WASHINGTON MUTUAL FINANCE CORP - 10-K Annual Report

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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, 2000
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

7 3/4 % Senior Notes due June 15, 2001 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, 2001, 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.

WASHINGTON MUTUAL FINANCE CORPORATION

ANNUAL REPORT ON FORM 10-K

Table of Contents

Page
PART I

Item 1. Business.......................................................3
Item 2. Properties....................................................10
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....22
Item 8. Financial Statements and Supplementary Data...................25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................43

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........................................44

* 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.

1

PART I

Item 1. Business

General

Washington Mutual Finance Corporation, 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. Effective March 1, 2000, the
Company changed its name from Aristar, Inc.

Our Company's operations consist principally of a network of 533 branch offices
located in 25 states, primarily in the southeast, southwest and California.
Prior to November 1999, these offices generally operated under the names Blazer
Financial Services, City Finance Company and First Community Financial Services.
Beginning in November 1999 and continuing throughout the first half of 2000, the
office names were changed to 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. The primary market for the our consumer loans consists of
households with an annual income of up to $70,000.

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

We are managed along two major lines of business: consumer finance and consumer
banking. The financial performance of these business lines is measured by our
profitability reporting processes.

2

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,
----------------------------------------
2000 1999 1998
Notes and contracts receivable: ---------- ---------- ----------

Amount $3,728,350 $3,061,757 $2,574,396
Number of accounts 1,016,403 1,001,302 966,048
Type:
Real estate secured loans $1,990,907 $1,432,841 $1,122,872
Other installment loans 1,401,859 1,334,350 1,159,852
Retail installment contracts 335,584 294,566 291,672
---------- ---------- ----------
Total $3,728,350 $3,061,757 $2,574,396
========== ========== ==========
Number of accounts 1,016,403 1,001,302 966,048
Type as a percent of total receivables:
Real estate secured loans 53.4% 46.8% 43.6%
Other installment loans 37.6 43.6 45.1
Retail installment contracts 9.0 9.6 11.3
---------- ---------- ----------
100.0% 100.0% 100.0%
========== ========== ==========

For the year ended December 31, 2000, real estate secured loans outstanding
(excluding unearned finance charges and deferred loan fees) increased $558.1
million, or 38.9%, as compared to an increase of $310.0 million, or 27.6%, 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 held in 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 2000, approximately 88% 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, 2000 and 1999, the
average balance of a real estate secured loan was approximately $30,400 and
$27,700.

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 2000
had original terms ranging from 3 to 360 months and averaged 74 months. Of the
loans originated in 2000, approximately 70% were unsecured or secured by luxury
goods, automobiles or other personal property, and approximately 30% were
secured by real estate. In addition, the Company purchases loan portfolios from
its competitors and secondary markets. In 2000, $323.3 million of loans were
purchased. Of these, approximately 24% were unsecured or secured by luxury
goods, automobiles or other personal property, and approximately 76% were
secured by real estate. Included in this amount were $123.0 million of single
family residence loans acquired from an affiliate.

During 2000, other installment loans outstanding (excluding unearned finance
charges and deferred loan fees) increased $67.5 million, or 5.1%, as compared to
an increase of $174.5 million, or 15.0%, in 1999, due to our focus on growing

3

the real estate portfolio. Other installment loans are either secured or
unsecured and are primarily used by the customer to make specific purchases of
consumer goods or undertake personal debt consolidation. At December 31, 2000
and 1999, the average balance of an other installment loan was approximately
$2,360 and $2,250.

During 2000, retail installment contracts outstanding (excluding unearned
finance charges and deferred loan fees) increased $41.0 million, or 13.9%, as
compared to an increase of $2.9 million, or 1.0% in 1999. As this loan type is
generally obtained as a source for new customers, 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 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. Where these contracts
result from the sale of consumer goods, payment is generally secured by such
goods. Retail installment contracts are generally acquired through the
originating merchant. We had such arrangements with over 3,000 merchants at
December 31, 2000. At December 31, 2000 and 1999, the average balance of a
retail installment contract was approximately $940 and $825.

As part of our consumer finance line of business, we make available, at the
option of our customers, credit life, credit accident and health, and credit
casualty insurance products. 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, which earns us reinsurance
premiums thereon.

Yield Written

For the years ended December 31, 2000, 1999 and 1998 the average portfolio yield
written during the year, by loan type, was as follows:

2000 1999 1998
----- ----- -----

Real estate secured loans 12.15% 12.53% 12.68%
Other installment loans 24.72 24.83 25.07
Retail installment contracts 19.08 18.94 18.99

4

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:

(Dollars in thousands) December 31,
-----------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- -------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ---------- -------

California $ 388,825 10% $ 228,334 7% $ 155,095 6%
Texas 363,407 10 295,465 10 227,257 9
Tennessee 339,852 9 291,946 10 245,558 9
Colorado 328,652 9 314,677 10 240,515 9
North Carolina 292,893 8 264,909 9 230,218 9
Florida 222,010 6 190,120 6 192,366 7
South Carolina 182,669 5 166,533 5 142,562 6
Virginia 161,247 4 144,560 5 126,741 5
Louisiana 146,147 4 133,372 4 118,579 5
Mississippi 128,653 3 116,468 4 98,583 4
Other 1,173,995 32 915,373 30 796,923 31
----------- ------- ----------- ------- ----------- -------
Total $ 3,728,350 100% $ 3,061,757 100% $ 2,574,397 100%
=========== ======= ============ ======= =========== =======

Prior to 2000, these results were based on the state where the loan was
originated or purchased. We have found that results are more meaningful if based
on the state where the customer resides. This change in classification helps us
to more accurately understand effects caused by economic conditions in any
particular region. The prior year numbers have been restated to reflect the new
classification methodology.

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, and in an effort to contain
risk, 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 the customer obligation is satisfied or until it is
determined that the obligation is not collectible.

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

5

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.

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 and customer deposits and borrowings from the Federal Home Loan Bank
of Topeka (the "FHLB"). We had commercial paper outstanding at December 31, 2000
and 1999 of $683.7 million and $242.2 million. We share with Washington Mutual
two revolving credit facilities: a $1.2 billion 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, 2000, there was $841 million available under these
facilities. There were no borrowings under these facilities at any point during
2000 or 1999.

Senior notes outstanding totaled approximately $2.20 billion at December 31,
2000 and $2.00 billion at December 31, 1999. On March 6, 2001, we filed a $1
billion shelf registration statement to provide additional access to the public
debt markets.

Through our industrial banking subsidiary, we also borrow from the FHLB and
accept customer deposits. FHLB borrowings totaled $156.8 million at December 31,
2000 and $115.9 million at December 31, 1999. Customer deposits totaled $189.8
million at December 31, 2000 and $189.9 million at December 31, 1999.

Employee Relations

Our number of full-time equivalent employees at December 31, 2000 was
approximately 3,000, an 11.1% increase from December 31, 1999. We believe that
we have been successful in attracting quality employees and that our employee
relations are good.

6

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 53% of our consumer finance receivables outstanding were secured
by real estate at December 31, 2000. Any material decline in real estate values
reduces the ability of borrowers to use home equity to support borrowings and
increases the loan-to-values 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 2000, amendments were proposed
to the Home Ownership and Equity Protection Act of 1994 ("HOEPA") that would
lower the rate and fee triggers defining when the additional disclosure
requirements and term restrictions of HOEPA would apply. If adopted, more of our
loans would be subject to HOEPA and the disclosure requirements and substantive
limitations. In addition, the Gramm-Leach-Bliley Act of 1999 ("GLBA"), and
implementing regulations, created privacy protections for our loan customers
which require us to provide our loan customers with a privacy notice and an
opportunity to opt out of information sharing with nonaffiliated third parties.
As of March 2001, all operating subsidiaries had in place a compliance procedure
and no further impact is expected on our operations at this time. 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.

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

7

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
subprime lending bills pending in approximately 30 states, including Georgia,
Texas, California, Illinois, Pennsylvania, South Carolina, Virginia and
Washington. 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.

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 sales of
insurance products.

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
infrequent 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.

Due to self-imposed lending guidelines, it is believed that the pending state
bills and HOEPA amendments would have minimum impact on our operations if
passed. 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.

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 breaches of fiduciary obligations;
misrepresentations, errors and omissions of employees, officers and agents;
incomplete documentation; and failures by us to comply with various laws and

8

regulations applicable to our business. 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 and could distract members of management from our business and
operations.

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 intense. 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 expands 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.

Item 2. Properties

As of December 31, 2000, we owned our 71,000 square foot headquarters building,
which we built in 1994 on 6 acres of land in Tampa, Florida.

An agreement in principle has been reached for a sale and leaseback of the
headquarters building in Tampa, Florida. It is expected that this transaction
will be complete in the second quarter of 2001. Any gain realized on the sale
will be recognized over the period of the lease, which is anticipated to be five
years, with a five-year renewal at the Company's option.

Our branch offices, located in 25 states, 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 four 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 11: Leases" for
additional information on rental expense and lease commitments.

9

Item 3. Legal Proceedings

The Company and certain of its subsidiaries are parties to various lawsuits and
proceedings arising in the ordinary course of business. We have also been named
as a defendant in a number of class action suits, in which various industry-wide
practices arising from routine business activities are being challenged and
various damages are being sought. Certain of these lawsuits and proceedings
arise in jurisdictions, such as Alabama and Mississippi, that permit damage
awards disproportionate to the actual economic damages incurred. Based upon
information presently available, we believe that the total amounts that will
ultimately be paid arising from these lawsuits and proceedings will not have a
material adverse effect on our consolidated results of operations and financial
condition. However, it should be noted that the frequency of large damage
awards, including large punitive damage awards, that bear little or no relation
to actual economic damages incurred by plaintiffs in jurisdictions like Alabama
and Mississippi continues to increase and creates the potential for an
unpredictable judgment in any given suit.

10

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 $25.0 million during 2000 and $14.5 million
during 1999.

Item 6. Selected Financial Data

The following selected financial data are taken from our consolidated financial
statements. The data should be read in conjunction with the accompanying
consolidated financial statements and related notes in Item 8., Management's
Discussion and Analysis in Item 7., and other financial information included in
this Form 10-K. 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,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ----------- ---------- ---------- -----------
(Dollars in thousands)

Net interest income $ 252,000 $ 224,805 $ 203,432 $ 180,605 $ 196,375

Noninterest income 30,421 29,501 27,147 26,555 27,205

Noninterest expense 156,002 135,594 142,992 131,129 124,062

Net income 78,889 72,992 52,887 46,287 62,518

Consumer finance
receivables, net 3,623,763 2,961,449 2,493,903 2,254,389 2,123,103

Total assets 3,927,705 3,227,557 2,744,710 2,509,606 2,371,376

Total debt 3,036,899 2,353,963 1,987,990 1,830,404 1,750,776

Total equity 539,088 475,158 419,330 398,184 369,240

11

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

This document 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," and similar expressions 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
for the reasons, among others, discussed under the heading "Business-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 in Item
1.

Overview

The Company had net income of $78.9 million in 2000, which represents an 8%
increase over the $73.0 million reported in 1999 and a 49% increase over 1998's
reported net income of $52.9 million. The following are key highlights of our
performance:

o Return on average assets ("ROA") was 2.17% compared to 2.48% in 1999 and
2.05% in 1998. Despite the increase in net income, average assets increased
at a greater rate, thus resulting in a lower ROA.

o Net consumer finance receivables increased 21.8% during 2000, demonstrating
continued growth following an increase of 18.7% in 1999.

o Yields earned on consumer finance receivables declined from 16.73% in 1999
to 15.89% in 2000. This was due primarily to a shift in product mix towards
lower yielding real estate secured loans and increased amortization of
deferred loan origination costs. The increased amortization is due to a
change in the estimate of loan origination costs which was implemented in
1999. As a result of an increase in the amount of origination costs
deferred in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases," the impact on earned yields is greater. This is due to
the requirement of this Standard to amortize the deferred costs over the
life of the related loan using the effective yield method, thereby reducing
the yield as the costs are amortized.

12

o Both net interest spread and net interest margin decreased from 1999 to
2000, due primarily to a shift in product mix toward lower yielding real
estate secured loans and increased amortization of deferred loan
origination costs, coupled with a rising cost of funds. 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 2000, our operating efficiency ratio declined to
38.9% from 37.1% in 1999. This deterioration is due to the lower interest
margin, as well as increased noninterest expense. However, the efficiency
ratio in both 2000 and 1999 experienced significant improvement compared to
1998, which was 44.9%.

o Delinquencies (accounts contractually past-due greater than 60 days) as a
percentage of net consumer finance receivables increased from 2.31% at
December 31, 1999 to 2.71% at December 31, 2000. The primary source of this
deterioration is a portfolio purchased earlier in the year that has
experienced higher than expected delinquency rates.

o Net credit losses totaled $103.0 million in 2000, as compared to $80.8
million in 1999 and $73.9 million in 1998. Net credit losses as a
percentage of average consumer finance receivables (excluding unearned
finance charges and deferred loan fees), however, were 3.0%, 2.9% and 3.1%
in 2000, 1999 and 1998.

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 2000:

Consumer Finance

o Net income increased 8.2% to $71.9 million in 2000, from $66.5 million in
1999. Net income totaled $47.1 million in 1998.

o Return on assets in 2000 was 2.23% as compared to 2.58% and 2.06% in 1999
and 1998.

o The consumer finance receivables portfolio experienced significant growth
during 2000, totaling $653.1 million, or 24.3%.

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,
coupled with the impact of increased amortization of deferred loan
origination costs. In addition, the cost of funds increased significantly,
as discussed in "Consolidated Results of Operations".

13

o The efficiency ratio in 2000 was 38.6%, as compared to 36.8% and 45.1% in
1999 and 1998. 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 personnel and occupancy expenses
associated with an increase in both headcount and number of office
locations.

o Net credit losses increased over prior years. However, 2000 was also a year
of high receivables growth. As a percentage of the consumer finance
receivables portfolio, net credit losses were 3.3%, which is consistent
with 1999.

Consumer Banking

o Net income increased 6.5% to $6.9 million in 2000, from $6.5 million in
1999. Net income totaled $5.8 million in 1998.

o Return on assets in 2000 decreased to 1.65% from 1.78% and 2.01% in 1999
and 1998.

o The consumer banking receivables portfolio growth during 2000 totaled $13.5
million, or 3.59%.

o Net interest margin decreased as a result of slight yield erosion on
receivables, coupled with an increased cost of funds due to higher rates
paid on customer deposits and FHLB borrowings.

o Net credit losses increased to $1.2 million in 2000 from $680,000 in 1999
and $850,000 in 1998. Net credit losses as a percentage of average consumer
banking receivables (excluding unearned finance charges and deferred loan
fees), were 0.3%, 0.2% and 0.3% in 2000, 1999 and 1998.

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, 2000 increased 10.4% to $359.2 million, compared to $325.4 million
in 1999 and $283.2 million in 1998. Net interest margin for 2000 was 9.87%,
compared to 11.02% in 1999 and 11.11% in 1998.

The increase in net interest income before provision for credit losses in 2000
reflects growth in average net consumer finance receivables to $3.46 billion,
which was $681.0 million, or 24.6%, greater than the average balance for 1999.
This is primarily a result of management's continued implementation of the
internal growth initiative through the branch network, as well as an ongoing
pursuit of strategic acquisitions. Partially offsetting this portfolio growth is
an 84 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 the increase in the amortization of deferred loan
origination costs. Another factor adversely impacting the portfolio yield was
the lower average permissible rate, due to rising average loan size, given the
structure of various state interest rate regulation thresholds.

14

In order to finance the growth in consumer finance receivables, average debt
outstanding increased by $606.3 million, or 26.1%, to $2.92 billion for 2000.
During the latter half of 1999, the mix of debt began to shift to longer term,
senior debt in order to lessen the impact of higher short-term borrowing rates
caused by the Year 2000 liquidity risk. Also, in June 2000, we issued $450.0
million of senior notes with a coupon rate of 8.25%, maturing on June 15, 2005.
As a result of these factors, the weighted-average senior debt rate increased to
7.08% in 2000, compared to 6.76% in 1999. In addition, the rates paid on
commercial paper, FHLB borrowings and customer deposits during 2000 were 91, 112
and 35 basis points higher than in 1999, due to the rising interest rate
environment during the year associated with short-term borrowings. As a result
of these factors, the overall cost of interest-bearing liabilities increased 46
basis points over 1999.

The following table reflects the average outstanding balances and related
effective yields in 2000, 1999 and 1998, as described above:

(Dollars in thousands) Year Ended December 31,
---------------------------------------------------------------------
2000 1999 1998
------------------ -------------------- ---------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ----- ----------- ------ ----------- ------
Interest-earning assets:
Consumer finance receivables:
Real estate secured

loans $ 1,781,775 12.61% $ 1,275,932 12.59% $ 1,045,671 12.62%
Other installment loans 1,366,146 21.41 1,217,663 22.19 1,044,251 22.69
Retail installment contracts 307,172 10.37 280,458 11.89 286,982 12.59
Total consumer ----------- ------ ----------- ------ ----------- ------
finance receivables 3,455,093 15.89 2,774,053 16.73 2,376,904 17.04

Cash, cash equivalents and
investment securities 185,184 6.63 180,005 6.01 172,251 6.65
----------- ------ ----------- ------ ----------- ------
Total interest-earning assets $ 3,640,277 15.42% $ 2,954,058 16.08% $ 2,549,155 16.33%
=========== ====== =========== ====== =========== ======
Interest-bearing liabilities:
Commercial paper $ 420,215 6.63% $ 323,475 5.72% $ 368,855 5.60%
Senior debt 2,180,747 7.08 1,708,555 6.76 1,432,743 7.05
FHLB advances 142,860 6.44 90,055 5.32 32,362 5.24
Customer deposits 181,169 5.83 196,583 5.48 172,850 5.82
----------- ------ ----------- ------ ----------- -----
Total interest-bearing
liabilities $ 2,924,991 6.91% $ 2,318,668 6.45% $ 2,006,810 6.65%
=========== ====== =========== ====== =========== ======
Net interest spread 8.51% 9.63% 9.68%

Net interest margin 9.87% 11.02% 11.11%

15

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. 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,
---------------------------------- ---------------------------------
2000 vs. 1999 1999 vs. 1998
Increase/(Decrease) Due to Increase/(Decrease) Due to
---------------------------------- ---------------------------------
Volume Rate Total Change Volume Rate Total Change
Interest income: --------- -------- ------------ -------- ------- ------------
Consumer finance

receivables $ 121,169 $(36,296) $ 84,873 $ 69,015 $ (9,790) $ 59,225
Investment securities 304 1,154 1,458 471 (1,095) (624)
Total interest income 121,473 (35,142) 86,331 69,486 (10,885) 58,601

Interest expense:
Interest-bearing
liabilities 41,302 11,181 52,483 19,994 (3,596) 16,398
Net interest income $ 80,171 $(46,323) $ 33,848 $ 49,492 $(7,289) $ 42,203

Provision for Credit Losses

The provision for credit losses during 2000 was $107.2 million, compared to
$100.6 million in 1999 and $79.8 million in 1998. In 2000, the provision for
credit losses was 3.10% of average consumer finance receivables (excluding
unearned finance charges and deferred loan fees), compared to 3.63% for 1999 and
3.36% in 1998. See further discussion in "Allowance for Credit Losses."

Noninterest Income

Noninterest income increased 3.1% in 2000 to $30.4 million, compared to $29.5
million in 1999 and $27.1 million in 1998. Other operating income is comprised
of revenue earned from the sale of various ancillary products to borrowers at
the branch locations including life insurance, accident and health insurance,
property and casualty insurance, accidental death and dismemberment insurance,
involuntary unemployment insurance and auto club memberships. The increase in
2000 is related to the increase in the number of loans originated during the
year, offset by the shift in originations to loans which tend to have a lower
insurance penetration.

Noninterest Expense

Noninterest expense in 2000 increased 15.1% and 9.1%, or $20.4 million and $13.0
million to $156.0 million, compared with $135.6 million and $143.0 million in
1999 and 1998. This increase is primarily a result of higher personnel and
occupancy expenses associated with an increase in both headcount and number of
office locations compared to 1999 and 1998. In addition, we have renovated our
branch locations, resulting in increased amortization of capitalized leasehold
improvements.

16

Provision for Federal and State Income Taxes

The provision for income taxes in 2000 was $47.5 million, which represents an
effective rate of 37.60%. This compares to $45.7 million, or 38.51% in 1999 and
$34.7 million, or 39.62% in 1998.

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) 2000 1999 1998
---------- ----------- ---------

Balance, January 1 $ 100,308 $ 80,493 $ 74,323
Provision for credit losses 107,243 100,590 79,760
Amounts charged off:
Real estate secured loans (2,684) (1,807) (2,125)
Other installment loans (104,365) (82,438) (73,210)
Retail installment contracts (13,017) (12,558) (14,417)
--------- ----------- ---------
(120,066) (96,803) (89,752)
Recoveries:
Real estate secured loans 241 398 521
Other installment loans 14,171 12,629 12,593
Retail installment contracts 2,690 3,001 2,774
---------- ----------- ---------
17,102 16,028 15,888
---------- ----------- ---------
Net charge offs (102,964) (80,775) (73,864)

Allowances on notes purchased - - 274
---------- ----------- ---------
Balance, December 31 $ 104,587 $ 100,308 $ 80,493
========== =========== =========

Allowance for credit losses as a percentage
of December 31 consumer finance receivables
(excluding unearned finance charges and
deferred loan fees) 2.81% 3.28% 3.13%

Net charge offs as a percentage of average
consumer finance receivables (excluding unearned
finance charges and deferred loan fees) 2.98% 2.91% 3.11%

Provision for credit losses as a percentage of
average consumer finance receivables (excluding
unearned finance charges and deferred loan fees) 3.10% 3.63% 3.36%

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

17

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 Company foreclosing on the property.

Management establishes the allowance for credit losses based on estimated losses
inherent in the portfolio. Using the analysis techniques described above to
measure the adequacy of the allowance for credit losses, the results of those
analyses are compared to the historical trends of the loss coverage ratio, which
represents the ratio of the allowance for credit losses to annual net charge
offs. During 2000, the loss coverage ratio declined from 124% at December 31,
1999 to 102% at December 31, 2000, due to several factors. During the first half
of 2000, we purchased two portfolios that have experienced higher than expected
delinquency rates, which has resulted in higher than expected credit loss and
delinquency results in 2000. Due to the liquidation of the underperforming
portions of these portfolios, it is anticipated that the ongoing impact on
losses will be minimal. Additionally, we have been remixing our loan product
portfolio, which has resulted in a reduction in the level of unsecured loans and
an increase in the amount of real estate secured loans. From mid-1998 through
1999, the unsecured portfolio grew significantly. As a result of the unsecured
nature of this growth, credit losses increased significantly in the latter half
of 1999 and 2000. Conversely, the secured nature of the growth experienced in
2000 is expected to result in a relative decrease in credit losses for 2001.
Accordingly, the loss coverage ratio at December 31, 2000 appears to be at a
level that is consistent with the credit quality characteristics of the loan
portfolio.

As a result of the analysis performed as described above, the allowance for
credit losses as of December 31, 2000 was $104.6 million, which is an increase
of $4.3 million, or 4.3% as compared to December 31, 1999. Management considers
the allowance for credit losses adequate to cover losses inherent in the loan
portfolio at December 31, 2000. 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.

18

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,
----------------------------------------------------------------
2000 1999 1998
----------------- ----------------- ----------------

Real estate secured loans $ 31,634 1.40% $ 9,259 0.57% $ 8,093 0.64%
Other installment loans 74,851 4.56 62,875 4.01 56,449 4.14
Retail installment contracts 9,335 2.46 9,137 2.79 10,171 3.10

Total $ 115,820 2.71% $ 81,271 2.31% $ 74,713 2.53%

The increase in delinquency, particularly in the real estate secured portfolio,
is due primarily to higher than expected delinquency rates in two purchased
portfolios, and thus is not indicative of the overall credit quality of the
portfolio. Absent these two purchased portfolios, the amount of receivables
delinquent for 60 days or more, on a contractual basis, would have been $95.2
million, or 2.29% of gross consumer finance receivables.

At December 31, 2000 and 1999, the Company held foreclosed single-family
dwellings with a carrying value of approximately $8.9 million and $3.6 million.
These balances total 0.5% and 0.3% of the real estate secured loans outstanding
as of December 31, 2000 and 1999.

Asset / Liability Management

Our long-range profitability depends not only on the success of the services
offered to its customers and the credit quality of its 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
ranging from 3 to 360 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 us. At
December 31, 2000, eleven different fixed-rate senior debt issues totaling $2.20
billion were outstanding, with a weighted-average cost of 7.04%. 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, 2000, twenty-two different
commercial paper borrowings totaling $683.7 million were outstanding, with a
weighted-average cost of 7.08%.

FCIB raises funds through both customer deposits and borrowings with the FHLB.
At December 31, 2000, the banking subsidiary's outstanding debt totaled $346.6
million, with a weighted-average cost of 6.40%.

19

We also share with Washington Mutual, two revolving credit facilities: a $1.2
billion 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, 2000, there was $841
million available under these facilities. There were no borrowings under these
facilities at any point during 2000 or 1999.

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

(Dollars in thousands) Year Ended December 31,
--------------------------------------------
2000 1999 1998
--------- ---------- ----------

Operations $ 150,123 $ 230,737 $ 170,668
Net issuances and repayments of debt 681,585 367,500 181,277
Net originations and purchases
of consumer finance receivables (778,120) (573,333) (321,992)
Dividends paid (25,000) (14,500) (36,500)

Capital Management

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, 2000 of 6.55:1 was intentionally increased from 6.00:1 at December
31, 1999. 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, 2000,
approximately $161.7 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, 2000.

Recently Issued Accounting Standard Adopted

We adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS Nos. 137 and 138, and as
interpreted by the FASB and the Derivatives Implementation Group through
"Statement 133 Implementation Issues," as of January 1, 2000. We believe that we
have properly identified all derivative instruments and any embedded derivative
instruments that require bifurcation.

20

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

During the year, we implemented additional methodologies for analyzing interest
rate risk. These included projecting net interest income based on parallel and
non-parallel changes in the yield curve. The results of these analyses are used
as part of our overall framework for asset/liability management. Accordingly, we
have changed our market risk analysis from a tabular presentation to a
presentation of net interest income sensitivity. The tabular data is also
presented for informational purposes.

The table below indicates the sensitivity of pretax net interest income 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 or decrease of 200 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 sensitivity profile as of year-end 2000 and 1999 is
stated below:

Gradual Change in Rates
-----------------------------
Net interest income change for the one-year period beginning: -200bp +200bp
-----------------------------

January 1, 2001 1.62% (2.44)%
January 1, 2000 0.76% 0.45%

Our net interest income at risk position has not changed significantly
year-over-year. Assumptions are made in modeling the sensitivity of net interest
income. 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.

The tables below present interest rate sensitivity in the form of a gap report,
which indicates the difference between assets maturing or repricing within a
period and total liabilities maturing or repricing within the same period. In
assigning assets to maturity and repricing categories, we take into
consideration expected prepayment speeds rather than contractual maturities. The
balances reflect actual amortization of principal and do not take into
consideration reinvestment of cash. Principal prepayments are the amounts of
principal reduction over and above normal amortization. We have used prepayment
assumptions based on market estimates and past experience with our portfolio.
Non-rate sensitive items such as the allowance for loan losses and deferred loan
fees (costs) are not included in the tables.

21

(Dollars in thousands) December 31, 2000
----------------------------------------------------------------------
Projected Repricing
----------------------------------------------------------------------
0-3 months 4-12 months 1-5 years Thereafter Total
----------- ----------- ----------- ---------- -----------
Interest Sensitive Assets

Adjustable-rate loans $ 147,041 $ - $ - $ - $ 147,041
Fixed-rate loans 478,553 1,184,322 1,791,659 126,775 3,581,309
Adjustable-rate securities 7,840 - - - 7,840
Fixed-rate securities 3,816 4,327 134,472 34,833 177,448
Cash and cash equivalents 14,602 - - - 14,602
----------- ----------- ----------- ---------- -----------
$ 651,852 $ 1,188,649 $ 1,926,131 $ 161,608 $ 3,928,240
----------- ----------- ----------- ---------- -----------
Interest Sensitive Liabilities
Customer deposits $ 36,651 $ 107,655 $ 44,289 $ 1,197 $ 189,792
Short-term & adjustable-rate
borrowings 747,554 - 10,000 - 757,554
Fixed-rate borrowings 82,900 549,896 1,397,729 248,820 2,279,345
----------- ----------- ----------- ---------- -----------
$ 867,105 $ 657,551 $ 1,452,018 $ 250,017 $ 3,226,691
----------- ----------- ----------- ---------- -----------
Repricing gap $ (215,253) $ 531,098 $ 474,113 $ (88,409)

Cumulative gap $ (215,253) $ 315,845 $ 789,958 $ 701,549

Cumulative gap as a percentage
of assets (5.48%) 8.04% 20.11% 17.86%

(Dollars in thousands) December 31, 1999
Projected Repricing
----------------------------------------------------------------------
0-3 months 4-12 months 1-5 years Thereafter Total
--------- ----------- ----------- ------------ -----------
Interest Sensitive Assets

Adjustable-rate loans $ 157,028 $ 2 $ - $ - $ 157,030
Fixed-rate loans 398,334 994,145 1,442,380 69,867 2,904,726
Adjustable-rate securities 5,984 - - - 5,984
Fixed-rate securities 7,194 27,097 50,056 38,633 122,980
Cash and cash equivalents 40,008 - - - 40,008
--------- ----------- ----------- ------------ -----------
$ 608,548 $ 1,021,244 $ 1,492,436 $ 108,500 $ 3,230,728
--------- ----------- ----------- ------------ -----------
Interest Sensitive Liabilities
Customer deposits $ 34,606 $ 101,847 $ 45,223 $ 8,258 $ 189,934
Short-term & adjustable-rate
Borrowings 348,075 - 10,000 - 358,075
Fixed-rate borrowings - 249,889 1,497,396 248,603 1,995,888
--------- ----------- ----------- ------------ -----------
$ 382,681 $ 351,736 $ 1,552,619 $ 256,861 $ 2,543,897
--------- ----------- ----------- ------------ -----------
Repricing gap $ 225,867 $ 669,508 $ (60,183) $ (148,361)

Cumulative gap $ 225,867 $ 895,375 $ 835,192 $ 686,831

Cumulative gap as a percentage
of assets 7.00% 27.74% 25.88% 21.28%

22

The differences in the asset balances between December 31, 1999 and December 31,
2000 relate primarily to the $697.5 million increase in interest-rate sensitive
assets due to growth in the loan portfolio. The asset maturity profile has
remained relatively consistent with prior years except for a significant
increase in fixed-rate loans with projected repricing of 1 to 5 years, which is
primarily due to the growth of the real estate secured portfolio.

The differences in the maturities of liabilities were primarily related to the
increase of commercial paper borrowings, which typically mature in three months
or less.

23

Item 8. Financial Statements and Supplementary Data

Independent Auditors' Report

To the Board of Directors and Stockholder of
Washington Mutual Finance Corporation:

We have audited the accompanying consolidated statements of financial condition
of Washington Mutual Finance Corporation and subsidiaries (the "Company") as of
December 31, 2000 and 1999, 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, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United State 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Tampa, Florida
January 16, 2001

24

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Financial Condition

(Dollars in thousands, except par value) December 31,
-------------------------------
2000 1999
ASSETS ----------- -----------

Consumer finance receivables, net $ 3,623,763 $ 2,961,449
Investment securities available for sale 185,288 128,964
Cash and cash equivalents 14,602 40,008
Property, equipment and leasehold improvements, net 25,398 22,112
Goodwill, net 46,777 51,340
Other assets 31,877 23,684
----------- -----------
TOTAL ASSETS $ 3,927,705 $ 3,227,557
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities
Commercial paper borrowings $ 683,654 $ 242,170
Senior debt 2,196,445 1,995,888
Federal Home Loan Bank borrowings 156,800 115,905
----------- -----------
Total debt 3,036,899 2,353,963
Customer deposits 189,793 189,934
Accounts payable and other liabilities 161,925 208,502
----------- -----------
Total liabilities 3,388,617 2,752,399
=========== ===========
Commitments and contingencies
(Notes 11 and 12)

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 48,960
Retained earnings 481,524 427,635
Accumulated other comprehensive loss (147) (1,438)
----------- -----------
Total stockholder's equity 539,088 475,158
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,927,705 $ 3,227,557
=========== ===========

See Notes to Consolidated Financial Statements.

25

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

Year Ended December 31,
----------------------------------------------
(Dollars in thousands) 2000 1999 1998
----------- ----------- -----------
Interest income

Loan interest and fee income $ 549,052 $ 464,179 $ 404,954
Investment securities income 12,283 10,825 11,449
----------- ----------- -----------
Total interest income 561,335 475,004 416,403

Interest and debt expense 202,092 149,609 133,211
----------- ----------- -----------
Net interest income before
provision for credit losses 359,243 325,395 283,192

Provision for credit losses 107,243 100,590 79,760

Net interest income 252,000 224,805 203,432

Noninterest income 30,421 29,501 27,147

Noninterest expense
Personnel 92,818 78,259 76,664
Occupancy 14,242 11,414 10,434
Advertising 6,993 8,072 6,516
Goodwill amortization 4,563 3,960 3,617
Other 37,386 33,889 45,761
----------- ----------- -----------
Total noninterest expense 156,002 135,594 142,992
----------- ----------- -----------
Income before income taxes 126,419 118,712 87,587

Provision for federal and state income taxes 47,530 45,720 34,700
----------- ----------- -----------
Net income 78,889 72,992 52,887

Net unrealized holding gains (losses) on
securities arising during period, net of tax 1,291 (2,664) 693
----------- ----------- -----------
Comprehensive income $ 80,180 $ 70,328 $ 53,580
=========== =========== ===========
Retained earnings
Beginning of period $ 427,635 $ 369,143 $ 352,756
Net income 78,889 72,992 52,887
Dividends paid (25,000) (14,500) (36,500)
----------- ----------- -----------
End of period $ 481,524 $ 427,635 $ 369,143
=========== =========== ===========

See Notes to Consolidated Financial Statements.

26

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows

Year Ended December 31,
------------------------------------------
(Dollars in thousands) 2000 1999 1998
---------- --------- ----------
Operating activities

Net income $ 78,889 $ 72,992 $ 52,887
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 107,243 100,590 79,760
Depreciation and amortization 19,405 12,577 8,611
(Decrease) increase in accounts payable
and other liabilities (47,221) 60,165 31,622
Increase in other assets (8,193) (15,587) (2,212)
---------- --------- ----------
Net cash provided by operating activities 150,123 230,737 170,668
---------- --------- ----------
Investing activities
Investment securities purchased (89,136) (46,460) (91,477)
Investment securities matured or sold 34,872 64,131 96,275
Net increase in consumer finance receivables (778,120) (573,333) (321,992)
Net increase in property, equipment and leasehold
improvements (8,480) (12,247) (4,583)
---------- --------- ----------
Net cash used in investing activities (840,864) (567,909) (321,777)
---------- --------- ----------
Financing activities
Net increase (decrease) in commercial
paper borrowings 441,484 (273,652) 158,290
Proceeds from issuance of senior debt 449,347 896,731 199,654
Repayments of senior debt (250,000) (300,000) (250,000)
Net increase in Federal Home Loan Bank borrowings 40,895 42,005 49,000
Net (decrease) increase in customer deposits (141) 2,416 24,333
Capital contributed by parent 8,750 - -
Dividends paid (25,000) (14,500) (36,500)
Proceeds from affiliate transfer - - 4,066
---------- --------- ----------
Net cash provided by financing activities 665,335 353,000 148,843
---------- --------- ----------
Net (decrease) increase in cash and cash equivalents (25,406) 15,828 (2,266)
---------- --------- ----------
Cash and cash equivalents
Beginning of period 40,008 24,180 26,446
---------- --------- ----------
End of period $ 14,602 $ 40,008 $ 24,180
========== ========= ==========
Supplemental disclosures of cash flow information
Interest paid $ 183,376 $ 140,127 $ 133,160
Intercompany payment (net of refunds) in lieu of
federal and state income taxes $ 71,346 $ 38,794 $ 30,881

See Notes to Consolidated Financial Statements.

27

WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements

Note 1 Ownership and Operations

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 these notes to the consolidated financial statements,
we mean Washington Mutual Finance Corporation and its subsidiaries, all of which
are wholly-owned.

The Company is engaged primarily in the consumer financial services business and
our operations consist principally of a network of approximately 530 branch
offices located in 25 states, primarily in the southeast, southwest and
California. These offices operate under the name Washington Mutual Finance. We
make secured and unsecured consumer installment loans and purchase installment
contracts from local retail establishments. These consumer credit transactions
are primarily for personal, family or household purposes. From time to time, we
purchase consumer loans, servicing released, that are secured by real estate,
from national mortgage banking operations. The Company also engages in the
industrial banking business through our subsidiary, First Community Industrial
Bank ("FCIB"), which has branches in Colorado and Utah. In addition to making
consumer installment loans and purchasing retail installment contracts, FCIB
also takes customers' savings deposits insured by the Federal Deposit Insurance
Corporation ("FDIC").

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.

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 generally is suspended when payments are more than
three months contractually overdue. Loan fees and directly related lending costs
are deferred and amortized using the interest method over the contractual life
of the related receivables.

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

28

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.
Recoveries on previously written-off receivables are credited to the allowance.

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. Investment
security transactions are recorded using trade date accounting.

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 thirty years, or, if less, the term
of the lease. At December 31, 2000 and 1999, accumulated depreciation and
amortization totaled $31.0 million and $26.3 million.

Goodwill. The excess of cost over the fair value of net assets of companies
acquired is amortized on a straight-line basis, generally over periods of 6 to
25 years. The carrying value of goodwill is regularly reviewed for indicators of
impairment in value, which, in management's view, are other than temporary,
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, 2000 and 1999, accumulated amortization totaled
$73.8 million and $69.3 million.

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.

29

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.

The Company has recorded a net deferred tax asset of approximately $30,319,000
at December 31, 2000. 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.

Note 3 Consumer Finance Receivables

Consumer finance receivables at December 31, 2000 and 1999 are summarized as
follows:

(Dollars in thousands) 2000 1999
------------ ------------
Consumer finance receivables:

Real estate secured loans $ 2,256,044 $ 1,630,496
Other installment loans 1,640,846 1,566,682
Retail installment contracts 380,073 327,914
------------ ------------
Gross consumer finance receivables 4,276,963 3,525,092
Less: Unearned finance charges and
deferred loan fees (548,613) (463,335)
Allowance for credit losses (104,587) (100,308)
------------ ------------
Consumer finance receivables, net $ 3,623,763 $ 2,961,449
============ ============

The amount of gross nonaccruing consumer finance receivables was approximately
$85.8 million and $59.4 million at December 31, 2000 and 1999. The amount of
interest that would have been accrued on these consumer finance receivables was
approximately $11.5 million in 2000 and $9.5 million in 1999.

30

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

Year Ended December 31,
------------------------------------------
(Dollars in thousands) 2000 1999 1998
---------- ---------- ---------

Balance, January 1 $ 100,308 $ 80,493 $ 74,323
Provision for credit losses 107,243 100,590 79,760
Amounts charged off:
Real estate secured loans (2,684) (1,807) (2,125)
Other installment loans (104,365) (82,438) (73,210)
Retail installment contracts (13,017) (12,558) (14,417)
---------- ---------- ----------
(120,066) (96,803) (89,752)
Recoveries:
Real estate secured loans 241 398 521
Other installment loans 14,171 12,629 12,593
Retail installment contracts 2,690 3,001 2,774
---------- ---------- ---------
17,102 16,028 15,888
---------- ---------- ---------
Net charge-offs (102,964) (80,775) (73,864)

Allowances on notes purchased - - 274
Balance, December 31 $ 104,587 $ 100,308 $ 80,493
========== ========== =========

Contractual maturities, excluding unearned finance charges and deferred loan
fees, at December 31, 2000 are as follows:

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

Real estate secured loans $ 165,978 $ 387,528 $ 1,437,401 $ 1,990,907
Other installment loans 62,203 1,330,220 9,436 1,401,859
Retail installment contracts 31,819 293,151 10,614 335,584
--------- ----------- ----------- -----------
$ 260,000 $ 2,010,899 $ 1,457,451 $ 3,728,350
========= =========== =========== ===========

The weighted average contractual term of all consumer finance receivables
written during the years ended December 31, 2000 and 1999 was 74 months and 71
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 renewed 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, 2000. Geographic diversification of consumer finance
receivables reduces the concentration of credit risk associated with a recession
in any one region.

31

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

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

California $ 388,825 10% $ 228,334 7%
Texas 363,407 10 295,465 10
Tennessee 339,852 9 291,946 10
Colorado 328,652 9 314,677 10
North Carolina 292,893 8 264,909 9
Florida 222,010 6 190,120 6
South Carolina 182,669 5 166,533 5
Virginia 161,247 4 144,560 5
Louisiana 146,147 4 133,372 4
Mississippi 128,653 3 116,468 4
Other 1,173,995 32 915,373 30
---------- ---- ---------- ----
Total $3,728,350 100% $3,061,757 100%
========== ==== ========== ====

Note 4 Investment Securities

At December 31, 2000 and 1999, all investment securities were classified as
available-for-sale and reported at fair value. Investment securities as of
December 31, 2000 and 1999 are as follows:

(Dollars in thousands) December 31, 2000
-------------------------------------------------------------
Original Amortized 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
========= ========= ======= ======== =========

(Dollars in thousands) December 31, 1999
-------------------------------------------------------------
Original Amortized Gross Unrealized Approximate
Original Amortized ------------------- Fair
Cost Cost Gains Losses Value
--------- ----------- -------- --------- -----------

Government obligations $ 37,875 $ 37,887 $ 28 $ (629) $ 37,286
Corporate obligations 80,392 80,756 96 (1,420) 79,432
Certificates of deposit
and other 12,789 12,452 114 (320) 12,246
--------- ----------- ------- -------- ----------
$ 131,056 $ 131,095 $ 238 $ (2,369) $ 128,964
========= =========== ======= ======== ==========

There were no significant realized gains or losses during 2000, 1999 or 1998.

32

The following table presents the maturity of the investment securities at
December 31, 2000:

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

Due in one year or less $ 25,452 $ 25,415
Due after one year through five years 134,647 134,465
Due after five years through ten years 17,762 17,729
Due after ten years 7,622 7,679
---------- ----------
$ 185,483 $ 185,288
========== ==========

Note 5 Commercial Paper Borrowings

Commercial paper borrowings at December 31, 2000, 1999 and 1998 totaled $683.7
million, $242.2 million and $515.8 million. Interest expense in 2000, 1999 and
1998 related to commercial paper was $27.7 million, $18.5 million and $20.6
million.

Additional information concerning total commercial paper borrowings is as
follows:

Year Ended December 31,
------------------------------------
(Dollars in thousands) 2000 1999 1998
--------- --------- ---------
Outstanding during the year

Maximum amount at any month end $ 683,654 $ 428,552 $ 515,823
Average amount 420,215 323,475 368,855
Weighted average interest rate 6.63% 5.72% 5.60%

Weighted average interest rates include the effect of commitment fees.

In August 1999, the Company and Washington Mutual entered into two revolving
credit facilities with the Chase Manhattan Bank as administrative agent: a $600
million 364-day facility and a $600 million four-year facility, each to provide
back-up for our commercial paper programs. In August, 2000, the 364-day facility
was replaced with a $1.20 billion 364-day facility. 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, 2000, there was
$841 million available under these facilities. There were no borrowings under
these facilities at any point during 2000 or 1999. 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); and
subsidiary debt (excluding bank deposits and intercompany debt) not to exceed
15% of total debt. As of December 31, 2000, we were in compliance with all
restrictive covenants.

33

Note 6 Senior Debt

Senior debt at December 31, 2000 and 1999 was comprised of the following:

(Dollars in thousands) 2000 1999
------------ ------------
Senior notes and debentures (unsecured)

6.3%, due July 15, 2000 $ - $ 99,988
6.125%, due December 1, 2000 - 149,901
7.75%, due June 15, 2001 149,994 149,975
7.25%, due June 15, 2001 99,983 99,949
6.0%, due August 1, 2001 199,931 199,812
6.75%, due August 15, 2001 99,988 99,968
6.0%, due May 15, 2002 149,852 149,744
6.30%, due October 1, 2002 149,830 149,733
6.50%, due November 15, 2003 149,648 149,526
5.85%, due January 27, 2004 199,814 199,754
7.375%, due September 1, 2004 299,164 298,935
8.25%, due June 15, 2005 449,421 -
7.25%, due June 15, 2006 248,820 248,603
------------ ------------
Total senior debt $ 2,196,445 $ 1,995,888
============ ============

Aggregate maturities of senior debt at December 31, 2000 are as follows: $549.9
millon in 2001; $299.7 million in 2002; $149.6 million in 2003; $499.0 million
in 2004; $449.4 million in 2005; and, $248.8 million in 2006 and thereafter.

Interest expense related to senior debt outstanding in 2000, 1999 and 1998 was
$154.5 million, $115.5 million, and $100.9 million.

34

Note 7 Federal Home Loan Bank Borrowings

Federal Home Loan Bank borrowings at December 31, 2000 and 1999 were comprised
of the following:

(Dollars in thousands) 2000 1999
Federal Home Loan Bank notes (secured) --------- ---------

5.89%, due January 24, 2000 $ - $ 31,505
5.96%, due March 2, 2000 - 10,500
6.62%, due January 16, 2001 62,400 -
6.70%, due January 16, 2001 10,500 -
6.50%, due January 29, 2001 10,000 -
Variable rate, due March 29, 2001 (6.34% and
6.08% at December 31, 2000 and 1999) 60,000 60,000
Variable rate, due May 1, 2001 (6.56% and
5.50% at December 31, 2000 and 1999) 3,900 3,900
Variable rate, due March 20, 2003 (6.55% and
5.92% at December 31, 2000 and 1999) 10,000 10,000
--------- ---------
Total Federal Home Loan Bank notes $ 156,800 $ 115,905
========= =========

Aggregate maturities of FHLB borrowings at December 31, 2000 are as follows:
$146.8 million in 2001 and $10 million in 2003.

Interest expense in 2000, 1999 and 1998 related to FHLB borrowings was $9.2
million, $4.8 million, and $1.7 million. FHLB borrowings are secured by
residential mortgage loans with a carrying value at December 31, 2000 of $181.9
million.

Note 8 Customer Deposits

The book value of the Company's customer deposits as of December 31, 2000 and
1999 are as follows:

(Dollars in thousands) 2000 1999
---------- ---------

Money market accounts $ 15,835 $ 13,576
Savings accounts 1,467 1,434
Certificates of deposit
under $100,000 150,055 153,524
Certificates of deposit
$100,000 and over 22,436 21,400
---------- ---------
$ 189,793 $ 189,934
========== =========

Maturities of time deposits are $135.9 million in 2000, $24.5 million in 2001,
$9.2 million in 2002 and $2.9 million thereafter.

Interest expense in 2000, 1999 and 1998 related to customer deposits was $10.6
million, $10.8 million and $10.0 million.

35

Note 9 Income Taxes

The components of income tax expense (benefit) are as follows:

Year Ended December 31,
-----------------------------------------
(Dollars in thousands) 2000 1999 1998
--------- --------- ----------
Current

Federal $ 41,425 $ 35,896 $ 38,808
State (1,085) 8,032 6,900
Deferred 7,190 1,792 (11,008)
--------- --------- ----------
$ 47,530 $ 45,720 $ 34,700
========= ========= ==========

The provisions for income taxes differ from the amounts determined by
multiplying pre-tax income by the statutory federal income tax rate of 35% for
2000, 1999 and 1998. A reconciliation between these amounts is as follows:

Year Ended December 31,
----------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
------------------ ------------------- ----------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
--------- ------ --------- ------- ------- ------

Income taxes at statutory rates $ 44,247 35.00% $ 41,549 35.00% $ 30,655 35.00%
Increase (reduction) in taxes
resulting from:
State income taxes, net of
Federal benefit 3,280 2.59 4,172 3.52 4,025 4.60
Other 3 .01 (1) (.01) 20 .01
--------- ------ --------- ------ -------- ------
$ 47,530 37.60% $ 45,720 38.51% $ 34,700 39.61%
========= ====== ========= ======= ======== ======

36

Deferred taxes result from temporary differences in the recognition of certain
items for tax and financial reporting purposes. The significant components of
the Company's net deferred tax asset (liability) were as follows:

December 31,
------------------------
(Dollars in thousands) 2000 1999
--------- ----------
Deferred tax assets:

Credit loss reserves $ 29,249 $ 40,970
Unearned insurance commissions 9,936 4,678
Employee benefits accruals 2,735 5,892
State taxes 2,490 -
Other 1,023 2,616
Basis differences on premises and equipment - 170
--------- ---------
Total deferred tax assets 45,433 54,326
--------- ---------
Deferred tax liabilities:
Amortization of intangibles (12,352) (10,877)
Loan interest and fee income (1,755) (3,471)
Basis differences on premises and equipment (959) -
Other (48) (674)
State taxes - (2,439)
--------- ---------
Total deferred tax liabilities (15,114) (17,461)
--------- ---------
Net deferred tax asset $ 30,319 $ 36,865
========= =========

Note 10 Retirement and Savings Plans

Substantially all of our employees participate in a noncontributory defined
contribution pension plan maintained by Washington Mutual ("the Plan").
Accumulated plan benefits and annual pension cost are derived from an allocation
formula based on our total participants and the Plan's total participants.

Pension cost (benefit) for our participants for the years ended December 31,
2000, 1999, and 1998 was $1,025,000, $1,074,000 and $(150,000). Due to the
Company's participation in a multi-employer defined benefit plan, information as
to separate Company participant assets and vested benefits is not presented.

Our employees also participate in an employee savings plan maintained by
Washington Mutual, which allows employees to defer part of their pre-tax
compensation until retirement. Company contributions equal 50% of the
contributions made by employees up to 6% of salary plus annual discretionary
amounts, if any, as determined by management. Our cost is based on the actual
contribution related to our participating employees. Total expense was
approximately $3.4 million, $3.0 million and $2.5 million for the years ended
December 31, 2000, 1999 and 1998.

The Company's employees who retired prior to July 1, 1997 also participate in
Washington Mutual's defined benefit postretirement plan ("the Benefit Plan")
which covers a portion of the costs of medical and life insurance coverage to
eligible employees and dependents based on age and length of service. Medical

37

coverage options are the same as available to active employees. The accumulated
postretirement benefit obligation and related expense are derived from an
allocation formula based on our total participants and the Benefit Plan's total
participants.

The net postretirement medical and life insurance expense allocated to us for
the years ended December 31, 2000, 1999 and 1998 was approximately $193,000,
($245,000) and $344,000.

Note 11 Leases

The Company leases office space, computers, office equipment and automobiles,
generally for terms of five or fewer years.

We have no material capital leases. Under operating leases that have initial or
remaining noncancelable lease terms in excess of one year, approximate aggregate
annual minimum rentals are $8.8 million in 2001; $7.3 million in 2002; $5.4
million in 2003; $3.6 million in 2004; and $1.4 million in 2005. Rent expense
for the years ended December 31, 2000, 1999 and 1998 was $12.1 million, $11.9
million and $11.3 million.

Note 12 Contingencies

The Company and certain of its subsidiaries are parties to various lawsuits and
proceedings arising in the ordinary course of business. We have also been named
as a defendant in a number of class action suits, in which various industry-wide
practices arising from routine business activities are being challenged and
various damages are being sought. Certain of these lawsuits and proceedings
arise in jurisdictions, such as Alabama and Mississippi, which permit damage
awards disproportionate to the actual economic damages incurred. 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. However, it should be noted that the frequency of large
damage awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions like
Alabama and Mississippi continues to increase and creates the potential for an
unpredictable judgment in any given suit.

Note 13 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 $2.4 million
in 2000, $1.7 million in 1999 and $1.1 million in 1998.

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.

38

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, 2000 and 1999, these amounts totaled $11.5 million
and $35.8 million.

o In March 2000, the Company acquired $123.0 million of single family
residence loans from Long Beach Mortgage Company ("Long Beach"), a wholly
owned subsidiary of Washington Mutual. We paid an amount which approximated
the book value of the assets acquired. These loans are reported as consumer
finance receivables on the Consolidated Statements of Financial Condition.
In December, 2000, $21.5 million of these loans were sold back to Long
Beach for an amount which approximated the book value of the assets sold.

Note 14 Lines of Business

We are managed along two major lines of business: consumer finance and consumer
banking. The Company provides information on the performance of these business
segments which are strategic lines of business managed by the Executive
Committee under the direction of the Chief Executive Officer. The financial
performance of these business lines is measured by our profitability reporting
processes.

Our business segments are managed through the Executive Committee, which is the
senior decision making group of the Company. The Executive Committee is
comprised of eleven members including the Chairman and Chief Executive Officer,
the President and Vice Presidents who manage key business and operational areas
within the Company.

Both segments are managed by an executive team that is responsible for sales,
marketing, sales support, operations and certain administrative functions. Back
office support is provided to each segment through executives responsible for
lending administration, information systems, finance, legal, marketing and human
resources.

Operating revenues and expenses are directly assigned to business segments in
determining their operating income. The financial results of each segment are
derived from our general ledger systems. Certain adjustments have been made to
recorded general ledger accounts to appropriately reflect results of operations
and financial position transfers among segments.

The organizational structure of the institution and the allocation methodologies
it employs result in business line financial results that are not necessarily
comparable across companies. As such, our business line performance may not be
directly comparable with similar information from other consumer finance
companies.

39

Financial highlights by lines of business were as follows:

(Dollars in thousands) Year Ended December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -------------------------------
Consumer Consumer Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total Finance Banking Total
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Condensed income statement:
Net interest income after

provision for loan losses $232,469 $ 19,531 $252,000 $207,160 $ 17,645 $224,805 $ 188,051 $ 15,381 $ 203,432
Other operating income 30,148 273 30,421 29,032 469 29,501 26,380 767 27,147
Operating expenses 147,450 8,552 156,002 128,049 7,545 135,594 136,275 6,717 142,992
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Income before income
Taxes 115,167 11,252 126,419 108,143 10,569 118,712 78,156 9,431 87,587
Income taxes 43,227 4,303 47,530 41,678 4,042 45,720 31,092 3,608 34,700
-------- -------- -------- -------- --------- -------- --------- -------- ---------
Net income $ 71,940 $ 6,949 $ 78,889 $ 66,465 $ 6,527 $ 72,992 $ 47,064 $ 5,823 $ 52,887
======== ======== ======== ======== ========= ======== ========= ======== =========

Other disclosures:

December 31,
--------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
---------- --------- ---------- ---------- --------- ----------

Total assets $3,500,185 $ 427,520 $3,927,705 $2,821,116 $ 406,441 $3,227,557

Total equity $ 479,371 $ 59,717 $ 539,088 $ 422,650 $ 52,508 $ 475,158

Note 15 Approximate Fair Values of Financial Instruments

A summary of the approximate fair values of our financial instruments, as
compared to their carrying values, is set forth in the following table:

(Dollars in thousands)
December 31, 2000 December 31, 1999
----------------------------- ------------------------------
Carrying Approximate Carrying Approximate
Value Fair Value Value Fair Value
-------------- ------------ ------------- ------------

Consumer finance receivables $ 3,728,350 $ 3,652,121 $ 3,061,757 $ 3,053,585
Investment securities 185,288 185,288 128,964 128,964
Commercial paper borrowings 683,654 684,009 242,170 242,193
Senior Debt 2,196,445 2,219,602 1,995,888 1,969,768
Federal Home Loan Bank borrowings 156,800 156,842 115,905 115,906
Customer deposits 189,793 191,966 189,934 187,499

40

In estimating the fair value disclosures for financial instruments, we used the
following methods and assumptions:

Consumer finance receivables. The approximate fair value of consumer
finance receivables was estimated by discounting the future cash flows
using current rates at which similar loans would be made with similar
maturities to borrowers with similar credit ratings. The fair value
was not adjusted for the value of potential loan renewals from
existing borrowers.

Investment securities. Fair values for investment securities are based
on quoted market prices. If quoted market prices were not available,
fair values were estimated based on quoted market prices of comparable
instruments.

Cash and cash equivalents. The carrying amount reported in the
statement of financial condition for cash and cash equivalents
approximates its fair value given its highly liquid nature.

Debt. The carrying amount reported in the statement of financial
condition for commercial paper borrowings approximates its fair value
given its brief maximum term. The approximate fair value for senior
debt and FHLB borrowings was estimated using rates currently available
for debt with similar terms and remaining maturities.

Customer deposits. The fair values disclosed for fixed-rate savings
certificates of deposit were estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregate expected maturities on time
deposits. The fair values disclosed for savings and money market
accounts are, by definition, equal to the amount payable on demand at
the reporting date.

Accounts payable and other liabilities. The carrying amounts reported
in the statement of financial condition for accounts payable and other
liabilities approximate their fair value, given the settlement on
demand nature of these items.

41

Note 16 Selected Quarterly Financial Data (Unaudited)

A summary of the quarterly results of operations for the years ended December
31, 2000 and 1999 is set forth below:

As of and for the Quarter Ended
--------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------------------- ---------------------- --------------------- ----------------------
(Dollars in thousands) 2000 1999 2000 1999 2000 1999 2000 1999
---------- --------- ---------- ---------- -------- ---------- ---------- ----------
Net interest income before

Provision for credit losses $ 86,095 $ 78,388 $ 89,995 $ 80,494 $ 91,943 $ 81,429 $ 91,210 $ 85,084
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Provision for credit losses 24,477 25,600 25,363 26,040 26,149 25,100 31,254 23,850
Other operating income 7,872 6,655 7,406 6,868 7,482 7,415 7,661 8,563
Other operating expenses 37,155 33,712 36,408 32,065 37,617 32,618 40,259 33,239
Goodwill amortization
Expense 1,141 935 1,140 971 1,141 970 1,141 1,084
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Income before income taxes 31,194 24,796 34,490 28,286 34,518 30,156 26,217 35,474

Income tax provision 11,850 9,670 13,110 11,030 12,770 11,760 9,800 13,260
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 19,344 $ 15,126 $ 21,380 $ 17,256 $ 21,748 $ 18,396 $ 16,417 $ 22,214
========== ========== ========== ========== ========== ========== ========== ==========
Consumer finance
Receivables, net $3,195,227 $2,539,015 $3,415,679 $2,648,241 $3,547,688 $2,792,908 $3,623,763 $2,961,449
========== ========== ========== ========== ========== ========== ========== ==========

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

42

PART IV

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

(a) Index of Documents filed as a part of this Report:

1. Financial Statements

Included in Part II of this Report:
PAGE

Report of Independent Certified Public Accountants..............25

Washington Mutual Finance Corporation and Subsidiaries:
Consolidated Statements of Financial Condition
at December 31, 2000 and 1999................................26
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings for the Years Ended December 31, 2000,
1999 and 1998................................................27
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2000, 1999 and 1998.........28
Notes to Consolidated Financial Statements....................29

2. Financial Statement Schedules

All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
set forth in the financial statements or related notes.

3. Exhibits

Included in Part IV of this Report:

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)

43
(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.
(10) (a) Income Tax Allocation Agreement between Aristar, Inc. and
Washington Mutual, as successor to Great Western Financial
Corporation (as amended effective August 31, 1999). (v)
(b) 364-Day Credit Agreement by and among Washington Mutual and
Washington Mutual Finance Corporation and The Chase
Manhattan Bank, as Administrative Agent. (vi)
(c) Four-Year Credit Agreement by and among Washington Mutual
and Aristar, Inc. and The Chase Manhattan Bank, as
Administrative Agent. (v)
(12) Statement Re: Computation of Ratios.
(23) Consent of Deloitte & Touche LLP.

(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 June 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.
(v) Incorporated by reference to Washington Mutual, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1999, Commission file number 1-14667.
(vi) Incorporated by reference to Washington Mutual, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, Commission File No. 1-14667.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the period covered by
this Report.

44

Signatures

Pursuant to the requirements of the Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

WASHINGTON MUTUAL FINANCE CORPORATION

/s/ Craig J. Chapman
-----------------------------------------------
Craig J. Chapman
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on March 22, 2001.

/s/ Craig J. Chapman /s/ Richard M. Levy
- ------------------------------------ ------------------------------------
Craig J. Chapman Richard M. Levy
Chief Executive Officer and Director Senior Vice President and Chief
(Principal Executive Officer) Financial Officer
(Principal Financial Officer)

/s/ Craig A. Stein
------------------------------------
Craig A. Stein
Vice President and Controller
(Principal Accounting Officer)

/s/ Craig E. Tall /s/ Fay L. Chapman
- ------------------------------------ -------------------------------------
Craig E. Tall Fay L. Chapman
Director Director

/s/ James B. Fitzgerald /s/ William A. Longbrake
- ------------------------------------ ------------------------------------
James B. Fitzgerald William A. Longbrake
Director Director