1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 30, 2000, there
were 1,000 shares of Common Stock outstanding. Registrant meets the conditions
set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore
filing this Form with the reduced disclosure format.
<PAGE> 2
WASHINGTON MUTUAL FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 2000 and December 31, 1999............................3
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings -
Three Months Ended March 31, 2000 and 1999......................4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999......................5
Notes to Consolidated Financial Statements........................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9 - 14
Part II. Other Information:
Item 5. Other Information........................................15
Item 6. Exhibits and Reports on Form 8-K..........................16
Signature .........................................................17
<PAGE> 3
Item 1. Financial Statements
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
(Dollars in thousands, except par value) March 31, December 31,
2000 1999
-------------- --------------
ASSETS
<S> <C> <C>
Consumer finance receivables, net $ 3,195,227 $ 2,961,449
Investment securities 165,513 128,964
Cash and cash equivalents 2,349 40,008
Property, equipment and leasehold improvements, net 22,987 22,112
Goodwill, net 50,199 51,340
Other assets 24,618 23,684
-------------- ---------------
TOTAL ASSETS $ 3,460,893 $ 3,227,557
============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 520,920 $ 284,175
Long-term debt 2,070,075 2,069,788
-------------- ---------------
Total debt 2,590,995 2,353,963
Customer deposits 176,884 189,934
Accounts payable and other liabilities 190,854 208,502
-------------- ---------------
Total liabilities 2,958,733 2,752,399
-------------- ---------------
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 446,979 427,635
Accumulated other comprehensive loss (2,530) (1,438)
-------------- ---------------
Total stockholder's equity 502,160 475,158
-------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,460,893 $ 3,227,557
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Operations, Comprehensive Income and Retained
Earnings
(Unaudited)
<TABLE>
For the Three Months
Ended March 31,
---------------------------
(Dollars in thousands) 2000 1999
------------ -----------
<S> <C> <C>
Loan interest and fee income $ 126,852 $ 110,694
Investment securities income 2,784 2,498
------------ -----------
Total interest income 129,636 113,192
Interest and debt expense 43,541 34,804
------------ -----------
Net interest income before
provision for credit losses 86,095 78,388
Provision for credit losses 24,477 25,600
------------ -----------
Net interest income 61,618 52,788
------------ -----------
Non-interest income 7,872 6,655
Non-interest expenses:
Personnel 22,985 19,156
Occupancy 3,273 2,664
Advertising 1,876 2,348
Goodwill amortization 1,141 935
Other 9,021 9,544
------------ -----------
38,296 34,647
------------ -----------
Income before income taxes 31,194 24,796
Provision for federal and state income taxes 11,850 9,670
------------ -----------
Net income 19,344 15,126
Net unrealized holding losses on securities
arising during period, net of tax (1,092) (874)
------------ -----------
Comprehensive income $ 18,252 $ 14,252
============ ===========
Retained Earnings
Beginning of period $ 427,635 $ 369,143
Net income 19,344 15,126
Dividends paid - (4,000)
------------ -----------
End of period $ 446,979 $ 380,269
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Three Months
Ended March 31,
---------------------------------
(Dollars in thousands) 2000 1999
----------- -----------
Operating activities
<S> <C> <C>
Net income $ 19,344 $ 15,126
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 24,477 25,600
Depreciation and amortization 4,337 2,385
(Decrease) increase in accounts payable
and other liabilities (17,129) 1,506
Increase in other assets (934) (2,396)
----------- -----------
Net cash provided by operating activities 30,095 51,895
----------- -----------
Investing activities
Investment securities purchased (52,478) (9,487)
Investment securities matured or sold 14,342 11,447
Net increase in consumer finance receivables (260,107) (71,412)
Net increase in property, equipment and
leasehold improvements (1,956) (1,301)
----------- -----------
Net cash used in investing activities (300,199) (70,753)
----------- -----------
Financing activities
Net (decrease) increase in customer deposits (13,050) 10,503
Net increase (decrease) in short-term debt 236,745 (132,271)
Proceeds from issuance of long-term debt - 259,700
Repayments of long-term debt - (115,000)
Capital contributed by parent 8,750 -
Dividends paid - (4,000)
----------- -----------
Net cash provided by financing activities 232,445 18,932
----------- -----------
Net (decrease) increase in cash and
cash equivalents (37,659) 74
Cash and cash equivalents
Beginning of period 40,008 24,180
----------- -----------
End of period $ 2,349 $ 24,254
=========== ===========
Supplemental disclosures of cash flow information
Interest paid $ 38,429 $ 29,885
Intercompany (refunds) payments (net of refunds)
in lieu of federal and state income taxes (113) 4
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON MUTUAL FINANCE CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying consolidated financial statements of Washington Mutual Finance
Corporation and subsidiaries (the "Company") have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
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.
The Company is an indirect, wholly owned subsidiary of Washington Mutual, Inc.
("Washington Mutual").
Note 2 Lines of Business
The Company is 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 the Company's profitability
reporting processes.
Financial highlights by line of business were as follows:
<TABLE>
(Dollars in thousands) Three Months Ended March 31,
-------------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
---------- ---------- ---------- ----------- ---------- ----------
Condensed income statement:
Net interest income after
<S> <C> <C> <C> <C> <C> <C>
provision for credit losses $ 56,638 $ 4,980 $ 61,618 $ 48,839 $ 3,949 $ 52,788
Other operating income 7,777 95 7,872 6,514 141 6,655
Operating expenses 36,367 1,929 38,296 32,932 1,715 34,647
----------- ----------- ----------- ----------- ----------- ------------
Income before income
taxes 28,048 3,146 31,194 22,421 2,375 24,796
Income taxes 10,647 1,203 11,850 8,759 911 9,670
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 17,401 $ 1,943 $ 19,344 $ 13,662 $ 1,464 $ 15,126
=========== =========== =========== =========== =========== ===========
<PAGE>
Other disclosures:
March 31, 2000 December 31, 1999
-------------------------------------- --------------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Total Finance Banking Total
----------- ----------- ----------- ----------- ----------- -----------
Total assets $ 3,040,763 $ 420,130 $ 3,460,893 $ 2,821,116 $ 406,441 $ 3,227,557
Total equity $ 447,765 $ 54,395 $ 502,160 $ 422,650 $ 52,508 $ 475,158
</TABLE>
Note 3 Related Party Transaction
In March 2000, the Company acquired $123.0 million of single family residence
loans from Long Beach Mortgage Company, a wholly owned subsidiary of Washington
Mutual. The Company paid an amount which approximated the historical cost of the
assets acquired. These loans are reported as consumer finance receivables on the
Consolidated Statements of Financial Condition.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes presented elsewhere in this report.
This report contains forward-looking statements, which are not historical facts
and pertain to future operating results of the Company. 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 plan, objectives, expectations and intentions and other
statements contained in this report that are not historical facts. When used in
this report, the words "expects," "anticipate," "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 the Company's 1999 Annual Report on Form 10-K filed with
the Securities and Exchange Commission, which is incorporated herein by
reference.
Overview
The Company continued to build on its record results in 1999, producing strong
growth in the first quarter of 2000. First quarter net income of $19.34 million
represents a 27.89% increase over the same period in 1999. The following are key
highlights of the Company's performance:
o Return on average assets during the first quarter improved to 2.34% from 2.18%
in the same period of 1999.
o Net consumer finance receivables increased 7.69% during the quarter as
compared to 1.98% in the first quarter of 1999. The Company has historically
experienced a reduction in consumer finance receivables during this period.
o Yields earned on consumer finance receivables declined from 17.03% in the
first quarter of 1999 to 16.13% in the same period in 2000 due primarily to a
shift in product mix towards lower yielding real estate secured loans and
increased amortization of deferred loan origination costs.
o Both net interest spread and net interest margin were down compared to the
prior year. These decreases are a result of the decline in yields earned
discussed above,coupled with an increase in the weighted average cost of funds
of 28 basis points, which is a reflection of the increasing interest rate
environment associated with the Company's borrowings. See "Consolidated
Results of Operations."
<PAGE>
o Operating efficiency, defined as the ratio of non-interest operating expenses,
excluding the amortization of goodwill, to total revenue, improved slightly
from 39.64% in the first quarter of 1999 to 39.54% in the same period of 2000.
o Delinquencies (accounts contractually past-due greater than 60 days) as a
percentage of gross consumer finance receivables improved, decreasing from
2.31% at December 31, 1999 to 2.18% at March 31, 2000.
o Net charge-offs totaled $22.78 million in the first quarter of 2000, as
compared to $19.70 million during the same period in 1999. Net charge-offs
as a percentage of average consumer finance receivables (excluding unearned
finance charges and deferred loan fees) were 2.90% in the first quarter of
2000, as compared to 3.03% in the same period of 1999.
Consolidated Results of Operations
Net Interest Income before Provision for Credit Losses
Net interest income before provision for credit losses during the first quarter
of 2000 increased 9.83% to $86.10 million, compared to $78.39 million in the
same period of 1999. Net interest margin for the first quarter of 2000 was
10.43%, compared to 11.40% during the same period in 1999.
The increase in net interest income before provision for credit losses during
the first quarter of 2000 reflects growth in average net consumer finance
receivables to $3.14 billion, which was $544.39 million, or 20.94%, greater than
the average balance during the same period in 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 a 90 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. The other
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.
In order to finance the growth in consumer finance receivables, average debt
outstanding increased $435.80 million, or 19.86%, to $2.63 billion during the
first quarter of 2000, as compared to the same period in 1999. During the latter
half of 1999, the mix of debt was shifted to longer term, senior debt in order
to lessen the impact of higher short-term borrowing rates caused by the Year
2000 liquidity risk. In addition, the rates paid on commercial paper and FHLB
advances during the first quarter of 2000 were 70 and 93 basis points higher,
respectively, than in the same period of 1999, due to the recent rising interest
rate environment associated with short-term borrowings. As a result, the overall
cost of debt increased 28 basis points, as compared to the first quarter of the
prior year.
<PAGE>
The following chart reflects the average balances and related effective yields
during the first quarter of 2000 and 1999, as described above:
<TABLE>
(Dollars in thousands) Three Months Ended March 31,
-------------------------------------------------------
2000 1999
----------------------- --------------------------
Average Average
Balance Rate Balance Rate
Interest-earning assets: ------------ -------- ------------ -------
Real estate secured
<S> <C> <C> <C> <C>
loans $ 1,530,797 12.40% $ 1,151,968 12.38%
Personal loans 1,324,713 21.59 1,166,365 22.96
Retail sales contracts 289,275 10.89 282,061 11.48
------------ ------- ------------ -------
3,144,785 16.13 2,600,394 17.03
Investment securities 157,890 7.05 149,353 6.69
------------ ------ ------------ -------
Total interest-earning
assets $ 3,302,675 15.70% $ 2,749,747 16.47%
============ ====== ============ -------
Interest-bearing liabilities:
Senior debt $ 1,996,032 6.87% $ 1,498,122 6.82%
Commercial paper 319,163 5.97 429,987 5.27
Customer deposits 183,635 5.44 192,566 5.55
FHLB advances 131,541 6.04 73,900 5.11
------------ ------ ----------- -------
Total interest-bearing
liabilities $ 2,630,371 6.62% $ 2,194,575 6.34%
============ ====== ============ =======
Net interest spread 9.08% 10.13%
====== =======
Net interest margin 10.43% 11.40%
====== =======
</TABLE>
Provision for Credit Losses
The provision for credit losses during the first quarter of 2000 was $24.48
million, compared to $25.60 million in the same period of 1999. In the first
quarter of 2000, the annualized provision for credit losses was 3.11% of average
consumer finance receivables (excluding unearned finance charges and deferred
loan fees), as compared to 3.94% during the same period of 1999. See further
discussion in "Allowance for Credit Losses."
Other Operating Income
Other operating income increased 18.29% in the first quarter of 2000 to $7.87
million, compared to $6.66 million during the same period of 1999. 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 first quarter, partially offset by the
shift in originations to loans which tend to have a lower insurance penetration.
<PAGE>
Operating Expenses
Operating expenses in the first quarter of 2000 were 10.53% higher, or $38.30
million, as compared to $34.65 million during the same period in 1999. This
increase is primarily a result of higher personnel and occupancy expenses
associated with an increase in both headcount and number of office locations as
compared to the same period in 1999. Nonetheless, the efficiency ratio improved
by 25 basis points when comparing these periods.
Provision for Income Taxes
The provision for income taxes during the first quarter of 2000 was $11.85
million, which represents an effective rate of 37.99%. This compares to $9.67
million, or 39.0% in the same period of 1999.
Segment Results
The Company is managed along two major lines of business: consumer finance and
consumer banking. Following is an overview of the performance of each segment in
the first quarter of 2000:
Consumer Finance
o Net income increased 27.37% to $17.40 million in the first quarter of 2000,
from $13.66 million in the same period of 1999.
o The consumer finance receivables portfolio experienced significant growth
during the quarter, totaling $226.84 million, or 8.45% over the prior year-
end. Included in this growth was the acquisition from Long Beach Mortgage
discussed in Note 3 to the Consolidated Financial Statements.
o Net interest margin decreased as a result of slight yield erosion on receiv-
ables caused by the shift in product mix toward real estate secured loans,
coupled with the full-year impact of increased amortization of deferred loan
origination costs. In addition, there was an increase in the cost of funds
as discussed in "Consolidated Results of Operations."
Consumer Banking
o Net income increased 32.72% to $1.94 million in the first quarter of 2000,
from $1.46 million during the same period of 1999.
o The consumer banking receivables portfolio increased $8.64 million, or
2.30% over the prior year-end during the first quarter of 2000.
<PAGE>
o Net interest margin decreased as a result of slight yield erosion on
receivables, coupled with an increased cost of funds due to a reduction in
customer deposits and higher rates paid on FHLB borrowings.
Asset Quality
Allowance for Credit Losses
In order to establish the Company's allowance for credit losses, the consumer
finance receivables portfolio is segmented into two categories: real estate
secured and non-real estate secured (personal loans and retail sales 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 the Company's 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 the Company's
credit administration management to assess collectibility and determine a future
course of action, at times resulting in the Company foreclosing on the property.
<TABLE>
Activity in the Company's allowance for credit losses is as follows:
Three Months Ended March 31,
------------------------------
(Dollars in thousands) 2000 1999
---------- ----------
<S> <C> <C>
Balance, beginning of period $ 100,308 $ 80,493
Provision for credit losses 24,477 25,600
Amounts charged-off
Real estate secured loans (385) (380)
Other installment loans (23,607) (20,099)
Retail installment contracts (3,186) (3,322)
---------- ----------
(27,178) (23,801)
Recoveries
Real estate secured loans 59 146
Other installment loans 3,601 3,149
Retail installment contracts 741 808
---------- ----------
4,401 4,103
---------- ----------
Net charge-offs (22,777) (19,698)
---------- ----------
Balance, end of period $ 102,008 $ 86,395
========== ==========
</TABLE>
While charge-offs as a percentage of average consumer finance receivables have
decreased in recent quarters, a number of underlying factors have prompted
management to increase the allowance for credit losses. Included in the
assessment to determine the allowance for credit losses at March 31, 2000 are
the following qualitative factors:
o Changing economic conditions - althoug the Company's economic forecast
indicates that overall, the U.S economy should remain strong, there are
some underlying delinquency trends which are beginning to impact the
performance of the Company's portfolio. Current rising interest rates may
have the effect of overextending some customers, many of whom maintain
variable-rate credit cards and first mortgages from other lenders.
<PAGE>
o There has recently been a slight deterioration in late stage (60 days
or more) delinquency and increasing bankruptcy in the personal loan
portfolios. These trends are being closely monitored and appropriate
action is being taken. Nonetheless, these factors are considere in the
establishment of the allowance.
o Recent rapid growt in the portfolio - there is some potential risk in
strong growth via the extension of additional credit to existing customers.
In addition, there is a natural la effect in charge-offs as a portfolio
grows. Loans tend not to become delinquent until after they have been in
the portfolio for some time. Thus, the charge-off rate in a rapidly growing
portfolio will tend to over-state the credit quality of the portfolio.
Management analyzes the portfolio on a vintage basis(by period of origination)
and has not detected any areas of significant concern. Nonetheless, the
charge-off ratio can not be relied upon solely as an indicator of portfolio
credit quality.
Due to the significant growth in the portfolio during the quarter, coupled
with the presence of the above factors at March 31, 2000, the allowance for
credit losses increased $1.70 million, or 1.70% as compared to December 31,
1999. Management considers the allowance for credit losses adequate to
cover losses inherent in the loan portfolio at March 31, 2000. No assurance
can be given that the Company 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.
The following table sets forth, by loan type, the amount of receivables
delinquent for 60 days or more, on a contractual basis, and the ratio of that
amount to gross consumer finance receivables outstanding:
<TABLE>
March 31, 2000 December 31, 1999 March 31, 1999
--------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Real estate secured loans $ 13,404 0.70% $ 9,259 0.57% $ 8,142 0.61%
Other installment loans 60,569 3.93 62,875 4.01 54,009 3.95
Retail installment contracts 8,232 2.60 9,137 2.79 8,985 2.94
-------- ---- ------- ---- ------- ----
$ 82,205 2.18% $81,271 2.31% $71,136 2.36%
======== ==== ======= ==== ======= ====
</TABLE>
Liquidity
The Company funds its operations through a variety of corporate borrowings.
The primary source of these borrowings is corporate debt securities issued
by the Company. At March 31, 2000, twelve different fixed-rate senior debt
issues totaling $2 billion were outstanding, with a weighted average cost
of 6.87%. To meet the Company's short-term funding needs, daily trades of
commercial paper are executed. The Company has a commercial paper program with
several investment banks which provides $700 million in borrowing capacity.
<PAGE>
At March 31, 2000, thirty-four commercial paper borrowings totaling $458.07
million were outstanding, with a weighted average cost of 6.19%. The Company's
targeted funding strategy is to maintain a mix between long and short-term
borrowings of 75% to 25%. As a result of increased short-term borrowings during
the first quarter of 2000, the split between long and short-term at March 31,
2000 was approximately 76% to 24%.
The Company's banking subsidiary raises funds through both customer deposits
and advances with the Federal Home Loan Bank of Topeka. At March 31, 2000, the
banking subsidiary's outstanding debt totaled $313.64 million, with a weighted
average cost of 5.81%.
The Company also maintains two revolving credit agreements with twenty-one
syndicate lenders which provide a credit line of up to $1.2 billion primarily
to support the commercial paper borrowings, thus providing greater than 1:1
coverage of the outstanding borrowings at any given time. Of this amount,
Washington Mutual has the ability to borrow up to $500 million. There were no
borrowings under these revolving credit agreements at March 31, 2000.
Capital Management
The Company establishes equity leverage targets based upon the ratio of debt
(including customer deposits) to tangible equity. The debt to tangible equity
ratio at March 31, 2000 of 6.12:1 was intentionally increased from 6.00:1 at
December 31, 1999. The determination of the Company's dividend payments and
resulting capital leverage is managed in a manner consistent with the Company's
desire to maintain strong and improving credit ratings. In addition, provisions
of certain of the Company's debt agreements restrict the payment of dividends
to a maximum prescribed proportion of cumulative earnings and contributed
capital. At March 31, 2000, approximately $148.46 million was available under
the debt agreement restriction for future dividends. Due to the recent rapid
growth in the Company's consumer finance receivables portfolio, Washington
Mutual contributed capital totaling $8.75 million in the quarter ended March
31, 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
The calculation of the Company's ratio of earnings to fixed charges as of the
dates indicated is shown below:
<TABLE>
For the Three Months
Ended March 31,
----------------------
(Dollars in thousands) 2000 1999
-------- --------
<S> <C> <C>
Income before income taxes $ 31,194 $ 24,796
-------- --------
Fixed charges:
Interest and debt expense on
all indebtedness 43,541 34,804
Appropriate portion of
rentals (33%) 988 934
-------- --------
Total fixed charges 44,529 35,738
-------- --------
Earnings available for
fixed charges $ 75,723 $ 60,534
======== ========
Ratio of earnings
to fixed charges 1.70 1.69
======== ========
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(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. (i)
(4) (a) Indenture dated as of July 1, 1992 between Aristar,
Inc. and The Chase Manhattan Bank, N.A., as trustee.
(ii)
(b) Indenture dated as of July 1, 1995 between Aristar,
Inc. and the Bank of New York, as trustee. (iii)
(c) Indenture dated as of October 1, 1997 between
Aristar, Inc. and First Union National Bank, as
trustee. (iv)
(d) Indenture dated as of June 23, 1999 between
Washington Mutual Finance Corporation and Harris
Trust and Savings Bank, as trustee. (v)
(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) 364-Day Credit Agreement by and among the Registrant
and Washington Mutual Finance Corporation and The
Chase Manhattan Bank, as Administrative Agent,
(Incorporated by reference to Washington Mutual
Inc.'s Form 10-Q for the quarter ended September 30,
1999. File No. 1-14667.)
(b) Four-Year Credit Agreement by and among the
Registrant and Washington Mutual Finance Corporation
and The Chase Manhattan Bank, as Administrative
Agent, (Incorporated by reference to Washington
Mutual Inc.'s Form 10-Q for the quarter ended
September 30, 1999. File No. 1-14667.)
(27) Financial Data Schedule.
(b) Reports on Form 8-K
On March 2, 2000, the Company filed a Current Report on Form 8-K, dated
March 1, 2000, disclosing, under item (5) thereof, that effective
March 1, 2000, the Company had changed its name from Aristar, Inc. to
Washington Mutual Finance Corporation and, under item (7) thereof, a
presentation made by management of the registrant at an investor
conference on March 2, 2000, of registrant's financial performance
and business strategy.
(i) Incorporated by reference to Registrant's Quarterly Report
on Form 10-K for the year ended December 31, 1987, Commission
file number 1-3521.
(ii) Incorporated by reference to Registrant's Current Report on
Form 8-K dated June 24, 1992, Commission file number 1-3521.
(iii) Incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, Commission
file number 1-3521.
(iv) Incorporated by reference to Registrant's Current Report on
Form 8-K dated October 6, 1997, Commission file number 1-3521.
(v) Incorporated by reference to the Registration Statement
on Form S-3, Registration number 333-80147.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
WASHINGTON MUTUAL FINANCE CORPORATION
Date: May 12, 2000 By: /s/ H. Philip Goodeve
------------------------------ ------------------------------
H. Philip Goodeve
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's financial statements filed as part of its Report on Form 10-Q for the
quarter ended March 31, 2000 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 2,349
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,513
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,297,235
<ALLOWANCE> (102,008)
<TOTAL-ASSETS> 3,460,893
<DEPOSITS> 176,884
<SHORT-TERM> 520,920
<LIABILITIES-OTHER> 190,854
<LONG-TERM> 2,070,075
0
0
<COMMON> 1
<OTHER-SE> 502,159
<TOTAL-LIABILITIES-AND-EQUITY> 3,460,893
<INTEREST-LOAN> 126,852
<INTEREST-INVEST> 2,784
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 129,636
<INTEREST-DEPOSIT> 2,497
<INTEREST-EXPENSE> 43,541
<INTEREST-INCOME-NET> 86,095
<LOAN-LOSSES> 24,477
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 38,296
<INCOME-PRETAX> 31,194
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,344
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.43
<LOANS-NON> 59,693
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 100,308
<CHARGE-OFFS> (27,178)
<RECOVERIES> 4,401
<ALLOWANCE-CLOSE> 102,008
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 102,008
<FN>
Washington Mutual Finance Corporation is technically a Commercial and Industrial
Company subject to Article 5 of Regulation S-X. However, as its primary
business is consumer finance, the Company, although not a bank holding company,
is engaged in similar lending activities. Therefore, in accordance with Staff
Accounting Bulletin Topic 11-K, "Application of Article 9 and Guide 3," the
Company has prepared its Financial Data Schedule for the quarter ended March 31,
2000 using the Article 9 format.
</FN>
</TABLE>
