2001 Financial Analysis

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Asset/Liability Management Overview . . . . . . . . . . . . . . . . . . . . . . 7

Interest-Rate Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Credit Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Liquidity Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Financial Performance Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Consolidated Statements of Financial Condition . . . . . . . . . . . . . . 35

Consolidated Statements of Income and Comprehensive Income . 37

Key Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Key Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

INTR

OD

UC

TIO

NIntroduction

Expect more from us. We do.

Credit unions searching for value in today’s financial marketplace can be

assured that at WesCorp, our commitment to their success is paramount in our

business strategy. That’s why we developed an infrastructure consisting of

experienced professionals with specialized expertise in their fields and operat-

ing systems unparalleled in the industry. Our economies of scale give us

unique strengths, which we pass on to our members. These strengths result in

highly competitive yields and value-based products and services. Our commit-

ment to continually “raise the bar” on the expectations we have set for our-

selves defines the approach we take in living our service quality process.

WesCorp’s financial performance over the first six months of 2001 gives testi-

mony to this successful business model and to the value WesCorp is posi-

tioned to offer our member/owners in the credit union community. After

careful examination, this report will underscore what we mean when we say,

“Expect more from us. We do.”

WesCorp carefully

manages its port-

folio to increase

its strength and

maximize member

earnings.

Dedicated to Strength and Safety

WesCorp member shares totaled $12.7 billion

on June 30, 2001. Far more important than the

size of this number is the fact that, as of

December 31, 2000, WesCorp held approxi-

mately 35 percent of member investments,

roughly 20 percent more than the next largest

investment vehicle and 40 percent more than

that typically experienced by other corporate

credit unions. As proprietor of these invest-

ments, WesCorp has prepared the following dis-

cussion and analysis, which reviews the first six

months of 2001.

WesCorp carefully manages its portfolio to

increase its strength and maximize member

earnings. WesCorp holds all expanded invest-

ment authorities allowed under NCUA Rules

and Regulations. The corporate has built $434.9

million in reserves and undivided earnings

(RUDE). These achievements point to the safety

that resides with WesCorp and to its ongoing

ability to enhance the investment products and

services it provides. Furthermore, WesCorp can

continue to maintain its goal of self-sufficiency.

By paying 95.9 percent of operating expenses

from earnings on RUDE and fee income,

WesCorp can pay back nearly all investment

earnings to its member/owners in the form of

high yields on investments, lower loan rates and

lower fees on products and services.

However, the true validation of WesCorp’s suc-

cess over this period comes from the due dili-

gence performed on WesCorp by its own mem-

ber/owners. Their investments lie with WesCorp,

and their success is contingent upon WesCorp’s

performance, strength and safety. Recognizing

the tremendous trust placed in WesCorp as an

investment vehicle, it encourages credit unions

to verify its capabilities and performance, criti-

cally assess WesCorp’s risk exposure as of June

30, 2001, and review and judge the adequacy of

the methodologies used to measure and man-

age risk. The WesCorp team invites your feed-

back, questions and concerns.

Why Should Credit Unions Perform a

Credit Analysis of WesCorp?

The National Credit Union Administration

(NCUA) does not prescribe portfolio composi-

tion for federally insured credit unions. As a

2

result, it allows credit unions to place 100

percent of their surplus funds in their corporate

credit union. In the course of managing a port-

folio, however, NCUA expects all but the small-

est credit unions to perform an appropriate

credit analysis at least annually. According to

“Section B, Credit Analysis,” provided in the

supplementary information to NCUA Regulation,

Part 703: “A credit union should review the cor-

porate credit union’s earnings performance,

capital level, and investment portfolio. A credit

union also should be aware of the corporate’s

operating level under Part 704 and its exposure

to a 300-basis-point shift in interest rates.”

Most member credit unions’ deposits in

WesCorp are well above the NCUSIF-insured

limit of $100,000; therefore, the amounts over

$100,000 are “exposed” to risk if WesCorp

should ever be unable to meet its obligations.

For this reason alone, it is a prudent business

practice for uninsured depositors to perform a

credit analysis of any institution in which they

invest. Specifically, an investor should assess an

institution’s current performance. Does the insti-

tution have sufficient income to pay liabilities?

Is the institution growing? Can the institution

sustain its performance, or is income primarily

from extraordinary gains? The investor should

then determine the risks inherent in an invest-

ment vehicle as a function of its features. To

what degree will income or principal vary with

interest rates? What is the prepayment penalty?

Is the instrument marketable if liquidity is

required? Next, the investor should assess an

investment vehicle’s credit risks through a review

of the issuer’s portfolio management policies

and practices. Is debt serviced from current or

recurring income? To what extent does the

issuer measure or manage interest-rate risk? To

what extent is the issuer subject to credit risk?

Finally, an investor should assess whether the

instrument’s yield sufficiently compensates the

credit union for the risk it has taken.

A careful review of the following discussion and

analysis will provide the information a credit

union needs to make this detailed assessment.

The discussion speaks to WesCorp’s perform-

ance and the internal factors that contribute to

WesCorp’s credit risk.

3

Performance ReviewEarnings

WesCorp’s net income through the second

quarter of 2001 was $22.7 million. This figure

represents a 9.3 percent decrease over the

same period in 2000. Net interest income (NII)

during the first six months of 2001 remained

similar to the levels achieved during the same

period in 2000. The decrease in net income was

primarily a result of increases in operating

expenses amounting to $3.1 million year-over-

year and a one-time transition adjustment

recorded as a result of implementing SFAS 133,

“Accounting for Derivative Instruments and

Hedging Activities” in January 2001, which

reduced income by $1.3 million. Costs related to

building a strong infrastructure to support prod-

ucts and services as well as enhancements to

our technology framework accounted for the

increased operating expenses. Partially offset-

ting these expenses were increases in fee

income of $737,000 and increases in gains on

sales of securities of $1.2 million.

Capital Level

WesCorp has structured its capital program to

acquire and maintain sufficient capital for

absorbing the interest-rate risk inherent in the

balance sheet and to allow for future growth.

WesCorp’s capital structure consists of three

major components: Member Capital Accounts

(MCAs), WesCorp Permanent Capital, and

reserves and undivided earnings (RUDE). Total

capital at June 30, 2001, was 7.76 percent of net

assets, well above the 6 percent minimum

required by regulation.

The corporate’s investment strategy has

enabled it to earn a spread sufficient to increase

primary capital (retained earnings) without sacri-

ficing the rates paid to credit unions. In June

1997, WesCorp became the first corporate cred-

it union to raise additional primary capital

through the issuance of WesCorp Permanent

Capital, Series I. A second issuance—WesCorp

Permanent Capital, Series II—took place in April

1999. This additional capital has allowed

WesCorp to continue to provide its member

credit unions with the value-added services and

competitive interest rates they have come to

expect from their corporate.

4

WesCorp, like all corporates, experiences signif-

icant competition for credit union investments

and loans. Credit union deposits in WesCorp

have significantly increased in 2001 as member

credit unions have enjoyed high liquidity levels.

This growth was fueled, in part, by increasing

volatility in the stock market combined with

weakening economic data as investors chose to

move money into credit unions. At the same

time, demand for loans declined steadily during

the first half of 2001. Today, WesCorp can oper-

ate successfully in environments of relatively

tight interest margins because it has been build-

ing core reserves for nearly three decades.

Investment Portfolio

WesCorp’s investment portfolio is composed

largely of overnight investments placed in U.S.

Central Credit Union, federal funds sold, inter-

est-bearing Eurodollar deposits, and a well-

diversified securities portfolio consisting of

agency securities, mortgage-backed securities

and asset-backed securities. All term invest-

ments carry AAA ratings or are backed by the

full faith and credit of the U.S. government. The

portfolio totaled $14.2 billion at June 30, 2001,

including $1.9 billion held at U.S. Central, $1.8

billion in federal funds sold, $2.6 billion in inter-

est-bearing Eurodollar deposits, and $7.9 billion

in term and other securities.

Full Expanded Authorities

WesCorp applied for Parts I, II, III and IV

expanded authorities under NCUA Corporate

Rules and Regulations, Part 704. Following a rig-

orous review by NCUA, WesCorp was deemed

to have the financial strength and management

expertise to earn the maximum authority avail-

able for investment activities in the domestic

financial markets. Parts I, II and IV expanded

authorities were granted in 1998 and Part III in

2000. These authorities allow WesCorp to oper-

ate with the maximum amount of flexibility

needed to serve members’ investment needs.

Accordingly, WesCorp operates under Parts II, III

and IV expanded authorities of NCUA corporate

regulation, Part 704. Part II authority allows

WesCorp to set its own limits on investments

and to invest in non-secured obligations, long-

term investments, asset-backed securities, and

others. In recognition of WesCorp’s ability to

5

measure and manage the increased risk inher-

ent in these vehicles, Part II allows the net eco-

nomic value (NEV) to decline as much as 50

percent as measured by a ±300 basis point

shock test. Part III allows WesCorp to further

diversify its investment portfolio into highly capi-

talized non-U.S. banking institutions. Part IV

authority allows WesCorp to engage in deriva-

tive transactions specifically approved by NCUA.

Derivative-Based Hedging

In February 2000, the NCUA board granted

authority to WesCorp under a provision of

NCUA Rules and Regulations, Part 703, to pro-

vide financial derivative transactions to federally

chartered credit unions to help them manage

the interest-rate risk inherent in their balance

sheets. WesCorp is the only institution sanc-

tioned to provide derivative-based hedging

solutions to credit unions. The alternative is for

a credit union to undergo its own rigorous

review and approval process with NCUA.

Exposure

WesCorp’s interest-rate risk position is well with-

in internal and external limits. At June 30, 2001,

the potential decline in WesCorp’s net econom-

ic value was 17.8 percent, as indicated by a 300

basis point interest-rate increase. In the unlikely

event of this major rate increase and assuming

the loss in economic value is fully realized,

WesCorp capital would be reduced to 6.66

percent, well above the regulatory minimum of 6

percent. This means that even in the most unlikely

interest-rate scenario, WesCorp’s total capital

would remain intact. More importantly, it demon-

strates the safety and valuation stability of mem-

ber investments in a volatile rate environment.

6

ASS

ET/

LIA

BIL

ITY

MA

NA

GE

ME

NT

Asset/Liability ManagementOverview

Strategies

WesCorp’s asset/liability strategies maximize net economic value (NEV),

subject to risk constraints. The preservation of capital drives the strategic

design. In addition, changes in net income (NI) and net interest income (NII)

are important short-term measures of WesCorp’s performance. WesCorp’s

board of directors has established a comprehensive set of policies that

encompass the overall management of WesCorp’s balance sheet in relation

to the management of interest-rate risk, credit risk, liquidity risk, and related

operational risk. These policies provide explicit limits, requirements and

guidelines in the functional areas of risk assessment and reporting, the

management of purchased funds, the management of investment assets,

and the use of derivative instruments.

WesCorp’s strategies recognize that prudent asset/liability management

requires the consideration of many factors, which must be coordinated and

WesCorp provides

its members with an

optimum combina-

tion of safety and

competitive yields.

evaluated from a broad perspective. The provi-

sion of investment products to member/owners

is, however, WesCorp’s historical role and one of

its principal objectives. This drives both the size

and composition of WesCorp’s balance sheet.

WesCorp has a long history of attracting a size-

able portion of members’ investable funds. In

addition, WesCorp has a philosophy of consis-

tently paying fair market rates comparable to

those available on high-quality investments with

similar structural and repricing characteristics.

WesCorp’s track record demonstrates consider-

able expertise in this intermediation, and it has

pioneered ways to add value to the process.

Credit unions do not subsidize the corporate

through reduced yields. Instead, the income

derived from reinvesting these funds reflects the

capture of yields due to inefficiencies in the

term structure of interest rates, inefficiencies

within the capital markets, and the assumption

of modest amounts of interest-rate risk, credit

risk and liquidity risk.

Investments

WesCorp selects investments with strong credit

quality and short effective duration, allowing

WesCorp to provide its members with an opti-

mum combination of safety and competitive

yields. WesCorp manages its investment portfo-

lio to achieve a high level of diversification of

credit exposure to individual issuers, broad

market sectors, and industry and geographic

concentrations. WesCorp also avoids undue

concentrations in the aggregate risk characteris-

tics of its portfolio, notably cash flow, repricing,

spread, basis, volatility, and prepayment risks.

The added capabilities provided by Part III

expanded authorities allow WesCorp to diversify

even further.

Liabilities

WesCorp segregates its offsetting liabilities into

homogeneous groups, referred to as “books-

of-business.” Investment policies require each

book-of-business to be managed according to

risk-and-return benchmarks established by man-

agement. This asset/liability philosophy pro-

vides for proactive management of WesCorp’s

investments and results in maximization of earn-

ing capabilities.

Interest-rate risk strategies are designed to

8

coordinate maturity, rate and volume character-

istics of WesCorp’s asset and liability portfolios.

These strategies are developed within estab-

lished risk parameter constraints to achieve

WesCorp’s net income and valuation objectives.

Liquidity

WesCorp actively manages liquidity to meet the

daily cash-flow requirements of member/own-

ers, investment purchases, advances on

WesCorp credit lines, and other operational

needs such as internal operating expenses.

Consumer activity, member credit union actions,

economic events and money market trends

directly affect WesCorp’s cash flow require-

ments. Therefore, WesCorp actively monitors

the impact of economic developments on

market conditions and reviews its balance sheet

so that various actions can be considered to

ensure the availability of adequate liquidity.

Board Oversight

The board of directors reviews and approves

WesCorp’s strategic business plans, comprehen-

sive operating policies and risk limits. To meas-

ure, monitor and manage prudent levels of

interest-rate risk, WesCorp’s board of directors

has established interest-rate risk, investment,

and funds-management policies. These policies,

collectively defined as the asset/liability man-

agement policies, delineate the maximum

allowable changes in WesCorp’s earnings, net

interest income, net income, and net economic

value, or, simply, the net worth under various

interest-rate scenarios. The policies are

reviewed and approved on an annual basis and

are commensurate with the scope and complex-

ity of the risks being assumed. Asset/liability

and related policies comply with relevant laws

and regulations.

WesCorp board members participate in ongo-

ing educational activities to better understand

the nature and potential impact of the asset/lia-

bility risks assumed by the corporate and the

prescribed responses controlled by its policies.

Because of the complex nature of these activi-

ties, the board periodically employs outside

consultants to confirm the integrity and appro-

priateness of the systems, policies and proce-

dures.

9

ALCO

WesCorp has established a board of directors’

Asset and Liability Committee (ALCO), designed

to act as a forum for presenting and discussing

relevant economic information related to

asset/liability management. The committee pro-

vides overall management direction, in keeping

with WesCorp’s strategic and business objec-

tives and regulatory parameters. Significant

decisions made by ALCO, such as changes to

simulation parameters, are subject to board

approval. Board-approved changes are incorpo-

rated into the applicable policies and proce-

dures. The committee is composed of three

board members and members of executive

staff. ALCO is responsible for ensuring that

sources and uses of funds are priced in a man-

ner consistent with the asset/liability mandate

for NII. Rates paid by WesCorp on interest-bear-

ing liabilities are reviewed to ensure they are

competitive in the marketplace and fall within

the guidelines of safe and sound practices.

Proposed changes to the asset/liability policy

and periodic reviews concerning settlement,

counterparty selection and issuer limits are sub-

mitted to ALCO for review and recommenda-

tion prior to submission to the board of direc-

tors for approval.

Segregation of Responsibilities

Responsibility for the implementation of the

asset/liability policies, as well as the develop-

ment and implementation of management

strategies, has been delegated to the presi-

dent/chief executive officer (CEO). The CEO has

established the Asset and Liability Staff

Committee (ALSC) to oversee the day-to-day

management of the balance sheet and to review

the current and prospective financial perform-

ance of the company. The chief investment offi-

cer (CIO) serves as chairman of the ALSC and

has been designated as the principal officer

responsible for the development and implemen-

tation of asset/liability management strategies.

The Investments division has principal responsi-

bility for the implementation of asset/liability

management strategies, pricing of member

investment products, execution of investment

transactions, execution of derivative transactions,

and negotiation of wholesale borrowings.

10

WesCorp is committed to maintaining its com-

prehensive risk-management capabilities. This

entails the retention of qualified professional

staff combined with the systems, procedures

and controls required to safely manage the bal-

ance sheet for the benefit of member/owners.

Given the trust and the concentration of assets

member/owners have placed in WesCorp, risk

assessment is a critical function. Accordingly,

WesCorp pioneered the creation of an

autonomous Risk Assessment division, inde-

pendent of all other divisions and charged with

measuring and reporting risk directly to execu-

tive management, ALCO and the board of

directors. The group functions in a manner anal-

ogous to WesCorp’s internal audit group and is

charged with measuring interest-rate and credit

risk and reporting the results to executive man-

agement, ALSC, ALCO, and the board of

directors. Risk Assessment is responsible for

risk-assessment-related processes, systems and

procedures. It is also responsible for the timely

production of internal risk-assessment reports,

the reporting of policy exceptions, and the man-

agement of escalation procedures. In order to

remain impartial, Risk Assessment personnel are

not involved in the development or implemen-

tation of asset/liability management strategies.

A review every other year of the adequacy and

effectiveness of WesCorp’s risk management

infrastructure, systems and strategies is per-

formed by an external organization chosen by

ALCO. This review includes, but is not limited

to, the effectiveness of the existing committee

and staff organizational structure and the appro-

priateness of risk-measurement tools and mod-

eling assumptions.

Internal Audit

WesCorp’s Internal Audit Department employs a

risk-based auditing plan and schedule governed

by general auditing standards and principles.

WesCorp’s certified professionals perform risk

analysis of the corporate’s operational areas

and, based on the associated risk, prioritize our

audit schedule and frequency. They conduct

financial, compliance and control reviews to

ensure that all financial statements and disclo-

sures are accurate and reasonably reflect

11

WesCorp’s working results. Internal Audit also

ensures that WesCorp is in compliance with

internal policies, procedures and NCUA rules

and regulations.

12

INTE

RE

ST-R

ATE

RIS

K M

AN

AG

EM

EN

TInterest-Rate Risk Management

Interest-rate risk provides the largest single risk exposure to WesCorp in terms

of potential impact on capital and income. The board of directors has estab-

lished maximum risk-exposure limits and mandated minimum measurement

and reporting requirements. Interest-rate risk is defined as exposure to signifi-

cant declines in current and future earnings, as well as exposure to significant

declines in net worth or primary capital arising from changes in interest rates.

Policies are designed to ensure that WesCorp’s balance sheet can always be

fully liquidated with a cash surplus. At WesCorp, interest-rate risk arises prima-

rily from the cash flow and repricing “mismatches” between the investment

instruments WesCorp owns and the deposit products issued to members. This

“mismatch,” or managed approach to WesCorp’s balance sheet, is common

among successful institutions that seek to build primary capital.

WesCorp maintains a highly qualified staff of asset/liability and investment

management personnel, supported by state-of-the-art risk analytics systems.

These systems include the Quantitative Risk Management (QRM) asset/liability

WesCorp’s substan-

tial investment in a

strong infrastructure

enables WesCorp

to measure, monitor

and manage its

multibillion-dollar

portfolio of fixed-

income investments.

system, Salomon YieldBook, Savid International

Derivatives System, Bloomberg, and Intex

Solutions. WesCorp’s substantial investment in

this infrastructure enables it to measure, monitor

and manage its multibillion-dollar portfolio of

fixed-income investments. The risk analytics sys-

tems collectively measure the historical return

performance in terms of income and market price

and the prospective returns under a multitude of

potential interest-rate scenarios. In addition,

WesCorp is able to “stress” certain investment

and share assumptions to reveal potential expo-

sure to modeling errors and unexpected changes

in modeling assumptions. Examples of these

assumptions include mortgage prepayments,

volatility, and changes in the spread relationships

between different market indexes.

Interest-Rate Risk Limits

WesCorp’s Net Economic Value (NEV) exhibits

negative convexity or non-linear changes in net

worth between rising and declining interest-rate

scenarios. The decrease in NEV in declining

interest-rate scenarios is significantly less than

the decline in NEV witnessed in rising interest-

rate scenarios. This negative convexity is the

result of WesCorp’s mortgage-backed securities

(MBS) portfolio, which carries prepayment or call

risk, as well as embedded interest-rate caps.

Simply put, as interest rates decline and mort-

gage holders refinance their mortgage loans,

WesCorp’s MBS balances are significantly

reduced by principal paydowns. The MBS’s price

will not appreciate because it is rapidly being

paid off. In contrast, as interest rates rise, mort-

gage holders are unlikely to refinance their

mortgage loans, lengthening the average life of

MBSs. This scenario, combined with the embed-

ded interest-rate cap on WesCorp’s floating-rate

MBSs, results in declines in the MBS’s market

value. Even though the interest income on the

floating-rate MBSs does not stop rising in each

of the tested scenarios, it is increasingly more

likely that the interest income will stop rising

with increases in interest rates. This causes the

MBS’s market value to decline and act similarly

to fixed-rate MBSs.

WesCorp operates with Part II expanded author-

ities under NCUA Regulation, Part 704, which

would allow WesCorp’s NEV to decline as much

as 50 percent as the result of a rate-stress test of

14

±300 basis points (bp). WesCorp’s board of

directors has approved limits included in inter-

nal interest-rate risk policies that allow for a

maximum decline in NEV of 40 percent, provid-

ing a necessary cushion to regulatory limits.

On June 30, 2001, WesCorp’s maximum net

economic value (NEV) volatility in a +300 bp

interest-rate increase was -17.8 percent. The

results of WesCorp’s NEV volatility are shown in

the charts below:

To offset much of the interest-rate cap risk

embedded in WesCorp’s MBSs, WesCorp owns

$1.25 billion in interest-rate cap options. These

interest-rate cap options effectively “un-cap”

much of the current floating-rate MBS portfolio

held by WesCorp. The interest income from

floating-rate MBSs ceases to rise as they reach

their lifetime cap, and the interest-rate cap

options then begin to pay interest income.

To mitigate the variety of interest-rate risk inher-

15

Changes in Net Economic Value (NEV) (figures 1 & 2)

-330000 bbpp BBaassee ++330000 bbpp

NNEEVV (($$ iinn mmiilllliioonnss)) $$663388 $$662200 $$550099

NNEEVV ((%% ooff cchhaannggee)) ++33..00 -1177..88

$0

$100

$200

$300

$400

$500

$600

$700

$638 $620

$509

%-20

%-15

%-10

%-5

%0

%5

+3.0

-17.8

0

-300 bp Base +300 bp

NEV ($ in millions)

-300 bp Base +300 bp

NEV (% of change)

ent in the balance sheet, WesCorp had approximately $3.0 billion notional amount of interest-rate

swaps outstanding as of June 30, 2001.

To measure interest-rate risk during a short-term horizon (12 months), WesCorp’s board has estab-

lished limitations on the maximum percentage decline of NII of 60 percent and the maximum

percentage and dollar decline in NI resulting from a rate stress of ±300 bp of 75 percent and $20

million, respectively. The results of WesCorp’s NII and NI volatility are:

Changes in Income (figures 3 & 4)

-330000 bbpp BBaassee ++330000 bbpp

NNIIII (($$ iinn mmiilllliioonnss)) $$4411..66 $$5544..99 $$5577..44

NNIIII ((%% iinn cchhaannggee)) -2244..22 ++44..55

-330000 bbpp BBaassee ++330000 bbpp

NNII (($$ iinn mmiilllliioonnss)) $$1155..44 $$2288..77 $$3311..22

NNII (($$ cchhaannggee iinn mmiilllliioonnss))

NNII ((%% ooff cchhaannggee)) -4466..44 88..77

16

%-50

%-40

%-30

%-20

%-10

%0

%10

$0

$10

$20

$30

$40

$50

$60

0-24.2 -46.4

0 4.5 8.7

$41.6

$15.4

$54.9

$28.7$31.2

$57.4

-300 bp Base +300 bp

NII (% of change)

NI (% of change)

-300 bp Base +300 bp

NII ($ in millions)

NI ($ in millions)

CR

ED

IT R

ISK

MA

NA

GE

ME

NT

Credit Risk Management

Credit risk is the possibility of loss from the failure of a financial asset or instru-

ment, counterparty or borrower to fully perform under a credit-related con-

tract. At WesCorp, credit risk arises primarily from the potential deterioration

in the performance of credit-related financial instruments in its investment

portfolio. These instruments primarily consist of asset-backed securities and

mortgage-backed securities collateralized by residential whole mortgage

loans. Counterparty credit risk arises from direct extensions of credit, pre-

settlement risk on traditional securities transactions, as well as the failure of a

counterparty to fulfill its obligations under an off-balance-sheet derivative con-

tract. To a lesser degree, WesCorp also is exposed to credit risk from its mem-

ber loan portfolio.

Credit risk is quantified and monitored on a day-to-day basis by the Credit

Services division. As a part of the Risk Assessment division, Credit Services

regularly reports activities impacting WesCorp’s credit exposure. Reports are

made to WesCorp’s ALCO and board of directors, who oversee implementation

WesCorp allows

investment only in

those securities with

the highest credit

ratings from nation-

ally recognized

statistical rating

organizations.

of the credit policy relating to the investment

portfolio and approve the extension of credit to

various financial institutions with which WesCorp

transacts business. Credit matters relating to

WesCorp’s member loan portfolio are handled

by WesCorp’s Credit Committee, which meets at

least monthly and is composed of members of

WesCorp’s executive staff.

Credit Oversight of Credit-Related

Investment Security Holdings

To mitigate credit risk from its portfolio of cred-

it-related financial instruments, WesCorp’s credit

policies place limitations on the amount and

types of credit risk WesCorp will assume at any

given time. These limitations address credit con-

cerns from a variety of perspectives. They

include maximum levels of secured and unse-

cured assets, permissible concentrations of

mortgage-backed and asset-backed securities,

maximum limitations on issuer types, geograph-

ic concentration of credit-sensitive investments,

as well as limitations on investments in individ-

ual issues. WesCorp allows investment only in

those securities with the highest credit ratings

from nationally recognized statistical rating

organizations, such as Standard & Poor’s and

Moody’s Investors Service. Investments must be

rated AAA, AA, or equivalent. A rigorous, struc-

tured credit analysis is performed both before

and after purchase of these instruments to

proactively determine if there is deterioration in

credit quality. WesCorp believes that by remain-

ing constantly apprised of the credit quality of

its investments, it will be able to identify deteri-

orating credits before they are subsequently

downgraded by rating agencies, and before

they significantly impact profitability.

Oversight of Counterparty Exposure

WesCorp expects performance by transaction

counterparties. However, in the event of nonper-

formance, it is WesCorp’s policy to monitor

market exposure and counterparty risk through

a variety of control procedures, including

approval of limits for credit-sensitive activities,

mark-to-market securities, and adjustments of

collateral levels, as considered appropriate.

WesCorp’s credit policies require that WesCorp

review the creditworthiness of each counterpar-

ty with which it conducts business. Accordingly,

WesCorp believes it has effective procedures for

18

evaluating and limiting exposure to credit risks

arising from changes in the market value of

securities transacted. WesCorp considers the

credit risks posed by its transaction activities with

counterparties to be well within acceptable levels.

In the normal course of business, WesCorp

enters into securities transactions. In the event

that a purchase or sale did not settle because of

the failure of a counterparty to perform,

WesCorp could incur a loss of anticipated

income if the market value of the security is sig-

nificantly higher than the contract price of the

transaction. To mitigate this risk, WesCorp trans-

acts business only with the most creditworthy

banks and broker/dealers, as determined by rig-

orous credit analyses performed by Credit

Services. WesCorp is currently placing excess

short-term liquidity with domestic and interna-

tional financial institutions. The board of direc-

tors approves all counterparties and establishes

aggregate exposure limits designed to minimize

the risk to any single counterparty.

WesCorp also enters into collateralized, short-

term financing agreements, primarily in the form

of reverse-repurchase agreements. These

transactions are fully collateralized by mar-

ketable securities. Credit Services establishes

the required margin levels in accordance with

prevailing market conditions and prudent

lending considerations. As with transaction

counterparties, counterparties in repurchase

agreements periodically undergo credit analyses

and are approved by the board of directors.

Credit policy requires third-party custodians to

furnish daily market prices on collateral held for

WesCorp. WesCorp monitors the market value

of securities held for collateral and obtains addi-

tional securities as necessary to ensure that such

transactions are adequately collateralized.

Under Part III expanded authorities, WesCorp

can enter into Eurodollar and derivative

transactions with foreign banking/financial

counterparties. As the U.S. banking system

has consolidated through mergers and acqui-

sitions, the number of highly rated counter-

parties has diminished. Many of the largest

and most highly capitalized banking institu-

tions are non-U.S. entities. Part III permits

WesCorp to diversify potential credit expo-

19

sure among these stronger foreign institutions.

WesCorp was granted Part IV expanded authori-

ties under NCUA Regulation, Part 704, that per-

mit the use of financial derivative transactions.

WesCorp enters into financial derivative

transactions as a normal part of its business for

managing balance-sheet risk to modify the

interest-rate characteristics of assets and liabili-

ties and to provide attractive investment alter-

natives for members. WesCorp is subject to

potential credit risk on these transactions. In the

event that a counterparty were unable to fulfill

its obligations under a contract, WesCorp would

be required to replace that contract at the pre-

vailing market rates. The potential credit risk is

the differential between the original contracted

rate and the prevailing replacement rate. It

should be noted that payments are interest only,

and no principal balances are exchanged in

these transactions. Again, WesCorp transacts

financial derivative contracts only with the most

creditworthy banks and broker/dealers, follow-

ing a full credit review and board approval.

Oversight of Member Borrowing Activity

WesCorp’s lending program features various cred-

it products to meet members’ liquidity needs.

WesCorp also makes loans available to mem-

bers for general purposes, with fixed rates and

fixed terms ranging from two days to ten years.

These loans are secured by WesCorp certifi-

cates, U.S. Treasury and agency securities, a lien

on specific assets, or a general lien on all assets.

To minimize the risk of loan loss, regulations

restrict lending to member credit unions and

credit union service organizations (CUSOs).

Loans are not made to natural-person members.

WesCorp maintains standard member credit

policies to closely monitor credit unions with

loan accounts. Thorough analysis is performed

regularly to evaluate members’ creditworthiness

and financial strength. Reviews range from

monthly to once every 18 months. WesCorp’s

Credit Committee, consisting of seven staff

members appointed by the board of directors,

oversees member credit issues in accordance

with member loan policy.

20

WesCorp has had no credit losses in the past 20

years. Based on WesCorp’s policies, procedures

and loss experience, the board of directors has

determined it unnecessary to have a provision

for loan loss. As of June 30, 2001, the total dol-

lar amount of loans outstanding was $46.1 million.

Asset Quality

• WesCorp’s investment portfolio is composed

of $1.4 billion in overnight investments

placed in U.S. Central Credit Union, $487.7

million in term investments at U.S. Central,

$1.8 billion in federal funds sold, $2.6 billion

in interest-bearing Eurodollar deposits, and

$7.9 billion in a well-diversified securities

portfolio consisting of mortgage-backed

securities, asset-backed securities and other

investments.

• As of June 30, 2001, credit-sensitive securi-

ties were rated AAA and were performing as

expected. The credit ratings of WesCorp invest-

ments are depicted on the following page.

• As of June 30, 2001, WesCorp had no unset-

tled securities transactions that would be

subject to counterparty nonperformance.

WesCorp considers the credit risks posed by

its transaction activities with counterparties

to be well within acceptable levels.

• As of June 30, 2001, WesCorp had no coun-

terparty exposure as a result of securities

repurchase activities.

• As of June 30, 2001, the market value of out-

standing financial derivative transactions

shows that the resultant potential credit risk

from these instruments is negligible.

21

22

Term Investments (figure 5a)As of 6/30/2001

Agency CMO 21.9%

Agency ARM 3.6%

Agency Notes 0.4%

U.S. Central 1.9%

ABS—Credit Card 8.9%

ABS—Student Loans 2.1%

ABS—MH 0.3%

ABS—Auto 11.5%

Private Label MBS 20.8%

ABS—HEL 28.6%

Total Term Investments $7.99 billion

Portfolio Composition (figure 5b)As of 6/30/2001

Govt/Agency 26%

AAA 74%

Total Term Investments $7.99 billion

LIQ

UID

ITY

MA

NA

GE

ME

NT

Liquidity Management

Strategic Overview

The nature of WesCorp’s liability structure requires that a high level of liquidity

be maintained in order to meet potential member demands. The monitoring

and modeling of WesCorp’s liquidity position is the responsibility of Treasury

Operations. The Risk Assessment division is responsible for ensuring that the

models used by Treasury Operations and the various sources of data con-

tained in those models provide meaningful results. Risk Assessment is also

responsible for ensuring that the contingency funding plan is appropriate for

WesCorp’s needs and takes into account potential areas of systematic risk.

The key to managing liquidity at WesCorp is measuring, monitoring and antic-

ipating changes in member credit union deposit activity, in concert with

maintaining adequate credit facilities, a ready supply of short-term liquid

investments and marketable securities.

Short-term liquid investments are composed of overnight investments at U.S.

WesCorp’s balance

sheet is driven by

the excess liquidity

positions and

investment needs of

its members.

Central Credit Union and other short-term com-

mitments such as federal funds sold and inter-

est-bearing Eurodollar deposits. The type and

amount of member and non-member credit

union deposits in WesCorp dictate the type and

amount of these investments. WesCorp’s ALSC

establishes the required minimum amount of

short-term liquid investments as a percentage of

short-term deposits. WesCorp’s board of direc-

tors monitors it monthly.

While the limitations are sufficiently broad to

allow for the effective use of short-term funds,

operating targets are influenced by natural-

person credit union loan and share growth,

changes in non-credit union business relation-

ships, and general economic conditions.

WesCorp invests in mature sectors of the capital

markets and in investment instruments and

issuers that exhibit consistency and marketability.

Often, certain investments considered less

marketable carry increased returns. WesCorp’s

strategy calls for a clear prioritization of

increased market liquidity over increased

returns. This allows WesCorp the flexibility to

quickly utilize on-balance-sheet investments by

selling securities to meet actual deposit outflows.

WesCorp has established several external (non-

member) sources of funding, in case on-balance-

sheet liquidity does not provide the cash

necessary to meet deposit outflows or credit

union borrowing. WesCorp has one committed

line of credit totaling $25 million. It also has one

$510 million advised line of credit and several

non-committed reverse-repurchase lines.

WesCorp also established a $1 billion global

medium-term note program on Aug. 25, 1999.

To date, WesCorp has issued $250 million

against the $1 billion program. There is also a

board-approved $1 billion limit on commercial-

paper issuance subject to certain conditions,

which could be activated if needed.

Liquidity Benchmarks

WesCorp maintains several sources of liquidity,

both on- and off-balance-sheet. By policy,

WesCorp’s minimum flash liquidity ratio is 25

percent. The current high level of flash liquidity

is appropriate in light of potential demands on

funds resulting from increased consumer

24

borrowing at member credit unions.

When viewing the longer-term liquidity picture,

the gap ratio must be at least 20 percent in

accordance with policy. At the end of June 2001,

the gap ratio was 77 percent. An additional form

of liquidity comes from WesCorp’s Available-for-

Sale (AFS) portfolio, which could be sold to

cover additional liquidity demands. WesCorp’s

liquidity ratios as of June 30, 2001, are depicted

in figure 6.

Liquidity Ratios (figure 6)

AAvvgg.. FFllaasshh LLiiqquuiiddiittyy ((wwiitthh PPUUFF)) 7733%%

GGaapp LLiiqquuiiddiittyy ((wwiitthh PPUUFF)) 7777%%

Monitoring and Assessment

To remain fully prepared to meet member

demands for liquidity, WesCorp has committed

staff and resources to the development, opera-

tion and continued enhancement of a Liquidity

Planning Model (LPM) that tracks current liquidi-

ty levels and tests “what-if” scenarios of interest-

rate shock and unexpected deposit withdrawals.

Corporate Structure Investment Infrastructure

The regulatory and competitive environment

corporate credit unions face today makes it

necessary to have an organizational culture that

prudently accepts reasonable credit and inter-

est-rate risk and manages them proactively.

Risk Management Division

a) Portfolio Management

WesCorp’s balance sheet is driven by the

excess liquidity positions and investment

needs of its members. Consequently, WesCorp

segregates its liabilities into books-of-business.

Each book is allocated to a portfolio manager

in the Portfolio Management group, who prices

and manages specific member investment

products and invests those funds in suitable

money market instruments or investment secu-

rities. The establishment of specific risk and

return targets for each book facilitates this

“bottom-up” approach.

b) Asset/Liability Management

The Asset/Liability Management group is

responsible for the overall management of

25

WesCorp’s balance sheet and hedging activities.

By overlaying a “top-down” methodology to

the micro-management process employed at

the book-of-business level, WesCorp is able to

ensure that its balance sheet is managed effi-

ciently and that NII is maximized for the desired

level of interest-rate risk. The Asset/Liability

Management group is also charged with the

execution of derivative transactions and any hedg-

ing activities required to keep the overall interest-

rate risk of the company at the desired level.

c) WesCorp Investment Services, LLC

In January 2000, WesCorp established an institu-

tional broker/dealer subsidiary, WesCorp

Investment Services, LLC. This subsidiary was

granted membership in the National

Association of Securities Dealers (NASD) and

formally began operating in March 2000. The

broker/dealer underwrites and distributes quasi-

federal agency securities to credit unions

nationwide, and makes secondary markets in

Treasury, agency and corporate-debt securities.

WesCorp Investment Services also offers invest-

ment advisory and fixed-income-asset manage-

ment services.

d) Broker/Dealer Investment Services

As member investment requirements became

more complex, WesCorp established a dedicat-

ed group within the Investment Services division

to act as the principal contact with members for

credit- and investment-related products and

services. The group, composed of Investment

Services consultants, provides a conduit for

members to access WesCorp’s wide range of

asset/liability management and capital market

capabilities, expertise and systems. As licensed

representatives, the Investment Services consult-

ants also provide direct access to the securities

market for both market intelligence and transac-

tion execution.

e) Financial Solutions

In March 2000, WesCorp introduced a general

consulting and balance-sheet-management con-

sulting service, the Financial Solutions Group.

The service is designed to help members identi-

fy and quantify potential problems or opportuni-

ties that may be inherent in their operations and

to provide practical solutions, including the

appropriate use of financial derivative

transactions to mitigate unwanted interest-rate

26

risk. The Financial Solutions Group provides

credit unions with access to the resources of

WesCorp’s state-of-the-art analytical systems

and highly qualified professional staff.

f) Investment Operations

The Investment Operations group provides

credit unions with an outsourcing alternative for

investment-related functions. It provides policy

and procedure reviews and the 703 compliance

service. In support of other initiatives, Invest-

ment Operations plans to offer Internet-based

bond accounting and derivatives accounting

services in the fourth quarter of 2001.

Risk Management Systems

WesCorp leased the Quantitative Risk

Management (QRM) “option-based” asset/lia-

bility model to perform more detailed and fre-

quent portfolio interest-rate-risk analyses. To

monitor derivatives activity, WesCorp purchased

the Savid International Derivatives System. QRM

and Savid are further supported by analytics sys-

tems such as the Salomon YieldBook and

Bloomberg, as well as data and market informa-

tion vendors Intex Solutions and Interactive

Data Corp. (IDC).

QRM Asset/Liability Model

QRM provides a proprietary MBS prepayment

model, which is segmented by collateral type,

origination year and gross coupon. QRM also

provides a four-factor template based on a user-

defined formula with additional factors covering

burnout, seasoning, seasonality and interest-rate

incentives. There is also provision for access to

prepayment models from outside vendors.

QRM handles most commonly used derivative

instruments, including futures, options,

caps/floors, interest-rate swaps and swaptions.

The balance sheet optimizer module is used to

analyze the risk profile of particular sectors of

the balance sheet, in conjunction with alterna-

tive hedge instruments to identify the optimal

hedge position.

WesCorp’s risk-analytics systems are able to

measure exposure to interest-rate risk outside

the standard ±300 bp parallel shift in the yield

curve. WesCorp routinely performs additional

shock tests that include:

27

• Ramping interest rates during distinct time

horizons

• Twisting the yield curve around various term

points

• Increasing/decreasing prepayment rates

• Increasing/decreasing interest-rate volatilities

• Increasing/decreasing credit spreads

The objective of these additional risk tests is to

isolate, quantify and manage various compo-

nent risks in WesCorp’s balance sheet.

28

CA

PIT

AL

STR

UC

TUR

ECapital Structure

WesCorp’s capital structure consists of three major components: Member

Capital Accounts (MCAs), WesCorp Permanent Capital, and reserves and undi-

vided earnings (RUDE).

Financial Statements

MCAs and WesCorp Permanent Capital represent uninsured, long-term own-

ership investments and are classified as equity in WesCorp’s published finan-

cial statements to denote the ownership interest of WesCorp’s members. This

presentation conforms to the statutory definition of the Federal Credit Union

Act, as well as the regulatory requirements of NCUA.

On Nov. 23, 1999, WesCorp’s board of directors approved a new MCA funding

requirement of 5 percent of average non-capital shares held at WesCorp over

the previous six months, with a minimum of 1/8 of 1 percent of the credit

union’s most recently reported assets. Initial funding for a new credit union

admitted to membership was set at the minimum. In addition, all existing

WesCorp’s internal

policy calls for a

minimum capital

ratio of 6 percent,

reflecting manage-

ment’s intention to

operate at the high-

est authority level

available.

members at the time of this change were given

until Nov. 23, 2002, to initiate and maintain

funding under the new requirement. This provi-

sion allows existing member credit unions to

continue to maintain MCA funding at current

levels for a period of three years.

Policy Compliance

NCUA Regulation, Part 704, defines the regula-

tory capital ratio as month-end capital divided

by 12-month moving-average net assets. This

differs from WesCorp’s internal policy, which

calculates capital ratio using average monthly

capital divided by average monthly assets. Both

calculations, however, use the same definition of

capital: RUDE plus WesCorp Permanent Capital,

plus three-year MCAs, plus the non-amortized

portion of any three-year MCAs which have

given notice of intent to withdraw. (See figure 7.)

Regulatory Compliance

Effective Jan. 1, 1998, NCUA Regulation, Part

704, set forth various levels of capital adequacy,

based on the level of investment authority

sought by the corporate and authorized by the

NCUA board. They are 4 percent for base level

authority, 5 percent for level I authorities, and 6

percent for level II authorities. Effective June

1997, WesCorp’s internal policy called for a min-

imum capital ratio of 6 percent, reflecting man-

agement’s intention to operate at the highest

authority level available.

30

Capital Ratios (figure 7)

As of 6/30/2001

Actual Minimum Level

PPrriimmaarryy CCaappiittaall ((ppeerr ppoolliiccyy)) 44..3388%% 44%%

TToottaall CCaappiittaall ((ppeerr ppoolliiccyy)) 66..6644%% 66%%

PPrriimmaarryy CCaappiittaall ((ppeerr NNCCUUAA RReegguullaattiioonn,, PPaarrtt 770044)) 55..0088%% 44%%

TToottaall CCaappiittaall ((ppeerr NNCCUUAA RReegguullaattiioonn,, PPaarrtt 770044)) 77..7766%% 66%%

FIN

AN

CIA

L P

ER

FOR

MA

NC

EFinancial Performance Review

Summary of First Half of 2001

WesCorp realized net income of $22.7 million through the second quarter of

2001. Earnings were derived primarily from $34 million in net interest income.

Fee-based income continued a historical growing trend and contributed an

additional $12.5 million to revenues. Member service-related expenses make

up most of the $22.5 million in operating expenses. (See figure 8.)

Earnings Ratios (figure 8)

As of 6/30/2001

RReettuurrnn oonn AAsssseettss ..2222%%

NNeett RReettuurrnn oonn IInnvveessttmmeennttss ((NNIIII)) ..4411%%

RReettuurrnn oonn RRUUDDEE-EEqquuiittyy 77..4499%%

EEaarrnniinnggss AAsssseettss//TToottaall AAsssseettss 9966..3300%%

Net Interest Income (NII)

Net interest income (NII) remained fairly stable during the first six months of

2001 compared to the same period in 2000, declining by only $169,000. Figure

9 depicts WesCorp’s earnings for the most recent six months and the six

months ended June 30, 2000, and June 30, 1999. All figures are in thousands.

Moody’s and

Standard & Poor’s

long-term debt rat-

ings of Aa3 and AA-,

respectively, place

WesCorp among

the highest rated

U.S. financial institu-

tions.

Fee Income fromCorrespondent Services Item Processing Services

Through June 2001, WesCorp’s Item Processing

Services (IPS) volumes increased 8.7 percent

over the same period in 2000, and management

expects growth to continue. IPS income reflect-

ed similar growth with revenues of $9.5 million,

a 9 percent increase. Revenues are expected to

continue to grow in 2001, but increased expen-

ditures in item processing services due to imple-

mentation of image processing will impact

product profit margins.

Electronic Payment Services

WesCorp’s Electronic Payment Services (EPS)

provides a wide array of products, including wire

transfers, ACH services, cash orders and securi-

ties safekeeping. While these products and

services are fee-based, many other services (for

example, same-day settlement services) are

offered at no charge. EPS revenue was $1.2 mil-

lion through June 2001, compared to $1.1 mil-

lion in the same period in 2000.

Comparative FinancialStatementsGeneral

The consolidated financial statements include

the accounts of WesCorp and its wholly owned

subsidiaries, WesCorp Capital Corporation and

WesCorp Investment Services, LLC.

Income Statement

Net income for the first six months of 2001 was

$22.7 million, reflecting a decrease of $2.3 million

32

Net Interest Income (NII) (figure 9)

2001 2000 1999

TToottaall iinntteerreesstt iinnccoommee aanndd ddiivviiddeennddss 337766,,447777 336655,,001199 331144,,774499

NNeett iinntteerreesstt iinnccoommee aanndd ddiivviiddeennddss 3333,,999977 3344,,116666 2299,,335511

TToottaall nnoonn-iinntteerreesstt iinnccoommee 1122,,553333 1100,,226666 88,,556699

TToottaall ooppeerraattiinngg eexxppeennsseess 2222,,447700 1199,,335555 1166,,228899

NNeett iinnccoommee 2222,,773366 2255,,007777 2211,,663311

or 9.3 percent, compared to the same period in

2000. The decline in earnings is due predomi-

nantly to increased operating expenses amount-

ing to $3.1 million, resulting from WesCorp’s

continued commitment to building a strong

infrastructure, as well as enhancements to its

technology framework. The decline in earnings

was partially offset by increases in fee income of

$737,000.

Balance Sheet

WesCorp’s balance sheet has grown by 23.7

percent year-over-year. On a comparative basis,

total member share balances increased dramati-

cally by $4.6 billion, or 56.8 percent. This growth

was a result of increased liquidity levels at mem-

ber credit unions as individual investors chose

to move money into credit unions. This was par-

tially offset by a decrease of $1.3 billion, or

almost 100 percent, from 2000 levels in public-

unit shares, due in part to a reduction in the

maximum amount that could be deposited in

WesCorp. WesCorp sets this maximum amount

based upon excess capital levels available and

reduced it during the early part of 2001 in

response to new processing rules established

by the Federal Reserve Bank regarding the tim-

ing of available funds. Member Capital

Accounts increased by $55.6 million.

Derivatives

WesCorp implemented SFAS 133, Accounting for

Derivative Instruments and Hedging Activities, on

Jan. 1, 2001. As a result, derivative instruments

previously accounted for off-balance-sheet were

measured at their fair values and recorded on the

balance sheet as either assets or liabilities.

Adoption of the new accounting standard result-

ed in a cumulative-effect transition adjustment

being recorded on Jan. 1, 2001, which reduced

net income by $1.3 million and other comprehen-

sive income by $523,000.

WesCorp uses selected off-balance-sheet deriv-

ative financial instruments to manage its expo-

sure to interest-rate risk. At June 30, 2001, the

notional amounts of outstanding interest-rate cap

contracts and interest-rate swap agreements

were $1.3 billion and $3.0 billion, respectively.

Ratios

WesCorp’s capital ratios continue to be healthy in

33

2001. Capital levels are composed of WesCorp’s

reserves and undivided earnings (RUDE) of $434.9

million, MCAs of $342.6 million, and WesCorp

Permanent Capital of $213 million. WesCorp’s

capital ratio exceeds the NCUA Regulation, Part

704, minimum capital level for expanded authori-

ties. Total capital ratio (per WesCorp policy) is

6.64 percent as of June 30, 2001, compared to

7.60 percent as of June 30, 2000.

Financial ratings

Moody’s Investors Service and Standard & Poor’s

Corporation continue to grant extremely high rat-

ings (P-1 and A-1+, respectively) to WesCorp’s

authorized commercial-paper program. Moody’s

and Standard & Poor’s long-term debt ratings of

Aa3 and AA-, respectively, place WesCorp among

the highest rated U.S. financial institutions.

34

Consolidated Statements of FinancialCondition

Unaudited (dollars in thousands) June 30, 22000011 2000

Assets

Cash and due from banks $$ 113344,,773322 $ 121,161

Short-term investments:

Daily shares with U.S. Central 11,,336622,,337711 2,579,959

Overnight investments with U.S. Central 99,,005522 35,000

Federal funds sold 11,,775500,,000000 800,000

Interest-bearing Eurodollar deposits 22,,660000,,000000 -

Trading securities ((1122)) 1,000

Securities available-for-sale 77,,998877,,222277 6,336,644

Investments held-to-maturity - 719,516

Other investments:

Share certificates with U.S. Central 112288,,444444 334,912

Central Liquidity Facility (CLF) shares with U.S. Central 116677,,116677 156,071

Membership Capital Shares with U.S. Central 114477,,004488 175,953

Other 5500,,661166 48,517

Loans to members 4466,,113377 295,399

Interest and dividends receivable 5566,,338888 58,638

Premises and equipment, net 2211,,220055 22,213

Other assets 1133,,886644 13,689

Total assets $$ 1144,,447744,,223399 $ 11,698,672

35

Liabilities and Equity

Liabilities:

Securities sold under agreements to repurchase $$ 220033,,990022 $ -

Certificates of indebtedness with non-members - 910,765

Federal funds purchased 1188,,000000 -

Notes payable to U.S. Central (secured by CLF shares) 116677,,116677 156,071

Medium-term notes 224499,,003311 248,716

Interest payable 33,,664444 18,273

Dividends payable 2266,,335577 46,364

Accounts payable and accrued expenses 111155,,005577 110,303

Derivative liabilities 1133,,885555 -

Total liabilities 779977,,001133 1,490,492

Equity:

Shares:

Member shares:

Market shares 66,,554400,,229999 2,669,841

Daily shares 119955,,885588 151,135

Share certificates 55,,993311,,553388 5,259,911

Total members’ shares 1122,,666677,,669955 8,080,887

Public-unit shares 112299 1,248,643

Member Capital Accounts 334422,,662288 287,032

Total shares 1133,,001100,,445522 9,616,562

Permanent Capital 221133,,007744 213,074

Retained earnings, substantially restricted

Corporate reserve 9933,,447744 93,474

Contingency reserve for market fluctuations 334411,,338822 312,542

Undivided earnings 3355 35

Total retained earnings 443344,,889911 406,051

Accumulated other comprehensive income (loss) 1188,,880099 (27,507)

Total equity 1133,,667777,,222266 10,208,180

Total liabilities and equity $$ 1144,,447744,,223399 $ 11,698,672

36

Consolidated Statements of Income andComprehensive Income

Unaudited (dollars in thousands) For the six months ended June 30, 22000011 2000

Interest income and dividends:

Daily shares with U.S. Central $$ 6677,,557788 $ 113,766

Short-term investments 8811,,884400 2,856

Trading securities 77 -

Securities available-for-sale 221100,,881100 198,560

Investments held-to-maturity - 24,251

Other investments 1133,,115555 18,389

Loans to members 33,,008877 7,197

Total interest income and dividends 337766,,447777 365,019

Interest expense and dividends:

Securities sold under agreements to repurchase and other 1188,,119933 1,535

liabilities

Certificates of indebtedness with non-members - 26,136

Notes payable to U.S. Central (secured by CLF shares) 33,,446699 4,711

Unsecured certificates of indebtedness with other credit - 24

unions

Medium-term note 77,,334488 8,373

Total interest expense and dividends on borrowings 2299,,001100 40,779

Dividends on shares:

Market shares 114400,,558866 81,739

37

Daily shares 11,,779999 1,958

Share certificates 114422,,445533 159,217

Public-unit shares 1199,,663322 38,466

Member Capital Accounts 99,,000000 8,694

Total dividends on shares 331133,,447700 290,074

Total interest expense and dividends 334422,,448800 330,853

Net interest income and dividends 3333,,999977 34,166

Non-interest income:

Fee income 1100,,665599 9,922

Gain on sale of securities available-for-sale 11,,228833 136

Gain on sale of fixed assets - (1)

Other fee and operating income 559911 209

Total non-interest income 1122,,553333 10,266

Total operating income 4466,,553300 44,432

Operating expenses:

Salaries and employee benefits 1111,,559999 10,000

Office operating expenses 88,,001155 6,902

Other 22,,885566 2,453

Total operating expenses 2222,,447700 19,355

Net income before cumulative effect of change in accounting 2244,,006600 25,077

for derivatives

Cumulative effect of change in accounting for derivatives ((11,,332244)) -

Net income $$ 2222,,773366 $ 25,077

38

continued on next page

Unaudited (dollars in thousands) For the six months ended June 30, 22000011 2000

Other comprehensive income:

Unrealized net gains on securities available-for-sale $8,416 $16,300

Less: reclassification adjustment for gains included in (1,283) (136)

income

Other comprehensive income 7,133 16,164

Comprehensive income $ 29,869 $ 41,241

39

Key RatiosJune 30, 22000011 2000

((%%)) (%)

Capital Adequacy

Primary capital (per policy) 44..3388 5.19

Total capital (per policy) 66..6644 7.60

Primary capital (per revised NCUA Reg., Part 704) 55..0088 5.32

Total capital (per revised NCUA Reg., Part 704) 77..7766 7.78

Net Worth

NEV/assets (base case) 44..2288 4.93

NEV/assets (300 bp shock) 33..5577 4.28

Net Worth/assets (book value) 33..1122 3.11

Loans

Loans/assets 00..3366 2.63

Earnings Ratios (YTD averages)

Return on assets 00..2222 0.29

Net return on investments (NII) 00..4411 0.46

Return on RUDE-Equity 77..4499 8.89

Earnings assets/Total assets 9966..3300 96.40

Liquidity

Gap (with public-unit shares) 7777 99

Gap (without public-unit shares) 7777 99

Avg. flash liquidity (with public-unit shares) 7733 93

Avg. flash liquidity (without public-unit shares) 7711 88

40

KE

Y M

AN

AG

EM

EN

TKey Management

Richard M. Johnson

President and chief executive officer

Kuppusamy (Sam) Arjunan

Director, Internal Audit

Robert J. Burrell

Senior vice president and chief investment officer

Edwin Hada

Vice president, Investment Operations

Dietmar Huesch

Vice president, Portfolio Management

Dwight Johnston

Vice president, Capital Markets

Todd M. Lane

Senior vice president and chief financial officer

Steven M. Powell

Senior vice president, Strategic Services

Kenneth Shoga

Senior vice president, Correspondent Services

Timothy T. Sidley

Vice president, Risk Assessment

David W. Trinder

Vice president, Asset/Liability Management

42

DE

FIN

ITIO

NS

Definitions

Balance sheet ratios – Based on average balances, with the following excep-

tions: primary risk-adjusted capital, total risk-adjusted capital, and gap ratios

are based on month-end balances; YTD ratios for these categories are based

on average month-end data.

Capital ratios – Per WesCorp policy, capital ratios are measured on the basis

of average monthly capital divided by average monthly assets; capital ratios

per revised NCUA Reg. 704 are measured on the basis of month-end capital

divided by rolling 12-month average net assets.

Flash liquidity – The ratio of overnight financial assets to overnight financial

liabilities.

Gap – The ratio of financial assets maturing in the next six months to financial

liabilities maturing in the next six months.

Gap ratio – Assets maturing in the next six months as a percent of liabilities

maturing during the same period.

Net Worth (book value) – Reserves and Undivided Earnings; SFAS 115 adjust-

ment is included.

NEV – Net Economic Value (the difference of the fair value of assets and liabilities).

NEV (300 bp shock) – Net Economic Value in a

+300 bp shock environment. The difference of

the fair values of assets and liabilities, both

measured where the interest rate used in the fair

value calculation has been increased by 300 bp

from the value used in the base case.

Primary Capital – Reserves, Undivided Earnings,

WesCorp Permanent Capital (paid-in capital);

SFAS 115 adjustment excluded.

PUF – Public Unit Funds

Total Capital – Primary Capital and three-year

MCAs, excluding unamortized portion of three-

year MCAs that have given notice.

44

924 Overland Court, San Dimas, California 91773-1750(800) 442-4366 • www.wescorp.org