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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 1-14667

WASHINGTON MUTUAL, INC.
(Exact name of registrant as specified in its charter)

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

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

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

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

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

        The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2002:

Common Stock – $35,086,844,423⁽¹⁾

⁽¹⁾

Does not include any value attributable to 18 million shares that are held in escrow and not traded.

        The number of shares outstanding of the issuer's classes of common stock as of February 28, 2003:

Common Stock – 939,456,466⁽²⁾

⁽²⁾

Includes 17,775,000 shares held in escrow pending resolution of the Company's asserted right to the return of such shares.

Documents Incorporated by Reference

        Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held April 15, 2003, are incorporated by reference into Part II and Part III.

WASHINGTON MUTUAL, INC.
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

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PART I

Business

Overview

        With a history dating back to 1889, Washington Mutual, Inc. is a financial services company committed to serving consumers and small- to mid-sized businesses. Based on our consolidated assets at December 31, 2002, we were the largest thrift holding company in the United States and the seventh largest among all U.S. bank and thrift holding companies.

Company Growth

        Our assets have grown over the last seven years primarily through the following acquisitions:

⁽¹⁾

Includes loans, deposits and assets acquired by Ahmanson from Coast Savings Financial, Inc.

⁽²⁾

This was an acquisition of selected assets and/or liabilities.

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With the acquisition of SR Investment, Inc., the Company purchased the ownership of HomeSide Lending, Inc.

        During 2002, the Company completed three acquisitions. On January 4, 2002, we completed our acquisition of New York-based Dime Bancorp, Inc. The acquisition of Dime added approximately $31 billion to our asset base, including approximately $22 billion in loans, and increased our deposit base by approximately $15 billion. The acquisition of Dime also significantly contributed to the growth in our mortgage banking business, resulting in a $926 million increase to our mortgage servicing rights ("MSR") balance and a $49.24 billion increase in our portfolio of loans serviced for others.

        In two transactions during 2002, we purchased for cash HomeSide Lending, Inc., the U.S. mortgage unit of National Australia Bank Limited. The aggregate purchase price of HomeSide was $2.45 billion. The acquisition of HomeSide added approximately $1 billion in loans held for sale, approximately $960 million in net MSR and approximately $130 billion to our portfolio of loans serviced for others. We also acquired a proprietary loan servicing platform, which we intend to make our primary loan servicing platform. In addition we assumed $760 million in long-term debt and $750 million in other liabilities.

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Business Segments

        We manage our operations by grouping our products and services within business segments. These business segments are:

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Banking and Financial Services Group;



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Home Loans and Insurance Services Group; and



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Specialty Finance Group

        The management of our interest rate risk, liquidity, capital, borrowings and purchased investment securities portfolios is performed by our Treasury Division.

        Our mission is to become the nation's leading retailer of consumer financial services. Our strategy is to focus primarily on middle-market consumers in the largest metropolitan areas. Our entry into new markets is led by the Home Loans and Insurance Services Group. Through advertising, branding and positioning we build customer awareness and encourage households to conduct business with Washington Mutual. In our selected market areas, we then overlay our retail banking operations and cross-sell key products, including checking accounts, deposit accounts and home equity loans. Store expansion was a priority in 2002 and will continue to be a priority in 2003. We plan to achieve our mission principally through organic growth and ongoing operational improvements.

Banking and Financial Services Group

        The Banking and Financial Services Group offers a comprehensive line of financial products and services to a broad spectrum of consumers and small- to mid-sized businesses. The Group serves approximately seven million consumer households and businesses through 1,526 financial center stores, 59 business banking centers and 2,490 ATMs. The Group offers various deposit products including the Group's signature Free Checking accounts as well as other personal and business checking accounts, savings accounts, money market deposit accounts and time deposit accounts.

        The Group's goal is to increase the number of the Company's products and services used by customers, thus increasing profitability. To achieve this goal, the Group's strategy is to cross-sell products and services to existing home loan customers and to new customers in selected market areas. During 2002, we opened 143 new financial center stores primarily in the Atlanta, Phoenix, Denver and New York metropolitan areas. The configuration of our new stores is based on an innovative retail banking platform that was launched in Las Vegas in 2000, and serves customers in an open, free-flowing retail environment. We also acquired 123 financial center stores in the New York/New Jersey area as part of the Dime acquisition. In 2003 we plan to add approximately 250 new stores primarily in Chicago and the New York metropolitan area.

        In addition to deposit products and home loans and insurance products, the Group offers a full range of other consumer products and services through its financial center stores, including:

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Home equity loans and lines of credit;



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Investment advisory and securities brokerage services;



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Annuities and mutual funds; and



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Student loans, unsecured lines of credit and other consumer loans.

        Home equity loans and lines of credit account for 11% of loans held in portfolio, up from 6% at the end of 2001. Currently, less than 3% of households that have a home loan serviced by Washington Mutual have a home equity loan or line of credit with us. Home equity loans and lines of credit generally provide higher margins than home loans and represent an opportunity to expand the non-home loan portfolio.

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        Investment advisory and securities brokerage services are provided by approximately 650 financial consultants of WM Financial Services, a licensed broker-dealer. In addition, fixed annuities are offered to the public by approximately 1,500 licensed bank employees. Our mutual fund management business, WM Advisors, Inc., offers investment advisory and mutual fund distribution services. Assets under management at December 31, 2002 totaled $13.09 billion.

        The Banking and Financial Services Group also offers a full array of commercial banking products and services primarily to small- and mid-sized businesses. These products include lines of credit, receivables and inventory financing, equipment loans, real estate financing, government-guaranteed loans, international trade financing, cash management and merchant bankcard services.

        See "Operating Segments" within Management's Discussion and Analysis for financial information regarding the Banking and Financial Services Group.

Home Loans and Insurance Services Group

        The principal activities of the Home Loans & Insurance Services Group include:

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Originating and servicing home loans;



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Buying and selling home loans in the secondary market; and



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Managing the home loan portfolio.

        In 2002, Washington Mutual was the largest servicer and the second largest originator of mortgage loans in the nation. The Group's strategy is to remain a leading originator and servicer of home loans and to increase its market share in both loan origination and loan servicing.

        The Group offers home loans through multiple distribution channels, including 386 retail home loan centers, 36 wholesale home loan centers, correspondent channels, and directly to consumers through call centers and the internet. The Group also offers home loans through the Banking and Financial Services Group's 1,526 financial center stores.

        Through these lending channels the Group offers a diversified set of home loan products including:

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Fixed-rate home loans;



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Adjustable-rate home loans (where the interest rate may be adjusted as frequently as every month);



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Hybrid home loans (loans with a rate of interest that is fixed for a predetermined time period, typically 3 or 5 years, and then becomes adjustable); and



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Government insured or guaranteed home loans.

        Insurance services complement the mortgage lending process, and products offered include homeowners', flood, earthquake and other property and casualty insurance. Other types of insurance products offered include mortgage life insurance, accidental death and dismemberment, and term and whole life insurance. The Group also manages the Company's captive reinsurance activities.

        Home loans are either originated or purchased, and are either held in portfolio or held for sale and subsequently sold into the secondary market. We generally sell newly originated fixed-rate home loans and hybrid home loans to the Federal National Mortgage Association ("Fannie Mae"), a government-sponsored enterprise.

        All loans, whether originated or purchased, are subject to the same nondiscriminatory underwriting standards. When determining whether to make a loan, the Group follows established lending policies and procedures that require consideration of an applicant's credit profile and the size and characteristics of the loan. When the Group purchases home loans, it normally delegates the underwriting responsibility to the correspondent lenders that originate the loans. Correspondent lenders are required to comply with the

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Group's underwriting and appraisal standards, and quality control procedures are performed to ensure that compliance occurs.

        The Group is migrating to single platforms for originating and servicing home loans. The process of reducing the number of origination systems from seven to a single platform will occur in stages throughout 2003 and should be completed in 2004. In the fourth quarter of 2003, we expect to begin the multi-year process of converting from an outsourced loan servicing system to a proprietary system acquired as part of the HomeSide Lending transaction. During 2003, we will also be consolidating our nationwide loan fulfillment operations from approximately 500 locations to approximately 60 locations. We anticipate that these initiatives will improve operational efficiencies and productivity.

        Mortgage servicing involves the administration and collection of home loan payments and fees. When loans are sold into the secondary market, the Group generally retains the right to service those loans and hence retains the customer relationship. We intend to use these customer relationships to cross-sell additional products and services. The mortgage servicing portfolio (including owned loans) grew from approximately 4.3 million loans at December 31, 2001 to approximately 6.3 million at December 31, 2002. Growth in the mortgage servicing portfolio in 2002 was largely due to the acquisitions of Dime and HomeSide.

        The Group also originates, and purchases from correspondents, loans to higher-risk borrowers as part of its specialty mortgage finance program. Originated specialty mortgage finance loans, also called specialty home loans, are made through Long Beach Mortgage Company and are usually held for sale. Purchased specialty mortgage finance loans are generally held in portfolio. The risk characteristics of specialty mortgage finance loans are similar whether originated or purchased. The Group reviews and re-underwrites purchased specialty mortgage finance loans prior to purchasing them from correspondents. Charge-offs on specialty mortgage finance loans are expected to be higher over time than the Group's other home loans.

        See "Operating Segments" within Management's Discussion and Analysis for financial information regarding the Home Loans and Insurance Services Group.

Specialty Finance Group

        The Specialty Finance Group provides financing to developers, investors, mortgage bankers and homebuilders for the acquisition, construction and development of apartment buildings ("multi-family" lending), other commercial real estate and homes. The multi-family lending business accounts for a majority of the Group's revenues. The Group also services commercial real estate mortgages as part of its commercial asset management business and conducts a consumer finance business through Washington Mutual Finance Corporation's 432 branches.

        A key element of the Group's strategy is to reduce its dependence on interest-earning assets and to increase its fee-based service offerings. The Group will achieve this goal by:

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Developing a program to pool commercial real estate loans into mortgage-backed securities for sale into the secondary market. This program will provide a distribution channel to originate, securitize and sell commercial real estate assets while retaining the servicing rights and customer relationships;



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Increasing its service offerings to include products sold to government agencies; and



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Increasing market share in the highly fragmented multi-family market through acquisition, when, and if, suitable opportunities are identified.

        The Group's multi-family lending program entails three key elements: originating loans, servicing loans and providing ancillary banking services to enhance customer retention. Combining these three elements under one umbrella has allowed the Group to become a leading originator and servicer of multi-

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family loans. The Group's multi-family lending program has a dominant market share – more than 20% in certain key cities along the West Coast and is building its market share in the Northeast and the Midwest. In early 2003, the Group completed the consolidation of its four multi-family servicing locations into one location in Texas. The consolidation is expected to result in increased operating efficiencies while improving already high levels of customer service.

        In addition to commercial lending and servicing activities, the Specialty Finance Group, through Washington Mutual Finance's 432 branches, originates and services consumer installment loans and consumer real estate secured loans. These loans are generally held in the loan portfolio. Loans originated by Washington Mutual Finance generally earn higher yields than loans made by Washington Mutual's banking subsidiaries because they tend to have higher credit risk. The consumer installment loans are primarily for personal, family or household purposes. Such loans are unsecured or secured by luxury goods, automobiles or other personal property. Additionally, Washington Mutual Finance acquires installment contracts from local retail establishments, usually without recourse to the originating merchant.

        See "Operating Segments" within Management's Discussion and Analysis for financial information regarding the Specialty Finance Group.

Available Information

        We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to such reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act, available as soon as reasonably practicable free of charge on or through our website located at www.wamu.com/ir after filing with the United States Securities and Exchange Commission.

Employees

        Our number of full-time equivalent employees at December 31, 2002 was 52,459, compared with 39,465 at December 31, 2001 and 28,798 at December 31, 2000. During 2002, the number of full-time equivalent employees increased primarily as a result of the acquisitions of Dime and HomeSide. We believe that we have been successful in attracting quality employees and that our employee relations are good.

Factors That May Affect Future Results

        From time to time, we have made and will make forward-looking statements. Our Form 10-K and other documents that we file with the Securities and Exchange Commission have forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may."

        Forward-looking statements provide our expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. These statements speak only as of the date they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. There are a number of factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements.

        Some of these factors are described below.

General business and economic conditions may significantly affect our earnings.

        Our business and earnings are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, money supply, fluctuations in both

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debt and equity capital markets, the strength of the U.S. economy, and of the local economies in which we conduct business. If any of these conditions worsen, our business and earnings could be adversely affected. For example, if short-term interest rates rise faster than mortgage rates, our net interest income, which is our largest component of net income, would be adversely affected. A prolonged economic downturn could increase the number of customers who become delinquent or default on their loans, or a rising interest rate environment could decrease the demand for loans. An increase in delinquencies or defaults could result in a higher level of charge-offs and provision for loan and lease losses, which could adversely affect our earnings.

        In addition, our business and earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board's policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict.

        If we are unable to effectively manage the volatility of our mortgage banking business, our earnings could be adversely affected.

        During 2001, through a series of acquisitions, we became one of the largest originators and servicers of home loans in the nation. Changes in interest rates significantly affect the mortgage banking business. One of the principal risks to the mortgage banking business is prepayments and their effect on MSR. One of the ways we mitigate this risk is by purchasing financial instruments, such as fixed-rate investment securities, interest rate contracts and forward commitments to purchase home loans, which tend to increase in value when long-term interest rates decline. The success of this strategy, however, is dependent on management's judgments regarding the amount, type and mix of MSR risk management instruments that we believe are appropriate to manage the changes in fair value of our MSR asset. If this strategy is not successful, our net income could be adversely affected. For further discussion of how interest rate basis risk and MSR prepayment risk is managed, see "Market Risk Management."

        A failure to effectively implement our business operations technology solutions could adversely affect our earnings and financial condition.

        During 2001 and early 2002, we consummated five acquisitions. As a result of these acquisitions, we significantly expanded our mortgage banking and loan servicing business, greatly expanded our consumer banking and lending presence in Texas and began consumer banking operations in the State of New York. On the mortgage banking side, we are currently integrating the technology platforms of the acquired companies into our business. We are developing single operating platforms for the origination and servicing of home loans and are migrating from a decentralized mortgage operations model to a regional processing configuration. We anticipate that these initiatives will result in economies of scale and operating efficiencies. On the consumer banking side, we are currently upgrading the technology used in our ATMs and financial center stores.

        If we experience difficulties in the integration of the technology platforms or the upgrading of software or any prolonged interruption of our service, we could experience higher than anticipated administrative costs and the loss of customers, among other things. These events could cause our earnings to be lower than anticipated and could adversely affect our operations and financial condition.

The financial services industry is highly competitive.

        We are subject to significant competition in attracting and retaining deposits and making loans as well as in providing other financial services in all of our market areas. We face pricing competition for loan and deposit products. In addition, customer convenience and service capabilities, such as product lines offered and the accessibility of services are significant competitive factors.

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        Our most direct competition for loans comes from other savings institutions, national mortgage companies, insurance companies, commercial banks and government-sponsored enterprises. Our most direct competition for deposits comes from savings institutions, credit unions and commercial banks doing business in our market areas. As with all banking organizations, we have also experienced competition from nonbanking sources, including mutual funds, corporate and governmental debt securities and other investment alternatives offered within and outside of our primary market areas.

Changes in the regulation of financial services companies could adversely affect our business.

        Proposals for further regulation of the financial services industry are continually being introduced in Congress. Proposals that are now receiving a great deal of attention include consumer protection initiatives on predatory lending, credit reporting and privacy. The agencies regulating the financial services industry also periodically adopt changes to their regulations. It is possible that one or more legislative proposals may be adopted or regulatory changes may be made that would have an adverse effect on our business. For further discussion of the regulations of financial services, see "Regulation and Supervision."

Taxation

General

        For federal income tax purposes, we report income and expenses using the accrual method of accounting on a calendar year basis. We are subject to federal income tax under existing provisions of the Internal Revenue Code of 1986, as amended, in generally the same manner as other corporations.

State Income Taxation

        Many of the states in which we do business impose corporate income taxes on companies doing business in those states. The State of Washington does not currently have a corporate income tax, but has a business and occupation tax on gross receipts. Currently, the tax does not apply to interest received on loans secured by first mortgages or deeds of trust on residential properties.

Assistance Agreement

        In connection with the Keystone acquisition, we acquired American Savings Bank, F.A. American Savings Bank was formed to effect the December 1988 acquisition of certain assets and liabilities of the failed savings and loan association subsidiary of Financial Corporation of America. In connection with the acquisition of American Savings Bank, Keystone Holdings and certain of its affiliates entered into a number of continuing agreements with the predecessor to the Federal Deposit Insurance Corporation ("FDIC"), including an Assistance Agreement. The Assistance Agreement provides, in part, for the payment to the Federal Savings & Loan Insurance Corporation Resolution Fund over time of 75% of most of the federal tax savings and 19.5% of most of the California tax savings (in each case computed in accordance with specific provisions contained in the Assistance Agreement) attributable to the utilization of certain tax loss carryforwards. The provision for such payments is reflected in the Consolidated Financial Statements as "Income Taxes."

        See Note 13 to the Consolidated Financial Statements – "Income Taxes."

Environmental Regulation

        Our business and properties are subject to federal and state laws and regulations governing environmental matters, including the regulation of hazardous substances and wastes. For example, under the federal Comprehensive Environmental Response, Compensation, and Liability Act and similar state laws, owners and operators of contaminated properties may be liable for the costs of cleaning up hazardous substances without regard to whether such persons actually caused the contamination. Such laws may affect us both as an owner of properties used in or held for our business, and as a secured lender on property that is found to contain hazardous substances or wastes.

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        Further, although the environmental regulations exempt holders of security interests, the exemption may not be available if a secured party engages in the management of its borrower or the collateral property in a manner deemed beyond the protection of the secured party's interest. Federal and state legislation, as well as guidance issued by the United States Environmental Protection Agency and a number of court decisions, have provided assurance to lenders regarding the activities they may undertake and remain within the environmental regulations' secured party exemption. However, these assurances are not absolute and generally will not protect a lender or fiduciary that participates or otherwise involves itself in the management of its borrower, particularly in foreclosure proceedings. As a result, the federal environmental regulations and similar state statutes may influence our decision whether to foreclose on property that is found to be contaminated. Our general policy is to obtain an environmental assessment prior to foreclosing on commercial property. The existence of hazardous substances or wastes on such property may cause us to elect not to foreclose on the property, thereby limiting, and in some instances precluding, our realization on such loans.

Regulation and Supervision

        The following discussion describes elements of the extensive regulatory framework applicable to savings and loan holding companies, federal savings associations and state savings banks and provides some specific information relevant to us. This regulatory framework is primarily intended for the protection of depositors, federal deposit insurance funds and the banking system as a whole rather than for the protection of shareholders and creditors.

        To the extent that this section describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. Those statues and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state regulators. Changes in statutes, regulations or regulatory policies applicable to the Company, including interpretation or implementation thereof, could have a material effect on the Company's business.

General

        Washington Mutual, Inc. is a Washington state corporation. It owns two federal savings associations and one Washington state-chartered savings bank, as well as numerous nonbank subsidiaries. Because our state bank has elected to be treated as a savings association for purposes of federal holding company law, Washington Mutual, Inc. is a savings and loan holding company. As a savings and loan holding company, Washington Mutual, Inc. is subject to regulation by the Office of Thrift Supervision (the "OTS").

        Our federal savings associations are subject to extensive regulation and examination by the OTS, their primary federal regulator, as well as by the FDIC. Our state bank is subject to regulation and supervision by the Director of Financial Institutions of the State of Washington (the "State Director") and by the FDIC. Our nonbank financial subsidiaries are also subject to various federal and state laws and regulations.

        All of our banking subsidiaries are under the common control of Washington Mutual, Inc. and are insured by the FDIC. If an insured institution fails, claims for administrative expenses of the receiver and for deposits in U.S. branches (including claims of the FDIC as subrogee of the failed institution) have priority over the claims of general unsecured creditors. In addition, the FDIC has authority to require any of our banking subsidiaries to reimburse it for losses it incurs in connection either with the failure of another of our banking subsidiaries or with the FDIC's provision of assistance to one of our banking subsidiaries that is in danger of failure.

Payment of Dividends

        Washington Mutual, Inc. is a legal entity separate and distinct from its banking and other subsidiaries. Its principal sources of funds are cash dividends paid by those subsidiaries, investment income, and borrowings. Federal and state law limits the amount of dividends or other capital distributions that a

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banking institution, such as our federal associations and our state bank, can pay. Each of our banking subsidiaries has a policy to remain well-capitalized and, accordingly, would not pay dividends to the extent payment of the dividend would result in it not being well-capitalized. In addition, our federal associations must file an application with the OTS at least 30 days before they can pay dividends to Washington Mutual, Inc. The ability of Washington Mutual, Inc. to borrow funds, for the purpose of paying dividends to its shareholders or otherwise, from its banking subsidiaries is limited by affiliate transaction restrictions discussed below. See Note 18 to the Consolidated Financial Statements – "Regulatory Capital Requirements and Dividend Restrictions" for a more detailed description of the limits on the dividends our subsidiary banks can pay.

Capital Adequacy

        Washington Mutual, Inc. is not currently subject to any regulatory capital requirements, but each of its subsidiary banking institutions is subject to various capital requirements. Our state bank is subject to FDIC capital requirements, while our federal associations are subject to OTS capital requirements. An institution's capital category depends upon where its capital levels are in relation to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital measure, a tangible equity ratio measure, and certain other factors.

        Federal law and regulations establish minimum capital standards, and under the OTS and FDIC regulations, an institution is required to have a leverage ratio of at least 4.00%, a Tier 1 risk-based ratio of 4.00% and a total risk-based ratio of 8.00%. In addition, our federal associations are required to have a tangible capital ratio of 1.50%. Federal law and regulations also establish five capital categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution is treated as well-capitalized if its ratio of total capital to risk-weighted assets is 10.00% or more, its ratio of core capital to risk-weighted assets is 6.00% or more, its leverage ratio is 5.00% or more, and it is not subject to any federal supervisory order or directive to meet a specific capital level. In order to be adequately capitalized, an institution must have a total risk-based capital ratio of not less than 8.00%, a Tier 1 risk-based capital ratio of not less than 4.00%, and a leverage ratio of not less than 4.00%. Any institution that is neither well-capitalized nor adequately capitalized will be considered undercapitalized. Any institution with a tangible equity ratio of 2.00% or less will be considered critically undercapitalized.

        As of December 31, 2002, each of our banking subsidiaries met all capital requirements to which they were subject and satisfied the requirements to be treated as well-capitalized. See Note 18 to the Consolidated Financial Statements – "Regulatory Capital Requirements and Dividend Restrictions" for an analysis of our regulatory capital.

Holding Company Status and Acquisitions

        Washington Mutual, Inc. is a multiple savings and loan holding company, as defined by federal law, because it owns more than one savings association. Washington Mutual, Inc. is regulated as a unitary savings and loan holding company, however, because the OTS deems our federal associations to have been acquired in supervisory transactions. Therefore, we are exempt from certain restrictions that would otherwise apply under federal law to the activities and investments of a multiple savings and loan holding company. These restrictions will apply to Washington Mutual, Inc. if any of our three banking institutions fails to meet a qualified thrift lender test established by federal law. The Company's three banking subsidiaries are currently in compliance with qualified thrift lender standards.

        Washington Mutual, Inc. may not acquire control of another savings association unless the OTS approves. Washington Mutual, Inc. may not be acquired by a company, other than a bank holding company, unless the OTS approves, or by an individual unless the OTS does not object after receiving notice. Washington Mutual, Inc. may not be acquired by a bank holding company unless the Board of Governors of the Federal Reserve System (the "Federal Reserve") approves. In any case, the public must

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have an opportunity to comment on the proposed acquisition, and the OTS or Federal Reserve must complete an application review. Without prior approval from the OTS, Washington Mutual, Inc. may not acquire more than 5% of the voting stock of any savings institution that is not one of its subsidiaries.

        The Gramm-Leach-Bliley Act generally restricts any non-financial entity from acquiring us unless such non-financial entity was, or had submitted an application to become, a savings and loan holding company as of May 4, 1999. Since Washington Mutual, Inc. was treated as a unitary savings and loan holding company prior to that date, Washington Mutual, Inc. may engage in non-financial activities and acquire non-financial subsidiaries.

Federal Home Loan Bank System

        The primary purpose of the Federal Home Loan Banks (the "FHLBs") is to provide funding to their members for making housing loans as well as for affordable housing and community development lending. The FHLBs are generally able to make advances to their member institutions at interest rates that are lower than could otherwise be obtained by such institutions. The FHLB System consists of twelve regional FHLBs; each is federally chartered but privately owned by its member institutions. The Federal Housing Finance Board ("Finance Board"), a government agency, is generally responsible for regulating the FHLB System.

        Generally, an institution eligible to be a member must initially apply for membership in the FHLB for the district where the member's principal place of business is located. One of our savings associations, Washington Mutual Bank, FA ("WMBFA"), currently is a member only of the San Francisco FHLB, because WMBFA's home office is in Stockton, California. Our state bank, whose head office is in Seattle, is a member of the Seattle FHLB, as is our other federal association, whose home office is in Salt Lake City. The Dallas FHLB (of which Bank United was a member prior to merging into WMBFA) and the New York FHLB (of which Dime's depository institution subsidiary, The Dime Savings Bank of New York, FSB, was a member prior to merging into WMBFA) have requested that the Finance Board allow WMBFA to be a member of those FHLBs without terminating WMBFA's membership in the San Francisco FHLB. WMBFA has supported these requests. The Finance Board is currently considering whether institutions may be members of more than one FHLB.

Deposit Insurance

        The FDIC insures the deposits of each of our banking subsidiaries to the applicable maximum in each institution, and such insurance is backed by the full faith and credit of the United States government. The FDIC administers two separate deposit insurance funds, the Bank Insurance Fund (the "BIF") and the Savings Association Investment Fund (the "SAIF"). The BIF is a deposit insurance fund for commercial banks and some federal and state-chartered savings banks. The SAIF is a deposit insurance fund for most savings associations. Our state bank is a member of the BIF, but a substantial portion of its deposits is insured through the SAIF. Our federal associations are members of the SAIF, but a small portion of WMBFA's deposits is insured through the BIF.

        The FDIC has established a risk-based system for setting deposit insurance assessments. Under the risk-based assessment system, an institution's insurance assessments vary according to the level of capital the institution holds and the degree to which it is the subject of supervisory concern. In addition, regardless of the potential risk to the insurance fund, federal law requires the FDIC to establish assessment rates that will maintain each insurance fund's ratio of reserves to insured deposits at $1.25 per $100. Both funds currently meet this reserve ratio. During 2002, the assessment rate for both SAIF and BIF deposits ranged from zero to 0.27% of assessable deposits. Our banking subsidiaries qualified for the lowest rate on their deposits in 2002. Accordingly, none of these institutions paid any deposit insurance assessments in 2002. If, in the future, the reserve ratio of either insurance fund falls below required levels, that fund may reinstitute deposit insurance assessments for all institutions, including those not currently subject to deposit insurance assessments.

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        In addition to deposit insurance assessments, the FDIC is authorized to collect assessments against deposits to be paid to the Financing Corporation ("FICO") to service FICO debt incurred in the 1980s. The FICO assessment rate is adjusted quarterly. Since 2000, SAIF- and BIF-assessable deposits have been assessed at the same rate by FICO. For the years 2001 and 2002, the average annual rate was 1.90 cents and 1.75 cents per $100 of assessable deposits.

Affiliate Transaction Restrictions

        Our three banking subsidiaries are subject to the same affiliate and insider transaction rules applicable to member banks of the Federal Reserve System as well as additional limitations imposed by the OTS. These provisions prohibit or limit a banking institution from extending credit to, or entering into certain transactions with, affiliates, principal stockholders, directors and executive officers of the banking institution and its affiliates. For these purposes, the term "affiliate" generally includes a holding company such as Washington Mutual, Inc. and any company under common control with the banking institution. In addition, the federal law governing unitary savings and loan holding companies prohibits our banking subsidiaries from making any loan to any affiliate whose activity is not permitted for a subsidiary of a bank holding company. This law also prohibits each of our banking institutions from making any equity investment in any affiliate that is not its subsidiary. Each of our banking subsidiaries currently is in material compliance with all these provisions.

Federal Reserve, Consumer and Other Regulation

        Numerous regulations promulgated by the Federal Reserve Board affect the business operations of our banking subsidiaries. These include regulations relating to equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings and availability of funds.

        Under Federal Reserve regulations, our banking subsidiaries are each required to maintain a reserve against their transaction accounts (primarily interest-bearing and noninterest-bearing checking accounts). Because reserves must generally be maintained in cash or in noninterest-bearing accounts, the effect of the reserve requirements is to increase an institution's cost of funds. These amounts and percentages are subject to adjustment by the Federal Reserve Board. A savings bank, like other depository institutions maintaining reservable accounts, may borrow from the Federal Reserve Bank discount window, but the Federal Reserve Board's regulations require the savings bank to exhaust other reasonable alternative sources before borrowing from the Federal Reserve Bank.

        The Gramm-Leach-Bliley Act included provisions that give consumers new protections regarding the transfer and use of their nonpublic personal information by financial institutions. In addition, states are permitted under the Gramm-Leach-Bliley Act to have their own privacy laws, which may offer greater protection to consumers than the Gramm-Leach-Bliley Act. Numerous states in which the Company does business have enacted such laws.

        The four federal banking agencies, including our regulators, have jointly issued expanded examination and supervision guidance relating to two areas affecting our activities – subprime lending and, most recently, mortgage banking and MSR. The guidance on subprime lending principally applies to institutions with subprime lending programs with an aggregate credit exposure equal to or greater than 25% of an institution's Tier 1 capital and advises that examiners will evaluate the capital of each subprime lender on a case-by-case basis. WMBFA currently holds purchased specialty mortgage finance loans significantly in excess of 25% of its Tier 1 capital and could be adversely affected by the application of the guidance since a significant portion of these loans may be considered subprime loans under the guidance.

        The guidance on mortgage banking activities and mortgage servicing rights highlights the banking agencies' concerns about and provides guidance relating to mortgage banking activities, primarily in the valuation and hedging of mortgage servicing rights. The guidance states that institutions with significant exposure to mortgage related assets, especially mortgage servicing rights, should expect greater scrutiny of

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those assets during examinations, and additional capital may be required for institutions that fail to follow the practices set forth in the guidelines.

        On October 26, 2001, President Bush signed into law the USA PATRIOT Act. The Act includes numerous provisions designed to fight international money laundering and to block terrorist access to the U.S. financial system. The provisions generally affect banking institutions, broker-dealers and certain other financial institutions. The Act requires some of our subsidiaries to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on subsidiary operations. We do not expect the impact of the Act on our operations to be material, and we have established policies and procedures to ensure compliance with the Act's provisions.

Community Reinvestment Act

        The Community Reinvestment Act ("CRA") requires that our banking subsidiaries ascertain and help meet the credit needs of the communities we serve, including low- to moderate-income neighborhoods, while maintaining safe and sound banking practices. The regulatory agency assigns one of four possible ratings to an institution's CRA performance and is required to make public an institution's rating and written evaluation. The four possible ratings of meeting community credit needs are outstanding, satisfactory, needs to improve, and substantial noncompliance. In 2000, each of our federal associations received an "outstanding" CRA rating from the OTS. In 2002, our state bank received a "satisfactory" CRA rating from the FDIC. We maintain a CRA public file that is available for viewing. The file includes copies of our most recent CRA Public Evaluations, descriptions of our products and services, delivery outlet information, and public comments.

        In September 2001, we announced a new ten-year $375 billion community commitment, effective January 2002. This commitment replaced prior ones made by us and the companies we acquired. As of December 31, 2002, we had exceeded our yearly targets for lending in low- to moderate-income neighborhoods and underserved market areas.

Regulatory Sanctions

        The OTS, FDIC and the State Director may sanction any of their regulated institutions that do not operate in accordance with applicable regulations, policies and directives. Proceedings may be instituted against any banking institution, or any institution-affiliated party, such as a trustee, director, officer, employee, agent, or controlling person, who engages in unsafe and unsound practices, including violations of applicable laws and regulations. The OTS, FDIC and the State Director may revalue assets of an institution, based upon appraisals, and may require the establishment of specific reserves in amounts equal to the difference between such revaluation and the book value of the assets. The FDIC has additional authority to terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is operating in an unsafe or unsound condition, or has violated any applicable law, regulation, rule, or order of or condition imposed by the FDIC.

Regulation of Nonbanking Affiliates

        As broker-dealers registered with the Securities and Exchange Commission and as members of the National Association of Securities Dealers, Inc. ("NASD"), our broker-dealer subsidiaries are subject to various regulations and restrictions imposed by those entities, as well as by various state authorities. As a registered investment advisor, WM Advisors is subject to various federal and state securities regulations and restrictions. Our consumer finance subsidiaries are subject to various federal and state laws and regulations, including those relating to truth-in-lending, equal credit opportunity, fair credit reporting, real estate settlement procedures, debt collection practices and usury. Our insurance subsidiaries are subject to regulation by various state insurance regulators. Some of our subsidiaries are subject to various state licensing and examination requirements.

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Principal Officers

        The following table sets forth certain information regarding the principal officers of Washington Mutual:

        Mr. Killinger has established two committees within the management of the Company, the Executive Committee and the President's Council. He established the Executive Committee in 1990 to facilitate and coordinate decision making by and communication among the most senior executive officers of the Company who, as a committee, determine the Company's strategic direction. The President's Council, established by Mr. Killinger in December 2002 and comprised of the Chief Financial Officer, the Chief Administrative Officer and the Group Presidents, is focused on operational efficiency, operational decision-making and strategic execution, with particular emphasis on operations and execution across business segments. The executive officers serving on these committees at December 31, 2002 are indicated below.

        Mr. Killinger is Chairman, President and Chief Executive Officer of Washington Mutual. He was named President and Director in 1988, Chief Executive Officer in 1990 and Chairman in 1991. Mr. Killinger joined Washington Mutual as an Executive Vice President of Washington Mutual Bank in 1983. He has been a member of the Executive Committee since its formation in 1990.

        Mr. Casey is Executive Vice President and Chief Financial Officer of Washington Mutual. As a member of the Executive Committee and the President's Council, he oversees all aspects of Washington Mutual's corporate finance and investor relations functions. Prior to joining Washington Mutual, Mr. Casey was with GE Capital Corp. from 1992 through 2002 where he held advising, controllership and analyst positions prior to becoming Vice President of GE Capital and Vice President and CFO of GE Financial Assurance.

        Mr. Chapman is Group President of Specialty Finance and Chief Administrative Officer. He is responsible for overseeing the Commercial Real Estate and Specialty Lending units and Washington Mutual Finance Corporation. As Chief Administrative Officer, Mr. Chapman oversees operational

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excellence, acquisition integration, corporate property services and strategic sourcing. After joining Washington Mutual in 1998 as President and Chief Executive Officer of Washington Mutual Finance Corporation, he became a member of the Executive Committee in 2001 and a member of the President's Council in 2002. Previously, Mr. Chapman served as President of AMRESCO Residential Mortgage Corporation from 1996 to 1997.

        Ms. Chapman has been Senior Executive Vice President and General Counsel since 1999. She became Executive Vice President, General Counsel and a member of the Executive Committee in 1997.

        Mr. David joined Washington Mutual in 2000 as Executive Vice President, Human Resources. He is responsible for talent acquisition, organizational capabilities, leadership development and rewards and benefits. Mr. David became a member of the Executive Committee in 2001. He has more than 25 years of human resources management experience, most recently, at Amazon.com as Vice President of Strategic Growth and Human Resources.

        Mr. Davis is Group President of Home Loans and Insurance Services. He is responsible for home loan lending and insurance services and overseeing the Community and External Affairs division. Mr. Davis became Executive Vice President and a member of the Executive Committee in January 1997 and a member of the President's Council in 2002. Prior to joining Washington Mutual, he was Director of Mortgage Originations of American Savings Bank, F.A. from 1993 through 1996 and served as President of ASB Financial Services, Inc. from 1989 to 1993.

        Mr. Gross joined Washington Mutual in 2001 as Executive Vice President and Chief Information Officer and became a member of the Executive Committee at that time. He is responsible for directing the Company's corporate technology strategy. Mr. Gross joined Washington Mutual from Sydney, Australia-based Westpac Banking Corp. where he was Group Executive of Technology, Operations and eCommerce from 1999 to 2001. Previously, he spent seven years at Countrywide Credit Industries where he was Managing Director and Chief Technology Officer.

        Mr. Longbrake has been Vice Chair, Enterprise Risk Management and Chief Risk Officer since 2002. He has been a member of the Executive Committee since 1996. He is responsible for managing the Company's market risk, operational risk, compliance, internal audit, security, information security, business continuity planning, insurance risk and regulatory relations. From 1996 to 1999, Mr. Longbrake was Executive Vice President and Chief Financial Officer. He became Vice Chair in 1999.

        Mr. Miles has been Senior Vice President and Controller since January 2001. He serves as Washington Mutual's principal accounting officer. Mr. Miles joined the Company as Senior Vice President, Corporate Tax in June 1999. Prior to joining the Company, Mr. Miles was Director, Domestic Taxes of BankBoston, N.A. from 1996 to 1999.

        Ms. Oppenheimer is Group President of Banking and Financial Services. She is responsible for consumer banking, financial services and business banking. Additionally, Ms. Oppenheimer oversees corporate marketing and corporate communications. Ms. Oppenheimer became Executive Vice President in 1993, has been a member of the Executive Committee since its formation in 1990, and became a member of the President's Council in 2002. She has been an officer of the Company since 1985.

        Mr. Tall is Vice Chair, Corporate Development and Strategic Planning. He is responsible for overseeing the Company's corporate development, including acquisitions, strategic planning, real estate investments, and Washington Mutual's Strategic Capital Fund. Mr. Tall became an Executive Vice President in 1987 and Vice Chair in 1999. He has been a member of the Executive Committee since its formation in 1990.

        Mr. Vanasek is Executive Vice President and Chief Credit Officer. He is responsible for overseeing all facets of the Company's credit risk management policies, strategies and performance. Mr. Vanasek became a member of the Executive Committee in 2001. Prior to joining Washington Mutual in 1999, he spent eight

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years at the former Norwest Bank, in a variety of lending risk management positions including Chief Credit Officer.

Properties

        The Company's headquarters are located at 1201 Third Avenue, Seattle, Washington 98101. As of December 31, 2002, we conducted business in 44 states through approximately 2,773 physical distribution centers.

        Additionally, significant facilities that we owned or leased were as follows:

⁽¹⁾

The Company has options to renew leases at most locations.

⁽²⁾

Multiple locations.

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Legal Proceedings

        In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to a number of pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. In certain of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. Certain of these actions and proceedings are based on alleged violations of consumer protection, banking and other laws.

        In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of pending matters will be. Based on current knowledge, management does not believe that liabilities, if any, arising from any single pending proceeding will have a material adverse effect on the consolidated financial position, operations or liquidity of the Company. However, if an unfavorable outcome were to occur in more than one proceeding during the same reporting period, there exists the possibility of a material adverse impact on the Company's operating results for that particular period, depending upon, among other things, the level of the Company's income for such period.

Submission of Matters to a Vote of Security Holders

        No matters were submitted to shareholders during the fourth quarter of 2002.

PART II

Market for our Common Stock and Related Stockholder Matters

        Our common stock trades on The New York Stock Exchange under the symbol WM. As of February 28, 2003, there were 939,456,466 shares issued and outstanding (including 17.775 million shares held in escrow) held by 45,385 shareholders of record. The information regarding high and low quarterly sales prices of the Company's common stock, and the quarterly cash dividends declared thereon, is set forth in this Form 10-K in the "Quarterly Results of Operations" table included under Supplementary Data on page 142 and is expressly incorporated herein by reference.

        The "Securities Authorized for Issuance Under Equity Compensation Plans" are incorporated by reference from our definitive proxy statement in conjunction with our Annual Meeting of Shareholders to be held April 15, 2003.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Controls and Procedures

        An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures within 90 days before the filing date of this annual report. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

        We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures.

Critical Accounting Policies

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our Consolidated Financial Statements and accompanying notes. We believe that the judgments, estimates and assumptions used in the preparation of our Consolidated Financial Statements are appropriate given the factual circumstances as of December 31, 2002. However, given the sensitivity of our Consolidated Financial Statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition.

        Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified four policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an

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understanding of our Consolidated Financial Statements. The table below represents information about the nature of and rationale for the Company's critical accounting policies:

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        Management has discussed the development and selection of these critical accounting policies with the Audit Committee of our Board of Directors. In addition, there are other complex accounting standards that require the Company to employ significant judgment in interpreting and applying certain of the principles prescribed by those standards. These judgments include, but are not limited to, the determination of whether a financial instrument or other contract meets the definition of a derivative in accordance with Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and the applicable hedge deferral criteria. These policies and the judgments, estimates and assumptions are described in greater detail in subsequent sections of Management's Discussion and Analysis and in Note 1 to the Consolidated Financial Statements – "Summary of Significant Accounting Policies."

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Five-Year Summary of Selected Financial Data

⁽¹⁾

Restated for all stock splits.

Significant Transactions

        The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto presented elsewhere in this report.

        During 2002, the Company completed three acquisitions. On January 4, 2002, we completed our acquisition of New York-based Dime Bancorp, Inc. The aggregate purchase price of Dime was approximately $5.3 billion. The acquisition of Dime added approximately $31 billion to our asset base, including approximately $22 billion in loans, and increased our deposit base by approximately $15 billion. The acquisition of Dime also significantly contributed to the growth in our mortgage banking business, resulting in a $926 million increase to our MSR balance and a $49.24 billion increase in our portfolio of loans serviced for others.

        In two transactions during 2002, we purchased for cash HomeSide Lending, Inc., the U.S. mortgage unit of National Australia Bank Limited. The aggregate purchase price of HomeSide was $2.45 billion. The acquisition of HomeSide added approximately $1 billion in loans held for sale, approximately $960 million in net MSR and approximately $130 billion to our portfolio of loans serviced for others. We also acquired a proprietary loan servicing platform, which we intend to make our primary loan servicing platform. In addition we assumed $760 million in long-term debt and $750 million in other liabilities.

        The Company also sold servicing rights during 2002, which, together with high amortization levels and impairment that were attributable to low interest rates during the year, resulted in a $900 million decrease in our net MSR balance. These sales were part of the Company's strategy to actively manage the size of our MSR while still retaining the customer relationships.

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        Also during 2002, the Company significantly increased its level of deposits primarily due to the growth in Platinum Account balances, which increased from $9.40 billion at December 31, 2001 to $50.20 billion at December 31, 2002. The increase in deposits resulted in a reduction in our wholesale borrowings, which declined from $105.32 billion at December 31, 2001 to $69.23 billion at December 31, 2002.

        During 2001, we completed three acquisitions. On January 31, we acquired the mortgage operations of The PNC Financial Services Group, Inc. for approximately $7.0 billion. On February 9, we acquired Texas-based Bank United Corp. for approximately $1.4 billion, and on June 1, we acquired Fleet Mortgage Corp., a unit of FleetBoston Financial Corp., and certain other mortgage lending operations of Fleet National Bank for approximately $7.5 billion. Substantially due to these acquisitions, our loan serviced for others portfolio grew from $85.88 billion at January 1, 2001 to $382.50 billion at December 31, 2001 and our loans held for sale increased from $3.40 billion to $26.58 billion. Correspondingly, the MSR associated with our servicing portfolio increased from $1.02 billion at January 1, 2001 to $6.24 billion at December 31, 2001. The acquisition of Bank United also increased our deposit base by $8.09 billion and added approximately $12 billion to our loans held in portfolio.

        Variances in the amounts reported on the Consolidated Statements of Income between 2002, 2001 and prior years and on the Consolidated Statements of Financial Condition between 2002 and 2001 are partially attributable to the results from the aforementioned acquisitions as the results from those operations are included prospectively from the date of acquisition.

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Ratios and Other Supplemental Data

⁽¹⁾

The efficiency ratio is defined as noninterest expense, excluding amortization of goodwill, divided by total revenue (net interest income and noninterest income).

⁽²⁾

Excludes unrealized net gain/loss on available-for-sale securities and derivatives, goodwill and intangible assets, but includes MSR.

⁽³⁾

Estimate of what the total risk-based capital ratio would be if Washington Mutual, Inc. was a bank holding company that complies with Federal Reserve Board capital requirements.

⁽⁴⁾

Excludes 18 million shares held in escrow pending resolution of the Company's asserted right to the return of such shares.

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        Certain average balances, together with the total dollar amounts of interest income and expense and the weighted average interest rates, were as follows:

⁽¹⁾

The average balance and yield on available-for-sale and held-to-maturity securities are based on average amortized cost balances.

⁽²⁾

Nonaccrual loans are included in the average loan amounts outstanding.

⁽³⁾

Interest income for loans held in portfolio includes amortization of net deferred loan origination costs of $259 million, $173 million, and $65 million for the years ended December 31, 2002, 2001, and 2000.

⁽⁴⁾

Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

⁽⁵⁾

Represents construction loans made directly to the intended occupant of a single-family residence.

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        The dollar amounts of interest income and interest expense fluctuate depending upon changes in interest rates and upon changes in the volume 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) which were allocated proportionately to the changes in volume and the changes in rate and included in the relevant column below were as follows: