial Statements - Note 13: Leases" for
additional information on rental expense and lease commitments.

Item 3. Legal Proceedings

Several of the Company's subsidiaries and their current and former employees are
defendants in a number of suits pending in the state and federal courts of
Mississippi. The lawsuits generally allege unfair lending and insurance related
practices. Similar suits are pending against other financial services companies
in Mississippi. In one of the pending cases, Carolyn Baker, et al. v. Washington
Mutual Finance Group, LLC f/k/a City Finance Company, a jury awarded just over
$71 million against one of the Company's subsidiaries, Washington Mutual Finance
Group, LLC, a Delaware limited liability company ("WMF Group"). Pursuant to a
motion filed by WMF Group, the trial court reduced the verdict to just over $53
million. WMF Group is in the process of appealing the verdict and has posted a
bond to stay execution on the judgment pending the appellate court's ruling. The
appeal will be based on numerous grounds, including the gross inequity between
the alleged economic losses of only $12,000 and the actual jury award. Based
upon information presently available, we believe that the total amounts that
will ultimately be paid, if any, arising from these lawsuits and proceedings
will not have a material adverse effect on our consolidated results of
operations and financial position.

12

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

The Company is an indirect wholly-owned subsidiary of Washington Mutual and the
Company's common stock is not traded on any national exchange or in any other
established market.

Payment of dividends is within the discretion of the Company's Board of
Directors. Provisions of certain of our debt agreements restrict the payment of
dividends to a maximum prescribed portion of cumulative earnings and contributed
capital and otherwise provide for the maintenance of minimum levels of equity
and maximum leverage ratios. Dividends will be paid when capital exceeds the
amount of debt to tangible capital (leverage ratio) deemed appropriate by
management. This leverage ratio will be managed with the intention of
maintaining the existing credit ratings on our outstanding obligations. We
declared and paid dividends totaling $43.5 million during 2001 and $25.0 million
during 2000.

Item 6. Selected Financial Data

The selected financial data is included in Item 7 - Management's Discussion and
Analysis. Please refer to Item 7, as the selected financial data should be read
in conjunction with the accompanying consolidated financial statements and
related notes in Item 8 and other financial information included in this Form
10-K.

13

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Cautionary Statements

This section contains forward-looking statements, which are not historical facts
and pertain to our future operating results. These forward-looking statements
are within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, but are not limited to, statements
about our plans, objectives, expectations and intentions and other statements
contained in this report that are not historical facts. When used in this
report, the words "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," or words of similar meaning, or future or conditional
verbs, such as "will," "would," "should," "could," or "may" are generally
intended to identify forward-looking statements. These forward-looking
statements are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change. Actual results may differ materially from the results
discussed in these forward-looking statements due to the following factors,
among others: changes in business and economic conditions that negatively affect
credit quality; competition; fluctuations in interest rates; changes in
legislation or regulation; and litigation. These risk factors are discussed in
further detail under the heading "Risk Factors" included in this Form 10-K.

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial
Statements and related notes in Item 8 and other financial information included
in this Form 10-K.

Critical Accounting Policies

Various elements of our accounting policies, by their nature, are inherently
subject to estimation techniques, valuation assumptions and other subjective
assessments. In particular, we have identified two policies that, due to the
judgments, estimates and assumptions inherent in those policies, are critical to
an understanding of our financial statements. These policies relate to the
methodology for the determination of our allowance for loan losses and the
valuation of derivatives under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". These policies and judgments, estimates and
assumptions are described in greater detail in subsequent sections of
Management's Discussion and Analysis and in the notes to the financial
statements included herein. In particular, Note 2 to the Consolidated Financial
Statements - "Summary of Significant Accounting Policies" describes generally
our accounting policies. We believe that the judgments, estimates and
assumptions used in the preparation of our Consolidated Financial Statements are
appropriate given the factual circumstances at the time. However, given the
sensitivity of our Consolidated Financial Statements to these critical
accounting policies, changes in circumstances on which judgments, estimates and
assumptions are based, could result in material differences in our results of
operations or financial condition.

14

Selected Financial Data

The following selected financial data is taken from our consolidated financial
statements. Per share information is not included because all of our stock is
owned by Washington Mutual.

As of, or For the Years Ended December 31,
----------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)

Net interest income $ 238,898 $ 252,000 $ 224,805 $ 203,432 $ 180,605

Noninterest income 28,538 30,421 29,501 27,147 26,555

Noninterest expense 171,181 156,002 135,594 142,992 131,129

Net income 61,125 78,889 72,992 52,887 46,287

Consumer finance
receivables, net 3,729,324 3,623,763 2,961,449 2,493,903 2,254,389

Total assets 4,072,917 3,927,705 3,227,557 2,744,710 2,509,606

Total debt 3,128,322 3,036,899 2,353,963 1,987,990 1,830,404

Total equity 559,657 539,088 475,158 419,330 398,184

Overview

The Company had net income of $61.1 million in 2001, which represents a 23%
decrease compared to the $78.9 million reported in 2000 and a 16% decrease
compared to 1999's reported net income of $73.0 million. The primary reasons for
our decline in net income were higher provisions for credit losses and increased
operating expenses, as well as a decline in net interest margin.

The following are key highlights of our performance:

o Return on average assets ("ROA") was 1.53% compared to 2.17% in 2000 and
2.48% in 1999. This decrease in ROA was a result of the decrease in net
income, as discussed above.

o Net consumer finance receivables remained relatively flat during 2001,
increasing only 3.4%. These results reflect tightened underwriting
standards in light of recent economic conditions. Our strategy continues to
target portfolio growth; however, our loan underwriting and acquisition
strategy will continue to take into account the state of the economy in the
markets we currently serve or into which we anticipate expanding.

o Yields earned on consumer finance receivables declined from 15.89% in 2000
to 15.44% in 2001. This was due primarily to a shift in product mix towards

15

lower yielding real estate secured loans and stricter underwriting of other
installment loans, which resulted in lending larger amounts at lower
allowable coupon rates.

o Net interest spread increased in 2001, as compared to 2000 due primarily to
a lower average cost incurred on interest-bearing liabilities. However, net
interest margin decreased due to the decline in earned yields on consumer
finance receivables, as discussed above. Net interest spread represents the
difference between the yield on the Company's interest-earning assets and
the interest rate paid on its borrowings. Net interest margin represents
the ratio of net interest income to average earning assets.

o Operating efficiency is defined as the ratio of noninterest expense,
excluding the amortization of goodwill, to total revenue, which is
comprised of net interest income before provision for credit losses and
noninterest income. In 2001, our operating efficiency ratio increased to
40.1% from 38.9% in 2000. This deterioration is due to the lower interest
margin, as well as increased noninterest expense. See discussion in
"Consolidated Results of Operations - Noninterest Expense."

o Delinquencies (accounts contractually past-due greater than 60 days) as a
percentage of net consumer finance receivables increased from 2.71% at
December 31, 2000 to 3.51% at December 31, 2001. This deterioration of
delinquencies is caused primarily by the following two factors: a portfolio
purchased in 2000 has experienced higher than expected delinquency rates
and the economic conditions in 2001 have negatively impacted collection
efforts.

o Net credit losses totaled $126.5 million in 2001, as compared to $103.0
million in 2000 and $80.8 million in 1999. Net credit losses as a
percentage of average consumer finance receivables (excluding unearned
finance charges and deferred loan fees) were 3.3%, 3.0% and 2.9% in 2001,
2000 and 1999.

Segment Results

The Company is managed along two major segments: consumer finance and consumer
banking. Following is an overview of the performance of each segment in 2001:

Consumer Finance

o Net income decreased 24.7% to $54.1 million in 2001, from $71.9 million in
2000. Net income totaled $66.5 million in 1999.

o Return on assets in 2001 was 1.52% as compared to 2.23% and 2.58% in 2000
and 1999.

o The consumer finance receivables portfolio growth during 2001 was $140.9
million, or 4.2%.

o Net interest margin decreased as a result of yield erosion on receivables
caused by the shift in product mix toward real estate secured loans and
larger balance unsecured loans.

16

o The efficiency ratio in 2001 was 40.2%, as compared to 38.6% and 36.8% in
2000 and 1999. Although net interest income increased due to growth in
interest-earning assets, the decline in efficiency was a result of a lower
interest margin coupled with higher noninterest expenses.

o Net credit losses increased to $125.4 million in 2001 from $101.8 million
in 2000. Net credit losses as a percentage of average consumer finance
receivables (excluding unearned finance charges and deferred loan fees),
were 3.7% in 2001 as compared to 3.3% in 2000.

Consumer Banking

o Net income increased 0.5% to $6.98 million in 2001, from $6.95 million in
2000. Net income totaled $6.53 million in 1999.

o Return on assets in 2001 decreased to 1.64% from 1.65% and 1.78% in 2000
and 1999.

o The consumer banking receivables portfolio declined $13.9 million during
2001, or 3.58%.

o Net interest margin decreased as a result of slight yield erosion on
receivables.

o Net credit losses were $1.1 million in 2001 compared to $1.2 million in
2000 and $680,000 in 1999. Net credit losses as a percentage of average
consumer banking receivables (excluding unearned finance charges and
deferred loan fees), were 0.3% in 2001 and 2000 and 0.2% in 1999.

Consolidated Results of Operations

Net Interest Income before Provision for Credit Losses

Net interest income before provision for credit losses for the year ended
December 31, 2001 increased 7.65% to $386.7 million, compared to $359.2 million
in 2000 and $325.4 million in 1999. Net interest margin for 2001 was 9.67%,
compared to 9.88% in 2000 and 11.02% in 1999.

The increase in net interest income before provision for credit losses in 2001
reflects growth in average net consumer finance receivables to $3.79 billion,
which was $331.9 million, or 9.6%, greater than the average balance for 2000.
Partially offsetting this portfolio growth is a 45 basis point decrease in
portfolio yield. This yield compression is a result of remixing the portfolio to
a larger percentage of lower-yielding real estate secured loans and larger
balance, lower yielding unsecured loans. In order to finance the growth in
consumer finance receivables, average debt outstanding increased by $406.1
million, or 13.9%, to $3.33 billion for 2001. In May 2001, we issued $1 billion
of senior notes, of which $500 million matures in May 2006 and carries a 6.25%
coupon and $500 million which matures in May 2011 and carries a coupon of

17

6.875%. As a result of these new debt issuances, coupled with lower rates
associated with our interest rate swap activities, the weighted average senior
debt rate decreased from 7.08% in 2000 to 6.64% in 2001. In addition, the rates
paid on commercial paper and FHLB borrowings were 170 and 126 basis points lower
than in 2000. As a result of these factors, the overall cost of interest-bearing
liabilities decreased 59 basis points over 2000. Due to the declining interest
rates on short-term borrowings, we have shifted our strategy to meet our funding
needs with commercial paper borrowings. Throughout 2002, we intend to utilize
this less costly funding source.

The following table reflects the average outstanding balances and related
effective yields and costs in 2001, 2000 and 1999, as described above:

(Dollars in thousands) Year Ended December 31,
----------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- ---------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
Interest-earning assets: ---------- ------- ---------- ------ ---------- -----
Consumer finance receivables:
Real estate secured

loans $ 2,056,399 12.74% $ 1,781,775 12.61% $ 1,275,932 12.59%
Other installment loans 1,399,994 20.82 1,366,146 21.41 1,217,663 22.19
Retail installment contracts 330,644 9.37 307,172 10.37 280,458 11.89
Total consumer ----------- ----------- -----------
finance receivables 3,787,037 15.44 3,455,093 15.89 2,774,053 16.73

Cash, cash equivalents and
investment securities 212,310 5.95 182,376 6.74 179,294 6.04
----------- ----------- -----------
Total interest-earning assets $ 3,999,347 14.93% $ 3,637,469 15.43% $ 2,953,347 16.08%
=========== =========== ===========
Interest-bearing liabilities:
Commercial paper $ 411,271 4.93% $ 420,215 6.63% $ 323,475 5.72%
Senior debt 2,575,255 6.64 2,180,747 7.08 1,708,555 6.76
FHLB advances 127,442 5.18 142,860 6.44 90,055 5.32
Customer deposits 217,102 5.83 181,169 5.83 196,583 5.48
----------- ----------- -----------
Total interest-bearing
liabilities $ 3,331,070 6.32% $ 2,924,991 6.91% $ 2,318,668 6.45%
=========== =========== ===========
Net interest spread 8.61% 8.52% 9.63%

Net interest margin 9.67% 9.88% 11.02%

The dollar amounts of interest income and interest expense fluctuate depending
upon changes in amounts (volume) and upon changes in interest rates of our
interest-earning assets and interest-bearing liabilities.

18

Changes attributable to (i) changes in volume (changes in average outstanding
balances multiplied by the prior period's rate), (ii) changes in rate (changes
in average interest rate multiplied by the prior period's volume), and (iii)
changes in rate/volume (changes in rate times the change in volume that were
allocated proportionately to the changes in volume and the changes in rate) were
as follows:

(Dollars in thousands)
Year Ended December 31, Year Ended December 31,
2001 vs. 2000 2000 vs. 1999
------------------------------------- -----------------------------------
Increase/(Decrease) Due to Increase/(Decrease) Due to
------------------------------------- -----------------------------------
Volume Rate Total Change Volume Rate Total Change
Interest income: -------- --------- ------------ --------- --------- ------------
Consumer finance

receivables $ 51,236 $ (15,749) $ 35,487 $ 121,169 $ (36,296) $ 84,873
Investment securities 1,781 (1,432) 349 183 1,275 1,458
-------- --------- ------------ --------- --------- ------------
Total interest income 53,017 (17,181) 35,836 121,352 (35,021) 86,331

Interest expense:
Interest-bearing
liabilities 25,655 (17,297) 8,358 41,302 11,181 52,483
-------- --------- ------------ --------- --------- -----------
Net interest income $ 27,362 $ 116 $ 27,478 $ 80,050 $ (46,202) $ 33,848
======== ========= ============ ========= ========= ===========

Provision for Credit Losses

The provision for credit losses during 2001 was $147.8 million, compared to
$107.2 million in 2000 and $100.6 million in 1999. In 2001, the provision for
credit losses was 3.90% of average consumer finance receivables (excluding
unearned finance charges and deferred loan fees), compared to 3.10% for 2000 and
3.63% in 1999. See further discussion in "Allowance for Credit Losses."

Noninterest Income

Noninterest income decreased 6.2% in 2001 to $28.5 million, compared to $30.4
million in 2000 and $29.5 million in 1999. Noninterest income is comprised of
revenue earned from the sale of various credit insurance and ancillary products
to borrowers at the branch locations. These products include credit life
insurance, accident and health insurance, credit property and casualty
insurance, term life protector, group debtor life insurance, accidental death
and dismemberment insurance, involuntary unemployment insurance and appliance
warranty programs.

The decrease in 2001 in income from credit insurance products is primarily due
to a decrease in the number of loans originated in 2001, as compared to 2000.
Also contributing to the decline was the decision to discontinue the sale of
insurance products in Mississippi as of June, and to discontinue the sale of
single premium credit life and accident and health insurance on closed-end real
estate loans in all other branch states as of July in response to growing
concern that the products were not fully meeting the needs of the consumers. An
alternative product intended to be more responsive to customer needs and desires
has been developed and is being introduced on a graduated basis in almost every
branch state. The product, monthly outstanding balance credit life insurance,
provides for premiums to be billed monthly instead of financed at the beginning
of the loan. The product has been introduced in five branch states in the first
quarter of 2002 and is anticipated to be in each of our major branch states by
the end of the second quarter of 2002.

19

Noninterest Expense

Noninterest expense increased by 9.7% or $15.2 million to $171.2 million in
2001, compared with 2000 and increased 26.2% or $35.6 million, as compared with
1999. The increase in 2001 is primarily a result of the following: higher
advertising expenses associated with our direct mail marketing strategy;
increased data processing and telecommunication charges associated with
introducing a company-wide network in our branch locations; and increased
corporate management charges paid to Washington Mutual.

The efficiency ratio increased to 40.1% in 2001 from 38.9% in 2000. This
increase was due primarily to the following strategies: we invested in a
company-wide network platform planned to increase productivity in the branches;
we increased our direct mail marketing in order to reach new markets and/or
lower risk consumers; and we intentionally slowed growth through tightening our
underwriting standards to better manage risk in a slowing economy.

Provision for Federal and State Income Taxes

The provision for income taxes in 2001 was $35.1 million, which represents an
effective rate of 36.50%. This compares to $47.5 million, or 37.60% in 2000 and
$45.7 million, or 38.51% in 1999. We are actively managing our effective tax
rate by monitoring and, where necessary, adjusting our organizational structure.

20

Financial Condition

Allowance for Credit Losses

Activity in the Company's allowance for credit losses is as follows:

Year Ended December 31,
---------------------------------------
(Dollars in thousands) 2001 2000 1999
--------- --------- ----------

Balance, January 1 $ 104,587 $ 100,308 $ 80,493
Provision for credit losses 147,823 107,243 100,590
Amounts charged off:
Real estate secured loans (7,480) (2,684) (1,807)
Other installment loans (124,380) (104,365) (82,438)
Retail installment contracts (13,456) (13,017) (12,558)
--------- --------- ----------
(145,316) (120,066) (96,803)
Recoveries:
Real estate secured loans 310 241 398
Other installment loans 16,034 14,171 12,629
Retail installment contracts 2,434 2,690 3,001
---------- --------- ----------
18,778 17,102 16,028
---------- --------- ----------
Net charge offs (126,538) (102,964) (80,775)

Allowances on notes purchased 150 - -
---------- --------- ----------
Balance, December 31 $ 126,022 $ 104,587 $ 100,308
========== ========= ==========
Allowance for credit losses as a percentage
of December 31 consumer finance receivables
(excluding unearned finance charges and
deferred loan fees) 3.27% 2.81% 3.28%

Net charge offs as a percentage of average
consumer finance receivables (excluding unearned
finance charges and deferred loan fees) 3.34% 2.98% 2.91%

Provision for credit losses as a percentage of
average consumer finance receivables (excluding
unearned finance charges and deferred loan fees) 3.90% 3.10% 3.63%

21

In order to establish our allowance for credit losses, the consumer finance
receivables portfolio is segmented into two categories: real estate secured and
non-real estate secured (other installment loans and retail installment
contracts). The determination of the level of the allowance for credit losses
and, correspondingly, the provision for credit losses for these homogeneous loan
pools rests upon various judgments and assumptions used to determine the risk
characteristics of each portfolio. These judgments are supported by analyses
that fall into three general categories: (i) economic conditions as they relate
to our current customer base and geographic distribution; (ii) a predictive
analysis of the outcome of the current portfolio (a migration analysis); and
(iii) prior loan loss experience. Additionally, every real estate secured loan
that reaches 60 days delinquency is reviewed by our credit administration
management to assess collectibility and determine a future course of action, at
times resulting in the need to foreclose on the property.

Management establishes the allowance for credit losses based on estimated losses
inherent in the portfolio. There are several underlying factors in our portfolio
that support our current level of allowance for credit losses. We analyze our
reserves based on both trailing coverage and forward looking coverage. Trailing
coverage represents the percentage of coverage we currently have in the
allowance, based on the previous 12 months of losses. Forward looking coverage
represents the percentage of coverage we have in the allowance, based on
estimated losses inherent in the portfolio over the next 12 months. Our trailing
coverage is slightly lower compared to the end of 2000 and our forward looking
coverage has improved over the same period of time.

Loan to value ("LTV") represents dollars loaned as a percentage of the value of
the collateral of our real estate secured loans. Lower LTV means lower risk. Our
active management of the real estate secured portfolio has focused on reducing
the LTV on new originations, which has resulted in a reduction of the LTV for
the overall portfolio to an all time low in 2001.

Based on industry-defined economic status, we have identified states that are in
or near recession, and have focused our unsecured lending efforts into
non-recessionary states. As a result of our stricter underwriting standards, we
have slowed the growth of unsecured loans and continued to remix toward a higher
percentage of real estate secured loans. The increased proportion of secured
loans in the portfolio, combined with the stronger collateral position, as well
as improved unsecured guidelines, is expected to result in a relative decrease
in credit losses as the portfolio begins to season in 2002 and beyond.

In light of the terrorist attacks on America on September 11, 2001, and as many
economic experts had predicted, the entire nation fell into recession in 2001.
Historically, our portfolios in recessionary states have performed consistently
with the total portfolio, in some cases outperforming. Additionally, the
economies for some of the markets in which we have a large presence continue to
grow at a moderate pace, outperforming the rest of the country. In particular,
the economies of Texas, Florida and California have maintained steady, albeit
slower growth, although it remains to be seen how these economies will continue
to fare. Although the recession appears to have been short-lived, its impact on
our portfolio is not fully determinable at this time. As a result, close
scrutiny of our portfolio performance is warranted, which, going forward, may
require additional adjustments of the allowance for loan losses.

22

The following table sets forth, by loan type, the amount of receivables
delinquent for 60 days or more, on a contractual basis, and the ratio of that
amount to the gross consumer finance receivables outstanding in each category:

(Dollars in thousands) December 31,
------------------------------------------------------------
2001 2000 1999
------------------ ------------------ ----------------

Real estate secured loans $ 48,386 2.06% $ 31,634 1.40% $ 9,259 0.57%
Other installment loans 93,987 5.76 74,851 4.56 62,875 4.01
Retail installment contracts 10,734 2.79 9,335 2.46 9,137 2.79
--------- --------- --------
Total $ 153,107 3.51% $ 115,820 2.71% $ 81,271 2.31%
========= ========= ========

The increase in delinquency, particularly in the real estate secured portfolio,
is due primarily to higher than expected delinquency rates in a portfolio
purchased in 2000, and thus is not indicative of the overall credit quality of
the portfolio. Absent this purchased portfolio, the amount of receivables
delinquent for 60 days or more, on a contractual basis, would have been $137.9
million, or 3.19% of gross consumer finance receivables.

At December 31, 2001 and 2000, the Company held foreclosed single-family
dwellings with a carrying value of approximately $11.7 million and $8.9 million.
These balances total 0.6% and 0.5% of the real estate secured loans outstanding
as of December 31, 2001 and 2000.

Asset / Liability Management

Our long-range profitability depends not only on the success of the services
offered to our customers and the credit quality of our portfolio, but also on
the extent to which earnings are not negatively affected by changes in interest
rates. Accordingly, our philosophy is to maintain an approximate match of the
interest rate sensitivity between our interest-bearing assets and liabilities.
Our consumer finance receivables are primarily fixed rate and have initial terms
generally ranging from 12 to 240 months. However, loans are generally paid off
or refinanced prior to their stated maturity. Therefore, our asset/liability
management requires a high degree of analysis and estimation. We fund our
interest-bearing assets through both internally generated equity and external
debt financing.

Liquidity

We fund our operations through a variety of corporate borrowings. The primary
source of these borrowings is corporate debt securities issued by the Company.
At December 31, 2001, nine different fixed-rate senior debt issues totaling
$2.65 billion were outstanding, with a weighted-average coupon of 6.90%. To meet
our short-term funding needs, we issue commercial paper. The Company has a
commercial paper program with several investment banks which provides $700
million in borrowing capacity. At December 31, 2001, thirty-seven different
commercial paper borrowings totaling $351.1 million were outstanding, with a
weighted-average cost of 3.05%.

23

FCIB raises funds through both customer deposits and borrowings with the FHLB.
At December 31, 2001, the banking subsidiary's outstanding debt totaled $345.9
million, with a weighted-average cost of 4.71%.

We also share with Washington Mutual two revolving credit facilities: a $600
million 364-day facility and a $600 million four-year facility, which provide
back up for our commercial paper programs. The borrowing capacity is limited to
the total amount of the two revolving credit facilities, net of the amount of
combined commercial paper outstanding. At December 31, 2001, there was $849
million available under these facilities. There were no direct borrowings under
these facilities at any point during 2001 or 2000.

The following table shows selected sources (uses) of cash:

(Dollars in thousands) Year Ended December 31,
---------------------------------------
2001 2000 1999
--------- --------- ----------

Operations $ 199,145 $ 150,123 $ 230,737
Net issuances and repayments of debt 138,464 681,585 367,500
Net originations and purchases
of consumer finance receivables (263,000) (778,120) (573,333)
Dividends paid (43,500) (25,000) (14,500)

Capital Management

We establish equity leverage targets based upon the ratio of debt (including
customer deposits) to tangible equity. The debt to tangible equity ratio at
December 31, 2001 of 6.50:1 is consistent with the ratio of 6.55:1 at December
31, 2000. The determination of our dividend payments and resulting capital
leverage is managed in a manner consistent with our desire to maintain strong
and improved credit ratings. In addition, provisions of certain of our debt
agreements restrict the payment of dividends to a maximum prescribed proportion
of cumulative earnings and contributed capital. At December 31, 2001,
approximately $168.9 million was available under the debt agreement restriction
for future dividends.

In addition, FCIB met all FDIC requirements to be categorized as well
capitalized at December 31, 2001.

Recently Issued Accounting Standards Adopted

We adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and 138, and as
interpreted by the FASB and the Derivatives Implementation Group through
"Statement 133 Implementation Issues", as of January 1, 2001. We believe that we
have properly identified all derivative instruments and any embedded derivative
instruments that require bifurcation.

24

Amortization of goodwill and other intangible assets of $4.6 million remained
unchanged for the year-ended December 31, 2001 compared to 2000. In July 2001,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. SFAS No. 142 eliminates the
amortization of goodwill relating to past and future acquisitions and instead
subjects goodwill to an impairment assessment. The provisions of SFAS No. 142
will apply to existing goodwill and other intangible assets effective January 1,
2002. The adoption of SFAS No. 142 will cease further amortization of goodwill
and will have an impact of approximately $4.6 million ($2.9 million after tax)
of goodwill amortization on an annual basis. The adoption of SFAS No. 141 will
not have an impact on our historical financial statements.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible, long-lived assets and
the associated retirement costs. This Statement is effective January 1, 2003 and
is not expected to have a material impact on our results of operations or
financial condition of the Company.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, but retains the requirements relating to recognition and
measurement of an impairment loss and resolves certain implementation issues
resulting from SFAS No. 121. This Statement became effective January 1, 2002 and
is not expected to have a material impact on our results of operations or
financial condition of the Company.

Transactions with Related Parties

Significant transactions with Washington Mutual or its subsidiaries are
identified as follows:

o Certain administrative services, including human resources and cash
management were provided, for which we paid management fees of $5.3 million
in 2001, $2.4 million in 2000 and $1.7 million in 1999. These fees are
allocated by Washington Mutual to its subsidiaries based on various
business factors, including the number of employees and total assets, and
include a reasonable market value adjustment.

o We made payments to Washington Mutual, which made payments on our behalf,
pursuant to a tax allocation policy and in connection with the retirement
and savings plans, totaling approximately $41.6 million in 2001and $3.6
million in 2000.

o Included in accounts payable and other liabilities are amounts due to
Washington Mutual for operating expenses and tax remittances paid on our
behalf. At December 31, 2001 and 2000, these amounts totaled $12.9 million
and $11.5 million.

25

o On February 1, 2002, the Company sold, at book value, $46.3 million of
single family residence loans and $3.4 million of foreclosed single-family
dwellings to Ahmanson Obligation Company, a wholly owned subsidiary of
Washington Mutual. The loans had been acquired in 2000 from Long Beach
Mortgage Company ("Long Beach"), a wholly owned subsidiary of Washington
Mutual. The loans were reported as consumer finance receivables and the
foreclosed assets were included in other assets on the Consolidated
Statements of Financial Condition.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Certain of the statements contained within this section that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are intended to
assist in the understanding of how our financial performance would be affected
by the circumstances described in this section. However, such performance
involves risks and uncertainties that may cause actual results to differ
materially from those expressed in the forward-looking statements. See
"Cautionary Statements."

Market risk is defined as the sensitivity of income and capital to changes in
interest rates, foreign currency exchange rates, commodity prices and other
relevant market rates or prices. The primary market risk to which we are exposed
is interest rate risk. Our risk management policy provides for the use of
certain derivatives and financial instruments in managing certain risks. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes.

Increases or decreases in interest rates can cause change in net income,
fluctuations in the fair value of assets and liabilities, and changes in
noninterest income and noninterest expense. Our interest rate risk arises
because assets and liabilities reprice, mature or prepay at different times or
frequencies as market interest rates change. Our loan volume and mix also varies
as interest rates change.

Management of Interest Rate Risk

Interest rate risk is managed within an overall asset/liability management
framework. The principal objective of asset/liability management is to manage
the sensitivity of net income to changing interest rates.

Managed risk includes the risk associated with changes in fair value of long
term fixed rate debt. In accordance with our risk management policy, such risk
is hedged by entering into pay floating interest rate exchange agreements. The
instruments designated in these fair value hedges include interest rate swaps
that qualify for the "short cut" method of accounting under SFAS No. 133. Under
the "short cut" method, we assume no ineffectiveness in a hedging relationship.
Since the terms of the interest rate swap qualify for the use of the "short cut"
method, it is not necessary to measure effectiveness and there is no charge to
earnings for changes in fair value. All changes in fair value are recorded as
adjustments to the basis of the hedged borrowings based on changes in the fair
value of the derivative instrument. When derivative instruments are terminated
prior to their maturity, or the maturity of the hedged liability, any resulting

26

gains or losses are included as part of the basis adjustment of the hedged item
and amortized over the remaining term of the liability. At December 31, 2001,
the unamortized deferred gain on terminated hedging transactions totaled $14.1
million. This amount is included in senior debt on the Consolidated Statement of
Financial Condition.

At December 31, 2001, we had three outstanding interest rate swap agreements
with a combined notional amount of $450.0 million and a total fair value of
$10.1 million. This amount is reflected as an adjustment to senior debt on the
Consolidated Statement of Financial Condition.

The table below indicates the sensitivity of net interest income and net income
before taxes to interest rate movements. The comparative scenarios assume that
interest rates rise or fall in even monthly increments over the next twelve
months for a total increase of 200 or decrease of 100 basis points. The interest
rate scenarios are used for analytical purposes and do not necessarily represent
management's view of future market movements.

Our net interest income and net income before taxes sensitivity profiles as of
year-end 2001 and 2000 are stated below:

Gradual Change in Rates
----------------------------------

Net interest income change for the one-year period beginning: -100bp +200bp
---------------- -----------------
January 1, 2002 .20% (.34)%
January 1, 2001 .81% (2.44)%

Net income before taxes change for the one-year period beginning: -100bp +200bp
---------------- -----------------
January 1, 2002 .55% (.92)%
January 1, 2001 2.12% (6.40)%

Our net interest income and net income before taxes "at risk" position has
improved significantly in 2001 over 2000. This improvement (reduced sensitivity
to interest rate changes) was primarily caused by our management of interest
expense through long term debt issues. Assumptions are made in modeling the
sensitivity of net interest income and net income before taxes. The simulation
model captures expected prepayment behavior under changing interest rate
environments. Sensitivity of new loan volume to market interest rate levels is
included as well.

27

Item 8. Financial Statements and Supplementary Data

Independent Auditors' Report

To the Board of Directors and Stockholder of
Washington Mutual Finance Corporation
Tampa, Florida

We have audited the accompanying consolidated statements of financial condition
of Washington Mutual Finance Corporation and subsidiaries (the "Company") as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, comprehensive income and retained earnings, and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial condition of Washington Mutual Finance
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Tampa, Florida
January 15, 2002

28

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Financial Condition

(Dollars in thousands, except par value) December 31,
---------------------------
2001 2000
ASSETS ----------- -----------

Consumer finance receivables, net $ 3,729,324 $ 3,623,763
Investment securities available for sale 124,214 185,288
Cash and cash equivalents 104,898 14,602
Property, equipment and leasehold improvements, net 26,510 25,398
Goodwill, net 42,214 46,777
Other assets 45,757 31,877
----------- -----------
TOTAL ASSETS $ 4,072,917 $ 3,927,705
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities
Commercial paper borrowings $ 351,141 $ 683,654
Senior debt 2,667,181 2,196,445
Federal Home Loan Bank borrowings 110,000 156,800
----------- -----------
Total debt 3,128,322 3,036,899
Customer deposits 235,971 189,793
Accounts payable and other liabilities 148,967 161,925
----------- -----------
Total liabilities 3,513,260 3,388,617
----------- -----------
Commitments and contingencies
(Notes 12, 13 and 14)

Stockholder's equity
Common stock: $1.00 par value;
10,000 shares authorized; 1,000
shares issued and outstanding 1 1
Paid-in capital 57,710 57,710
Retained earnings 499,149 481,524
Accumulated other comprehensive gain (loss) 2,797 (147)
----------- -----------
Total stockholder's equity 559,657 539,088
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 4,072,917 $ 3,927,705
=========== ===========

See Notes to Consolidated Financial Statements.

29

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Operations, Comprehensive Income and Retained
Earnings

Year Ended December 31,
-----------------------------------------
(Dollars in thousands) 2001 2000 1999
---------- ----------- ----------
Interest income

Loan interest and fee income $ 584,539 $ 549,052 $ 464,179
Investment securities income 12,632 12,283 10,825
---------- ----------- ----------
Total interest income 597,171 561,335 475,004

Interest and debt expense 210,450 202,092 149,609
---------- ----------- ----------
Net interest income before
provision for credit losses 386,721 359,243 325,395

Provision for credit losses 147,823 107,243 100,590
---------- ----------- ----------
Net interest income 238,898 252,000 224,805
---------- ----------- ----------
Noninterest income 28,538 30,421 29,501

Noninterest expense
Personnel 95,047 92,818 78,259
Occupancy 15,142 14,242 11,414
Advertising 8,371 5,368 5,966
Goodwill amortization 4,563 4,563 3,960
Other 48,058 39,011 35,995
---------- ----------- ----------
Total noninterest expense 171,181 156,002 135,594
---------- ----------- ----------
Income before income taxes 96,255 126,419 118,712

Provision for federal and state income taxes 35,130 47,530 45,720
---------- ----------- ----------
Net income 61,125 78,889 72,992

Net unrealized holding gains (losses) on
securities arising during period, net of tax 2,944 1,291 (2,664)
---------- ----------- ----------
Comprehensive income $ 64,069 $ 80,180 $ 70,328
========== =========== ==========
Retained earnings
Beginning of period $ 481,524 $ 427,635 $ 369,143
Net income 61,125 78,889 72,992
Dividends paid (43,500) (25,000) (14,500)
---------- ----------- ----------
End of period $ 499,149 $ 481,524 $ 427,635
========== =========== ==========

See Notes to Consolidated Financial Statements.

30

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows

Year Ended December 31,
----------------------------------------
(Dollars in thousands) 2001 2000 1999
---------- ---------- ----------
Operating activities

Net income $ 61,125 $ 78,889 $ 72,992
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 147,823 107,243 100,590
Depreciation and amortization 18,474 19,405 12,577
(Decrease) increase in accounts payable
and other liabilities (14,397) (47,221) 60,165
Increase in other assets (13,880) (8,193) (15,587)
---------- ---------- ----------
Net cash provided by operating activities 199,145 150,123 230,737
---------- ---------- ----------
Investing activities
Investment securities purchased (10,846) (89,136) (46,460)
Investment securities matured or sold 76,949 34,872 64,131
Increase in consumer finance receivables (263,000) (778,120) (573,333)
Net additions to property, equipment and leasehold
improvements (6,916) (8,480) (12,247)
---------- ---------- ----------
Net cash used in investing activities (203,813) (840,864) (567,909)
---------- ---------- ----------
Financing activities
Net (decrease) increase in commercial
paper borrowings (332,513) 441,484 (273,652)
Proceeds from issuance of senior debt 995,065 449,347 896,731
Repayments of senior debt (550,000) (250,000) (300,000)
Increase in senior debt from hedging activity 26,534 - -
Net (decrease) increase in Federal Home Loan Bank
borrowings (46,800) 40,895 42,005
Net increase (decrease) in customer deposits 46,178 (141) 2,416
Capital contributed by parent - 8,750 -
Dividends paid (43,500) (25,000) (14,500)
---------- ---------- ----------
Net cash provided by financing activities 94,964 665,335 353,000
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 90,296 (25,406) 15,828
---------- ---------- ----------
Cash and cash equivalents
Beginning of period 14,602 40,008 24,180
---------- ---------- ----------
End of period $ 104,898 $ 14,602 $ 40,008
========== ========== ==========
Supplemental disclosures of cash flow information
Interest paid $ 201,683 $ 199,501 $ 140,127
Federal and state income taxes paid
(net of refunds) $ 41,553 $ 71,346 $ 38,794

See Notes to Consolidated Financial Statements.

31

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements

Note 1 Ownership and Operations

Washington Mutual Finance Corporation ("WMF"), incorporated in Delaware in 1986,
as Aristar, Inc., is a holding company headquartered in Tampa, Florida whose
subsidiaries are engaged in the consumer financial services business. Washington
Mutual Finance Corporation is an indirect, wholly-owned subsidiary of Washington
Mutual, Inc. ("Washington Mutual"). When we refer to "we", "our", "us", or the
"Company" in this Form 10-K, we mean Washington Mutual Finance Corporation and
its subsidiaries, all of which are wholly-owned.

Our Company's operations consist principally of a network of 449 branch offices
located in 24 states, primarily in the southeast, southwest and California
("consumer finance"). These offices operate under the name Washington Mutual
Finance. Our branch offices are typically located in small- to medium-sized
communities in suburban or rural areas and are managed by individuals who
generally have considerable consumer lending experience. We make secured and
unsecured consumer installment loans, and purchase installment contracts from
local retail establishments. The consumer credit transactions are primarily for
personal, family, or household purposes. From time to time, we purchase consumer
loans from national mortgage banking operations, servicing released, that are
secured by real estate.

We also provide consumer financial services through our industrial banking
subsidiary, First Community Industrial Bank ("FCIB"), which has 10 branches in
Colorado and Utah ("consumer banking"). In addition to making consumer loans and
purchasing retail installment contracts, FCIB also accepts deposits insured by
the Federal Deposit Insurance Corporation ("FDIC").

For consumer finance and consumer banking, combined, we have 459 physical
locations doing business in 25 states. Additionally, we have a consumer banking
credit collection office in Colorado Springs, Colorado, a consumer finance
customer care center in Pensacola, Florida ("C3"), and a headquarters facility
in Tampa, Florida to support the entire operation.

Note 2 Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the
accounts of Washington Mutual Finance Corporation and its subsidiaries, all of
which are wholly-owned, after elimination of all intercompany balances and
transactions. Certain amounts in prior years have been reclassified to conform
to the current year's presentation.

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

32

Income Recognition from Finance Operations. Unearned finance charges on all
types of consumer finance receivables are recognized on an accrual basis, using
the interest method. Accrual of interest generally is suspended when payments
are more than three months contractually overdue. When the finance receivable is
secured by real estate and is well-collateralized, we continue to accrue
interest past this timeframe, until foreclosure proceedings are initiated, at
which time all interest accrued but not collected is reversed. In those cases
where the loan is not well-collateralized and collectibility is in doubt,
accrual of interest is suspended prior to the initiation of foreclosure
proceedings. Loan fees and directly related lending costs are deferred and
amortized using the interest method over the contractual life of the related
receivables.

Derivatives. On January 1, 2001, the Company adopted the provisions of SFAS No.
133,"Accounting for Derivative Instruments and Hedging Activities". Managed risk
includes the risk associated with changes in fair value of long term fixed rate
debt. In accordance with our risk management policy, such risk is hedged by
entering into pay floating interest rate swap agreements. The instruments
designated in these fair value hedges include interest rate swaps that qualify
for the "short cut" method of accounting under SFAS No. 133. Under the "short
cut" method, we assume no ineffectiveness in a hedging relationship. Since the
terms of the interest rate swap qualify for the use of the "short cut" method,
it is not necessary to measure effectiveness and there is no charge to earnings
for changes in fair value. All changes in fair value are recorded as adjustments
to the basis of the hedged borrowings based on changes in the fair value of the
derivative instrument. When derivative instruments are terminated prior to their
maturity, or the maturity of the hedged liability, any resulting gains or losses
are included as part of the basis adjustment of the hedged item and amortized
over the remaining term of the liability.

Provision and Allowance for Credit Losses. The allowance for credit losses is
maintained at a level sufficient to provide for estimated credit losses based on
evaluating known and inherent risks in the consumer finance receivables
portfolio. We provide, through charges to income, an allowance for credit losses
which, based upon management's evaluation of numerous factors, including
economic conditions, a predictive analysis of the outcome of the current
portfolio and prior credit loss experience, is deemed adequate to cover
reasonably expected losses inherent in outstanding receivables. Our consumer
finance receivables are a large group of small-balance homogenous loans that are
collectively evaluated for impairment. Additionally, every real estate secured
loan that is 60 days delinquent is reviewed by our credit administration
management to assess collectibility and future course of action.

Losses on receivables are charged to the allowance for credit losses based upon
the number of days delinquent, or when collectibility becomes doubtful and the
underlying collateral, if any, is considered insufficient to liquidate the
receivable balance. Non-real estate secured, delinquent receivables are
generally charged off when they are 180 days contractually delinquent. We
typically begin foreclosure procedures on real estate secured, delinquent
receivables when they reach 60 to 90 days past due. When foreclosure is
completed and we have obtained title to the property, we establish the real
estate as an asset valued at fair value, and charge off any loan amount in
excess of that value. Recoveries on previously written-off receivables are
credited to the allowance.

33

Investment Securities. Debt and equity securities are classified as available
for sale and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported, net of taxes, as a separate component of
stockholder's equity and comprehensive income. Gains and losses on investment
securities are recorded when realized on a specific identity basis.

Property, Equipment and Leasehold Improvements. Property, equipment and
leasehold improvements are stated at cost, net of accumulated depreciation.
Depreciation is provided for, principally, on the straight-line method over the
estimated useful life, ranging from three to ten years, or, if less, the term of
the lease. At December 31, 2001 and 2000, accumulated depreciation and
amortization totaled $33.1 million and $31.0 million.

Goodwill. The excess of cost over the fair value of net assets of companies
acquired is being amortized using the straight-line method, generally over
periods of 6 to 25 years. The carrying value of goodwill is regularly reviewed
for indicators of impairment in value, including unexpected or adverse changes
in the following: 1) the economic or competitive environments in which we
operate; 2) profitability analyses; and 3) cash flow analyses. If facts and
circumstances suggest that goodwill is impaired, the Company assesses the fair
value of the underlying business based on expected undiscounted net cash flows
and reduces goodwill to the estimated fair value. At December 31, 2001 and 2000,
accumulated amortization totaled $78.4 million and $73.8 million.

As of January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets", which eliminates the amortization of goodwill relating to
past and future acquisitions. See further discussion under the heading "Recently
Issued Accounting Standards".

Real Estate Owned. Real estate owned is valued at lower of cost or fair value
less estimated costs to sell and is included in other assets. These values are
periodically reviewed and reduced, if necessary. Costs of holding real estate,
and related gains and losses on disposition, are credited or charged to
noninterest expense as incurred.

Income Taxes. We are included in the consolidated Federal income tax return
filed by Washington Mutual. Federal income taxes are paid to Washington Mutual.
Federal income taxes are allocated between Washington Mutual and its
subsidiaries in proportion to the respective contribution to consolidated income
or loss. State income tax expense represents the amount of taxes either owed by
us or that we would have paid on a separate entity basis, when we are included
in Washington Mutual's consolidated state income tax returns. Deferred income
taxes are provided on elements of income or expense that are recognized in
different periods for financial and tax reporting purposes.

Taxes on income are determined by using the asset and liability method. This
approach requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, we consider expected future events other than enactments of
changes in the tax law or rates.

34

The Company has recorded a net deferred tax asset of approximately $35.4 million
at December 31, 2001. Realization of the asset is dependent on generating
sufficient taxable income prior to expiration of loss carryforwards available to
the Company. Although realization is not assured, management believes it is more
likely than not that all of the remaining net deferred tax asset will be
realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.

Statements of Cash Flows. For purposes of reporting cash flows, we consider all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.

Fair Value Disclosures. Quoted market prices are used, where available, to
estimate the fair value of the Company's financial instruments. Because no
quoted market prices exist for a significant portion of the Company's financial
instruments, fair value is estimated using comparable market prices for similar
instruments or using management's estimates of appropriate discount rates and
cash flows for the underlying asset or liability. A change in management's
assumptions could significantly affect these estimates. Accordingly, the
Company's fair value estimates are not necessarily indicative of the value which
would be realized upon disposition of the financial instruments.

Recently Issued Accounting Standards. In June 2001, SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets" were
issued. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method. SFAS No. 142 became
effective January 1, 2002 and eliminates the amortization of goodwill relating
to past and future acquisitions (except that goodwill related to business
combinations initiated after June 30, 2001 and consummated before January 1,
2002 was not required to be amortized). Instead, goodwill is subject to an
impairment assessment that must be performed upon adoption of SFAS No. 142 and
at least annually thereafter.

The impairment assessment in connection with the initial adoption of SFAS No.
142 will not have a material impact on the results of operations or financial
condition of the Company. For acquisitions initiated prior to July 1, 2001,
pretax goodwill amortization of approximately $4.6 million will no longer be
expensed.

In June, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible, long-lived assets and
the associated retirement costs. This Statement is effective January 1, 2003 and
is not expected to have a material impact on our results of operations or
financial condition of the Company.

In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This Statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", but retains the requirements relating to recognition and
measurement of an impairment loss and resolves certain implementation issues
resulting from SFAS No. 121. This Statement became effective January 1, 2002 and
is not expected to have a material impact on our results of operations or
financial condition of the Company.

35

Note 3 Consumer Finance Receivables

Consumer finance receivables at December 31, 2001 and 2000 are summarized as
follows:

(Dollars in thousands) 2001 2000
----------- -----------
Consumer finance receivables:

Real estate secured loans $ 2,357,780 $ 2,256,044
Other installment loans 1,632,337 1,640,846
Retail installment contracts 385,298 380,073
----------- -----------
Gross consumer finance receivables 4,375,415 4,276,963
Less: Unearned finance charges and
deferred loan fees (520,069) (548,613)
Allowance for credit losses (126,022) (104,587)
----------- -----------
Consumer finance receivables, net $ 3,729,324 $ 3,623,763
=========== ===========

The amount of gross nonaccruing consumer finance receivables was approximately
$113.9 million and $85.8 million at December 31, 2001 and 2000. The amount of
interest that would have been accrued on these consumer finance receivables was
approximately $15.4 million in 2001 and $11.5 million in 2000.

Activity in the Company's allowance for credit losses is as follows:

Year Ended December 31,
---------------------------------------
(Dollars in thousands) 2001 2000 1999
---------- ---------- ----------

Balance, January 1 $ 104,587 $ 100,308 $ 80,493
Provision for credit losses 147,823 107,243 100,590
Amounts charged off:
Real estate secured loans (7,480) (2,684) (1,807)
Other installment loans (124,380) (104,365) (82,438)
Retail installment contracts (13,456) (13,017) (12,558)
---------- ---------- ----------
(145,316) (120,066) (96,803)
Recoveries:
Real estate secured loans 310 241 398
Other installment loans 16,034 14,171 12,629
Retail installment contracts 2,434 2,690 3,001
---------- ---------- ----------
18,778 17,102 16,028
---------- ---------- ----------
Net charge offs (126,538) (102,964) (80,775)

Allowances on notes purchased 150 - -
---------- ---------- ----------
Balance, December 31 $ 126,022 $ 104,587 $ 100,308
========== ========== ==========

36

Contractual maturities, excluding unearned finance charges and deferred loan
fees, at December 31, 2001 are as follows:

Over 1 But
Within Within Over
(Dollars in thousands) 1 year 5 years 5 years Total
--------- ----------- ----------- -----------

Real estate secured loans $ 149,048 $ 389,758 $ 1,561,760 $ 2,100,566
Other installment loans 62,977 1,346,402 8,303 1,417,682
Retail installment contracts 31,394 300,826 4,878 337,098
--------- ----------- ----------- -----------
$ 243,419 $ 2,036,986 $ 1,574,941 $ 3,855,346
========= =========== =========== ===========

The weighted average contractual term of all consumer finance receivables
written during the years ended December 31, 2001 and 2000 was 76 months and 74
months with the majority of loans providing for a fixed rate of interest over
the contractual life of the loan. Experience has shown that a substantial
portion of the consumer finance receivables will be refinanced to lower a rate
or payment or to provide additional money to the customer, or repaid prior to
contractual maturity. Therefore, the preceding information as to contractual
maturities should not be regarded as a forecast of future cash collections.

Because we primarily lend to consumers, we did not have receivables from any
industry group that comprised 10 percent or more of total consumer finance
receivables at December 31, 2001. Geographic diversification of consumer finance
receivables reduces the concentration of credit risk associated with a recession
in any one region.

The largest concentrations of net consumer finance receivables, by state were as
follows:

(Dollars in thousands) December 31,
--------------------------------------------------
2001 2000
--------------------- ----------------------
Amount Percent Amount Percent
----------- ------- ----------- -------

California $ 474,181 12% $ 388,825 10%
Texas 422,184 11 363,407 10
Tennessee 345,587 9 339,852 9
Colorado 311,877 8 328,652 9
North Carolina 291,929 8 292,893 8
Florida 222,324 6 222,010 6
South Carolina 179,379 5 182,669 5
Virginia 157,217 4 161,247 4
Louisiana 145,127 4 146,147 4
Mississippi 127,565 3 128,653 3
Other 1,177,976 30 1,173,995 32
----------- ------- ----------- -------
Total $ 3,855,346 100% $ 3,728,350 100%
=========== ======= =========== =======

37

Note 4 Investment Securities

At December 31, 2001 and 2000, all investment securities were classified as
available-for-sale and reported at fair value. Investment securities as of
December 31, 2001 and 2000 are as follows:

(Dollars in thousands) December 31, 2001
-----------------------------------------------------------
Gross Unrealized Approximate
Original Amortized -------------------- Fair
Cost Cost Gains Losses Value
--------- --------- -------- -------- -----------

Government obligations $ 48,116 $ 48,270 $ 2,056 $ (1) $ 50,325
Corporate obligations 45,526 46,006 1,745 (40) 47,711
Certificates of deposit
and other 25,846 25,710 478 (10) 26,178
--------- --------- -------- -------- -----------
$ 119,488 $ 119,986 $ 4,279 $ (51) $ 124,214
========= ========= ======== ======== ===========

(Dollars in thousands) December 31, 2000
-----------------------------------------------------------
Gross Unrealized Approximate
Original Amortized -------------------- Fair
Cost Cost Gains Losses Value
--------- --------- -------- -------- -----------

Government obligations $ 80,403 $ 80,570 $ 804 $ (202) $ 81,172
Corporate obligations 69,673 70,047 123 (915) 69,255
Certificates of deposit
and other 35,040 34,866 113 (118) 34,861
--------- --------- -------- -------- -----------
$ 185,116 $ 185,483 $ 1,040 $ (1,235) $ 185,288
========= ========= ======== ======== ===========

There were no significant realized gains or losses during 2001, 2000 or 1999.

The following table presents the maturity of the investment securities at
December 31, 2001:

(Dollars in thousands) Approximate
Amortized Fair
Cost Value
--------- -----------

Due in one year or less $ 31,081 $ 31,579
Due after one year through five years 81,079 84,483
Due after five years through ten years 3,891 4,063
Due after ten years 3,935 4,089
--------- -----------
$ 119,986 $ 124,214
========= ===========

38

Note 5 Commercial Paper Borrowings

The Company has a commercial paper program with several investment banks which
provides $700 million in borrowing capacity. Commercial paper borrowings at
December 31, 2001 and 2000 totaled $351.1 million and $683.7 million. Interest
expense in 2001, 2000 and 1999 related to commercial paper was $20.3 million,
$27.7 million and $18.5 million.

We also share with Washington Mutual two revolving credit facilities: a $600
million 364-day facility and a $600 million four-year facility, which provide
back-up for our commercial paper programs. The borrowing capacity is limited to
the total amount of the two revolving credit facilities, net of the amount of
combined commercial paper outstanding. There were no direct borrowings under
these facilities at any point during 2001 or 2000.

These revolving credit agreements have restrictive covenants which include: a
minimum consolidated net worth test; a limit on senior debt to the borrowing
base (up to 10:1); subsidiary debt (excluding bank deposits and intercompany
debt) not to exceed 30% of total debt; and a 60-day delinquency ratio not to
exceed 6% of consumer finance receivables. As of December 31, 2001, we were in
compliance with all restrictive covenants.

Additional information concerning total commercial paper borrowings is as
follows:

Year Ended December 31,
-------------------------------------
(Dollars in thousands) 2001 2000 1999
--------- --------- ----------
Outstanding during the year

Maximum amount at any month end $ 703,912 $ 683,654 $ 428,552
Average amount 411,271 420,215 323,475
Average interest rate 4.93% 6.63% 5.72%

Average interest rates include the effect of commitment fees.

39

Note 6 Senior Debt

Senior debt at December 31, 2001 and 2000 was comprised of the following:

(Dollars in thousands) 2001 2000
----------- -----------
Senior notes and debentures (unsecured)

7.75%, due June 15, 2001 $ - $ 149,994
7.25%, due June 15, 2001 - 99,983
6.0%, due August 1, 2001 - 199,931
6.75%, due August 15, 2001 - 99,988
6.0%, due May 15, 2002 149,960 149,852
6.30%, due October 1, 2002 149,927 149,830
6.50%, due November 15, 2003 149,771 149,648
5.85%, due January 27, 2004