UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
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)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 2002 there were 1,000 shares of Common Stock outstanding.
Registrant meets the conditions set forth in General Instruction (H)(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
2
WASHINGTON MUTUAL FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
Page
PART I ----
Item 1. Financial Statements .................................................3
Consolidated Statements of Financial Condition -
June 30, 2002 (Unaudited) and December 31, 2001 ......................3
Consolidated Statements of Operations, Comprehensive Income and Retained
Earnings - Three and Six Months Ended June 30, 2002 and 2001
(Unaudited) ..........................................................4
Consolidated Statements of Cash Flows -
Three and Six Months Ended June 30, 2002 and 2001 (Unaudited).........5
Notes to Consolidated Financial Statements .................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................12
Cautionary Statements ....................................................12
Critical Accounting Policies .............................................12
Overview .................................................................12
Consolidated Results of Operations .......................................13
Lines of Business ........................................................16
Asset Quality ............................................................17
Liquidity ................................................................19
Subsequent Event .........................................................19
Capital Management .......................................................20
Interest Rate Risk .......................................................20
PART II
Item 6. Exhibits and Reports on Form 8-K ....................................21
Signature ....................................................................22
3
Item 1. Financial Statements
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Financial Condition
(Dollars in thousands, except share information) June 30, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Consumer finance receivables, net $ 3,805,323 $ 3,729,324
Investment securities available for sale 109,154 124,214
Cash and cash equivalents 97,467 104,898
Property, equipment and leasehold improvements, net 23,797 26,510
Goodwill 42,214 42,214
Other assets 47,086 45,757
----------- ------------
TOTAL ASSETS $ 4,125,041 $ 4,072,917
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Commercial paper borrowings $ 572,903 $ 351,141
Senior debt 2,523,588 2,667,181
Federal Home Loan Bank borrowings 103,000 110,000
----------- ------------
Total debt 3,199,491 3,128,322
Customer deposits 227,680 235,971
Accounts payable and other liabilities 130,507 148,967
----------- ------------
Total liabilities 3,557,678 3,513,260
----------- ------------
Stockholder's equity
Common stock: $1.00 par value;
10,000 shares authorized; 1,000
shares issued and outstanding 1 1
Paid-in capital 67,209 57,710
Retained earnings 497,838 499,149
Accumulated other comprehensive income 2,315 2,797
----------- ------------
Total stockholder's equity 567,363 559,657
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 4,125,041 $ 4,072,917
=========== ============
See Notes to Consolidated Financial Statements.
4
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Operations, Comprehensive Income and Retained
Earnings
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
(Dollars in thousands) 2002 2001 2002 2001
--------- ---------- --------- ---------
Interest income:
Loan interest and fee income $ 143,827 $ 146,034 $ 286,379 $ 291,360
Investment securities income 1,948 3,420 4,170 6,890
--------- ---------- --------- ---------
Total interest income 145,775 149,454 290,549 298,250
Interest and debt expense 46,223 53,308 94,014 109,557
--------- ---------- --------- ---------
Net interest income before
provision for credit losses 99,552 96,146 196,535 188,693
Provision for credit losses 43,452 32,458 83,397 64,042
--------- ---------- --------- ---------
Net interest income 56,100 63,688 113,138 124,651
--------- ---------- --------- ---------
Noninterest income 7,446 7,578 13,092 15,135
Noninterest expense:
Personnel 22,803 24,273 46,826 50,380
Occupancy 3,707 3,727 7,521 7,536
Advertising 2,928 1,578 5,845 3,290
Goodwill amortization - 1,140 - 2,281
Other 10,395 11,908 20,849 24,672
--------- ---------- --------- ---------
Total noninterest expense 39,833 42,626 81,041 88,159
--------- ---------- --------- ---------
Income before income taxes 23,713 28,640 45,189 51,627
Provision for federal and state income taxes 8,660 10,450 16,500 18,840
--------- ---------- --------- ---------
Net income 15,053 18,190 28,689 32,787
Net unrealized holding gains (losses) on
securities arising during period,
net of tax 10 (322) (482) 1,732
--------- ---------- --------- ---------
Comprehensive income $ 15,063 $ 17,868 $ 28,207 $ 34,519
========= ========== ========= =========
Retained earnings:
Beginning of period $ 482,785 $ 484,121 $ 499,149 $ 481,524
Net income 15,053 18,190 28,689 32,787
Dividends paid - (12,500) (30,000) (24,500)
--------- ---------- --------- ---------
End of period $ 497,838 $ 489,811 $ 497,838 $ 489,811
========= ========== ========= =========
See Notes to Consolidated Financial Statements.
5
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
(Dollars in thousands) 2002 2001 2002 2001
--------- ---------- --------- ---------
Operating activities
Net income $ 15,053 $ 18,190 $ 28,689 $ 32,787
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 43,452 32,458 83,397 64,042
Depreciation and amortization 2,388 4,725 5,662 9,743
Decrease in accounts payable and
other liabilities (26,048) (39,964) (18,240) (24,966)
(Increase) decrease in other assets (15,672) 2,207 (1,330) (375)
--------- ---------- --------- ---------
Net cash provided by operating activities 19,173 17,616 98,178 81,231
--------- ---------- --------- ---------
Investing activities
Investment securities purchased (150) (3,173) (232) (10,763)
Investment securities matured or sold 4,312 27,469 14,958 45,349
Net increase in consumer finance receivables (177,900) (64,005) (161,576) (115,104)
Net (increase) decrease in property,
equipment and leasehold improvements (970) 1,425 (1,913) (2,641)
--------- ---------- --------- ---------
Net cash used in investing activities (174,708) (38,284) (148,763) (83,159)
--------- ---------- --------- ---------
Financing activities
Net increase (decrease) in commercial
paper borrowings 314,536 (690,484) 221,762 (683,654)
Proceeds from early termination of hedging
activity - 9,831 - 16,431
Increase in senior debt fair value 18,098 - 7,183 -
Proceeds from issuance of senior debt - 995,065 - 995,065
Repayments of senior debt (150,000) (250,000) (150,000) (250,000)
Net increase (decrease) in Federal Home
Loan Bank borrowings 3,000 (23,100) (7,000) (37,000)
Net (decrease) increase in customer deposits (13,058) 21,035 (8,291) 32,782
Capital contributed by parent 9,500 - 9,500 -
Dividends paid (30,000) (12,500) (30,000) (24,500)
--------- ---------- --------- ---------
Net cash provided by financing activities 152,076 49,847 43,154 49,124
--------- ---------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (3,459) 29,179 (7,431) 47,196
Cash and cash equivalents
Beginning of period 100,926 32,619 104,898 14,602
--------- ---------- --------- ---------
End of period $ 97,467 $ 61,798 $ 97,467 $ 61,798
========= ========== ========= =========
Supplemental disclosures of cash flow information
Interest paid $ 68,096 $ 59,055 $ 93,818 $ 102,317
Federal and state income tax payments
(net of refunds) $ 16,881 $ 17,856 $ 18,104 $ 21,281
See Notes to Consolidated Financial Statements.
6
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying consolidated financial statements of Washington Mutual Finance
Corporation and subsidiaries have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in our 2001 Annual
Report on Form 10-K filed with the Securities and Exchange Commission. Interim
results are not necessarily indicative of results for a full year.
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-Q, we mean Washington Mutual Finance
Corporation and its subsidiaries, all of which are wholly-owned.
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.
Note 2 Lines of Business
We are engaged primarily in the consumer financial services business and our
operations consist principally of a network of 448 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 ("Aristar Mortgage").
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. We have entered into an agreement to
dispose of this subsidiary through a merger with First State Bank of Taos, a New
Mexico bank ("First State"), wholly-owned by First State Bancorporation, a New
Mexico corporation, with First State being the surviving entity. See "Note 6,
Discontinued Operations".
For consumer finance and consumer banking, combined, we have 458 physical
locations doing business in 25 states. Additionally, we have a consumer banking
7
credit collection office in Colorado Springs, Colorado, a consumer finance
customer care center in Pensacola, Florida, and a headquarters facility in
Tampa, Florida to support all of our operations.
Financial highlights by line of business were as follows:
(Dollars in thousands) Three Months Ended June 30,
-----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ---------------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
Condensed income statement: ----------- ----------- ----------- ----------- ----------- -----------
Interest income $ 137,301 $ 8,474 $ 145,775 $ 139,154 $ 10,300 $ 149,454
Interest and debt expense 42,669 3,554 46,223 48,142 5,166 53,308
Provision for credit losses 43,194 258 43,452 32,169 289 32,458
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 51,438 4,662 56,100 58,843 4,845 63,688
Noninterest income 7,434 12 7,446 7,541 37 7,578
Noninterest expense 38,086 1,747 39,833 40,569 2,057 42,626
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 20,786 2,927 23,713 25,815 2,825 28,640
Provision for federal
and state income taxes 7,499 1,161 8,660 9,369 1,081 10,450
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 13,287 $ 1,766 $ 15,053 $ 16,446 $ 1,744 $ 18,190
=========== =========== =========== =========== =========== ===========
(Dollars in thousands) Six Months Ended June 30,
-----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ---------------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
Condensed income statement: ----------- ----------- ----------- ----------- ----------- -----------
Interest income $ 273,413 $ 17,136 $ 290,549 $ 277,408 $ 20,842 $ 298,250
Interest and debt expense 86,494 7,520 94,014 98,731 10,826 109,557
Provision for credit losses 82,793 604 83,397 63,501 541 64,042
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 104,126 9,012 113,138 115,176 9,475 124,651
Noninterest income 13,065 27 13,092 15,084 51 15,135
Noninterest expense 77,474 3,567 81,041 84,107 4,052 88,159
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 39,717 5,472 45,189 46,153 5,474 51,627
Provision for federal
and state income taxes 14,366 2,134 16,500 16,746 2,094 18,840
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 25,351 $ 3,338 $ 28,689 $ 29,407 $ 3,380 $ 32,787
=========== =========== =========== =========== =========== ===========
8
Other disclosures:
June 30, 2002 December 31, 2001
--------------------------------------- ---------------------------------------
(Dollars in thousands) Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
Consumer finance receivables: ----------- ----------- ----------- ----------- ----------- -----------
Real estate secured loans $ 2,122,828 $ 353,716 $ 2,476,544 $ 1,995,953 $ 361,827 $ 2,357,780
Other installment loans 1,608,300 5,339 1,613,639 1,625,388 6,949 1,632,337
Retail installment contracts 322,900 4,974 327,874 378,650 6,648 385,298
Gross consumer finance ----------- ----------- ----------- ----------- ----------- -----------
receivables 4,054,028 364,029 4,418,057 3,999,991 375,424 4,375,415
Less: Unearned finance charges
and deferred loan fees (483,406) 20 (483,386) (520,091) 22 (520,069)
Allowance for credit losses (126,176) (3,172) (129,348) (122,850) (3,172) (126,022)
Consumer finance receivables, ----------- ----------- ----------- ----------- ----------- -----------
net $ 3,444,446 $ 360,877 $ 3,805,323 $ 3,357,050 $ 372,274 $ 3,729,324
=========== =========== =========== =========== =========== ===========
Investment securities
available for sale $ 71,136 $ 38,018 $ 109,154 $ 90,442 $ 33,772 $ 124,214
Total assets $ 3,716,166 $ 408,875 $ 4,125,041 $ 3,651,843 $ 421,074 $ 4,072,917
Total equity $ 496,911 $ 70,452 $ 567,363 $ 492,572 $ 67,085 $ 559,657
Note 3 Hedging Activities
Our risk management policy provides for the use of certain derivatives and
financial instruments in managing certain interest rate risks. We do not enter
into derivatives or other financial instruments for trading or speculative
purposes.
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 Statement of
Financial Accounting Standards ("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. At June 30, 2002, the unamortized gain
on terminated hedging transactions totaled $12.4 million. This amount is
included in senior debt on the Consolidated Statement of Financial Condition.
At June 30, 2002, we had three outstanding interest rate swap agreements with a
combined notional amount of $450.0 million and a total fair value of $17.3
million. This amount is reflected as an adjustment to senior debt on the
Consolidated Statement of Financial Condition.
Note 4 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
9
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 amount 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.
Note 5 Recently Issued Accounting Standards
The results for the quarter and year to date ended June 30, 2002, include the
effect of adopting SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets".
SFAS No. 141 provides that all business combinations initiated after June 30,
2001 shall be accounted for using the purchase method. In addition, it provides
that the cost of an acquired entity must be allocated to the assets acquired,
including identifiable intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. The excess cost over the fair
value of the net assets acquired must be recognized as goodwill.
SFAS No. 142 provides that goodwill is no longer amortized and the value of an
identifiable intangible asset must be amortized over its useful life, unless the
asset is determined to have an indefinite useful life. Goodwill must be tested
for impairment as of the beginning of the fiscal year in which SFAS No. 142 is
adopted, and at least annually thereafter. Goodwill has been tested for
impairment and it has been determined that there are no impairment losses to be
recognized in the period as a result of an impairment analysis performed as of
January 1, 2002. The adoption of SFAS No. 142 resulted in a pretax reduction in
expenses of $1.1 million for quarter ended June 30, 2002, and $2.3 million year
to date.
Had the Company been accounting for its goodwill under SFAS No. 142 for all
periods presented, the Company's net income would have been as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
(Dollars in thousands) 2002 2001 2002 2001
--------- --------- --------- ---------
Net Income:
Reported net income $ 15,053 $ 18,190 $ 28,689 $ 32,787
Goodwill amortization, net of tax - 724 - 1,448
--------- --------- --------- ---------
Adjusted net income $ 15,053 $ 18,914 $ 28,689 $ 34,235
========= ========= ========= =========
In June 2001, the Financial Accounting Standards Board ("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 the financial condition of the
Company.
10
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
does not have a material impact on our results of operations or the financial
condition of the Company. However, in accordance with SFAS No. 144, and in
conjunction with the merger of FCIB and First State, we are in the process of
evaluating any impact resulting from the merger. See "Note 6, Discontinued
Operations".
Note 6 Discontinued Operations
On May 22, 2002, our subsidiary, Blazer Financial Corporation ("BFC") entered
into an agreement to dispose of its wholly-owned industrial banking subsidiary,
First Community Industrial Bank ("FCIB"), through a merger with First State Bank
of Taos, a New Mexico bank ("First State"), wholly-owned by First State
Bancorporation, a New Mexico corporation, with First State being the surviving
entity. BFC is a wholly-owned subsidiary of Washington Mutual Finance
Corporation. Within the terms of the agreement, and prior to the merger, FCIB
may declare and pay one or more dividends in an aggregate amount not to exceed
$37.5 million, subject to regulatory approval. The consideration paid to BFC for
the merger will be equal to $67.0 million in cash, plus the amount, if any, by
which $37.5 million exceeds the pre-closing dividends. The merger is subject to
the satisfaction or waiver of various conditions, including, but not limited to,
the receipt of regulatory approvals and of satisfactory financing. Completion of
the merger is expected to occur during the fourth quarter of this year.
Net assets of the discontinued operations for the June 30, 2002 and December 31,
2001 balance sheets are as follows:
(Dollars in thousands) June 30, December 31,
2002 2001
---------- -----------
ASSETS (Unaudited)
Consumer finance receivables, net $ 354,718 $ 365,713
Investment securities available for sale 38,018 38,822
Cash and cash equivalents 2,603 6,771
Property, equipment and leasehold improvements, net 157 205
Other assets 7,187 5,160
---------- ----------
TOTAL ASSETS $ 402,683 $ 416,671
========== ==========
LIABILITIES
Federal Home Loan Bank borrowings $ 103,000 $ 110,000
Customer deposits 228,951 237,221
Accounts payable and other liabilities 3,618 5,705
---------- ----------
TOTAL LIABILITIES 335,569 352,926
---------- ----------
NET ASSETS OF DISCONTINUED
OPERATIONS $ 67,114 $ 63,745
========== ==========
11
The operating results of discontinued operations are as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
(Dollars in thousands) 2002 2001 2002 2001
Interest income: --------- --------- ---------- ----------
Loan interest and fee income $ 7,983 $ 9,662 $ 16,184 $ 19,452
Investment securities income 470 639 952 1,393
--------- --------- ---------- ----------
Total interest income 8,453 10,301 17,136 20,845
Interest and debt expense 3,554 4,999 7,520 10,393
--------- --------- ---------- ----------
Net interest income before
provision for credit losses 4,899 5,302 9,616 10,452
Provision for credit losses 258 289 604 541
--------- ---------- ---------- ---------
Net interest income 4,641 5,013 9,012 9,911
--------- ---------- ---------- ---------
Noninterest income 14 36 27 48
Noninterest expense:
Personnel 1,031 1,129 2,136 2,313
Occupancy 214 217 432 442
Advertising 1 6 1 6
Other 482 688 998 1,274
--------- ---------- ---------- ---------
Total noninterest expense 1,728 2,040 3,567 4,035
--------- ---------- ---------- ---------
Income before income taxes 2,927 3,009 5,472 5,924
Provision for federal and state income taxes 1,161 1,151 2,134 2,267
--------- ---------- ---------- ---------
Net income $ 1,766 $ 1,858 $ 3,338 $ 3,657
========= ========== ========== =========
The above net assets and results of operations are not comparable with the
consumer banking financial highlights (see "Note 2, Lines of Business"), as the
consumer banking highlights include both BFC, as well as its wholly-owned
subsidiary, FCIB.
12
Item 2. 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 in our 2001 Annual Report on Form 10-K filed with the Securities
and Exchange Commission, which is incorporated herein by reference.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial
Statements and Notes presented elsewhere in this Form 10-Q.
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 one policy that, due to the
judgments, estimates and assumptions inherent in this policy, is critical to an
understanding of our financial statements. This policy relates to the
methodology for the determination of our allowance for loan losses. This policy
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 in the Company's 2001 Annual Report on Form
10-K. 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.
Overview
Net income for the three- and six-month periods ended June 30, 2002 totaled
$15.1 million and $28.7 million. This was a 17.2% and 12.5% decline from the
$18.2 million and $32.8 million net income for the same periods of 2001. Our
13
return on average assets for the three- and six-month periods ended June 30,
2002 were 1.51% and 1.44%, compared to 1.83% and 1.66% in the same periods of
2001. See further discussion in "Consolidated Results of Operations".
Consumer finance receivables (net of unearned finance charges and deferred loan
fees) increased $79.3 million or 2.1%. 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.
At June 30, 2002, real estate secured loans comprised approximately 57% of the
total portfolio, as compared to 54% one year ago. As a result of this shift in
portfolio mix, thus lower rates associated with real estate loans, the yields
earned on consumer finance receivables declined from 15.54% and 15.53% in the
three- and six-month periods ended June 30, 2001 to 15.07% and 14.97% in the
same periods of 2002. See "Consolidated Results of Operations."
Net interest spread for the quarter and year-to-date increased from 8.68% and
8.42% in 2001 to 8.89% and 8.71% for the same periods of 2002. Net interest
margin for the quarter and year-to-date increased from 9.68% and 9.53% in 2001
to 9.88% and 9.73% for the same periods of 2002. These increases are a result of
improved debt management, through lower cost borrowings, somewhat offset by the
lower yields on receivables, as discussed above.
Net charge-offs totaled $41.8 million and $80.1 million for the three- and
six-month periods ended June 30, 2002, as compared to $29.5 million and $58.2
million during the same periods in 2001. Charge-offs in the personal loan
portfolio increased as a result of the seasoning of the portfolio that grew
significantly in recent years, coupled with the deterioration of the economy.
Charge-offs in the real estate loan portfolio increased primarily due to the
significant growth of this portfolio over the last three years, coupled with the
recent economic downturn. Annualized net charge-offs as a percentage of average
consumer finance receivables (excluding unearned finance charges and deferred
loan fees) were 4.21% in the six months ended June 30, 2002, as compared to
3.13% in the same period of 2001. See "Asset Quality".
Operating efficiency is defined as the ratio of noninterest expense to total
revenue (which is comprised of net interest income before provision for credit
losses and noninterest income). In the three- and six-month periods ended June
30, 2002, our operating efficiency ratio improved to 37.23% and 38.66% from
40.00% and 42.13% for the same periods in the prior year. This improvement is
due to higher interest margin, coupled with reduced noninterest expenses. See
"Consolidated Results of Operations."
Consolidated Results of Operations
Net Interest Income before Provision for Credit Losses
Net interest income before provision for credit losses for the three- and
six-month periods ended June 30, 2002 increased 3.5% and 4.2% to $99.6 million
and $196.5 million, compared to $96.1 million and $188.7 million in the same
periods of 2001. Net interest margin for the three- and six-month periods ended
June 30, 2002 were 9.88% and 9.73%, compared to 9.68% and 9.53% during the same
periods in 2001.
The increase in net interest income before provision for credit losses during
the three- and six- month periods ended June 30, 2002 reflects growth in average
net consumer finance receivables to $3.83 billion, which was $73.4 million, or
14
2.0%, greater than the average balance during the same period in 2001. Partially
offsetting this portfolio growth is a 56 basis point decrease in average
portfolio yield for the six-month period ended June 30, 2002, compared to the
same period of 2001. This yield compression is primarily a result of lower
written rates on both our secured and unsecured loans. In addition, the
secondary market in which we purchase second mortgages is highly sensitive to
interest rate indices. Accordingly, the yield on our secured portfolio reflects
the significant decline in rates that occurred throughout 2001 and have
continued this year. The written rates on our unsecured portfolio are typically
lower on loans acquired through direct mail marketing channels, reflecting the
fact that these loans tend to have higher balances with stronger
creditworthiness. As a result of our increased emphasis on this channel over the
last year and a half, the overall yield on the unsecured portfolio has declined.
In addition, due to laws in some states, as loan size increases, the maximum
interest rate allowed by law decreases.
Average debt outstanding remained relatively flat, increasing only $9.6 million,
or 0.3%, to $3.31 billion during the six months ended June 30, 2002, as compared
to the same period in the prior year. As a result of improved debt management,
through lower cost borrowings, the associated interest expense decreased. The
overall cost of debt decreased 80 and 96 basis points for the three- and
six-month periods ended June 30, 2002, as compared to the same periods in 2001.
The following chart reflects the average balances and related effective yields
during the three- and six-month periods ended June 30, 2002 and 2001, as
described above:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- -------------------------------------------
2002 2001 2002 2001
------------------- ------------------- ------------------- -------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
Interest-earning assets: ----------- ----- ----------- ----- ----------- ----- ----------- -----
Consumer finance receivables:
Real estate secured
loans $ 2,115,779 12.16% $ 2,044,618 12.86% $ 2,108,294 12.04% $ 2,030,100 12.82%
Other installment loans 1,408,597 20.55 1,387,625 20.93 1,408,118 20.55 1,390,822 21.02
Retail installment contracts 293,218 9.69 326,095 9.41 308,634 9.57 330,727 9.10
Total consumer ----------- ----------- ----------- -----------
finance receivables 3,817,594 15.07 3,758,338 15.54 3,825,046 14.97 3,751,649 15.53
Cash, cash equivalents and
investment securities 210,888 3.69 213,138 6.42 213,286 3.91 210,290 6.55
----------- ----------- ----------- -----------
Total interest-earning
assets $ 4,028,482 14.47% $ 3,971,476 15.05% $ 4,038,332 14.39% $ 3,961,939 15.06%
=========== =========== =========== ===========
Interest-bearing liabilities:
Senior debt $ 2,588,149 6.30% $ 2,641,981 6.61% $ 2,622,079 6.32% $ 2,451,718 6.78%
Commercial paper 389,894 1.91 358,530 5.24 351,774 2.07 502,603 6.38
Customer deposits 232,744 4.08 213,252 6.22 234,697 4.30 205,555 6.24
FHLB borrowings 101,000 4.86 131,025 5.07 102,400 4.79 141,514 5.57
----------- ----------- ----------- -----------
Total interest-bearing
liabilities $ 3,311,787 5.58% $ 3,344,788 6.38% $ 3,310,950 5.68% $ 3,301,390 6.64%
=========== =========== =========== ===========
Net interest spread 8.89% 8.68% 8.71% 8.42%
Net interest margin 9.88% 9.68% 9.73% 9.53%
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.
15
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) Three Months Ended June 30, Six Months Ended June 30,
2002 vs. 2001 2002 vs. 2001
--------------------------------- -----------------------------------
Increase/(Decrease) Due to Increase/(Decrease) Due to
--------------------------------- -----------------------------------
Volume Rate Total Change Volume Rate Total Change
Interest income: -------- -------- ------------ --------- --------- ------------
Consumer finance
receivables $ 2,232 $ (4,439) $ (2,207) $ 5,495 $ (10,476) $ (4,981)
Investment securities (21) (1,451) (1,472) 59 (2,779) (2,720)
-------- -------- ------------ --------- --------- ------------
Total interest income 2,212 (5,891) (3,679) 5,554 (13,255) (7,701)
Interest expense:
Interest-bearing liabilities (461) (6,624) (7,085) 271 (15,814) (15,543)
-------- -------- ------------ --------- --------- ------------
Net interest income $ 2,672 $ 734 $ 3,406 $ 5,282 $ 2,560 $ 7,842
======== ======== ============ ========= ========= ============
Provision for Credit Losses
The provision for credit losses for the three- and six-month periods ended June
30, 2002 was $43.5 million and $83.4 million compared to $32.5 million and $64.0
million in the same periods of 2001. For the six months ended June 30, 2002, the
annualized provision for credit losses was 4.38% of average consumer finance
receivables (excluding unearned finance charges and deferred loan fees), as
compared to 3.41% during the same period of 2001. See further discussion in
"Allowance for Credit Losses."
Noninterest Income
Noninterest income decreased 1.7% to $7.4 million for the three-month period
ended June 30, 2002, compared to $7.6 million during the same period of 2001.
Noninterest income decreased 13.5% to $13.1 million for the six-month period
ended June 30, 2002, compared to $15.1 million for the same period in the prior
year. 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 2002 in income from credit insurance products is primarily due
to the decision to discontinue the sale of insurance products in Mississippi as
of June 2001, 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 2001, in response to growing concern that the products
were not fully meeting the needs of 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
already been introduced in seven branch states during the first half of 2002 and
is anticipated to be in each of our major branch states by the end of the year.
16
Also contributing to the decline in income from credit insurance products is a
decrease in the number of loans originated during the six months ended June 30,
2002, as compared to the same period in 2001.
Noninterest Expense
Noninterest expense for the quarter and year-to-date ended June 30, 2002
decreased 6.6% and 8.1% to $39.8 million and $81.0 million, as compared to $42.6
million and $88.2 million for the same periods in the prior year. The decrease
in noninterest expense is attributed to continued cost-containment efforts,
begun in the second half of 2001. There were several factors contributing to the
expense improvements over prior year. Personnel expense decreased 7.1%, due
primarily to the consolidation of 50 branches in December 2001. In 2001, data
processing and telecommunication charges associated with introducing a
company-wide network in our branch locations, caused our other operating
expenses to be unusually high. Due to the near-completion of the network,
coupled with recent cost-containment efforts, data processing and
telecommunication charges for the first half of 2002 are approximately 20.2%
below the same period for 2001. These were somewhat offset by an increase in
expenses associated with our direct mail marketing strategy.
Provision for Income Taxes
The provision for income taxes during the three- and six-month periods ended
June 30, 2002 was $8.7 million and $16.5 million, which represents an effective
tax rate of 36.5%. This compares to $10.5 million and $18.8 million in the same
periods of 2001, with the same effective tax rate of 36.5%. We are actively
managing our effective tax rate by monitoring and, where necessary, adjusting
our organizational structure.
Lines of Business
We are managed along two major lines of business: consumer finance and consumer
banking. Following is an overview of the performance of each line of business in
the three- and six-months ended June 30, 2002:
Consumer Finance
* Net income decreased 19.2% and 13.8% to $13.3 million and $25.4 million for
the three- and six-month periods ended June 30, 2002 from $16.4 million and
29.4 million in the same periods of 2001.
* The consumer finance receivables portfolio (net of unearned finance charges
and deferred loan fees) increased $90.7 million or 2.61% during the six
months ended June 30, 2002.
* Net interest margin increased as a result of lower cost of funds. See
discussion in "Consolidated Results of Operations".
Consumer Banking
* Net income increased 1.3% to $1.77 million for the three months ended June
30, 2002, compared to $1.74 million in the same period of 2001. Net income
decreased 1.24% to $3.3 million for the six months ended June 30, 2002,
compared to $3.4 million during the same period of 2001.
17
* The consumer banking receivables portfolio decreased $11.4 million or 3.0%
during the six months ended June 30, 2002.
* Net interest margin decreased as a result of an overall decline in earned
yields due to the adjustable-rate nature of much of the receivables
portfolio.
Asset Quality
Consumer Finance Receivables
Consumer finance receivables consisted of the following:
June 30, December 31,
(Dollars in thousands) 2002 2001
------------ ------------
Consumer finance receivables:
Real estate secured loans $ 2,476,544 $ 2,357,780
Other installment loans 1,613,639 1,632,337
Retail installment contracts 327,874 385,298
------------ ------------
Gross consumer finance receivables 4,418,057 4,375,415
Less: Unearned finance charges and
deferred loan fees (483,386) (520,069)
Allowance for credit losses (129,348) (126,022)
------------ ------------
Consumer finance receivables, net $ 3,805,323 $ 3,729,324
============ ============
Allowance for Credit Losses
Activity in the allowance for credit losses was as follows:
Six Months Ended June 30,
-------------------------------
(Dollars in thousands) 2002 2001
------------ ------------
Balance, beginning of period $ 126,022 $ 104,587
Provision for credit losses 83,397 64,042
Amounts charged-off:
Real estate secured loans (5,341) (3,244)
Other installment loans (76,672) (58,353)
Retail installment contracts (8,094) (6,395)
------------ ------------
(90,107) (67,992)
Recoveries:
Real estate secured loans 223 164
Other installment loans 8,533 8,300
Retail installment contracts 1,280 1,290
------------ ------------
10,036 9,754
------------ ------------
Net charge-offs (80,071) (58,238)
------------ ------------
Allowances on notes purchased $ - $ 150
------------ ------------
Balance, end of period $ 129,348 $ 110,541
============ ============
18
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 the first half of 2001, and
our forward looking coverage has improved when comparing 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. This has been partially offset by an increase in LTV of
acquired loans through the Aristar Mortgage channel. This increase reflects our
confidence in the economic conditions as well as improved underwriting criteria
utilized in selecting these accounts for purchase.
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, while increasing the weighted average
credit score of the portfolio, and continued to remix toward a higher percentage
of real estate secured loans. The increased proportion of secured loans in the
portfolio, coupled 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 continues to season in 2002 and beyond.
Our allowance for credit losses as of June 30, 2002 was $129.3 million, an
increase of $3.3 million, or 2.6% as compared to December 31, 2001. Based on our
historical data (as stated above) and strengthened underwriting criteria,
management considers the allowance for credit losses adequate to cover losses
inherent in the portfolio at June 30, 2002. No assurance can be given that we
will not, in any particular period, sustain credit losses that are sizable in
relation to the amount reserved, or that subsequent evaluation of the portfolio,
in light of the factors then prevailing, including economic conditions and our
ongoing examination process and that of our regulators, will not require
significant increases in the allowance for credit losses.
19
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 gross consumer finance receivables outstanding in each category:
(Dollars in thousands) June 30, 2002 December 31, 2001
------------------ ------------------
Real estate secured loans $ 38,481 1.56% $ 48,386 2.06%
Other installment loans 91,334 5.66 93,987 5.76
Retail installment contracts 10,138 3.09 10,734 2.79
---------- ----- ---------- -----
$ 139,953 3.17% $ 153,107 3.51%
========== ===== ========== =====
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 June 30, 2002, eight different fixed-rate senior debt issues totaling $2.49
billion were outstanding, with a weighted-average coupon rate of 6.96%. To meet
our short-term funding needs, we typically issue commercial paper. We have a
commercial paper program with several investment banks which provides $700
million in borrowing capacity. At June 30, 2002, thirty-one different commercial
paper borrowings totaling $572.9 million were outstanding, with a
weighted-average cost of 1.98%.
FCIB raises funds through customer deposits and borrowings with the Federal Home
Loan Bank. At June 30, 2002, the banking subsidiary's outstanding debt totaled
$332.0 million, with a weighted-average cost of 4.52%.
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 June 30, 2002, there was $627.1
million available under these facilities. There were no direct borrowings under
these facilities at any point during 2002 or 2001. Effective August 12, 2002
these facilities were restructured into an $800 million 3-year credit facility.
Subsequent Event
Effective July 31, 2002, we entered into an agreement with Westdeutsche
Landesbank Girozentrale ("WestLB") to participate in a $300 million asset-backed
commercial paper conduit program. Under this program, administered by WestLB, up
to $300 million of funding will be made available through the assignment of an
undivided interest in a specified group of unsecured receivables to a special
purpose, wholly-owned consolidated subsidiary of Washington Mutual Finance
Corporation. Under the terms of the agreement, which has a 364-day term, with an
option to extend for up to two additional 364-day periods, WestLB issues
commercial paper (indirectly secured by the receivables), on behalf of the
Company. Under this agreement, we borrowed $150 million on August 2, 2002 and
$150 million on August 8, 2002.
20
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 June
30, 2002 of 6.53:1 is consistent with the ratio of 6.50:1 at December 31, 2001.
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 June 30, 2002, approximately
$173.0 million was available under the debt agreement restriction for future
dividends. We paid dividends in the amount of $30.0 million during the
three-month period ended June 30, 2002, which had been declared during the first
quarter of 2002. Due to the recent rapid growth in our consumer finance
receivables portfolio, and in order for us to maintain strong credit ratings,
Washington Mutual contributed capital totaling $9.5 million in the quarter ended
June 30, 2002.
Interest Rate Risk
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
June 30, 2002 and December 31, 2001 are stated below:
Gradual Change in Rates
-----------------------
Net interest income change for the one year period beginning: -100bp +200bp
-----------------------
July 1, 2002 1.37% (2.68)%
January 1, 2002 .20% (.34)%
Net income before taxes change for the one year period beginning: -100bp +200bp
-----------------------
July 1, 2002 2.76% (5.41)%
January 1, 2002 .55% (.92)%
Our net interest income and net income before taxes "at risk" position has
increased since December 31, 2001. The change reflects increased sensitivity to
interest rate movement, primarily associated with the resumption of short-term
financing needs. At December 31, 2001 the commercial paper balance outstanding
was $351.1 million (11.2% of total outstanding debt), and at June 30, 2002 the
commercial paper balance outstanding was $572.9 million (17.9% of total
outstanding debt). In order to mitigate interest rate risk, we target an average
of 30% short term funding and 70% long term funding. In general, changes in
rates do not have a significant impact on our income, as our customers are less
rate sensitive and the majority of our borrowings are fixed rate. 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.
21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Number
(3) (a) Certificate of Incorporation of Washington Mutual
Finance Corporation. as presently in effect. (i)
(b) By-Laws of Washington Mutual Finance Corporation as
presently in effect. (iii)
(4) (a) Indenture dated as of July 1, 1995 between Aristar, Inc.
and The Bank of New York, as trustee. (ii)
(b) Indenture dated as of October 1, 1997 between Aristar,
Inc. and First Union National Bank, as trustee. (iii)
(c) Indenture dated as of November 15, 1997 between Aristar,
Inc. and First Union National Bank, as trustee. (iv)
(d) Indenture dated as of June 23, 1999 between Aristar,
Inc. and Harris Trust and Savings Bank, as trustee.(iv)
(e) The registrant hereby agrees to furnish the Securities
and Exchange Commission upon request with copies of all
instruments defining rights of holders of long-term debt
of Washington Mutual Finance Corporation and its
consolidated subsidiaries.
(99) (a) Certification of the Chief Executive Officer. (filed
herewith)
(b) Certification of the Chief Financial Officer. (filed
herewith)
(i) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1987,
Commission file number 1-3521.
(ii) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995, Commission file number 1-3521.
(iii) Incorporated by reference to Registrant's Current Report
on Form 8-K dated October 6, 1997, Commission file
number 1-3521.
(iv) Incorporated by reference to Registrant's Report on Form
424B2 dated November 6, 1997, Commission file number
1-3521.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this Report.
22
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 13, 2002.
WASHINGTON MUTUAL FINANCE CORPORATION
By: /s/ CRAIG A. STEIN
-------------------------------------
Craig A. Stein
Vice President, Controller and Acting Chief Financial Officer
(Principal Accounting Officer)