-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I159M3Usw45T+3Hflv1NaZa7/5Xa3tuI+Kv0QuI/5tL++VppI8F/0I3DAc5z9DCb IAXnmkHsqdM9D1ezBoK1hQ== 0000891020-98-001661.txt : 19981118 0000891020-98-001661.hdr.sgml : 19981118 ACCESSION NUMBER: 0000891020-98-001661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON MUTUAL INC CENTRAL INDEX KEY: 0000933136 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 911653725 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-86840 FILM NUMBER: 98752575 BUSINESS ADDRESS: STREET 1: 1201 THIRD AVENUE STREET 2: SUITE 1500 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2064612000 MAIL ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: SUITE 1500 CITY: SEATTLE STATE: WA ZIP: 98101 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 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 September 30, 1998. 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: 0-25188 Washington Mutual, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Washington 91-1653725 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1201 Third Avenue, Seattle, Washington 98101 (Address of principal executive offices) (Zip Code) (206) 461-2000 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 [ ] The number of shares outstanding of the issuer's classes of common stock as of October 31, 1998. Common Stock - 593,252,788 2 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 TABLE OF CONTENTS
Page ---- PART I Item 1. Financial Statements: Consolidated Statements of Income-- Three and nine months ended September 30, 1998 and 1997.............. 2 Consolidated Statements of Financial Position-- September 30, 1998 and December 31, 1997............................. 3 Consolidated Statements of Stockholders' Equity-- Nine months ended September 30, 1998 and 1997........................ 4 Consolidated Statements of Cash Flows-- Nine months ended September 30, 1998 and 1997........................ 5 Notes to Consolidated Financial Statements............................. 7 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations: General............................................................ 10 Results of Operations.............................................. 10 Review of Financial Position....................................... 15 Asset Quality...................................................... 18 Market Risk and Asset/Liability Management......................... 21 Liquidity.......................................................... 22 Capital Adequacy................................................... 23 PART II Item 1. Legal Proceedings...................................................... 24 Item 4. Submission of Matters to a Vote of Security Holders.................... 24 Item 6. Exhibits and Reports on Form 8-K....................................... 24
i 3 PART I ITEM 1. FINANCIAL STATEMENTS In the opinion of management, the accompanying balance sheets and related interim statements of income and cash flows reflect all adjustments (which include reclassifications and normal recurring adjustments) that are necessary for a fair presentation in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the financial statements. Certain reclassifications have been made to the 1997 financial statements to conform to the 1998 presentation. All significant intercompany transactions and balances have been eliminated. When Washington Mutual, Inc. ("Washington Mutual" or the "Company") acquires a company through a material pooling of interests, current and prior period financial statements are restated to include the accounts of merged companies. Previously reported balances of the merged companies have been reclassified to conform to the Company's presentation and restated to give effect to the mergers. The financial information of Washington Mutual contained herein has not been restated for the merger with H.F. Ahmanson & Company ("Ahmanson"), which was effective on October 1, 1998. The information included in this Form 10-Q should be read in conjunction with Washington Mutual's 1997 Annual Report to the Securities and Exchange Commission on Form 10-K. Interim results are not necessarily indicative of results for a full year. 1 4 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (dollars in thousands, except per share amounts) INTEREST INCOME Loans $1,407,008 $1,320,754 $4,154,969 $3,826,055 Available-for-sale securities 256,724 230,337 710,358 773,559 Held-to-maturity securities 216,426 136,027 678,558 305,084 Cash equivalents and other 31,669 41,435 95,331 109,620 ---------- ---------- ---------- ---------- Total interest income 1,911,827 1,728,553 5,639,216 5,014,318 ---------- ---------- ---------- ---------- INTEREST EXPENSE Deposits 512,662 547,798 1,540,445 1,629,078 Borrowings 683,024 525,104 1,943,285 1,416,662 ---------- ---------- ---------- ---------- Total interest expense 1,195,686 1,072,902 3,483,730 3,045,740 ---------- ---------- ---------- ---------- Net interest income 716,141 655,651 2,155,486 1,968,578 Provision for loan losses 35,250 52,131 126,998 155,940 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 680,891 603,520 2,028,488 1,812,638 ---------- ---------- ---------- ---------- OTHER INCOME Depositor and other retail banking fees 121,082 92,431 319,042 267,409 Loan servicing income 16,283 22,066 49,729 65,150 Loan related income 17,679 14,431 52,106 38,663 Securities fees and commissions 39,135 39,988 118,155 116,132 Insurance fees and commissions 12,497 13,356 36,349 40,270 Mortgage banking gains (losses) 26,551 (89,173) 69,644 (76,707) Gain on sale of other assets 8,455 6,691 25,318 17,697 Write down of loans securitized and retained (8,234) (7,744) (18,371) (20,166) Other operating income 13,238 19,067 38,360 39,063 ---------- ---------- ---------- ---------- Total other income 246,686 111,113 690,332 487,511 ---------- ---------- ---------- ---------- OTHER EXPENSE Salaries and employee benefits 205,444 198,038 600,444 598,417 Occupancy and equipment 76,047 80,871 227,260 239,718 Telecommunications and outsourced information services 51,141 40,137 153,114 126,210 Regulatory assessments 9,102 8,822 27,457 26,026 Transaction-related expense 20,465 366,860 53,588 424,886 Amortization of intangible assets arising from acquisitions 13,733 16,387 40,761 47,833 Foreclosed asset (income) expense (9,546) 5,166 (5,945) 9,710 Other operating expense 122,996 109,685 337,577 320,454 ---------- ---------- ---------- ---------- Total other expense 489,382 825,966 1,434,256 1,793,254 ---------- ---------- ---------- ---------- Income (loss) before income taxes 438,195 (111,333) 1,284,564 506,895 Income taxes 159,911 11,313 480,564 250,093 Provision for payments in lieu of taxes 3,987 4,308 11,961 12,924 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ 274,297 $ (126,954) $ 792,039 $ 243,878 ========== ========== ========== ========== Net income (loss) attributable to common stock $ 273,028 $ (132,883) $ 788,096 $ 226,091 ========== ========== ========== ========== Net income (loss) per common share: Basic $0.73 $(0.36) $2.10 $0.62 Diluted 0.73 (0.36) 2.10 0.62
See Notes to Consolidated Financial Statements 2 5 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
September 30, December 31, 1998 1997 ------------- ------------- (dollars in thousands) ASSETS Cash $ 1,313,409 $ 1,285,222 Cash equivalents 40,750 275,668 Investments: Trading securities 38,452 23,364 Available-for-sale securities, amortized cost $18,284,691 and $11,258,232: Mortgage-backed securities ("MBS") 17,899,773 10,188,107 Investment securities 556,209 1,185,815 Held-to-maturity securities, fair value $11,240,535 and $12,699,653: MBS 11,283,139 12,659,217 Investment securities 130,790 120,397 ------------- ------------- Total investments 29,908,363 24,176,900 ------------- ------------- Loans: Loans held in portfolio 72,010,875 67,124,935 Loans held for sale 1,083,435 685,716 Reserve for loan losses (686,156) (670,494) ------------- ------------- Total loans 72,408,154 67,140,157 ------------- ------------- Investment in Federal Home Loan Banks ("FHLBs") 1,408,871 1,059,491 Foreclosed assets 157,500 205,272 Premises and equipment 1,077,958 937,198 Intangible assets arising from acquisitions 316,398 356,650 Mortgage servicing rights 262,340 215,360 Other assets 1,465,323 1,329,181 ------------- ------------- Total assets $ 108,359,066 $ 96,981,099 ============= ============= LIABILITIES Deposits: Checking accounts $ 8,133,689 $ 7,914,375 Savings accounts and money market deposit accounts 17,033,630 14,940,045 Time deposit accounts 25,391,716 28,131,597 ------------- ------------- Total deposits 50,559,035 50,986,017 ------------- ------------- Federal funds purchased and commercial paper 4,448,523 2,928,282 Securities sold under agreements to repurchase ("reverse repurchase agreements") 13,991,989 12,279,040 Advances from FHLBs 26,795,229 20,301,963 Other borrowings 3,288,679 3,489,362 Other liabilities 3,474,624 1,687,364 ------------- ------------- Total liabilities 102,558,079 91,672,028 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, no par value, liquidation preference, 10,000,000 shares authorized - none and 4,722,500 shares issued and outstanding -- 118,063 Common stock, no par value, 1,600,000,000 shares authorized - 387,599,422 and 386,340,027 shares issued and outstanding -- -- Capital surplus - common stock 1,975,074 1,943,294 Accumulated other comprehensive income 159,488 134,610 Retained earnings 3,666,425 3,113,104 ------------- ------------- Total stockholders' equity 5,800,987 5,309,071 ------------- ------------- Total liabilities and stockholders' equity $ 108,359,066 $ 96,981,099 ============= =============
See Notes to Consolidated Financial Statements 3 6 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- (dollars in thousands) PREFERRED STOCK Balance, beginning of period $ 118,063 $ 283,063 Redemption of Preferred Stock, Series C (68,813) -- Redemption of Preferred Stock, Series E (49,250) -- ----------- ----------- Balance, end of period -- 283,063 CAPITAL SURPLUS - COMMON STOCK Balance, beginning of period 1,943,294 1,664,870 Common stock issued through stock options, restricted stock grants and employee stock plans, including tax benefits 31,546 311,278 Common stock issued under dividend reinvestment plan 234 847 Common stock acquired -- (32,016) ----------- ----------- Balance, end of period 1,975,074 1,944,979 ACCUMULATED OTHER COMPREHENSIVE INCOME Balance, beginning of period 134,610 118,625 Other comprehensive income 24,878 47,638 ----------- ----------- Balance, end of period 159,488 166,263 RETAINED EARNINGS Balance, beginning of period 3,113,104 2,926,530 Net income 792,039 243,878 Minimum pension liability adjustment (2,504) -- Cash dividends declared on preferred stock (3,943) (17,787) Cash dividends declared on common stock (232,271) (201,722) Common stock issued and other miscellaneous transactions -- (8,099) ----------- ----------- Balance, end of period 3,666,425 2,942,800 ----------- ----------- Total stockholders' equity $ 5,800,987 $ 5,337,105 =========== ===========
Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- (number of shares in thousands) PREFERRED STOCK Balance, beginning of period 4,723 5,383 Redemption of Preferred Stock, Series C (2,753) -- Redemption of Preferred Stock, Series E (1,970) -- ----------- ----------- Balance, end of period -- 5,383 =========== =========== COMMON STOCK Balance, beginning of period 386,340 250,231 Common stock issued through stock options, restricted stock grants and employee stock plans, including tax benefits 1,254 7,833 Common stock issued under dividend reinvestment plan 5 20 Common stock acquired -- (908) ----------- ----------- Balance, end of period 387,599 257,176 =========== ===========
See Notes to Consolidated Financial Statements 4 7 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 792,039 $ 243,878 Adjustments to operating activities: Provision for loan losses 126,998 155,940 Mortgage banking (gains) losses (69,644) 76,707 Gain on sale of other assets (25,318) (17,697) Depreciation and amortization 89,345 133,182 Stock dividends from FHLBs (58,179) (46,686) Transaction-related (accrual reversal) expense (37,448) 278,751 Decrease in trading securities 96,978 1,647 Origination of loans held for sale (5,840,878) (2,719,142) Proceeds from sales of loans held for sale 8,786,241 3,248,089 Increase in other assets (74,181) (183,746) Decrease in other liabilities (370,257) (269,261) ----------- ----------- Net cash provided by operating activities 3,415,696 901,662 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale securities (9,301,106) (2,004,161) Principal payments and maturities of available-for-sale securities 2,718,765 1,754,288 Sales of available-for-sale securities 1,373,072 1,963,165 Purchases of held-to-maturity securities (13,079) (27,550) Principal payments and maturities of held-to-maturity securities 2,006,193 285,827 Increase in loans (9,225,283) (10,666,115) Proceeds from sale of foreclosed assets 248,610 292,537 Purchases of premises and equipment, net (204,409) (83,605) ----------- ----------- Net cash used by investing activities (12,397,237) (8,485,614) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in deposits (426,982) (1,374,097) Increase in annuities -- 5,956 Increase in federal funds purchased and commercial paper 1,520,241 2,093,792 Increase (decrease) in short-term reverse repurchase agreements 1,783,804 (3,125,862) Proceeds from long-term reverse repurchase agreements 1,146,205 7,195,188 Repayments on long-term reverse repurchase agreements (1,215,591) (4,408,407) Proceeds from FHLBs advances 39,871,933 39,443,154 Repayments on FHLBs advances (33,379,116) (32,813,109) (Repayments on) proceeds from other borrowings (200,683) 90,035 Cash dividends paid (236,214) (219,509) Redemption of preferred stock (118,063) -- Common stock repurchased -- (32,016) Other capital transactions 29,276 304,026 ----------- ----------- Net cash provided by financing activities 8,774,810 7,159,151 ----------- ----------- Decrease in cash and cash equivalents (206,731) (424,801) Cash and cash equivalents, beginning of period 1,560,890 1,665,355 ----------- ----------- Cash and cash equivalents, end of period $ 1,354,159 $ 1,240,554 =========== ===========
See Notes to Consolidated Financial Statements 5 8 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- (dollars in thousands) NONCASH INVESTING ACTIVITIES Loans held for sale originated to refinance existing loans $ 3,273,438 $ 760,817 Trade date purchases not yet settled 2,178,226 703,088 Loans held in portfolio originated to refinance existing loans 1,402,902 326,064 Loans exchanged for MBS 647,020 2,710,300 Trade date sales not yet settled 272,589 157,207 Real estate acquired through foreclosure 242,220 336,325 Loans exchanged for trading securities 107,544 -- Loans originated to facilitate the sale of foreclosed assets 41,382 64,862 Reserves transferred to contingent liability 833 2,747 Transfer to held-to-maturity securities -- 4,359,814 Loans transferred to loans held for sale -- 1,236,796 Reserves transferred to MBS impairment -- 16,505 CASH PAID DURING THE PERIOD FOR Interest on borrowings 1,736,201 1,347,919 Interest on deposits 1,527,974 1,623,707 Income taxes 543,017 194,866
See Notes to Consolidated Financial Statements 6 9 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: EARNINGS PER SHARE ("EPS") Basic EPS excludes dilution and is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Information used to calculate EPS was as follows:
Three Months Ended September 30, ----------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- ---------------------------------------- Income Shares Per Share Income Shares Per Share (numerator) (denominator) Amounts (numerator) (denominator) Amounts ------------- ----------- --------- ----------- ------------- --------- (dollars in thousands, except per share amounts) Basic EPS: Net income (loss) $ 274,297 $ (126,954) Less: preferred stock dividends (1,269) (5,929) ------------- ------------- Income (loss) attributable to common shareholders 273,028 375,361,082 $0.73 (132,883) 370,959,425 $ (0.36) Diluted EPS: Effect of dilutive securities: Stock options -- 1,015,334 -- 1,529,020 ------------- ----------- ------------- ----------- Income (loss) attributable to common shareholders and assumed conversions $ 273,028 376,376,416 $0.73 $ (132,883) 372,488,445 $ (0.36) ============= =========== ============= ===========
Nine Months Ended September 30, -------------------------------------------------------------------------------------- 1998 1997 --------------------------------------- ------------------------------------------- Income Shares Per Share Income Shares Per Share (numerator) (denominator) Amounts (numerator) (denominator) Amounts ----------- ------------ --------- ------------- ------------- --------- (dollars in thousands, except per share amounts) Basic EPS: Net income $ 792,039 $ 243,878 Less: preferred stock dividends (3,943) (17,787) ---------- ------------- Income attributable to common shareholders 788,096 374,879,413 $ 2.10 226,091 365,854,485 $0.62 Diluted EPS: Effect of dilutive securities: Stock options -- 1,237,622 -- 1,369,254 ---------- ----------- ------------- ------------- Income attributable to common shareholders and assumed conversions $ 788,096 376,117,035 $ 2.10 $ 226,091 367,223,739 $0.62 ========== =========== ============= =============
7 10 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) NOTE 2: COMPREHENSIVE INCOME Washington Mutual adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," effective January 1, 1998. The standard requires that comprehensive income and its components be disclosed in the financial statements. The Company's comprehensive income includes all items which comprise net income plus the unrealized holding gains on available-for-sale securities. For the three and nine months ended September 30, 1998 and 1997, the Company's comprehensive income (loss) was as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ------------ (dollars in thousands) Net income (loss) $274,297 $(126,954) $792,039 $243,878 Other comprehensive income 15,317 85,277 24,878 47,638 -------- --------- -------- -------- Total comprehensive income (loss) $289,614 $ (41,677) $816,917 $291,516 ======== ========= ======== ========
NOTE 3: THE AHMANSON MERGER On March 17, 1998, Washington Mutual and Ahmanson announced the signing of a definitive merger agreement. The merger was approved by the shareholders of both companies at special meetings held on August 28, 1998. Holders of Washington Mutual common stock and holders of Washington Mutual preferred stock also approved an amendment to Washington Mutual's Articles of Incorporation to increase the number of authorized shares of common stock from 800,000,000 shares to 1,600,000,000 shares. The merger was approved by the Office of Thrift Supervision in September 1998. The merger was effective on October 1, 1998 and was accounted for as a pooling of interests. Each share of Ahmanson common stock was converted into the right to receive 1.68 shares of Washington Mutual common stock with cash paid in lieu of fractional shares. In connection with the merger, approximately 205,582,840 shares of Washington Mutual common stock were issued. On October 3, 1998, the Company merged Ahmanson's banking subsidiary, Home Savings of America, FSB, into Washington Mutual Bank, FA. NOTE 4: STOCKHOLDERS' EQUITY On September 16, 1998, the Company redeemed its Series E preferred stock at a price equal to $25 per share plus accrued and unpaid dividends. The preferred issue carried a dividend rate of 7.6% and was issued in September 1993. NOTE 5: OTHER BORROWINGS Other borrowings included Company-obligated mandatorily redeemable capital securities of the Company's subsidiary trusts holding solely $800.0 million aggregate principal amount of subordinated deferrable interest debentures of the Company as of September 30, 1998 and December 31, 1997. NOTE 6: IMPACT OF RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," was issued in June 1997 and redefined how operating segments are determined. SFAS No. 131 requires disclosure of certain financial and descriptive information about a company's operating segments. This statement was adopted by the Company on January 1, 1998. Provisions of this statement require annual disclosure in the year of adoption and interim reporting for periods thereafter. This statement does not affect the results of operations or financial position of the Company. SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits," was issued in February 1998 and standardizes the annual disclosure requirements for pensions and other postretirement benefits. This statement does not affect the results of operations or financial position of the Company. SFAS No. 132 was adopted by the Company as of January 1, 1998. 8 11 WASHINGTON MUTUAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998 and establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement is effective for all fiscal years beginning after June 15, 1999. The impact of the adoption of the provisions of this statement on the results of operations or the financial position of the Company has not yet been determined. SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise," was issued in October 1998. Prior to issuance of SFAS No. 134, when a mortgage banking company securitized loans held for sale but did not sell the security in the secondary market, the security was classified as trading. SFAS No. 134 requires that the security be classified in accordance with SFAS No. 115 as either trading, available for sale or held to maturity according to the Company's intent unless the Company has already committed to sell the security before or during the securitization process. The statement is effective for all fiscal years beginning after December 15, 1998. This statement is not expected to have a material impact on the results of operations or financial position of the Company. 9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements. GENERAL Washington Mutual, Inc. ("Washington Mutual" or the "Company") is a financial services company committed to serving consumers and small and mid-sized businesses. The Company's banking subsidiaries, Washington Mutual Bank, FA ("WMBFA"), Washington Mutual Bank ("WMB") and Washington Mutual Bank fsb ("WMBfsb"), accept deposits from the general public, make residential loans, consumer loans, and commercial real estate loans (primarily loans secured by multi-family properties) and engage in certain commercial banking activities. The Company's consumer finance operations provide direct installment loans and related credit insurance services and purchase retail installment contracts. Washington Mutual also markets annuities and other insurance products, offers full service securities brokerage, and acts as the investment advisor to and the distributor of mutual funds. THE KEYSTONE TRANSACTION. In December 1996, Keystone Holdings, Inc. ("Keystone Holdings") merged with and into Washington Mutual and all of the subsidiaries of Keystone Holdings, including American Savings Bank, F.A. ("ASB"), became subsidiaries of the Company. THE GREAT WESTERN MERGER. On July 1, 1997, Great Western Financial Corporation ("GWFC") merged with and into New American Capital, Inc. ("NACI"), a wholly-owned subsidiary of the Company, and all of the subsidiaries of GWFC, including Great Western Bank, a Federal Savings Bank ("GWB") and Aristar, Inc. ("Aristar") became subsidiaries of NACI. On October 1, 1997, GWB was merged with and into ASB; simultaneously, the name of ASB was changed to Washington Mutual Bank, FA. THE AHMANSON MERGER. On October 1, 1998, H.F. Ahmanson & Company ("Ahmanson") merged with and into Washington Mutual. On October 3, 1998, Ahmanson's banking subsidiary, Home Savings of America, FSB, was merged with and into WMBFA. RESULTS OF OPERATIONS OVERVIEW. The Company's net income for the third quarter of 1998 was $274.3 million, compared with a net loss of $127.0 million for the third quarter of 1997. For the nine months ended September 30, 1998, net income was $792.0 million, compared with $243.9 million for the nine months ended September 30, 1997. Net income for the periods in both years was reduced by transaction-related expenses in connection with the GWFC merger and the results for 1998 also included transaction-related expenses for the Ahmanson merger. For the third quarter of 1998 and 1997, pretax charges for transaction-related expenses totaled $20.5 million and $366.9 million. For the nine months ended September 30, 1998 and 1997, pretax charges for transaction-related expenses totaled $53.6 million and $424.9 million. NET INTEREST INCOME. Net interest income for the third quarter of 1998 was $716.1 million, a 9% increase from $655.7 million in the third quarter of 1997. The increase was due to a 12% rise in average interest-earning assets to $100.54 billion from $89.97 billion in the third quarter of 1997. The net interest spread, however, declined to 2.70% in the third quarter of 1998 from 2.76% in the third quarter of 1997. The 9% increase in net interest income for the nine months ended September 30, 1998 to $2.16 billion was also due to a rise in average interest-earning assets. The net interest spread declined to 2.74% in the nine months ended September 30, 1998 from 2.83% in the nine months ended September 30, 1997. To a certain extent, the Company's net interest spread is affected by changes in the yield curve. During the third quarter of 1998, the difference between the yield on a three-month U.S. Treasury bill and a 10-year U.S. Government note averaged 26 basis points, compared with 106 basis points for the same period a year earlier. During the nine months ended September 30, 1998, the difference between the yield on a three-month U.S. Treasury bill and a 10-year U.S. Government note averaged 39 basis points, compared with 132 basis points for the same period a year earlier. 10 13 Selected average financial balances and the net interest spread and margin were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- -------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------- (dollars in thousands) Selected Average Balances: Loans $ 71,417,642 $67,037,118 $ 69,809,714 $64,647,077 Investments 29,124,944 22,935,483 28,466,636 22,428,951 ------------ ----------- ------------ ----------- Total interest-earning assets 100,542,586 89,972,601 98,276,350 87,076,028 Deposits 50,407,583 51,670,233 50,738,940 52,004,850 Borrowings 46,360,159 35,061,690 44,083,025 31,904,807 ------------ ----------- ------------ ----------- Total interest-bearing liabilities 96,767,742 86,731,923 94,821,965 83,909,657 Total assets 103,944,145 93,764,401 101,845,313 90,386,754 Stockholders' equity 5,719,128 5,358,598 5,528,083 5,161,239 Weighted Average Interest Rates: Yield on loan portfolio 7.87% 7.86% 7.94% 7.89% Yield on investment portfolio 6.93 7.11 6.95 7.06 Yield on interest-earning assets 7.60 7.67 7.65 7.68 Cost of deposits 4.03 4.21 4.06 4.19 Cost of borrowings 5.85 5.94 5.89 5.94 Cost of interest-bearing liabilities 4.90 4.91 4.91 4.85 Net interest spread 2.70 2.76 2.74 2.83 Net interest margin 2.88 2.94 2.92 3.00
The net interest spread is the difference between the Company's yield on its loan and investment portfolios and its cost of deposits and borrowings. The net interest margin measures the Company's annualized net interest income as a percentage of average interest-earning assets. OTHER INCOME. Other income was $246.7 million and $690.3 million for the three and nine months ended September 30, 1998 compared with $111.1 million and $487.5 million for the same periods in 1997. Depositor and other retail banking fees of $121.1 million and $319.0 million for the three and nine months ended September 30, 1998 increased from $92.4 million and $267.4 million for the same periods in 1997. The increase reflected an increase in the volume of nonsufficient funds charges and overdraft protection charges on checking accounts and money market deposit accounts ("MMDAs"). There was also an increase in the number of such accounts since September 1997. Contributing to the decline in loan servicing income for the three and nine months ended September 30, 1998 was an increase in the amortization of mortgage servicing rights. The increased amortization was related to the higher rate of prepayments in the loan servicing portfolio. The amortization of mortgage servicing rights increased from $28.3 million for the nine months ended September 30, 1997 to $42.3 million for the same period in 1998. Higher prepayment activity generated by the declining interest-rate environment also resulted in an increase in prepayment fees, which are included in loan related income. Mortgage banking gains during the three and nine months ended September 30, 1998 were $26.6 million and $69.6 million, compared with net losses of $89.2 million and $76.7 million for the same periods in 1997. The Company's strategy is to sell the majority of its fixed-rate loan originations in the secondary market and during the three and nine months ended September 30, 1998, $2.65 billion and $8.72 billion of fixed-rate loans were sold. The relatively low interest-rate environment led to fixed-rate single family residential ("SFR") loan originations of $7.56 billion and $23.05 billion for the three and nine months ended September 30, 1998. Included in the third quarter and year-to-date losses during 1997 was a $100.0 million write down of loans securitized and held in the trading portfolio. 11 14 The sale of other assets resulted in net gains of $8.5 million and $25.3 million for the three and nine months ended September 30, 1998, compared with $6.7 million and $17.7 million for the same periods in 1997. The increases in the 1998 periods were due to sales and calls of mortgage-backed and investment securities, as well as an increase in 1998 of $4.5 million in the valuation of securities held in the trading portfolio compared with the write down in 1997 discussed above. The first nine months of 1997 included a $4.2 million gain associated with the sale of branch premises at GWB. OTHER EXPENSE. Other expense totaled $489.4 million and $1.43 billion for the three and nine months ended September 30, 1998, compared with $826.0 million and $1.79 billion for the same periods in 1997. Salaries and employee benefits increased to $205.4 million and $600.4 million for the three and nine months ended September 30, 1998, compared with $198.0 million and $598.4 million for the three and nine months ended September 30, 1997, as a result of increased incentive compensation due to expanded loan originations. Full-time equivalent employees ("FTEs") were 19,499 at September 30, 1998, compared with 19,954 at September 30, 1997. The decrease in FTEs was primarily due to staff reductions in connection with the GWFC merger and restructuring plan. However, this decrease was partially offset by increased staffing levels throughout the Company to support its growth. As a result of merger activity, the Company recorded transaction-related expense of $20.5 million and $53.6 million for the three and nine months ended September 30, 1998, compared with $366.9 million and $424.9 million for the same periods in 1997. For the three and nine months ended September 30, 1998, the majority of the charges were for one-time nonrecurring incremental costs associated with combining entities, which are being expensed as incurred. These transaction-related charges were partially offset by reductions in the estimates of contract cancellation fees of $13.6 million, severance of $8.0 million and other accruals of $3.0 million, and from gains on the disposition of surplus real estate of $12.8 million during the first nine months of 1998. The reduction in estimates for contract cancellation fees was largely a result of maintaining certain contracts in place for longer periods than originally anticipated, thereby reducing the cancellation penalties. The reduction in severance estimates was primarily the result of more employees voluntarily terminating without severance than was originally estimated. All staff reductions related to the Keystone Holdings and GWFC mergers have been completed. The remaining severance accruals relate to installment payments to employees that have already departed. The gains from the disposition of surplus real estate were a result of the value of excess branch properties being higher than originally estimated due to increases in real estate values in Southern California. 12 15 Reconciliation of the transaction-related expense and accrual activity was as follows:
Three Months Three Months Three Months Ended Ended Ended June 30, September 30, September 30, September 30, September 30, 1998 1998 1998 1998 1997 Accrued Activity Charged Accrued Period Period Balance Against Accrual(1) Balance Costs(2) Costs --------- ------------------ -------------- -------------- ------------- (dollars in thousands) Severance ................... $ 50,146 $(13,074) $37,072 $ 1,705 $122,933 Premises and equipment ..... 46,891 (14,095) 32,796 (9,539) 146,286 Legal, underwriting and other direct transaction costs .. 111 (35) 76 721 55,288 Contract cancellation costs . 18,744 (17,091) 1,653 1,155 33,207 Other ....................... 6,738 (2,830) 3,908 26,423 9,146 --------- -------- ------- --------- -------- $ 122,630 $(47,125) $75,505 $ 20,465 $366,860 ========= ======== ======= ========= ========
Nine Months Nine Months Nine Months Ended Ended Ended December 31, September 30, September 30, September 30, September 30, 1997 1998 1998 1998 1997 Accrued Activity Charged Accrued Period Period Balance Against Accrual(1) Balance Costs(2) Costs ------------ ------------------ -------------- -------------- ------------- (dollars in thousands) Severance ................... $ 93,104 $ (56,032) $37,072 $ (3,923) $122,933 Premises and equipment ...... 57,304 (24,508) 32,796 (12,789) 146,286 Legal, underwriting and other direct transaction costs .. 742 (666) 76 7,413 113,314 Contract cancellation costs . 33,699 (32,046) 1,653 (11,527) 33,207 Other ....................... 11,243 (7,335) 3,908 74,414 9,146 --------- --------- ------- --------- -------- $ 196,092 $(120,587) $75,505 $ 53,588 $424,886 ========= ========= ======= ========= ========
- ---------- (1) Amounts include activity charged against the accrual, additional accruals and reversals of excess accruals. (2) Amounts include reversals of excess accruals. Telecommunications and outsourced information services expense of $51.1 million and $153.1 million for the three and nine months ended September 30, 1998 was up from $40.1 million and $126.2 million for the same periods in 1997. This change resulted from increased volume and usage. Foreclosed assets generated net income of $9.5 million and $5.9 million for the three and nine months ended September 30, 1998 compared with net expenses of $5.2 million and $9.7 million for the same periods in 1997. During the third quarter of 1998, the Company reversed $3.1 million in excess reserves on foreclosed assets and recorded a gain of $4.2 million on the sale of two foreclosed commercial properties. 13 16 Other operating expense consisted of the following:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (dollars in thousands) Other operating expense: Advertising and promotion $ 23,380 $ 22,638 $ 70,776 $ 62,747 Operating losses and settlements 21,946 13,909 45,904 37,481 Postage 14,011 12,049 39,835 37,333 Professional fees 11,585 13,944 31,517 40,913 Office supplies 6,510 3,899 17,196 14,249 Other expense 45,564 43,246 132,349 127,731 -------- -------- -------- -------- Total other operating expense $122,996 $109,685 $337,577 $320,454 ======== ======== ======== ========
Operating losses and settlements refer primarily to uncollected overdrafts and other deposit-related activity. As the volume of checking accounts increased, so did losses associated with these accounts. Management closely monitors these losses, especially in light of the growth in checking accounts. Included in the other category listed above are such expenses as travel and training, security services, outside printing, insurance expenses, and other operating costs. TAXATION. Income taxes include federal and applicable state income taxes and payments in lieu of taxes. The provision for income taxes was $163.9 million for the third quarter of 1998, compared with $15.6 million for the third quarter of 1997. The 1997 third quarter pretax loss of $111.3 million included transaction-related expenses which were not deductible for tax purposes. For the nine months ended September 30, 1998, the provision was $492.5 million, which represented an effective tax rate of 38.3%, compared with a 51.9% effective tax rate for the nine months ended September 30, 1997. The change in the tax rate resulted from a reduction in the tax valuation allowance in 1998 and nondeductible merger costs in 1997. CONSUMER FINANCE OPERATIONS. During the three and nine months ended September 30, 1998, Aristar had net income of $14.8 million and $41.4 million, up from $10.2 million and $34.3 million for the same periods in 1997. The 1997 third quarter net income had been reduced as a result of a pretax interest accrual reversal of $4.2 million. The improvement in net interest income was due to the growth in the loan portfolio. The increase in the loan loss provision reflected, in part, this growth of the loan portfolio and the credit risk inherent in consumer finance lending.
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (dollars in thousands) Consumer finance operations: Net interest income $ 71,791 $ 58,474 $ 206,655 $180,790 Provision for loan losses (21,800) (16,200) (58,100) (47,200) Other income 7,844 6,592 20,110 19,647 Other expense (33,322) (31,821) (100,174) (96,585) -------- -------- --------- -------- Income before income taxes 24,513 17,045 68,491 56,652 Income taxes (9,700) (6,800) (27,100) (22,400) -------- -------- --------- -------- Net income $ 14,813 $ 10,245 $ 41,391 $ 34,252 ======== ======== ========= ========
14 17 REVIEW OF FINANCIAL POSITION ASSETS. At September 30, 1998, the Company's assets were $108.36 billion, an increase of 12% from $96.98 billion at December 31, 1997. The growth during the nine months ended September 30, 1998 resulted primarily from the purchase of agency and high quality MBS in the secondary market and the retention of adjustable-rate mortgage ("ARM") loan originations. Despite record loan originations during the nine months ended September 30, 1998, asset growth was hampered by increases in principal payments and sales of a majority of the Company's fixed-rate loan production. SECURITIES. The Company's securities portfolio increased by $5.73 billion to $29.91 billion during the nine months ended September 30, 1998 primarily due to the purchase of agency and high quality MBS in the secondary market. At September 30, 1998, 72% of MBS in the Company's securities portfolio were adjustable rate. This was down from 84% at June 30, 1998 primarily due to the purchase of fixed-rate securities with short durations. Of the securities indexed to an adjustable rate, 70% were indexed to the Cost of Funds Index of the Federal Home Loan Bank ("FHLB") Eleventh District ("COFI"), 20% were indexed to U.S. Treasury indices, and 10% were indexed to the London Interbank Offering Rate. The remaining 28% of MBS were fixed rate. LOANS. Total loans at September 30, 1998 were $72.41 billion, up from $67.14 billion at December 31, 1997. Changes in total loans for the nine months ended September 30, 1998 were as follows:
Nine Months Ended September 30, 1998 ---------------------------------------------- Cash Basis Noncash Items Total Change ------------ ------------- ------------- (dollars in thousands) Loans held in portfolio and reserve for loan losses: Loans originated (1) $ 18,591,332 $ 1,402,902 $ 19,994,234 Loans originated to facilitate the sale of foreclosed assets -- 41,382 41,382 Loans purchased 1,687,830 -- 1,687,830 Loans securitized -- (754,564) (754,564) Real estate acquired through foreclosure -- (242,220) (242,220) Proceeds from loans sold (24,574) -- (24,574) Loan payments and other (1) (11,139,808) (4,676,340) (15,816,148) Change in loan loss reserve 110,503 (126,165) (15,662) ------------ ----------- ------------ Change in loans held in portfolio and reserve for loan losses 9,225,283 (4,355,005) 4,870,278 Loans held for sale: Loans originated (1) 5,840,878 3,273,438 9,114,316 Proceeds from loans sold (8,786,241) -- (8,786,241) Mortgage banking gains 69,644 -- 69,644 ------------ ------------ ------------ Change in loans held for sale (2,875,719) 3,273,438 397,719 ------------ ------------ ------------ Total change in loans $ 6,349,564 $(1,081,567) $ 5,267,997 ============ ============ ============
- ---------- (1) Noncash items include loans originated to refinance existing loans. 15 18 Loans (exclusive of the reserve for loan losses) consisted of the following:
September 30, December 31, 1998 1997 ------------- ------------ (dollars in thousands) Real estate loans: SFR $58,103,428 $53,431,451 SFR construction 973,669 877,449 Apartment buildings 4,109,321 4,187,580 Other commercial real estate 2,332,706 2,425,961 ----------- ----------- 65,519,124 60,922,441 Manufactured housing 1,097,766 1,081,193 Second mortgage and other consumer 3,069,575 2,725,144 Consumer finance 2,433,183 2,309,407 Commercial business 974,662 772,466 ----------- ----------- $73,094,310 $67,810,651 =========== ===========
Real estate loans (exclusive of the reserve for loan losses) by product type were as follows:
September 30, 1998 December 31, 1997 ------------------------------- -------------------------------- Percent of Percent of Total Real Total Real Amount Estate Loans Amount Estate Loans ----------- ------------ ----------- ------------ (dollars in thousands) Short-term ARMs: COFI $27,965,445 43% $32,108,461 53% Moving Treasury Average ("MTA") 6,261,732 9 1,602,123 3 Constant Maturity Treasury ("CMT") 3,098,686 5 3,800,156 6 Other 3,125,165 5 4,553,499 7 ----------- --- ----------- --- 40,451,028 62 42,064,239 69 Medium-term ARMs: MTA 5,347,763 8 2,880,587 5 CMT 3,220,619 5 4,135,947 7 COFI 903,228 1 1,244,357 2 Other 2,658,495 4 -- -- ----------- --- ----------- --- 12,130,105 18 8,260,891 14 Fixed-rate mortgages 12,937,991 20 10,597,311 17 ----------- --- ----------- --- $65,519,124 100% $60,922,441 100% =========== === =========== === Number of real estate loans 516,432 513,417
Short-term ARMs reprice within a year or less. Medium-term ARMs have an initial fixed rate for more than one year and then convert to short-term ARMs. 16 19 Loan originations were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- (dollars in thousands) Real estate loans: SFR: Adjustable rate $3,905,075 $4,084,265 $11,299,226 $11,359,513 Fixed rate 3,654,218 1,770,245 11,750,052 4,632,757 ---------- ---------- ----------- ----------- 7,559,293 5,854,510 23,049,278 15,992,270 SFR construction: Custom 310,045 235,814 755,459 642,527 Builder 184,819 122,353 546,826 430,398 ---------- ---------- ----------- ----------- 494,864 358,167 1,302,285 1,072,925 Apartment buildings 149,585 212,071 424,489 524,912 Other commercial real estate 97,557 159,256 306,575 364,730 ---------- ---------- ----------- ----------- 8,301,299 6,584,004 25,082,627 17,954,837 Manufactured housing 83,815 96,515 221,273 247,670 Second mortgage and other consumer 469,258 495,257 1,404,452 1,420,495 Consumer finance 724,966 531,835 1,806,937 1,508,541 Commercial business 186,272 149,046 634,643 474,256 ---------- ---------- ----------- ----------- $9,765,610 $7,856,657 $29,149,932 $21,605,799 ========== ========== =========== ===========
SFR originations by product type were as follows:
Three Months Ended Nine Months Ended September 30, 1998 September 30, 1998 ---------------------------------- --------------------------------- Percent Percent Percent Percent of of of of Amount Category Total Amount Category Total ---------- -------- ------- ----------- -------- ------- (dollars in thousands) Short-term ARMs: MTA $1,679,415 94% 22% $ 4,616,572 85% 20% COFI 99,787 5 2 619,675 11 3 CMT 13,354 1 * 165,197 3 1 Other 1,210 * * 38,779 1 * ---------- --- --- ----------- --- --- 1,793,766 100% 24 5,440,223 100% 24 === === Medium-term ARMs: MTA 2,034,873 96% 27 5,189,960 89% 22 CMT 19,262 1 * 429,467 7 2 COFI 57,174 3 1 57,174 1 * Other -- -- -- 182,402 3 1 ---------- --- --- ----------- --- --- 2,111,309 100% 28 5,859,003 100% 25 === === Fixed-rate mortgages 3,654,218 48 11,750,052 51 ---------- --- ----------- --- $7,559,293 100% $23,049,278 100% ========== === =========== ===
- ---------- * Less than one percent 17 20 The strong housing market and lower interest rates led to strong loan production which included a significant amount of refinance activity during the nine months ended September 30, 1998. The low interest-rate environment also led to an increase in borrower preference for fixed-rate mortgages. Fixed-rate loan production accounted for 48% of total SFR originations in the third quarter of 1998, up from 30% in the third quarter of 1997, and 51% of total SFR originations during the nine months ended September 30, 1998, compared with 29% during the nine months ended September 30, 1997. INTEREST-BEARING LIABILITIES. The Company uses customer deposits and wholesale borrowings to fund its operations. Due to increased market competition for customer deposits, the Company has increasingly relied upon wholesale borrowings to fund its asset growth. The slight decrease in deposits from $50.99 billion as of December 31, 1997 to $50.56 billion as of September 30, 1998 reflected the competitive environment of banking institutions and the wide array of investment opportunities available to consumers. While time deposit accounts have declined as a percentage of total deposits, savings accounts, MMDAs and checking accounts have increased as a percentage of total deposits to 50% at September 30, 1998 compared with 45% at year-end 1997. These latter three products generally carry lower interest costs to the Company compared with time deposit accounts. Even though savings accounts, MMDAs and checking accounts are liquid, they are considered by the Company to be the core relationship with its customers. In the aggregate, the Company views these core accounts to be a more stable source of long-term funding. The Company's asset growth was funded by borrowings that primarily take the form of federal funds purchased, securities sold under agreements to repurchase ("reverse repurchase agreements") and advances from the FHLBs of Seattle and San Francisco. The exact mix at any given time is dependent upon the market pricing of the individual borrowing sources. ASSET QUALITY NONPERFORMING ASSETS. Assets considered to be nonperforming include nonaccrual loans and securities, foreclosed assets and real estate held for investment purposes that do not generate sufficient income to meet return on investment criteria. When loans securitized or sold with recourse provisions become nonperforming, they are included in nonaccrual loans. Management's classification of a loan as nonaccrual does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. Loans are generally placed on nonaccrual status when they are four payments or more past due. Nonperforming assets were $748.5 million or 0.69% of total assets at September 30, 1998, compared with $806.6 million or 0.83% of total assets at December 31, 1997. Nonperforming assets consisted of the following:
September 30, December 31, 1998 1997 ------------- ------------- (dollars in thousands) Nonaccrual loans: Real estate loans: SFR $471,714 $469,127 SFR construction 10,955 10,413 Apartment buildings 10,971 17,296 Other commercial real estate 7,484 25,825 -------- -------- 501,124 522,661 Manufactured housing 12,313 11,127 Second mortgage and other consumer 19,558 14,071 Consumer finance 55,050 50,930 Commercial business 2,974 2,585 -------- -------- 591,019 601,374 Foreclosed assets 157,500 205,272 -------- -------- $748,519 $806,646 ======== ======== Nonperforming assets as a percentage of total assets 0.69% 0.83%
The decrease in foreclosed assets was primarily attributable to the decline in residential foreclosures. During the nine months ended September 30, 1998, sales of existing foreclosed assets exceeded acquisitions, resulting in a net decrease in the inventory. The Company also sold two foreclosed commercial properties during the third quarter of 1998. The two properties had a combined basis of $13.7 million and their sale generated a gain of $4.2 million. 18 21 PROVISION FOR LOAN LOSSES AND RESERVE FOR LOAN LOSSES. The provision for loan losses is based upon management's estimate of the amount necessary to maintain adequate reserves for loan losses inherent in the Company's loan portfolio. The Company's process to determine the level of the reserve and the related provision for loan losses includes consideration of various factors, such as current and anticipated economic conditions, the underlying quality of the loan portfolio, prior loan loss experience, the Company's credit administration and asset management philosophy and procedures, and regulatory requirements. Changes in the reserve for loan losses were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (dollars in thousands) Balance, beginning of period $684,436 $666,057 $ 670,494 $ 677,141 Provision for loan losses 35,250 52,131 126,998 155,940 Reserves added through business combinations - - - 10,908 Reserves transferred to MBS impairment - - - (16,505) Reserves transferred to contingent liability (833) - (833) (2,747) Loans charged off: SFR (8,389) (22,438) (33,453) (78,624) SFR construction (108) (12) (470) (12) Commercial real estate (1,077) (4,869) (7,332) (19,148) Manufactured housing, second mortgage and other consumer (4,961) (4,422) (17,056) (13,674) Consumer finance (21,917) (19,683) (65,610) (58,336) Commercial business (819) (781) (2,734) (1,087) ------- ------- -------- -------- (37,271) (52,205) (126,655) (170,881) Recoveries of loans previously charged off: SFR 62 327 795 875 SFR construction - 5 - 74 Commercial real estate 125 1,302 923 2,169 Manufactured housing, second mortgage and other consumer 490 409 1,399 2,507 Consumer finance 3,761 3,754 12,703 12,214 Commercial business 136 89 332 174 -------- -------- --------- --------- 4,574 5,886 16,152 18,013 -------- -------- --------- --------- Net charge offs (32,697) (46,319) (110,503) (152,868) -------- -------- --------- --------- Balance, end of period $686,156 $671,869 $ 686,156 $ 671,869 ======== ======== ========= =========
An analysis of the reserve for loan losses was as follows:
September 30, December 31, 1998 1997 ------------- ------------ (dollars in thousands) Specific and allocated reserves: Commercial real estate $ 76,073 $ 84,969 Commercial business 8,993 3,277 Builder construction 852 2,207 -------- -------- 85,918 90,453 Unallocated reserves 600,238 580,041 -------- -------- $686,156 $670,494 ======== ======== Total reserve for loan losses as a percentage of: Nonaccrual loans 116% 111% Nonperforming assets 92 83
19 22 The Company considers the reserve for loan losses of $686.2 million at September 30, 1998 adequate to cover losses inherent in the loan portfolio. Management bases its analysis of the adequacy of the reserve on a combination of factors, including, but not limited to, the composition of the loan portfolio, recent loss experience as reflected in net charge offs, fluctuations in its nonperforming assets, and general market conditions. The credit quality of the Company's loan portfolio as measured by its nonperforming loans has remained relatively unchanged during 1998 and, therefore, the absolute level of loss reserves has also remained at comparable levels. As a result of reduced charge offs during the third quarter of 1998, the Company has reduced its provision for loan losses in order to maintain its loan loss reserve at levels consistent with the inherent losses described above. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that are sizable in relation to the amount reserved, or that subsequent evaluation of the loan portfolio, in light of the factors then prevailing, including economic conditions and the Company's ongoing examination process and that of its regulators, will not require significant increases in the reserve for loan losses. YEAR 2000. This section contains forward-looking statements that have been prepared on the basis of the Company's best judgments and currently available information. These forward-looking statements are inherently subject to significant business, third-party and regulatory uncertainties and contingencies, many of which are beyond the control of the Company. In addition, these forward-looking statements are based on the Company's current assessments and remediation plans, which are based on certain representations of third-party servicers and are subject to change. Accordingly, there can be no assurance that the Company's results of operations will not be adversely affected by difficulties or delays in the Company's or third parties' Year 2000 readiness efforts. See "Risks" below for a discussion of factors that may cause such forward-looking statements to differ from actual results. Washington Mutual has implemented a company-wide program to renovate, test and document the readiness ("Year 2000 readiness") of its electronic systems, programs and processes ("Computer Systems") and facilities to properly recognize dates to and through the year 2000 (the "Year 2000 Project"). While the Company is in various stages of modification and testing of individual Year 2000 Project components, the Year 2000 Project is proceeding generally on schedule. The Company has assigned its Executive Vice President of Operations to oversee the Year 2000 Project, has set up a Year 2000 Project Office, and has charged a senior management team representing all significant operational areas of the Company to act as a Steering Committee. The Company has dedicated a substantial amount of management and staff time on the Year 2000 Project. In addition, the Company has engaged IBM Global Services to provide supplemental technical and management resources to assess and test the Year 2000 readiness of the Company's Computer Systems, Deloitte & Touche LLP to assist in documenting certain aspects of the Year 2000 Project, and CB Richard Ellis to provide technical and management resources in executing the Year 2000 Project with respect to facilities. Monthly progress reports are made to the Company's Board of Directors, and the Board's Audit Committee reviews Year 2000 Project progress on a quarterly basis. (a) Project. The Company has divided its Year 2000 Project into the following general phases, consistent with guidance issued by the Federal Financial Institutions Examinations Council (the "FFIEC"): (i) inventory and assessment; (ii) renovation, which includes repair or replacement; (iii) validation, which includes testing of Computer Systems and the Company's connections with other computer systems; (iv) due diligence on third-party servicers; and (v) development of contingency plans. The Year 2000 Project is divided into four categories: mainframe systems, non-mainframe systems, third-party servicers, and facilities. The inventory and assessment phases are substantially complete, and each component that has been identified has been assigned a priority rating corresponding to its significance. The rating has allowed the Company to direct its attention to those Computer Systems, third-party servicers, and facilities that it deems more critical to its ongoing business and the maintainance of good customer relationships. The Company is currently in the process of repairing or replacing and testing the most significant components of its Computer Systems and facilities, and it expects to be substantially complete with this phase by December 31, 1998. The Company has also adopted business contingency plans for the Computer Systems and facilities that it has determined to be most critical. These plans conform to recently issued guidance from the FFIEC on business contingency planning for Year 2000 readiness. Contingency plans include, among other actions, manual workarounds and identification of resource requirements and alternative solutions for resuming critical business processes in the event of a year 2000-related failure. 20 23 Prior to 1998, the Company undertook strategic business initiatives that shifted a significant portion of the cost for Year 2000 readiness to third-party servicers. Following the Company's merger with Ahmanson and after the data processing conversions associated with that merger, the Company will rely on third-party servicers for significant business processes such as item processing, loan servicing, and desktop and communications management. The Company has been communicating with its third-party servicers to assess and monitor their Year 2000 readiness, and it has undertaken a contingency planning process to be ready in case one of the servicers that it deems most critical fails in its own readiness efforts. The Company expects that its due diligence on third-party servicers for its most critical business processes, including the testing of the Company's connections with these servicers, will be substantially complete by March 31, 1999, although its monitoring of these servicers will continue after that date. The Company continues to assess its risk from other environmental factors over which it has little control, such as electrical power supply, and voice and data transmission. Because of the nature of the factors, however, the Company is not actively engaged in any repair, replacement or testing efforts for these services. (b) Costs. While the Company does not believe that the process of making its Computer Systems Year 2000 ready will result in material cost, it is expected that a substantial amount of management and staff time will be required on the Year 2000 Project. The Company has spent approximately $8.4 million during the first nine months of 1998 on its Year 2000 Project, and it currently expects to spend approximately $11.2 million more before it concludes its Year 2000 readiness efforts. In 1996 and 1997, the Company spent approximately $30.3 million on technology-related initiatives, which had the effect of reducing the Company's current cost of Year 2000 readiness. (c) Risks. Based on its current assessments and remediation plans, which are based in part on certain representations of third-party servicers, the Company does not expect that it will experience a significant disruption of its operations as a result of the change to the new millenium. Although the Company has no reason to conclude that a failure will occur, the most reasonably likely worst-case Year 2000 scenario would entail a disruption or failure of the Company's power supply or voice and data transmission suppliers, a Computer System, a third-party servicer, or a facility. If such a failure were to occur, the Company would implement its contingency plan. While it is impossible to quantify the impact of such a scenario, the most reasonably likely worst-case scenario would entail a diminishment of service levels, some customer inconvenience, and additional costs from the contingency plan implementation, which are not currently estimable. While the Company has contingency plans to address a temporary disruption in these services, there can be no assurance that any disruption or failure will be only temporary, that the Company's contingency plans will function as anticipated, or that the results of operations of the Company will not be adversely affected in the event of a prolonged disruption or failure. There can be no assurance that the FFIEC or other federal regulators will not issue new regulatory requirements that require additional work by the Company and, if issued, that new regulatory requirements will not increase the cost or delay the completion of Washington Mutual's Year 2000 Project. MARKET RISK AND ASSET/LIABILITY MANAGEMENT The long-run profitability of the Company depends not only on the success of the services it offers to its customers and the credit quality of its loans and securities, but also the extent to which its earnings are unaffected by changes in interest rates. The Company engages in a comprehensive asset and liability management program that attempts to reduce the risk of significant decreases in net interest income caused by interest-rate changes without unduly penalizing current earnings. A key component of this program is the origination and retention of short-term and adjustable-rate assets whose repricing characteristics more closely match the repricing characteristics of the Company's liabilities. At the same time, the Company's policy is to sell most fixed-rate loan originations. A conventional measure of interest-rate sensitivity for savings institutions is the one-year gap, which is calculated by dividing the difference between assets maturing or repricing within one year and total liabilities maturing or repricing within one year by total assets. The Company's assets and liabilities that mature or reprice within one year were as follows: 21 24
September 30, December 31, 1998 1997 ------------- ------------- (dollars in thousands) Interest-sensitive assets $ 79,321,675 $ 74,938,422 Derivative instruments designated against assets 300,000 500,000 Interest-sensitive liabilities (81,949,602) (70,204,799) Derivative instruments designated against liabilities 2,211,800 1,078,400 ------------ ------------ Net asset sensitivity $ (116,127) $ 6,312,023 ============ ============ One-year gap (0.11)% 6.51%
The one-year gap declined to a negative 0.11% at September 30, 1998 from a positive 6.51% at December 31, 1997. The low interest-rate environment produced a high level of refinancings, which limited ARM originations as fixed-rate loans were more attractive to borrowers. The Company funded a large portion of its originations through short-term borrowings. While the one-year gap helps provide some information about a financial institution's interest-rate sensitivity, it does not predict the trend of future earnings. The Company uses financial modeling to forecast earnings under different interest-rate projections. Although this modeling is very helpful in managing interest-rate risk, it does require significant assumptions for the projection of loan prepayment rates, loan origination volumes and liability funding sources that may prove to be inaccurate. The Company monitors its interest-rate sensitivity and attempts to reduce the risk of a significant decrease in net interest income caused by a change in interest rates. LIQUIDITY Liquidity management focuses on the need to meet both short-term funding requirements and long-term growth objectives. The long-term growth objectives of the Company are to attract and retain stable consumer deposit relationships and to maintain stable sources of wholesale funds. Because the low interest-rate environment of recent years inhibited consumer deposits, Washington Mutual has supported its growth through business combinations with other financial institutions and by increasing its use of wholesale borrowings. Should the Company not be able to increase deposits either internally or through acquisitions, its ability to grow would be dependent upon, and to a certain extent limited by, its borrowing capacity. As presented in the Consolidated Statements of Cash Flows, the sources of liquidity vary between years. The statement of cash flows includes operating, investing and financing categories. Cash flows from operating activities included net income for the nine months ended September 30, 1998 of $792.0 million, $120.7 million for noncash items and $2.50 billion of other net cash flows provided by operating activities. For the nine months ended September 30, 1998, cash flows from investing activities included sales and principal payments on securities totaling $6.10 billion. Purchases of securities required $9.31 billion and loans originated and purchased for investment net of principal payments required $9.23 billion. Cash flows from financing activities consisted of the net change in the Company's deposit accounts and short-term borrowings, the proceeds and repayments from both long-term reverse repurchase agreements and FHLB advances, and also the issuance of long-term debt. For the nine months ended September 30, 1998, the above mentioned financing activities increased cash and cash equivalents by $9.10 billion on a net basis. Cash and cash equivalents were $1.35 billion at September 30, 1998. At September 30, 1998, the Company was in a position to obtain approximately $29.66 billion in additional borrowings primarily through the use of collateralized borrowings and deposits of public funds using unpledged MBS and other wholesale sources. Washington Mutual monitors its ability to meet short-term cash requirements using guidelines established by its Board of Directors. The operating liquidity ratio is used to ensure that normal short-term secured borrowing capacity is sufficient to satisfy unanticipated cash needs. The volatile dependency ratio measures the degree to which the Company depends on wholesale funds maturing within one year weighted by the dependability of the source. At September 30, 1998, the Company had substantial liquidity compared with its established guidelines. WMB monitors its liquidity position as measured by certain predetermined ratios established by the Federal Deposit Insurance Corporation ("FDIC") as benchmarks for liquidity management. At September 30, 1998, WMB's ratios were above the FDIC minimum ratios. Regulations promulgated by the Office of Thrift Supervision ("OTS") require that the Company's federal savings banks maintain, for each calendar quarter, certain liquidity ratios. At September 30, 1998, each of the Company's federal savings banks' liquidity ratios was in excess of the regulatory minimums. 22 25 CAPITAL ADEQUACY The Company's capital (stockholders' equity) was $5.80 billion at September 30, 1998 up from $5.31 billion at December 31, 1997. However, due to asset growth, the ratio of capital to total assets was 5.35% at the end of third quarter 1998 compared with 5.47% at December 31, 1997. The regulatory capital ratios of WMBFA, WMB and WMBfsb and minimum regulatory requirements to be categorized as well capitalized were as follows:
September 30, 1998 ----------------------------- Well-Capitalized WMBFA WMB WMBfsb Minimum ----- ----- ------ ---------------- Capital ratios: Leverage 5.68% 5.71% 6.86% 5.00% Tier 1 risk-based 10.18 10.76 11.92 6.00 Total risk-based 11.59 11.48 13.18 10.00
The Company's federal savings banking subsidiaries are also required by OTS regulations to maintain core capital of at least 3.00% of assets. WMBFA and WMBfsb each satisfied this requirement at September 30, 1998. The Company's securities subsidiaries are also subject to capital requirements. At September 30, 1998, all of Washington Mutual's securities subsidiaries were in compliance with their applicable capital requirements. 23 26 PART II ITEM 1. LEGAL PROCEEDINGS Washington Mutual, Inc. has certain litigation and negotiations in progress resulting from activities arising from normal operations. In the opinion of management, none of these matters is likely to have a materially adverse effect on the Company's financial position or results of operation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 28, 1998 at a special meeting of shareholders, holders of Washington Mutual common stock approved the issuance of shares of common stock pursuant to the Agreement and Plan of Merger dated as of March 16, 1998 between Washington Mutual and Ahmanson, with 302,062,514 common share votes cast for the issuance, 843,252 votes cast against the issuance, and 614,598 abstentions. Holders of Washington Mutual common stock and holders of Washington Mutual preferred stock also approved an amendment to Washington Mutual's Articles of Incorporation to increase the number of authorized shares of common stock from 800,000,000 shares to 1,600,000,000 shares. Common shareholders cast 301,340,571 votes for the amendment and 32,023,977 votes against the amendment, with 635,955 abstentions. An aggregate of 303,072,407 votes were cast for and 32,058,480 votes were cast against the amendment by the common and preferred shareholders, with 670,469 abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index of Exhibits on page 26. (b) Reports on Form 8-K During the third quarter of 1998, the Company filed a report on Form 8-K dated July 21, 1998. The report included under Item 7 of Form 8-K a press release announcing Washington Mutual's second quarter 1998 financial results and unaudited consolidated financial statements for the quarter ended June 30, 1998. 24 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 13, 1998. WASHINGTON MUTUAL, INC. By: /s/ FAY L. CHAPMAN ----------------------------------------- Fay L. Chapman Executive Vice President By: /s/ RICHARD M. LEVY ----------------------------------------- Richard M. Levy Senior Vice President and Controller (Principal Accounting Officer) 25 28 WASHINGTON MUTUAL, INC. INDEX OF EXHIBITS
Exhibit No. - ----------- 3.1 Restated Articles of Incorporation of the Registrant, as amended (filed herewith as amended). 3.2 By-laws of the Registrant (filed herewith as amended). 4.1 Rights Agreement dated October 16, 1990 (incorporated by reference to the Washington Mutual, Inc. Current Report on Form 8-K dated November 29, 1994. File No. 0-25188). 4.2 Amendment No. 1 to Rights Agreement dated October 16, 1990 (incorporated by reference to the Washington Mutual, Inc. Current Report on Form 8-K dated November 29, 1994. File No.0-25188). 4.3 The registrant agrees to furnish the Securities and Exchange Commission, upon request, with copies of all instruments defining the rights of holders of long-term debt of registrant and its consolidated subsidiaries. 27.1 Financial Data Schedule. 27.2 Amended Financial Data Schedule for the period ended June 30, 1998. 27.3 Amended Financial Data Schedule for the period ended March 31, 1998.
26 EX-3.1 2 RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 FILED State of Washington Sep 17 1998 Ralph Munro Secretary of State ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF WASHINGTON MUTUAL, INC. Pursuant to the provisions of chapter 23B.10 of the Washington Business Corporation Act, Washington Mutual, Inc., a Washington corporation, hereby adopts the following articles of amendment to its restated articles of incorporation, as previously amended (the "Restated Articles of Incorporation"): FIRST: The name of the corporation is: WASHINGTON MUTUAL, INC. SECOND: The first sentence of Article IIA. of the Restated Articles of Incorporation, "Capital Stock - Issuance of and Payment for Stock", is amended to read in its entirety as follows: "The total number of shares of capital stock which the Company has authority to issue is 1,610,000,000 shares of which 1,600,000,000 shares shall be shares of common stock with no par value per share and 10,000,000 shares shall be shares of preferred stock with no par value per share." THIRD: The amendment does not provide for an exchange, reclassification or cancellation of any issued shares. FOURTH: The foregoing amendment to the Restated Articles of Incorporation was adopted by unanimous written consent of the board of directors dated June 30, 1998 of the corporation in accordance with the provisions of RCW 23B.10.030. FIFTH: The foregoing amendment to the Restated Articles of Incorporation was duly approved by the shareholders on August 28, 1998, in accordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040. EXECUTED this 16th day of September, 1998. WASHINGTON MUTUAL, INC. By: /s/ Kerry K. Killinger ----------------------------- Kerry K. Killinger President and Chief Executive Officer 2 ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF WASHINGTON MUTUAL, INC. Pursuant to the provisions of Chapter 23B.10 of the Washington Business Corporation Act, WASHINGTON MUTUAL, INC., a Washington corporation, hereby adopts the following articles of amendment to its restated articles of incorporation: FIRST: The name of the corporation is: WASHINGTON MUTUAL, INC. SECOND: Article II.D is amended by adding to the end of Article II.D the following section: (3) The terms of the 8.30% Cumulative Preferred Stock, Series F shall be as follows: 1. Designation. The designation of the series of Preferred Stock shall be 8.30% Cumulative Preferred Stock, Series F, no par value, of Company (hereinafter referred to as "Cumulative Preferred Stock"), and the number of shares constituting such series shall be 660,000, which number may be increased (but not above the total number of authorized but unissued shares of Preferred Stock of the Company) or decreased (but not below the number of shares then outstanding) from time to time by the Board of Directors or any authorized committee thereof. 2. Dividend Rights. (a) The holders of shares of Cumulative Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cash dividends, accruing from May 2, 1997 at the annual rate of 8.30% per annum, and no more, payable, when, as and if declared by the Board of Directors, quarterly on February 1, May 1, August 1, and November 1 of each year (each quarterly period ending on any such date being hereinafter referred to as a "dividend period"), commencing August 1, 1997, at such annual -1- 3 rate. Each dividend will be payable to holders of record as they appear on the stock books of the Company on such record dates, not exceeding 45 days preceding the payment dates thereof, as shall be fixed by the Board of Directors of the Company. The date of initial issuance of shares of Cumulative Preferred Stock is hereinafter referred to as the "Issue Date". Dividends payable on the Cumulative Preferred Stock (i) for any period other than a full dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months and (ii) for each full dividend period, shall be computed by dividing the annual dividend rate by four. (b) Dividends on shares of Cumulative Preferred Stock shall be cumulative from the Issue Date whether or not there shall be funds legally available for the payment thereof. If there shall be outstanding shares of any other series of Preferred Stock ranking on a parity with the Cumulative Preferred Stock as to dividends, no full dividends shall be declared or paid or set apart for payment on any such other series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Cumulative Preferred Stock for all dividend periods terminating on or prior to the data of payment of such dividends. If dividends on the Cumulative Preferred Stock and on any other series of Preferred Stock ranking on a parity as to dividends with the Cumulative Preferred Stock are in arrears, in making any dividend payment on account of such arrears, the Company shall make payments ratably upon all outstanding shares of the Cumulative Preferred Stock and shares of such other series of Preferred Stock in proportion to the respective amounts of dividends in arrears on the Cumulative Preferred Stock and on such other series of Preferred Stock to the data of such dividend payment. Holders of shares of the Cumulative Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on such shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments which may be in arrears. (c) Unless full cumulative dividends on all outstanding shares of the Cumulative Preferred Stock shall have been paid or declared and set aside for payment for all past dividend periods and the Company is not in default or in arrears in respect to the optional redemption of any shares of Cumulative Preferred Stock, no dividend shall be declared upon the Common Stock or upon any other stock ranking junior to the Cumulative Preferred Stock as to dividends or the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Company (the Common Stock and any other such stock being herein referred to as "Junior Stock"), nor shall the Company make any payment on account of, or set apart money for, the purchase, redemption or other retirement of, or for a sinking or other analogous fund for any shares of Junior Stock or make any distribution in respect thereof, whether in cash or property or in obligations or stock of the Company, other than Junior Stock which is neither convertible into, nor exchangeable or exercisable for, any securities of the Company other than Junior Stock and other than the rights (the "Rights") distributed pursuant to the Rights Agreement previously entered into by and between Washington Mutual Savings Bank ("WMSB") and First Interstate Bank of Washington, N.A. ("First Interstate") dated as of October 16, 1990, as amended by the Amendment No. 1 to Rights Agreement dated as of October 31, 1994 by and between WMSB and First Interstate and as supplemented by the Supplement to Rights Agreement dated as of -2- 4 November 29, 1994 by and between WMHC and First Interstate (as so amended and supplemented, the "Rights Agreement"). 3. Liquidation Preferences. (a) In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of Cumulative Preferred Stock shall be entitled to receive out of the assets of the Company available for distribution to stockholders an amount equal to $250 per share of Cumulative Preferred Stock plus an amount equal to any accrued and unpaid dividends thereon to and including the data of such distribution, and no more, before any distribution shall be made to the holders of Common Stock or any other class of stock of the Company ranking junior to the Cumulative Preferred Stock as to the distribution of assets upon any such liquidation, dissolution or winding up. After payment of such liquidating distributions, the holders of shares of Cumulative Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. (b) In the event the assets of the Company available for distribution to stockholders upon any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to the Cumulative Preferred Stock and any other shares of Preferred Stock ranking on a parity with the Cumulative Preferred Stock as to the distribution of assets upon any such liquidation, dissolution or winding up, the holders of Cumulative Preferred Stock and the holders of such other Preferred Stock shall share ratably in any distribution of assets of the Company in proportion to the full respective preferential amounts to which they are entitled. (c) The merger or consolidation of the Company into or with any other corporation, the merger or consolidation of any other corporation into or with the Company or the sale of the assets of the Company substantially as an entirety shall not be deemed a liquidation, dissolution or winding up of the affairs of the Company within the meaning of this Section 3. 4. Redemption. (a) The Company, at its option, may redeem any or all shares of Cumulative Preferred Stock, at any time or from time to time, on or after November 1, 1997, at a redemption price of $250.00 per share, plus an amount equal to accrued and unpaid dividends thereon to and including the date of redemption (the "Redemption Price"). (b) If less than all the outstanding shares of Cumulative Preferred Stock are to be redeemed, the shares to be redeemed shall be selected pro rata (subject to rounding to avoid fractional shares) as nearly as practicable or by lot, or by such other method as the Board of Directors may determine to be equitable. (c) Notice of any redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed for redemption to -3- 5 the holders of record of the shares of Cumulative Preferred Stock to be redeemed, at their respective addresses appearing on the stock books of the Company. Notice so mailed shall be conclusively presumed to have been duly given whether or not actually received. Such notice shall state: (i) the date fixed for redemption; (ii) the Redemption Price; (iii) the number of shares of Cumulative Preferred Stock to be redeemed and if less than all the shares held by such holder are to be redeemed, the number of such shares to be so redeemed from such holder; (iv) the place where certificates for such shares are to be surrendered for payment of the Redemption Price; and (v) that after the close of business on such data fixed for redemption the shares to be redeemed shall not accrue dividends. If such notice is mailed as aforesaid, and if on or before the date fixed for redemption funds sufficient to redeem the shares called for redemption are set aside by the Company in trust for the account of the holders of the shares to be redeemed, notwithstanding the fact that any certificate for shares called for redemption shall not have been surrendered for cancellation, from and after the related redemption date the shares represented thereby so called for redemption shall be deemed to be no longer outstanding, dividends thereon shall cease to accrue, and all rights of the holder of such shares of the Company shall cease, except the right to receive the Redemption Price, without interest, upon surrender of the certificate representing such shares. Upon surrender in accordance with the aforesaid notice of the certificate for any shares so redeemed (duly endorsed or accompanied by appropriate instruments of transfer, if so required by the Company in such notice), the holders of record of such shares shall be entitled to receive the Redemption Price, without interest. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (d) At the option of the Company, if notice of redemption is mailed as aforesaid, and if prior to the date fixed for redemption funds sufficient to pay in full the Redemption Price are deposited in trust, for the account of the holders of the shares to be redeemed, with a bank or trust company named in such notice doing business in the Borough of Manhattan, The City of New York, State of New York or The City of Los Angeles, State of California and having capital surplus and undivided profits of at least $50 million (which bank or trust company also may be the transfer agent and/or paying agent for the Cumulative Preferred Stock), notwithstanding the fact that any certificate(s) for shares called for redemption shall not have been surrendered for cancellation, on and after such date of deposit the shares represented thereby so called for redemption shall be deemed to be no longer outstanding, and all rights of the holders of such shares as stockholders of the Company shall cease, except the right of the holders thereof to receive out of the funds so deposited in trust the Redemption Price, without interest, upon surrender of the certificate(s) representing such shares. Any funds so deposited with such bank or trust company which shall remain unclaimed by the holders of shares called for redemption at the end of two years after the related redemption date shall be repaid to the Company, on demand, and thereafter the holder of any such shares shall look only to the Company for the payment, without interest thereon, of the Redemption Price. (e) Any provision of this Section 4 to the contrary notwithstanding, in the event that any quarterly dividend payable on the Cumulative Preferred Stock or any dividend on any other series of Preferred Stock of the Company ranking on a parity with the Cumulative -4- 6 Preferred Stock as to dividends and distribution of assets upon liquidation, dissolution or winding up of the affairs of the Company (the "Parity Preferred Stock") shall be in arrears and until all such dividends shall have been paid or declared and set apart for payment, the Company shall not redeem any shares of Cumulative Preferred Stock or Parity Preferred Stock unless all outstanding shares of Cumulative Preferred Stock and Parity Preferred Stock are simultaneously redeemed and shall not purchase or otherwise acquire any shares of Cumulative Preferred Stock or the Parity Preferred Stock except in accordance with a purchase or exchange offer made on the same terms to all holders of record of Cumulative Preferred Stock and Parity Preferred Stock for the purchase of all outstanding shares thereof. 5. Voting Rights. Other than as required by applicable law, the Cumulative Preferred stock shall not have any voting powers either general or special, except that: (a) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Cumulative Preferred Stock, and any ones or more other series of Parity Preferred Stock which by its terms provides for similar voting rights (the "Other Preferred Stock") and is similarly affected, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Cumulative Preferred Stock and any such other series of Other Preferred Stock shall vote together as a separate and single class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of, or any other change in, any of the provisions of the Restated Certificate of Incorporation or of any amendment or supplement thereto (including any Certificate of Designations or any similar document relating to any series of Preferred Stock) of the Company, which would adversely affect the preferences, rights, powers or privileges, qualifications, limitations and restrictions of the Cumulative Preferred Stock and any such other series of Other Preferred Stock. (b) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Cumulative Preferred Stock and any series of other Preferred Stock of the Company at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Cumulative Preferred Stock and any such series of Other Preferred Stock of the Company shall vote together as a single class without regard to series, shall be necessary to create, authorize or issue, or reclassify any authorized stock of the Company into, or create, authorize or issue any obligation or security convertible into or evidencing a right to purchase, or increase the authorized amount of, any shares of any class of stock of the Company ranking prior to the Cumulative Preferred Stock and any series of Other Preferred Stock. Subject to the foregoing, the Company's Restated Articles of Incorporation may be amended to increase the number of authorized shares of Preferred Stock without the vote of the holders of Preferred Stock, including the Cumulative Preferred Stock. (c) Whenever, at any time or times, dividends payable on the shares of Cumulative Preferred Stock shall be in arrears in an amount equal to at least six full quarterly -5- 7 dividends on shares of the Cumulative Preferred Stock at the time outstanding, the holders of the outstanding shares of Cumulative Preferred Stock shall have the exclusive right, voting separately as a class together with holders of shares of any one or more series of Other Preferred Stock to elect two directors of the Company at the Company's next annual meeting of stockholders and at each subsequent annual meeting of stockholders at which such directors or their successors are to be elected. At elections for such directors, each holder of Cumulative Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any series of Other Preferred Stock being entitled to such number of votes, if any, for each such share of Other Preferred Stock held as may be granted to them). Upon the vesting of such right of the holders of Cumulative Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding shares of Cumulative Preferred Stock (either alone or together with the holders of shares of any series of Other Preferred Stock) as hereinafter set forth. The right of the holders of Cumulative Preferred Stock, voting separately as a class to elect (either alone or together with the holders of shares of any series of Other Preferred Stock) members of the Board of Directors of the Company as aforesaid shall continue until such time as all dividends accumulated on the Cumulative Preferred Stock shall have been paid in full or declared and set apart for payment, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned. (d) Each director elected by the holders of shares of Cumulative Preferred Stock (either alone or together with the holders of shares of any series of Other Preferred Stock) shall continue to serve as such director for the full term for which he or she shall have been elected, notwithstanding that prior to the end of such term all dividends on the Cumulative Preferred Stock shall have been paid in full. If the office of any director elected by the holders of Cumulative Preferred Stock voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, such vacancy shall be filled as provided in the Restated Articles of Incorporation of the Company and the applicable provisions of the Washington Business Corporation Act. Whenever the term of office of the directors selected by the holders of the Cumulative Preferred Stock and the special voting powers vested in the holders of Cumulative Preferred Stock as provided in this subsection (d) shall have expired, the number of directors shall be such number as may be provided for in the Restated Articles of Incorporation or the By-Law, as amended, irrespective of any increase made pursuant to the provisions of this subsection (d). 6. Reacquired Shares. Shares of Cumulative Preferred Stock redeemed or otherwise purchased or acquired by the Company shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series. 7. No Sinking Fund. Shares of Cumulative Preferred Stock are not subject to the operation of a sinking fund or other obligation of the Company to redeem or retire the Cumulative Preferred Stock. -6- 8 8. Rank. The Cumulative Preferred Stock shall rank on a parity, both as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Company, with the Company's 7.60% Noncumulative Perpetual Preferred Stock, Series E and with the Company's 9.12% Noncumulative Perpetual Preferred Stock, Series C. The Cumulative Preferred Stock shall rank prior, both as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Company, to the Common Stock of the Company." THIRD: These amendments do not provide for an exchange, reclassification or cancellation of any issued shares. FOURTH: The foregoing amendments of the Restated Articles of Incorporation were adopted by the Board of Directors of the Company on March 5, 1997. SHAREHOLDER ACTION WAS NOT REQUIRED. EXECUTED this 30th day of June, 1997. WASHINGTON MUTUAL, INC. By: /s/ Kerry K. Killinger ------------------------------- Kerry K. Killinger Its: President and Chief Executive Officer -7- 9 Filed State of Washington Jul 09 1997 Ralph Munro Secretary of State ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF WASHINGTON MUTUAL, INC. Pursuant to the provisions of Chapter 23B.10 of the Washington Business Corporation Act, WASHINGTON MUTUAL, INC., a Washington corporation, hereby adopts the following articles of amendment to its restated articles of incorporation, as previously amended (the "Restated Articles of Incorporation"): FIRST: The name of the corporation is: WASHINGTON MUTUAL, INC. SECOND: The first sentence of Article IIA. of the Restated Articles of Incorporation, "Capital Stock -- Issuance of and Payments for Stock", is amended to read in its entirety as follows: "The total number of shares of capital stock which the Company has authority to issue is 810,000,000 shares of which 800,000,000 shares shall be shares of common stock with no par value per share and 10,000,000 shares shall be shares of preferred stock with no par value per share." THIRD: The amendment does not provide for an exchange, reclassification or cancellation of any issued shares. FOURTH: The following amendment to the Restated Articles of Incorporation was adopted on March 5, 1997, by the board of directors of the corporation in accordance with the provisions of RCW 23B.10.030. -1- 10 FIFTH: The foregoing amendment to the Restated Articles of Incorporation was duly approved by the shareholders on July 8, 1997, in accordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040. EXECUTED this 8th day of July, 1997. WASHINGTON MUTUAL, INC. By: /s/ KERRY K. KILLINGER -------------------------------------- Kerry K. Killinger President and Chief Executive Officer -2- 11 FILED State of Washington Dec 18 1996 Ralph Munro Secretary of State ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF WASHINGTON MUTUAL, INC. Pursuant to the provisions of Chapter 23B.10 of the Washington Business Corporation Act, Washington Mutual, Inc., a Washington corporation, hereby adopts the following articles of amendment to its restated articles of incorporation: FIRST: The name of the corporation is: WASHINGTON MUTUAL, INC. SECOND: The first sentence of Article IIA. of the Restated Articles of Incorporation, "Capital Stock--Issuance of and Payment for Stock", is amended to read in its entirety as follows: "The total number of shares of capital stock which the Company has authority to issue is 360,000,000 shares of which 350,000,000 shares shall be shares of common stock with no par value per share and 10,000,000 shares shall be shares of preferred stock with no par value per share." THIRD: The amendment does not provide for an exchange, reclassification or cancellation of any issued shares. FOURTH: The foregoing amendment of the Articles of Incorporation was adopted October 16, 1996 by the board of directors of the corporation in accordance with the provisions of RCW 23B.10.030, and duly approved by the shareholders on December 18, 1996, in accordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040. EXECUTED this 18th day of December, 1996. WASHINGTON MUTUAL, INC. By: /s/ KERRY KILLINGER ------------------------------------- ITS: President and Chief Executive Officer 12 EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF WASHINGTON MUTUAL, INC. Pursuant to the provisions of RCW 23B.10.070 of the Washington Business Corporation Act, WASHINGTON MUTUAL, INC., hereby certifies that these Restated Articles of Incorporation correctly set forth without change the provisions of the Articles of Incorporation of the corporation, as amended. These Restated Articles of Incorporation supersede the original Articles of Incorporation and all amendments thereto. Artile I Name The name of this corporation is WASHINGTON MUTUAL, INC. (the "Company"). ARTICLE II Capital Stock A. Issuance of and Payment for Stock. The total number of shares of capital stock which the Company has authority to issue is 110,000,000 shares of which 100,000,000 shares shall be shares of common stock with no par value per share and 10,000,000 shares shall be shares of preferred stock with no par value per share. The shares may be issued by the Company from time to time as approved by its Board of Directors without the approval of the shareholders. The consideration for issuance of the shares shall be paid in full before their issuance. Neither promissory notes nor the promise of future services shall constitute payment or part payment for the issuance of shares of the Company. The consideration for the shares shall be cash, tangible or intangible property, labor or services actually performed for the Company or any combination of the foregoing. In the absence of actual fraud -1- 13 in the transaction, the value of such property, labor or services, as determined by the Board of Directors of the Company, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and non-assessable. B. Voting by Class or Series. Except as expressly provided in these Articles or in any resolutions of the Board of Directors designating and establishing the terms of any series of preferred stock, no holders of any class or series of capital stock shall have any right to vote as a separate class or series or to vote more than one vote per share. Notwithstanding the foregoing, the restriction on voting separately by class or series shall not apply to the extent that applicable law requires such voting, nor shall this restriction apply to any amendment to these Articles which would adversely change the specific terms of any class or series of capital stock as set forth in this Article II or in any resolution of the Board of Directors designating and establishing the terms of any series of preferred stock. For purposes of the preceding sentence, an amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving institution in a merger or consolidation for the Company, shall not be such an adverse change. C. Common Stock. On matters on which holders of common stock are entitled to vote, each holder of shares of common stock shall be entitled to one vote for each share held by such holder. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends; but only when and as declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of the Company, after there shall have been paid to or set aside for the holders of any class having preferences over the common stock in the event of liquidation, dissolution or winding up of the full preferential amounts to which they are respectively entitled, the holders of the common stock, and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of the Company, to receive pro rata the remaining assets of the Company available for distribution, in cash or in kind. -2- 14 Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock. D. Preferred Stock. (1) The authorized Preferred Stock shall be comprised of 10,000,000 shares no par value per share, which authorized Preferred Stock shall initially consist of 2,800,000 shares of 9.12% Noncumulative Perpetual Preferred Stock, Series C, 1,400,000 shares of $6.00 Noncumulative Convertible Perpetual Preferred Stock, Series D, and 2,000,000 shares of 7.60% Noncumulative Perpetual Preferred Stock, Series E. The Board of Directors of the Company is authorized by resolution or resolutions from time to time adopted, to provide for the issuance of preferred stock in one or more additional series by designating and establishing the terms of such a series. With respect to any such series, the Board of Directors is authorized to fix and state the voting powers, designations, preferences and relative, participating, optional or other special right of the shares of each such series and the qualifications, limitations and restrictions thereon, including, but not limited to, determination of any of the following: (a) The distinctive serial designation and the number of shares constituting such series; (b) The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (c) The voting powers, full, special or limited, if any, of shares of such series; (d) Whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed; (e) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company; (f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund; -3- 15 (g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Company and, if so convertible or exchangeable, the conversion price or prices, or the rate of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; and (h) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. While the foregoing authorizes the Board of Directors, in establishing the terms of a series of preferred stock, to permit holders of that series of preferred stock to elect separately one or more directors, in no event shall the total number of directors separately elected by holders of one or more series of preferred stock equal or exceed fifty percent (50%) of the total number of authorized directors. (2) The terms and designations of the initially authorized series of Preferred Stock shall be as follows: (A) 9.12% Noncumulative Perpetual Preferred Stock, Series C. 1. Designation. There shall initially be a series of preferred stock whose designation shall be "9.12% Noncumulative Perpetual Preferred Stock, Series C" ("Series C"). The number of shares of Series C shall be 2,800,000. The liquidation preference of Series C shall be $25.00 per share (plus accrued and unpaid dividends for the then-current dividend period up to the date fixed for liquidation, dissolution or winding up). 2. Rank. The shares of Series C shall, with respect to dividend rights and rights on liquidation, winding up and dissolution of the Company, rank prior to the Company's common stock (the "Common Stock") and to all other classes and series of equity securities of the Company now or hereafter authorized, issued or outstanding, other than any classes or series of equity securities of the Company either (a) ranking on a parity with shares of Series C as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the "Series C Parity Stock"), or (b) ranking senior to shares of -4- 16 Series C as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the Common Stock and such other classes and series of equity securities other than those described in (a) or (b) collectively may be referred to herein as the "Series C Junior Stock"). The shares of Series C shall be subject to the creation of such Series C Parity Stock and such Series C Junior Stock to the extent not expressly prohibited by these Articles. Any class or classes of stock of the Company shall be deemed to rank prior to Series C as to dividends and as to distribution of assets upon liquidation, dissolution or winding up if the holders of such class shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of shares of Series C. 3. Noncumulative Dividends and Dividend Rate. Holders of shares of Series C shall be entitled to receive, when, as and if declared by the Board of Directors, or a duly authorized committee thereof, out of funds legally available therefor, cash dividends from the date of issue thereof at the annual rate of $2.28 per share, payable quarterly in arrears, on February 15, May 15, August 15 and November 15 (each a "Series C Dividend Payment Date") of each year, commencing on the first Series C Dividend Payment Date after issuance of the shares of Series C; provided, however, that if any such day is a non-business day, the Series C Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Company on such record dates, not more than 30 calendar days and not less than 10 calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Company or a duly authorized committee thereof (each of such dates a "Series C Record Date"). Quarterly dividend periods (each a "Series C Dividend Period") shall commence on and include the fifteenth day of February, May, August and November of each year (except as set forth above with respect to the initial Series C Dividend Period) and shall end on and include the day next preceding the next following Series C Dividend Payment Date. Dividends on the shares of Series C shall be noncumulative so that if a dividend on the shares of Series C with respect to any Series C Dividend Period is not declared by the Board of Directors of the Company, or any duly authorized committee thereof, then the Company shall have no obligation at any time to pay a dividend on the shares of Series C in respect of such Series C Dividend Period. Holders of the shares of Series C shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the noncumulative dividends declared by the Board of Directors, or a duly authorized committee thereof, as set forth herein. -5- 17 Any Series C Parity Stock issued by the Company shall only have dividend periods which end on the same date as a Series C Dividend Period. No full dividends shall be declared or paid or set apart for payment on any Series C Parity Stock in respect of any such dividend period unless full dividends on Series C for the Series C Dividend Period ending on the same date as such dividend period shall have been paid or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment. If at any time with respect to any Series C Dividend Period dividends are not declared and paid in full (or declared and a sum sufficient for such full payment so set apart) upon the shares of Series C, dividends upon shares of Series C and dividends on any shares of Series C Parity Stock outstanding shall only be declared by the Board of Directors or a duly authorized committee thereof pro rata with respect thereto, so that the amount of dividends declared per share on Series C and such Series C Parity Stock shall bear to each other the same ratio that accrued dividends per share on the shares of Series C for such Series C Dividend Period (which shall not include any accumulation in respect of unpaid dividends for prior Series C Dividend Periods) and full dividends, including accumulations, if any, on shares of Series C Parity Stock, bear to each other. Unless full dividends have been declared and paid (or declared and a sum sufficient for such full payment set apart for payment) on all outstanding shares of Series C for the immediately preceding Series C Dividend Period, the Company shall not declare or pay any dividends (other than in Common Stock or other Series C Junior Stock) or set any amount aside for payment thereof or make any other distribution on the Common Stock or on any other Series C Junior Stock, nor shall any Common Stock nor any Series C Junior Stock be redeemed (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock), or any Series C Junior Stock or Series C Parity Stock be purchased or otherwise acquired by the Company for any consideration except by conversion into or exchange for Series C Junior Stock. Regardless of the length of the initial Series C Dividend Period and whether or not the time period from the date of issue of the shares of Series C to the Series C Dividend Payment Date constitutes a full quarter, a full quarterly dividend of $.57 per share shall be paid on the initial Series C Dividend Payment Date. Dividends payable for any other period shorter than a full Series C Dividend Period shall be computed on the basis of twelve 30-day months and a 360-day year. Dividends payable for each full quarterly dividend period shall be computed by dividing the annual dividend rate by four. -6- 18 4. Voting Rights. Except as indicated below and except as otherwise required by applicable law, the holders of shares of Series C will not be entitled to vote for any purpose. As long as any shares of Series C remain outstanding, the consent of the holders of at least two-thirds of the shares of Series C at the time outstanding (unless the vote or consent of the holders of a greater number of shares shall then be required by law), given in person by proxy, by a vote at a meeting of the holders of Series C called for such purpose at which the holders of shares of Series C shall vote together as a separate class, shall be necessary (i) to issue or authorize any additional class of equity stock (it being understood that subordinated debt instruments, including mandatory convertible debt, are not for these purposes equity stock) ranking prior to Series C as to dividends or upon liquidation, winding up or dissolution or which possess rights to vote separately as one class with Series C on a basis of more than one vote for each $25.00 of stated liquidation preference thereof (excluding any liquidation preference for accrued but unpaid dividends) or to issue or authorize any obligation or security convertible into or evidencing a right to purchase, or to reclassify any authorized stock of the Company into, any such additional class of equity stock or (ii) to repeal, amend or otherwise change any of the provisions of these Articles in any manner which adversely affects the powers, preferences, voting power or other rights or privileges of Series C; provided, however, that amending these Articles to increase the number of authorized shares of common or preferred stock shall not be deemed to be included within the scope of (ii) above. In connection with any matter on which holders of Series C are entitled to vote including, without limitation, the election of directors as set forth below or any matter on which the holders of Series C are entitled to vote as one class or otherwise pursuant to law or the provisions of these Articles, each holder of Series C shall be entitled to one vote for each share of Series C held by such holder. To the extent permitted by law, if the equivalent of six full quarterly dividends on Series C, whether or not consecutive, are not declared and paid, the holders of shares of Series C, together with the holders of any Series C Parity Stock as to which the payment of dividends is in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable for six quarterly dividend periods (or if dividends are payable other than on a quarterly basis the number of dividend periods, whether or not consecutive, containing in the aggregate not less than 540 calendar days) and which by its terms provides for voting rights similar to those of the shares of Series C (the "Series C Voting Parity Stock"), shall have the exclusive right at the next annual meeting of shareholders for the election of directors or at a -7- 19 special meeting called as described below, voting separately as one class, to elect two directors for newly created directorships of the Company, each director to be in addition to the number of directors constituting the Board of Directors of the Company immediately prior to the accrual of such right (the remaining directors to be elected by the other class or classes of stock entitled to vote therefor). At any time when the right to elect such directors shall have so vested, the Company may, and upon written request of the holders of record of not less than 20% of the total number of shares of Series C and such Series C Voting Parity Stock then outstanding shall, call a special meeting of the holders of such shares to fill such newly created directorships. In the case of such a written request, such special meeting shall be held within 90 days after delivery of such request and in either case, at the place and upon the notice provided by law and the Bylaws of the Company, provided that the Company shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next annual meeting of shareholders. The right of holders of shares of Series C to elect directors shall continue until dividends on the shares of Series C, have been declared and paid in full for four consecutive Series C Dividend Periods, at which time such voting right of the holders of the shares of Series C and the Series C Voting Parity Stock shall, without further action, terminate, subject to revesting in the event of each and every subsequent failure of the Company to pay such dividends for the requisite number of periods as described above. The term of office of all directors elected by the holders of the shares of Series C and the Series C Voting Parity Stock in office at any time when the aforesaid voting right is vested in such holders shall terminate upon the election of their successors at any meeting of shareholders for the purpose of electing directors; provided however, that without further action and unless otherwise required by law, any director who shall have been elected by holders of the shares of Series C and the Series C Voting Parity Stock as provided herein may be removed at any time, either with or without cause, by the affirmative vote of the holders of record of a majority of the outstanding shares of Series C and the Series C Voting Parity Stock, voting separately as one class, at a duly held shareholders' meeting. Upon termination of the aforesaid voting right in accordance with the foregoing provisions, the term of office of all directors elected by the holders of the shares of Series C and the Series C Voting Parity Stock pursuant thereto then in office shall, without further action, thereupon terminate unless otherwise required by law. Upon such termination the number of directors constituting the Board of Directors of the Company shall, without further action, be reduced by two, subject always to the increase of the number of directors pursuant to the foregoing provisions in the case of the future right of holders of the shares -8- 20 of Series C and the Series C Voting Parity Stock to elect directors as provided above. Unless otherwise required by law, in case of any vacancy occurring among the directors so elected, the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant, and if all directors so elected by the holders of the shares of Series C and the Series C Voting Parity Stock shall cease to serve as directors before their term shall expire, the holders of the shares of Series C and the Series C Voting Parity Stock then outstanding may, at a meeting of such holders duly held, elect successors to hold office of the unexpired terms of the directors whose places shall be vacant. The directors to be elected by the shares of Series C and the Series C Voting Parity Stock, voting together as a class, shall not become members of any of the three classes of directors otherwise required by these Articles. If these Articles and applicable law were construed to require classification of such directors and as a result, or if for any other reason, the holders of the shares of Series C and the Series C Voting Parity Stock are not able to elect the specified number of directors at the next annual meeting of shareholders in the manner described above, the Company shall use its best efforts to take all actions necessary to permit the full exercise of such voting rights (including, if necessary, taking action to increase the authorized number of directors standing for election at such next annual meeting of shareholders or seeking to amend, alter or change these Articles and bylaws of the Company). 5. Optional Redemption. The shares of Series C will not be redeemable before December 31, 1997. On or after December 31, 1997, the shares of Series C are redeemable at the option of the Company for cash, in whole or in part, at any time and from time to time, at $25.00 per share, to the extent that the Company has funds legally available therefor, plus unpaid dividends (whether or not declared) for the then-current Series C Dividend Period up to the date fixed for redemption (without accumulation of accrued and unpaid dividends for prior Series C Dividend Periods) (the "Series C Redemption Price") without interest. The Company shall not redeem or set aside funds for the redemption of any Series C Parity Stock unless prior to or contemporaneously therewith it redeems, or sets aside funds for the redemption of, a number of shares of Series C whose liquidation preference bears the same relationship to the aggregate liquidation preference of all shares of Series C then outstanding as the liquidation preference of such Series C Parity Stock to be redeemed bears to the aggregate liquidation preference of all Series C Parity Stock then outstanding. In addition, notwithstanding the -9- 21 foregoing, the Company may redeem Series C Parity Stock without redeeming a proportional amount of Series C in the event (i) such Series C Parity Stock is convertible into Common Stock and (ii) the average of the daily closing prices of Common Stock for the 30-day period ending 15 days prior to the date of the notice of redemption is in excess of the conversion price of such Series C Parity Stock. In the event that fewer than all the outstanding shares of Series C are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. In the event the Company shall redeem shares of Series C, notice of such redemption (a "Series C Notice of Redemption") shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Company. Each Notice of Redemption shall include the following information: (1) the redemption date; (2) the number of shares of Series C to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the Series C Redemption Price (specifying the amount of unpaid dividends to be included therein); (4) the place or places where certificates for such shares are to be surrendered for payment of the Series C Redemption Price; (5) that dividends on the shares to be redeemed will cease to accrue as of such redemption date; and (6) the provision hereunder pursuant to which such redemption is being made. On or after a redemption date, each holder of shares of Series C that were called for redemption shall surrender the certificate or certificates evidencing such shares to the Company at any place designated for such surrender in the Notice of Redemption and shall then be entitled to receive payment of the Series C Redemption Price for each share. If less than all the shares represented by one share certificate are to be redeemed, the Company shall issue a new share certificate for the shares not redeemed. By noon of the business day immediately preceding the redemption date, the Company shall irrevocably deposit with First Interstate Company of Washington, N.A., in its capacity as paying agent with respect to the shares of Series C or any successor paying agent (the "Paying Agent"), an aggregate amount of immediately available funds or short-term money market instruments or U.S. Treasury Securities sufficient to pay the Series C Redemption Price specified herein for the shares of Series C to be -10- 22 redeemed on such date and shall give the Paying Agent irrevocable instructions to pay such Series C Redemption Price to the holders of record of the shares of Series C called for redemption. If a Notice of Redemption shall have been given and the deposit referred to in the preceding paragraph made, then dividends shall cease, as of the redemption date, to accumulate on the shares of Series C called for redemption and all other rights of holders of the shares so called for redemption shall cease on and after the redemption date, except the right of holders of such shares to receive the Series C Redemption Price against delivery of such shares, but without interest, and such shares shall cease to be outstanding. The Company shall be entitled to receive, from time to time, from the Paying Agent the interest, if any, earned on such monies deposited with the Paying Agent, and the holders of any shares to be redeemed with such monies shall have no claim to any such interest. With regard to any other funds so deposited that are unclaimed by holders of shares at the end of two years from such redemption date, the Paying Agent shall, upon demand, pay over to the Company such amount remaining on deposit, the Paying Agent shall thereupon be relieved of all responsibility to the holders of such shares and the holders of shares of Series C so called for redemption shall thereafter be entitled to look only to the Company for payment thereof. Any shares of Series C which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of preferred stock of the Company, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. No Conversion Rights. Holders of shares of Series C will have no right to convert shares of Series C into Common Stock or any other security of the Company. 7. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the outstanding shares of Series C shall be entitled to receive out of the assets of the Company, or the proceeds thereof, available for distribution to shareholders, before any distribution of assets is made to the holders of Common Stock or other Series C Junior Stock, liquidating distributions in the amount of $25.00 per share plus dividends accrued and unpaid for the then-current Series C Dividend Period (without accumulation of accrued and unpaid dividends for prior Series C Dividend Periods) to the date fixed for such liquidation, dissolution or winding up. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series C will not be entitled to any further participation in any distribution of assets of the Company. All -11- 23 distributions made with respect to the shares of Series C in connection with such liquidation, dissolution or winding up of the Company shall be made pro rata to the holders entitled thereto. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, and proceeds thereof, available for distribution among the holders of the shares of Series C and of any Series C Parity Stock, shall be insufficient to pay in full the preferential amount set forth in the preceding paragraph above to the holders of the shares of Series C and liquidating payments on all such Series C Parity Stock, then such assets and proceeds shall be distributed among the holders of Series C and all such Series C Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series C and any such Series C Parity Stock if all amounts payable thereon were paid in full. 8. Payments on Stock Ranking Junior. In the event of any such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, unless and until payment in full is made to the holders of all outstanding shares of Series C of the liquidation distribution to which they are entitled, no dividend or other distribution shall be made to the holders of the Common Stock or any other Series C Junior Stock, and no purchase, redemption or other acquisition for any consideration by the Company shall be made in respect of the shares of the Common Stock or such other class of junior Stock. Neither a consolidation or merger of the Company into or with another entity or entities nor the sale, transfer or exchange (for cash, shares of equity stock, securities or other consideration) of all or substantially all of the property and assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section D.(2)(A). 9. Sinking Fund. No sinking fund shall be provided for the purchase of redemption of shares of Series C. 10. Preemptive Rights. No holder of shares of Series C shall have any preemptive right to subscribe to stock, obligations, warrants, rights to subscribe to stock, or other securities of this corporation of any class, whether now or hereafter authorized. -12- 24 (B) $6.00 Noncumulative Convertible Perpetual Preferred Stock, Series D 1. Designation. There shall initially be a series of preferred stock whose designation shall be "$6.00 Noncumulative Convertible Perpetual Preferred Stock, Series D" ("Series D"). The number of shares of Series D shall be 1,400,000. The liquidation preference of Series D shall be $100.00 per share (plus accrued and unpaid dividends for the then-current dividend period up to the date fixed for liquidation, dissolution or winding up). 2. Rank. The shares of Series D shall, with respect to dividend rights and rights on liquidation, winding up and dissolution of the Company, rank prior to the Common Stock and to all other classes and series of equity securities of the Company now or hereafter authorized, issued or outstanding, other than any classes or series of equity securities of the Company either (a) ranking on a parity with shares of Series D as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the "Series D Parity Stock"), or (b) ranking senior to shares of Series D as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the Common Stock and such other classes and series of equity securities other than those described in (a) or (b) collectively may be referred to herein as the "Series D Junior Stock"). The shares of Series D shall be subject to the creation of such Series D Parity Stock and such Series D Junior Stock to the extent not expressly prohibited by these Articles. Any class or classes of stock of the Company shall be deemed to rank prior to Series D as to dividends and as to distribution of assets upon liquidation, dissolution or winding up if the holders of such class shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of shares of Series D. 3. Noncumulative Dividends and Dividend Rate. Holders of shares of Series D shall be entitled to receive, when, as and if declared by the Board of Directors, or a duly authorized committee thereof, out of funds legally available therefor, cash dividends from the date of issue thereof at the annual rate of $6.00 per share, payable quarterly in arrears, on February 15, May 15, August 15 and November 15 (each a "Series D Dividend Payment Date") of each year, commencing on the first Series D Dividend Payment Date after issuance of the shares of Series D; provided, however, that if any such day is a non-business day, the Series D Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the -13- 25 Company on such record dates, not more than 30 calendar days and not less than 10 calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Company or a duly authorized committee thereof (each of such dates a "Series D Record Date"). Quarterly dividend periods (each a "Series D Dividend Period") shall commence on and include the fifteenth day of February, May, August and November of each year (except as set forth above with respect to the initial Series D Dividend Period) and shall end on and include the day next preceding the next following Series D Dividend Payment Date. Dividends on the shares of Series D shall be noncumulative so that if a dividend on the shares of Series D with respect to any Series D Dividend Period is not declared by the Board of Directors of the Company, or any duly authorized committee thereof, then the Company shall have no obligation at any time to pay a dividend on the shares of Series D in respect of such Series D Dividend Period. Holders of the shares of Series D shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the noncumulative dividends declared by the Board of Directors, or a duly authorized committee thereof, as set forth herein. Any Series D Parity Stock issued by the Company shall only have dividend periods which end on the same date as a Series D Dividend Period. No full dividends shall be declared or paid or set apart for payment on any Series D Parity Stock in respect of any such dividend period unless full dividends on Series D for the Series D Dividend Period ending on the same date as such dividend period shall have been paid or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment. If at any time with respect to any Series D Dividend Period dividends are not declared and paid in full (or declared and a sum sufficient for such full payment so set apart) upon the shares of Series D, dividends upon shares of Series D and dividends on any shares of Series D Parity Stock outstanding shall only be declared by the Board of Directors or a duly authorized committee thereof pro rata with respect thereto, so that the amount of dividends declared per share on Series D and such Series D Parity Stock shall bear to each other the same ratio that accrued dividends per share on the shares of Series D for such Series D Dividend Period (which shall not include any accumulation in respect of unpaid dividends for prior Series D Dividend Periods) and full dividends, including accumulations, if any, on shares of Series D Parity Stock, bear to each other. Unless full dividends have been declared and paid (or declared and a sum sufficient for such full payment set apart for payment) on all outstanding shares of Series D for the immediately preceding Series D Dividend Period, the Company shall not declare or pay any -14- 26 dividends (other than in Common Stock or other Series D Junior Stock) or set any amount aside for payment thereof or make any other distribution on the Common Stock or on any other Series D Junior Stock, nor shall any Common Stock nor any Series D Junior Stock be redeemed (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock), or any Series D Junior Stock or Series D Parity Stock be purchased or otherwise acquired by the Company for any consideration except by conversion into or exchange for Series D Junior Stock. Regardless of the length of the initial Series D Dividend Period and whether or not the time period from the date of issue of the shares of Series D to the Series D Dividend Payment Date constitutes a full quarter, a full quarterly dividend of $1.50 per share shall be paid on the initial Series D Dividend Payment Date. Dividends payable for any other period shorter than a full Series D Dividend Period shall be computed on the basis of twelve 30-day months and a 360-day year. Dividends payable for each full quarterly dividend period shall be computed by dividing the annual dividend rate by four. 4. Voting Rights. Except as indicated below and except as otherwise required by applicable law, the holders of shares of Series D will not be entitled to vote for any purpose. As long as any shares of Series D remain outstanding, the consent of the holders of at least two-thirds of the shares of Series D at the time outstanding (unless the vote or consent of the holders of a greater number of shares shall then be required by law), given in person by proxy, by a vote at a meeting of the holders of Series D called for such purpose at which the holders of shares of Series D shall vote together as a separate class, shall be necessary (i) to issue or authorize any additional class of equity stock (it being understood that subordinated debt instruments, including mandatory convertible debt, are not for these purposes equity stock) ranking prior to Series D as to dividends or upon liquidation, winding up or dissolution or which possess rights to vote separately as one class with Series D on a basis of more than one vote for each $25.00 of stated liquidation preference thereof (excluding any liquidation preference for accrued but unpaid dividends) or to issue or authorize any obligation or security convertible into or evidencing a right to purchase, or to reclassify any authorized stock of the Company into, any such additional class of equity stock or (ii) to repeal, amend or otherwise change any of the provisions of these Articles in any manner which adversely affects the powers, preferences, voting power or other rights or privileges of Series D; provided, however, that amending these Articles to increase the number of authorized shares of common or preferred stock shall not be deemed to be included within the scope of (ii) above. -15- 27 In connection with any matter on which holders of Series D are entitled to vote including, without limitation, the election of directors as set forth below or any matter on which the holders of Series D are entitled to vote as one class or otherwise pursuant to law or the provisions of these Articles, each holder of Series D shall be entitled to one vote for each share of Series D held by such holder. To the extent permitted by law, if the equivalent of six full quarterly dividends on Series D, whether or not consecutive, are not declared and paid, the holders of shares of Series D, together with the holders of any Series D Parity Stock as to which the payment of dividends is in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable for six quarterly dividend periods (or if dividends are payable other than on a quarterly basis the number of dividend periods, whether or not consecutive, containing in the aggregate not less than 540 calendar days) and which by its terms provides for voting rights similar to those of the shares of Series D (the "Series D Voting Parity Stock"), shall have the exclusive right at the next annual meeting of shareholders for the election of directors or at a special meeting called as described below, voting separately as one class, to elect two directors for newly created directorships of the Company, each director to be in addition to the number of directors constituting the Board of Directors of the Company immediately prior to the accrual of such right (the remaining directors to be elected by the other class or classes of stock entitled to vote therefor). At any time when the right to elect such directors shall have so vested, the Company may, and upon written request of the holders of record of not less than 20% of the total number of shares of Series D and such Series D Voting Parity Stock then outstanding shall, call a special meeting of the holders of such shares to fill such newly created directorships. In the case of such a written request, such special meeting shall be held within 90 days after delivery of such request and in either case, at the place and upon the notice provided by law and in the Bylaws of the Company, provided that the Company shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next annual meeting of shareholders. The right of holders of shares of Series D to elect directors shall continue until dividends on the shares of Series D, have been declared and paid in full for four consecutive Series D Dividend Periods, at which time such voting right of the holders of the shares of Series D and the Series D Voting Parity Stock shall, without further action, terminate, subject to revesting in the event of each and every subsequent failure of the Company to pay such dividends for the requisite number of periods as described above. The term of office of all directors elected by the holders of the shares of Series D and the Series D Voting Parity Stock in -16- 28 office at any time when the aforesaid voting right is vested in such holders shall terminate upon the election of their successors at any meeting of shareholders for the purpose of electing directors; provided however, that without further action and unless otherwise required by law, any director who shall have been elected by holders of the shares of Series D and the Series D Voting Parity Stock as provided herein may be removed at any time, either with or without cause, by the affirmative vote of the holders of record of a majority of the outstanding shares of Series D and the Series D Voting Parity Stock, voting separately as one class, at a duly held shareholders' meeting. Upon termination of the aforesaid voting right in accordance with the foregoing provisions, the term of office of all directors elected by the holders of the shares of Series D and the Series D Voting Parity Stock pursuant thereto then in office shall, without further action, thereupon terminate unless otherwise required by law. Upon such termination the number of directors constituting the Board of Directors of the Company shall, without further action, be reduced by two, subject always to the increase of the number of directors pursuant to the foregoing provisions in the case of the future right of holders of the shares of Series D and the Series D Voting Parity Stock to elect directors as provided above. Unless otherwise required by law, in case of any vacancy occurring among the directors so elected, the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant, and if all directors so elected by the holders of the shares of Series D and the Series D Voting Parity Stock shall cease to serve as directors before their term shall expire, the holders of the shares of Series D and the Series D Voting Parity Stock then outstanding may, at a meeting of such holders duly held, elect successors to hold office of the unexpired terms of the directors whose places shall be vacant. The directors to be elected by the shares of Series D and the Series D Voting Parity Stock, voting together as a class, shall not become members of any of the three classes of directors otherwise required by these Articles. If these Articles and applicable law were construed to require classification of such directors and as a result, or if for any other reason, the holders of the shares of Series D and the Series D Voting Parity Stock are not able to elect the specified number of directors at the next annual meeting of shareholders in the manner described above, the Company shall use its best efforts to take all actions necessary to permit the full exercise of such voting rights (including, if necessary, taking action to increase the authorized number of directors standing for election at such next annual meeting of shareholders or seeking to amend, alter or change these Articles and Bylaws of the Company). -17- 29 5. Optional Redemption. The shares of Series D will not be redeemable before December 31, 1996. On or after December 31, 1996, the shares of Series D are redeemable at the option of the Company for cash, in whole or in part, at any time and from time to time, at the following redemption prices per share if redeemed during the 12-month period ending December 31 in each of the following years to the extent that the Company has funds legally available therefor:
redemption price redemption price per share of per share of Year Series D Year Series D ---- -------- ---- -------- 1997 $103.60 2001 $101.20 1998 $103.00 2002 $100.60 1999 $102.40 2003 and 2000 $101.80 thereafter $100.00
plus in each case accrued and unpaid dividends (whether or not declared) for the last complete Series D Dividend Period immediately preceding the date fixed for redemption (without accumulation of accrued and unpaid dividends for prior Series D Dividend Periods) (the "Series D Redemption Price") without interest. The Company shall not redeem or set aside funds for the redemption of any Series D Parity Stock unless prior to or contemporaneously therewith it redeems, or sets aside funds for the redemption of, a number of shares of Series D whose liquidation preference bears the same relationship to the aggregate liquidation preference of all shares of Series D then outstanding as the liquidation preference of such Series D Parity Stock to be redeemed bears to the aggregate liquidation preference of all Series D Parity Stock then outstanding. In addition, notwithstanding the foregoing, the Company may redeem Series D Parity Stock without redeeming a proportional amount of Series D in the event (i) such Series D Parity Stock is convertible into Common Stock and (ii) the average of the daily Closing Prices (as defined in 6(a) below) of Common Stock for the 30-day period ending 15 days prior to the date of the notice of redemption is in excess of the conversion price of such Series D Parity Stock. In the event that fewer than all the outstanding shares of Series D are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. -18- 30 In the event the Company shall redeem shares of Series D, notice of such redemption (a "Series D Notice of Redemption") shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Company. Each Series D Notice of Redemption shall include the following information: (1) the redemption date; (2) the number of shares of Series D to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the Series D Redemption Price (specifying the amount of accrued and unpaid dividends to be included therein); (4) the place or places where certificates for such shares are to be surrendered for payment of the Series D Redemption Price; (5) that dividends on the shares to be redeemed will cease or ceased to accrue as of the end of the Series D Dividend Period immediately preceding such redemption date; and (6) the provision hereunder pursuant to which such redemption is being made. On or after a redemption date, each holder of shares of Series D that were called for redemption shall surrender the certificate or certificates evidencing such shares to the Company at any place designated for such surrender in the Series D Notice of Redemption and shall then be entitled to receive payment of the Series D Redemption Price for each share. If less than all the shares represented by one share certificate are to be redeemed, the Company shall issue a new share certificate for the shares not redeemed. By noon of the business day immediately preceding the redemption date, the Company shall irrevocably deposit with First Interstate Company of Washington, N.A., in its capacity as paying agent with respect to the shares of Series D or any successor paying agent (the "Series D Paying Agent"), an aggregate amount of immediately available funds or short-term money market instruments or U.S. Treasury Securities sufficient to pay the Series D Redemption Price specified herein for the shares of Series D to be redeemed on such date and shall give the Series D Paying Agent irrevocable instructions to pay such Series D Redemption Price to the holders of record of the shares of Series D called for redemption. If a Series D Notice of Redemption shall have been given and the deposit referred to in the preceding paragraph made, then dividends shall cease after the end of the complete Series D Dividend Period immediately preceding the redemption date, to accumulate on the shares of Series D called for redemption and all other rights of holders of the shares so called for redemption shall cease on and after the redemption date, except the right of -19- 31 holders of such shares to receive the Series D Redemption Price against delivery of such shares, but without interest, and such shares shall cease to be outstanding. The Company shall be entitled to receive, from time to time, from the Series D Paying Agent the interest, if any, earned on such monies deposited with the Series D Paying Agent, and the holders of any shares to be redeemed with such monies shall have no claim to any such interest. The Company shall be entitled to receive upon demand any amounts so deposited which exceed the total obtained by multiplying the Series D Redemption Price times the difference between the number of shares called for redemption and the number of such shares converted on or before the redemption date. With regard to any other funds so deposited that are unclaimed by holders of shares at the end of two years from such redemption date, the Series D Paying Agent shall, upon demand, pay over to the Company such amount remaining on deposit, the Series D Paying Agent shall thereupon be relieved of all responsibility to the holders of such shares and the holders of shares of Series D so called for redemption shall thereafter be entitled to look only to the Company for payment thereof. Any shares of Series D which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of preferred stock of the Company, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. -20- 32 6. Conversion Rights. (a) Holders of shares of Series D will have the right, at their option at any time and from time to time, to convert any or all of such shares into the number of shares of Common Stock of the Company determined by dividing $100.00 for each share of Series D to be converted by the then effective conversion price, except that if any shares of Series D are called for redemption, the conversion rights pertaining thereto will terminate at the close of business on the date fixed for redemption, unless the Company defaults in the payment of the Series D Redemption Price. The market value of a share of Common Stock (the "Series D Market Price") on any date shall be deemed to be the average of the daily Closing Prices for the 30-day period ending 15 days prior to the date in question. The term "Series D Closing Price," with respect to any day, shall mean (i) the last sales price in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or a similar accepted reporting service for the date of any such determination, or (ii) if the Common Stock is listed or admitted for trading on the New York Stock Exchange, the last reported sales price per share of Common Stock on such date on the New York Stock Exchange, or (iii) if the Common Stock is not listed or admitted for trading on the New York Stock Exchange, the last reported sales price on the principal national securities exchange on which the Common Stock is admitted for trading, or (iv) if no such quotations are available and the Common Stock is not so listed or admitted, the fair market value on the date in question of a share of Common Stock as determined in good faith by the Board of Directors. If more than one share of Series D is surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable on conversion thereof shall be computed on the basis of all such shares so surrendered. (b) The holders of shares of Series D at the close of business on a dividend payment Series D Record Date shall be entitled to receive the dividend payable on such shares (except that holders of shares of Series D subject to redemption on a redemption date between such Series D Record Date and the Series D Dividend Payment Date shall not be entitled to receive such dividend on such Series D Dividend Payment Date) on the corresponding Series D Dividend Payment Date notwithstanding the conversion thereof or the Company's default on payment of the dividend due on such Series D Dividend Payment Date. However, shares of Series D surrendered for conversion during the period after any dividend payment Series D Record Date and before such Series D Dividend Payment Date (except shares subject to redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Series D Dividend Payment Date. Holders of shares of Series D on a dividend payment Series D Record Date who (or whose -21- 33 transferees) convert shares of Series D on a Series D Dividend Payment Date will receive the dividend payable on such Series D by the Company on such date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Series D for conversion. (c) The initial conversion price for each share of Series D is $25.8338. The initial conversion price or other conversion price then in effect shall be subject to adjustment from time to time as follows: (i) In case the Company shall declare a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the conversion price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (ii) In case the Company shall subdivide the outstanding shares of the Common Stock into a greater number of shares, the conversion price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the conversion price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased. (iii) In case the Common Stock issuable upon the conversion of Series D shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a stock dividend or a subdivision or combination of shares provided for in subclause (i) or (ii), or a reorganization, merger, consolidation or sale of assets provided for in (d)), then and in each such event the holders of shares of Series D shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series D might have been converted -22- 34 immediately prior to such reorganization, reclassification or change. (iv) In case the Company shall issue to all holders of the Common Stock rights or warrants entitling them (within a 45 calendar-day period after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at less than the Series D Market Price on the date fixed for such determination, the conversion price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current Series D Market Price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (v) In case the Company shall, by dividend or otherwise, distribute to all holders of shares of Common Stock evidences of indebtedness or assets (including rights or warrants to purchase capital stock, or any other securities, but excluding any dividend or distribution referred to in (i), any rights or warrants referred to in (iv) and any dividend or distribution paid in cash out of the retained earnings or consolidated net income of the Company), the conversion price shall be adjusted by multiplying the conversion price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current Series D Market Price of the Common Stock on the date fixed for such determination less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of Common Stock and the denominator shall be such current Series D Market Price of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. In the event that the Company shall distribute or shall have distributed to all holders of shares of Common Stock rights or warrants to purchase capital stock that are not initially detachable from the Common Stock (whether or not such distribution shall have occurred prior to the date of issuance of Series D), -23- 35 then the distribution of separate certificates representing such rights or warrants subsequent to their initial distribution shall be deemed to be the distribution of such rights or warrants for purposes of this subclause (v). Notwithstanding the foregoing, in the event that the Company shall distribute rights or warrants to purchase capital stock (other than those referred in (iv) above) ("Series D Rights") to holders of Common Stock, the Company may, in lieu of making the foregoing adjustment pursuant to this subclause (v), make proper provision so that each holder of shares of Series D who converts such shares of Series D before the record date for such distribution shall be entitled to receive upon such conversion shares of Common Stock issued with Series D Rights and after the record date for such distribution and prior to the expiration or redemption of the Series D Rights shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the same number of Series D Rights to which a holder of the number of shares of Common Stock into which the shares of Series D so converted were convertible immediately prior to the record date for such distribution would have been entitled on the record date for such distribution in accordance with the terms and provisions of and applicable to the Series D Rights. (vi) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% of the conversion price then in effect; provided, however, that any adjustments which by reason of this subsection (vi) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (d) In case of any (i) consolidation or merger of the Company with or into another entity (other than a consolidation or merger in which the Company is the surviving entity), (ii) sale, transfer, lease or conveyance of all or substantially all the assets of the Company, (iii) reclassification, capital reorganization or change in the Company's Common Stock (other than solely a change in par value, or from par value to no par value), or (iv) consolidation or merger of another entity into the Company and in which there is a reclassification or change of the Company's Common Stock (other than solely a change in par value or from par value to no par value), then each holder of shares of Series D then outstanding shall have the right thereafter to convert each share of Series D held by such holder into the same kind and amount of shares of stock, other securities, cash or other property (or any combination thereof) which the holder would have received had the holder converted such holder's shares of Series D to Common Stock immediately prior to the occurrence of such event. If the consideration into which Series D is convertible following any such event consists of common stock of the Company or the surviving -24- 36 entity (as the case may be), then from and after the occurrence of such event the conversion price for each share of Series D into such common stock shall be subject to the same anti-dilution and other adjustments described herein, applied as if such common stock were Common Stock of the Company. No fractional shares of Common Stock shall be issued upon any conversion, but, in lieu thereof, there shall be paid to each holder of shares of Series D surrendered for conversion who, but for the provisions of this paragraph would be entitled to receive a fraction of a share of Common Stock on such conversion, as soon as practicable after the date shares of Series D are surrendered for conversion an amount in cash equal to the same fraction of the Market Value on the date of surrender of a full share of Common Stock, unless the Board of Directors or a duly authorized committee thereof shall determine to adjust fractional shares by the issue of fractional scrip certificates or in some other manner. If more than one share of Series D is surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable on conversion thereof shall be computed on the basis of all such shares so surrendered. (e) In addition to the foregoing adjustments, the Company may, but shall not be required to, make such reductions in the conversion price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will be taxable to the recipients to the minimum extent determined to be reasonable under the circumstances as determined by the Board of Directors. (f) Whenever any adjustment is required in the conversion price of Series D, the Company shall forthwith (A) keep available at each of its offices and agencies at which shares of Series D are convertible a statement describing in reasonable detail the adjustment and the method of calculation used; and (B) cause a copy of such statement to be mailed to the holders of record of the shares of Series D. (g) If in any case a state of facts occurs wherein in the opinion of the Board of Directors the other provisions of this Section D.(2)(B) with respect to conversion rights are not strictly applicable or if strictly applied would not fairly protect the conversion rights of the shares of Series D in accordance with essential intent and principles of such provisions, then the Board shall make an adjustment in the application of such provisions, in accordance with the essential intent and principles so as to protect such conversion rights aforesaid, all as the Board in its discretion shall determine. (h) The Company shall at all times reserve and keep available out of the authorized but unissued -25- 37 shares of Common Stock the maximum number of shares of Common Stock into which all shares of Series D from time to time outstanding are convertible, but shares of Common Stock held in the treasury of the Company may in its discretion be delivered upon any conversion of shares of Series D. (i) Shares of Series D converted into Common Stock shall have the status of authorized but unissued shares of Series D provided that the Board has the authority to declare at any time that such converted shares shall, after conversion, have the status of authorized but unissued shares of preferred stock of the Company without designation as to series (until once more designated as a part of a particular series by the Board of Directors) and provided that in the event a Series D Notice of Redemption for all outstanding shares of Series D is made, then all shares converted prior to the redemption date shall as of the redemption date automatically have the status of such authorized but unissued shares of preferred stock of the Company without designation as to series. _ 7. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the outstanding shares of Series D shall be entitled to receive out of the assets of the Company, or the proceeds thereof, available for distribution to shareholders, before any distribution of assets is made to the holders of Common Stock or other Series D Junior Stock, liquidating distributions in the amount of $100.00 per share plus dividends accrued and unpaid for the then-current Series D Dividend Period (without accumulation of accrued and unpaid dividends for prior Series D Dividend Periods) to the date fixed for such liquidation, dissolution or winding up. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series D will not be entitled to any further participation in any distribution of assets of the Company. All distributions made with respect to the shares of Series D in connection with such liquidation, dissolution or winding up of the Company shall be made pro rata to the holders entitled thereto. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, and proceeds thereof, available for distribution among the holders of the shares of Series D and of any Series D Parity Stock, shall be insufficient to pay in full the preferential amount set forth in the preceding paragraph above to the holders of the shares of Series D and liquidating payments on all such Series D Parity Stock, then such assets and proceeds shall be distributed among the holders of Series D and all such Series D Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series D and any such Series D Parity Stock if all amounts payable thereon were paid in full. -26- 38 8. Payments on Stock Ranking Junior. In the event of any such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, unless and until payment in full is made to the holders of all outstanding shares of Series D of the liquidation distribution to which they are entitled, no dividend or other distribution shall be made to the holders of the Common Stock or any other Series D Junior Stock, and no purchase, redemption or other acquisition for any consideration by the Company shall be made in respect of the shares of the Common Stock or such other class of junior Stock. Neither a consolidation or merger of the Company into or with another entity or entities nor the sale, transfer or exchange (for cash, shares of equity stock, securities or other consideration) of all or substantially all of the property and assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section D.(2)(B). 9. Sinking Fund. No sinking fund shall be provided for the purchase of redemption of shares of Series D. 10. Preemptive Rights. No holder of shares of Series D shall have any preemptive right to subscribe to stock, obligations, warrants, rights to subscribe to stock, or other securities of this corporation of any class, whether now or hereafter authorized. (C) 7.60% Noncumulative Perpetual Preferred Stock, Series E. 1. Designation. There shall initially be a series of preferred stock whose designation shall be "7.60% Noncumulative Perpetual Preferred Stock, Series E" ("Series E"). The number of shares of Series E shall be 2,000,000. The liquidation preference of Series E shall be $25.00 per share (plus accrued and unpaid dividends for the then-current dividend period up to the date fixed for liquidation, dissolution or winding up). 2. Rank. The shares of Series E shall, with respect to dividend rights and rights on liquidation, winding up and dissolution of the Company, rank prior to the Common Stock and to all other classes and series of equity securities of the Company now or hereafter authorized, issued or outstanding, other than any classes or series of equity securities of the Company either (a) ranking on a parity with shares of Series E as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the "Series E Parity Stock"), or (b) ranking senior to shares of Series E as to dividend rights and rights upon liquidation, winding up or dissolution of the Company (the Common Stock and such other classes and series of equity securities other -27- 39 than those described in (a) or (b) collectively may be referred to herein as the "Series E Junior Stock"). The shares of Series E shall be subject to the creation of such Series E Parity Stock and such Series E Junior Stock to the extent not expressly prohibited by these Articles. Any class or classes of stock of the Company shall be deemed to rank prior to Series E as to dividends and as to distribution of assets upon liquidation, dissolution or winding up if the holders of such class shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of shares of Series E. 3. Noncumulative Dividends and Dividend Rate. Holders of shares of Series E shall be entitled to receive, when, as and if declared by the Board of Directors, or a duly authorized committee thereof, out of funds legally available therefor, cash dividends from the date of issue thereof at the annual rate of $1.90 per share, payable quarterly in arrears, on February 15, May 15, August 15 and November 15 (each a "Series E Dividend Payment Date") of each year, commencing on the first Series E Dividend Payment Date after issuance of the shares of Series E; provided, however, that if any such day is a non-business day, the Series E Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Company on such record dates, not more than 30 calendar days and not less than 10 calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Company or a duly authorized committee thereof (each of such dates a "Series E Record Date"). Quarterly dividend periods (each a "Series E Dividend Period") shall commence on and include the fifteenth day of February, May, August and November of each year (except as set forth above with respect to the initial Series E Dividend Period) and shall end on and include the day next preceding the next following Series E Dividend Payment Date. Dividends on the shares of Series E shall be noncumulative so that if a dividend on the shares of Series E with respect to any Series E Dividend Period is not declared by the Board of Directors of the Company, or any duly authorized committee thereof, then the Company shall have no obligation at any time to pay a dividend on the shares of Series E in respect of such Series E Dividend Period. Holders of the shares of Series E shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the noncumulative dividends declared by the Board of Directors, or a duly authorized committee thereof, as set forth herein. Any Series E Parity Stock issued by the Company shall only have dividend periods which end on the same date as a Series E Dividend Period. No full dividends shall be declared or paid or -28- 40 set apart for payment on any Series E Parity Stock in respect of any such dividend period unless full dividends on Series E for the Series E Dividend Period ending on the same date as such dividend period shall have been paid or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment. If at any time with respect to any Series E Dividend Period dividends are not declared and paid in full (or declared and a sum sufficient for such full payment so set apart) upon the shares of Series E, dividends upon shares of Series E and dividends on any shares of Series E Parity Stock outstanding shall only be declared by the Board of Directors or a duly authorized committee thereof pro rata with respect thereto, so that the amount of dividends declared per share on Series E and such Series E Parity Stock shall bear to each other the same ratio that accrued dividends per share on the shares of Series E for such Series E Dividend Period (which shall not include any accumulation in respect of unpaid dividends for prior Series E Dividend Periods) and full dividends, including accumulations, if any, on shares of Series E Parity Stock, bear to each other. Unless full dividends have been declared and paid (or declared and a sum sufficient for such full payment set apart for payment) on all outstanding shares of Series E for the immediately preceding Series E Dividend Period, the Company shall not declare or pay any dividends (other than in Common Stock or other Series E Junior Stock) or set any amount aside for payment thereof or make any other distribution on the Common Stock or on any other Series E Junior Stock, nor shall any Common Stock nor any Series E Junior Stock be redeemed (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock), or any Series E Junior Stock or Series E Parity Stock be purchased or otherwise acquired by the Company for any consideration except by conversion into or exchange for Series E Junior Stock. Regardless of the length of the initial Series E Dividend Period and whether or not the time period from the date of issue of the shares of Series E to the Series E Dividend Payment Date constitutes a full quarter, a full quarterly dividend of $.475 per share shall be paid on the initial Series E Dividend Payment Date. Dividends payable for any other period shorter than a full Series E Dividend Period shall be computed on the basis of twelve 30-day months and a 360-day year. Dividends payable for each full quarterly dividend period shall be computed by dividing the annual dividend rate by four. 4. Voting Rights. Except as indicated below and except as otherwise required by applicable law, the holders of shares of Series E will not be entitled to vote for any purpose. -29- 41 As long as any shares of Series E remain outstanding, the consent of the holders of at least a majority of the shares of Series E at the time outstanding (unless the vote or consent of the holders of a greater number of shares shall then be required by law), given in person by proxy, by a vote at a meeting of the holders of Series E called for such purpose at which the holders of shares of Series E shall vote together as a separate class, shall be necessary (i) to issue or authorize any additional class of equity stock (it being understood that subordinated debt instruments, including mandatory convertible debt, are not for these purposes equity stock) ranking prior to Series E as to dividends or upon liquidation, winding up or dissolution or which possess rights to vote separately as one class with Series E on a basis of more than one vote for each $25.00 of stated liquidation preference thereof (excluding any liquidation preference for accrued but unpaid dividends) or to issue or authorize any obligation or security convertible into or evidencing a right to purchase, or to reclassify any authorized stock of the Company into, any such additional class of equity stock or (ii) to repeal, amend or otherwise change any of the provisions of these Articles in any manner which adversely affects the powers, preferences, voting power or other rights or privileges of Series E; provided, however, that amending these Articles to increase the number of authorized shares of common or preferred stock shall not be deemed to be included within the scope of (ii) above. In connection with any matter on which holders of Series E are entitled to vote including, without limitation, the election of directors as set forth below or any matter on which the holders of Series E are entitled to vote as one class or otherwise pursuant to law or the provisions of these Articles, each holder of Series E shall be entitled to one vote for each share of Series E held by such holder. To the extent permitted by law, if the equivalent of six full quarterly dividends on Series E, whether or not consecutive, are not declared and paid, the holders of shares of Series E, together with the holders of any Series E Parity Stock as to which the payment of dividends is in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable for six quarterly dividend periods (or if dividends are payable other than on a quarterly basis the number of dividend periods, whether or not consecutive, containing in the aggregate not less than 540 calendar days) and which by its terms provides for voting rights similar to those of the shares of Series E (the "Series E Voting Parity Stock"), shall have the exclusive right at the next annual meeting of shareholders for the election of directors or at a special meeting called as described below, voting separately as one class, to elect two directors for newly created directorships of the Company, each director to be in addition to the number of directors constituting the Board of Directors of the Company -30- 42 immediately prior to the accrual of such right (the remaining directors to be elected by the other class or classes of stock entitled to vote therefor). At any time when the right to elect such directors shall have so vested, the Company may, and upon written request of the holders of record of not less than 20% of the total number of shares of Series E and such Series E Voting Parity Stock then outstanding shall, call a special meeting of the holders of such shares to fill such newly created directorships. In the case of such a written request, such special meeting shall be held within 90 days after delivery of such request and in either case, at the place and upon the notice provided by law and in the Bylaws of the Company, provided that the Company shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next annual meeting of shareholders. The right of holders of shares of Series E to elect directors shall continue until dividends on the shares of Series E, have been declared and paid in full for four consecutive Series E Dividend Periods, at which time such voting right of the holders of the shares of Series E and the Series E Voting Parity Stock shall, without further action, terminate, subject to revesting in the event of each and every subsequent failure of the Company to pay such dividends for the requisite number of periods as described above. The term of office of all directors elected by the holders of the shares of Series E and the Series E Voting Parity Stock in office at any time when the aforesaid voting right is vested in such holders shall terminate upon the election of their successors at any meeting of shareholders for the purpose of electing directors; provided however, that without further action and unless otherwise required by law, any director who shall have been elected by holders of the shares of Series E and the Series E Voting Parity Stock as provided herein may be removed at any time, either with or without cause, by the affirmative vote of the holders of record of a majority of the outstanding shares of Series E and the Series E Voting Parity Stock, voting separately as one class, at a duly held shareholders' meeting. Upon termination of the aforesaid voting right in accordance with the foregoing provisions, the term of office of all directors elected by the holders of the shares of Series E and the Series E Voting Parity Stock pursuant thereto then in office shall, without further action, thereupon terminate unless otherwise required by law. Upon such termination the number of directors constituting the Board of Directors of the Company shall, without further action, be reduced by two, subject always to the increase of the number of directors pursuant to the foregoing provisions in the case of the future right of holders of the shares of Series E and the Series E Voting Parity Stock to elect directors as provided above. Unless otherwise required by law, in case of any vacancy occurring among the directors so elected, the remaining director -31- 43 who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant, and if all directors so elected by the holders of the shares of Series E and the Series E Voting Parity Stock shall cease to serve as directors before their term shall expire, the holders of the shares of Series E and the Series E Voting Parity Stock then outstanding may, at a meeting of such holders duly held, elect successors to hold office of the unexpired terms of the directors whose places shall be vacant. The directors to be elected by the shares of Series E and the Series E Voting Parity Stock, voting together as a class, shall not become members of any of the three classes of directors otherwise required by these Articles. If these Articles and applicable law were construed to require classification of such directors and as a result, or if for any other reason, the holders of the shares of Series E and the Series E Voting Parity Stock are not able to elect the specified number of directors at the next annual meeting of shareholders in the manner described above, the Company shall use its best efforts to take all actions necessary to permit the full exercise of such voting rights (including, if necessary, taking action to increase the authorized number of directors standing for election at such next annual meeting of shareholders or seeking to amend, alter or change these Articles and bylaws of the Company). 5. Optional Redemption. The shares of Series E will not be redeemable before September 15, 1998. On or after September 15, 1998, the shares of Series E are redeemable at the option of the Company for cash, in whole or in part, at any time and from time to time, at $25.00 per share, to the extent that the Company has funds legally available therefor, plus unpaid dividends (whether or not declared) for the then-current Series E Dividend Period up to the date fixed for redemption (without accumulation of accrued and unpaid dividends for prior Series E Dividend Periods) (the "Series E Redemption Price") without interest. The Company shall not redeem or set aside funds for the redemption of any Series E Parity Stock unless prior to or contemporaneously therewith it redeems, or sets aside funds for the redemption of, a number of shares of Series E whose liquidation preference bears the same relationship to the aggregate liquidation preference of all shares of Series E then outstanding as the liquidation preference of such Series E Parity Stock to be redeemed bears to the aggregate liquidation preference of all Series E Parity Stock then outstanding. Notwithstanding the foregoing, the Company may redeem Series E Parity Stock without redeeming a proportional amount of Series E in the event (i) such Series E Parity Stock is convertible into Common Stock and (ii) the average of the daily closing prices of Common Stock for the 30-day period -32- 44 ending 15 days prior to the date of the notice of redemption is in excess of the conversion price of such Series E Parity Stock. In the event that fewer than all the outstanding shares of Series E are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. In the event the Company shall redeem shares of Series E, notice of such redemption (a "Series E Notice of Redemption") shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Company. Each Series E Notice of Redemption shall include the following information: (1) the redemption date; (2) the number of shares of Series E to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the Series E Redemption Price (specifying the amount of unpaid dividends to be included therein); (4) the place or places where certificates for such shares are to be surrendered for payment of the Series E Redemption Price; (5) that dividends on the shares to be redeemed will cease to accrue as of such redemption date; and (6) the provision hereunder pursuant to which such redemption is being made. On or after a redemption date, each holder of shares of Series E that were called for redemption shall surrender the certificate or certificates evidencing such shares to the Company at any place designated for such surrender in the Series E Notice of Redemption and shall then be entitled to receive payment of the Series E Redemption Price for each share. If less than all the shares represented by one share certificate are to be redeemed, the Company shall issue a new share certificate for the shares not redeemed. By noon of the business day immediately preceding the redemption date, the Company shall irrevocably deposit with First Interstate Company of Washington, N.A., in its capacity as paying agent with respect to the shares of Series E or any successor paying agent (the "Series E Paying Agent"), an aggregate amount of immediately available funds or short-term money market instruments or U.S. Treasury Securities sufficient to pay the Series E Redemption Price specified herein for the shares of Series E to be redeemed on such date and shall give the Series E Paying Agent irrevocable instructions to pay such Series E Redemption Price to the holders of record of the shares of Series E called for redemption. -33- 45 If a Series E Notice of Redemption shall have been given and the deposit referred to in the preceding paragraph made, then dividends shall cease, as of the redemption date, to accumulate on the shares of Series E called for redemption and all other rights of holders of the shares so called for redemption shall cease on and after the redemption date, except the right of holders of such shares to receive the Series E Redemption Price against delivery of such shares, but without interest, and such shares shall cease to be outstanding. The Company shall be entitled to receive, from time to time, from the Series E Paying Agent the interest, if any, earned on such monies deposited with the Series E Paying Agent, and the holders of any shares to be redeemed with such monies shall have no claim to any such interest. With regard to any other funds so deposited that are unclaimed by holders of shares at the end of two years from such redemption date, the Series E Paying Agent shall, upon demand, pay over to the Company such amount remaining on deposit, the Series E Paying Agent shall thereupon be relieved of all responsibility to the holders of such shares and the holders of shares of Series E so called for redemption shall thereafter be entitled to look only to the Company for payment thereof. Any shares of Series E which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of preferred stock of the Company, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. No Conversion Rights. Holders of shares of Series E will have no right to convert shares of Series E into Common Stock or any other security of the Company. 7. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the outstanding shares of Series E shall be entitled to receive out of the assets of the Company, or the proceeds thereof, available for distribution to shareholders, before any distribution of assets is made to the holders of Common Stock or other Series E Junior Stock, liquidating distributions in the amount of $25.00 per share plus dividends accrued and unpaid for the then-current Series E Dividend Period (without accumulation of accrued and unpaid dividends for prior Series E Dividend Periods) to the date fixed for such liquidation dissolution or winding up. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series E will not be entitled to any further participation in any distribution of assets of the Company. All distributions made with respect to the shares of Series E in connection with such liquidation, dissolution or winding up of the Company shall be made pro rata to the holders entitled thereto. -34- 46 If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, and proceeds thereof, available for distribution among the holders of the shares of Series E and of any Series E Parity Stock, shall be insufficient to pay in full the preferential amount set forth in the preceding paragraph above to the holders of the shares of Series E and liquidating payments on all such Series E Parity Stock, then such assets and proceeds shall be distributed among the holders of Series E and all such Series E Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series E and any such Series E Parity Stock if all amounts payable thereon were paid in full. 8. Payments on Stock Ranking Junior. In the event of any such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, unless and until payment in full is made to the holders of all outstanding shares of Series E of the liquidation distribution to which they are entitled, no dividend or other distribution shall be made to the holders of the Common Stock or any other Series E Junior Stock, and no purchase, redemption or other acquisition for any consideration by the Company shall be made in respect of the shares of the Common Stock or such other class of junior Stock. Neither a consolidation or merger of the Company into or with another entity or entities nor the sale, transfer or exchange (for cash, shares of equity stock, securities or other consideration) of all or substantially all of the property and assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section D.(A)(3). 9. Sinking Fund. No sinking fund shall be provided for the purchase of redemption of shares of Series E. 10. Preemptive Rights. No holder of shares of Series E shall have any preemptive right to subscribe to stock, obligations, warrants, rights to subscribe to stock, or other securities of this corporation of any class, whether now or hereafter authorized. ARTICLE III Preemptive Rights The shareholders of the Company have no preemptive rights to acquire additional shares of the Company. -35- 47 ARTICLE IV Board of Directors The Company shall be managed by a Board of Directors. The number of directors shall be stated in the Company's Bylaws, provided, however, that such number shall be not less than five (5). In the absence of such a provision in the Bylaws, the board shall consist of the number of directors constituting the initial Board of Directors. The initial directors shall be five (5) in number. There shall be three classes of elected directors designated as Class 1, Class 2, and Class 3 directors. Each class shall contain one-third of the total number of directors, as near as may be. The terms of the Class 1 directors shall expire at the first annual shareholders' meeting after their election. The terms of the Class 2 directors shall expire at the second annual shareholders' meeting after their election. The terms of the Class 3 directors shall expire at the third annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, directors shall be chosen for a term of three years to succeed those whose terms expire. A vacancy on the Board of Directors may be filled by the Board in accordance with the applicable provisions of the Company's Bylaws. A director elected to fill a vacancy shall be elected for a term of office continuing only until the next election of directors by shareholders. ARTICLE V Removal of Directors Any director may be removed by the shareholders only with good cause and in accordance with the applicable provisions of the Company's Bylaws. ARTICLE VI Cumulative Voting The right to cumulate votes in the election of directors shall not exist with respect to shares of stock of the Company. ARTICLE VII Bylaws The Board of Directors has the power to adopt, amend or repeal the Bylaws of the Company, subject to the concurrent power of the shareholders, by at least two-thirds affirmative vote of the shares of the Company entitled to vote thereon, to adopt, amend or repeal the Bylaws. -36- 48 ARTICLE VIII Dealings With Interested Persons The Company may enter into contracts and otherwise transact business as vendor, purchaser, or otherwise, with its directors, officers, and shareholders and with corporations, associations, firms, and entities in which they are or may become interested as directors, officers, shareholders, members, or otherwise, as freely as though such interest did not exist; provided, however, that no director or officer shall become an indorser, surety or guarantor or in any manner an obligor for any loan made by the Company, and provided further that no director or officer shall, for himself or as agent or partner of another, directly or indirectly borrow any of the funds or deposits held by the Company or become the owner of real property upon which the Company holds a mortgage. A loan to or a purchase by a corporation in which a director or officer of the Company is a stockholder of fifteen percent (15%) or more of the total outstanding stock, or in which such director or officer and other directors of the Company are collectively stockholders of twenty-five percent (25%) or more of the total outstanding stock, shall be deemed a loan to or a purchase by such director or officer within the meaning of this Article, except when the loan to or purchase by such corporation occurred without his or her knowledge or against his or her protest. Except as otherwise provided in this Article and in the absence of fraud, the fact that any director, officer, shareholder, or any corporation, association, firm or other entity of which any director, officer, or shareholder is interested, is in any way interested in any transaction or contract shall not make the transaction or contract void or voidable, or require the director, officer, or shareholder to account to the Company for any profits therefrom if the transaction or contract is or shall be authorized, ratified, or approved by (i) vote of a majority of a quorum of the Board of Directors excluding any interested director or directors, (ii) the written consent of the holders of a majority of the shares entitled to vote, or (iii) a general resolution approving the acts of the directors and officers adopted at a shareholders meeting by vote of the holders of the majority of the shares entitled to vote. Nothing herein contained shall create any liability in the events described or prevent the authorization, ratification or approval of such transactions or contracts in any other manner. -37- 49 ARTICLE IX Shareholder Vote Required to Approve Plan of Merger If pursuant to the Washington Business Corporation Act the Company's shareholders are required to approve a plan of merger, then (a) if two-thirds of the directors vote to recommend the plan of merger to the shareholders, the plan of merger shall be approved by a vote of the holders of a majority of the outstanding voting shares of the Company; (b) in all other cases where a shareholder vote is required by the Washington Business Corporation Act, such Act, as it may be amended, will control. ARTICLE X Indemnification The Company has the power to indemnify, and to purchase and maintain insurance for, its directors, officers, employees, and other persons and agents against all liability, damage, and expenses arising from or in connection with service for or at the request of, employment by, or other affiliation with the Company or other firms or entities. ARTICLE XI Business Combinations I B. For the purposes of this Article XI: (1) The terms "Affiliate" and "Associate" shall have the meanings attached to them by Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or any similar successor rule. (2) The term "beneficial owner" and correlative terms shall have the meaning as set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or any similar successor rule. Without limitation and in addition to the foregoing, any shares of Voting Stock of the Company which any Major Stockholder has the right to vote or to acquire (i) pursuant to any agreement, (ii) by reason of tenders of shares by shareholders of the Company in connection with or pursuant to a tender offer made by such Major Stockholder (whether or not any tenders have been accepted, but excluding tenders which have been rejected), or (iii) upon the exercise of conversion rights, warrants, options or otherwise, shall be deemed "beneficially owned" by such Major Stockholder. (3) The term "Business Combination" shall mean: -38- 50 (a) any merger or consolidation (whether in a single transaction or a series of related transactions, including a series of separate transactions with a Major Stockholder, any Affiliate or Associate thereof or any Person acting in concert therewith) of the Company or any Subsidiary with or into a Major Stockholder or of a Major Stockholder into the Company or a Subsidiary; (b) any sale, lease, exchange, transfer, distribution to stockholders or other disposition, including without limitation, a mortgage, pledge or any other security device, to or with a Major Stockholder by the Company or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the assets of the Company or a Subsidiary (including, without limitation, any securities of a Subsidiary); (c) the purchase, exchange, lease or other acquisition by the Company or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the assets or business of a Major Stockholder; (d) the issuance of any securities, or of any rights, warrants or options to acquire any securities, of the Company or a Subsidiary to a Major Stockholder or the acquisition by the Company or a Subsidiary of any securities, or of any rights, warrants or options to acquire any securities, of a Major Stockholder; (e) any reclassification of Voting Stock, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of Voting Stock of the Company or any Subsidiary which is beneficially owned by a Major Stockholder, or any partial or complete liquidation, spin off, split off or split up of the Company or any Subsidiary; provided, however, that this Section A(2)(e) shall not relate to any transaction of the types specified herein that has been approved by a majority of the Continuing Directors; and (f) any agreement, contract or other arrangement providing for any of the transactions described herein. (4) The term "Continuing Director" shall mean (i) a person who was a member of the Board of Directors of the Company immediately prior to the time that any then-existing Major Stockholder became a Major Stockholder, or (ii) a person designated (before initially becoming a director) as a Continuing Director by a majority of the then Continuing Directors. All references to a -39- 51 vote of the Continuing Directors shall mean a vote of the total number of Continuing Directors. (5) The term "Major Stockholder" shall mean any Person which, together with its Affiliates and Associates and any Person acting in concert therewith, is the beneficial owner of five percent (5%) or more of the votes held by the holders of the outstanding shares of the Voting Stock of the Company, and any Affiliate or Associate of a Major Stockholder, including a Person acting in concert therewith. The term "Major Stockholder" shall not include a Subsidiary. (6) The term "other consideration to be received" shall include, without limitation, Voting Stock retained by the Company's existing shareholders in the event of a Business Combination which is a merger or consolidation in which the Company is the surviving corporation. (7) The term "Person" shall mean any individual, corporation, partnership or other person, group or entity (other than the Company, any Subsidiary or a trustee holding stock for the benefit of employees of the Company or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements). When two or more persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnerships, syndicate, association or group will be deemed a "Person." (8) The term "Subsidiary" shall mean any business entity fifty percent (50%) or more of which is beneficially owned by the Company. (9) The term "Substantial Part," as used in reference to the assets of the Company or any Subsidiary or of any Major Stockholder means assets having a value of more than five percent (5%) of the total consolidated assets of the Company and its Subsidiaries as of the end of the Company's most recent fiscal year ending prior to the time the determination is made. (10) The term "Voting Stock" shall mean the stock or other securities entitled to vote upon any action to be taken in connection with any Business Combination or entitled to vote generally in the election of directors, including stock or other securities convertible into Voting Stock. B. Notwithstanding any other provisions of these Articles of Incorporation and except as set forth in Section C of this Article XI, neither the Company nor any Subsidiary shall be a party to a Business Combination unless: -40- 52 (1) The Business Combination was approved by the Board of Directors of the Company prior to the Major Stockholder involved in the Business Combination becoming such; or (2) The Major Stockholder involved in the Business Combination sought and obtained the unanimous prior approval of the Board of Directors to become a Major Stockholder and the Business Combination was approved by a majority of the Continuing Directors; or (3) The Business Combination was approved by at least eighty percent (80%) of the Continuing Directors of the Company; or (4) The Business Combination was approved by at least ninety-five percent (95%) of the outstanding Voting Stock beneficially owned by shareholders other than any Major Stockholder. C. The approval requirements of Section B shall not apply if: (1) The Business Combination is approved by at least the majority vote of the shares of the Voting Stock and the majority vote of the shares of the Voting Stock beneficially owned by shareholders other than any Major Stockholder; and (2) All of the following conditions are satisfied: (a) The aggregate of the cash and the fair market value of other consideration to be received per share (as adjusted for stock splits, stock dividends, reclassification of shares into a lesser number and similar events) by holders of the common stock of the Company in the Business Combination is not less than the higher of (i) the highest per share price (including brokerage commissions, soliciting dealers' fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys' fees) paid by the Major Stockholder in acquiring any of the Company's common stock; or (ii) an amount which bears the same or a greater percentage relationship to the market price of the Company's common stock immediately prior to the announcement of such Business Combination as the highest per share price determined in (i) above bears to the market price of the Company's common stock immediately prior to the commencement of acquisition of the Company's common stock by such Major Stockholder, but in no event in excess of two times the highest per share price determined in (i) above; and (b) The consideration to be received in such Business Combination by holders of the common stock of the Company -41- 53 shall be, except to the extent that a stockholder agrees otherwise as to all or a part of his or her shares, in the same form and of the same kind as paid by the Major Stockholder in acquiring his Voting Stock. (c) After becoming a Major Stockholder and prior to the consummation of such Business Combination, (i) such Major Stockholder shall not have acquired any newly issued shares of capital stock, directly or indirectly, from the Company or a Subsidiary (except upon conversion of convertible securities acquired by it prior to becoming a Major Stockholder or upon compliance with the provisions of this Article XI or as a result of a pro rata stock dividend or stock split), and (ii) such Major Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Company or a Subsidiary, or made any major changes in this Company's business or equity capital structure; and (d) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, whether or not the Company is then subject to such requirements, shall be mailed to all shareholders of the Company for the purpose of soliciting shareholder approval of such Business Combination and shall contain on the front thereof, in a prominent place, (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors may choose to state, and (ii) the opinion of a reputable national investment banking firm as to the fairness (or lack thereof) of the terms of such Business Combination, from the point of view of the remaining shareholders of the Company. Such investment banking firm shall be engaged solely on behalf of the remaining shareholders, be paid a reasonable fee for their services by the Company upon receipt of such opinion, and be one of the so-called major bracket investment banking firms which has not previously been associated with such Major Stockholder and to be selected by a majority of the Continuing Directors. D. During the time a Major Stockholder exists, a resolution to voluntarily dissolve the Company shall be adopted only upon: (1) the consent of all of the Company's shareholders; or (2) the affirmative vote of at least two-thirds of the total number of directors, the affirmative vote of the holders of at least two-thirds of the shares of the Company entitled to vote thereon, and the affirmative vote of the holders of at least two-thirds of the shares of each class of shares entitled to vote thereon as a class, if any. E. As to any particular transaction, the Continuing Directors shall have the power and duty to determine, on the basis of information known to them: -42- 54 (1) The amount of Voting Stock beneficially held by any Person; (2) Whether a Person is an Affiliate or an Associate of another; (3) Whether a Person is acting in concert with another; (4) Whether the assets subject to any Business Combination constitute a Substantial Part; (5) Whether a proposed transaction is subject to the provisions of this Article; and (6) Such other matters with respect to which a determination is required under this Article. Any such determination shall be conclusive and binding for all purposes of this Article. F. The affirmative vote required by this Article is in addition to the vote of the holders of any class or series of stock of the Company otherwise required by law, these Articles of Incorporation, any resolution which has been adopted by the Board of Directors providing for the issuance of a class or series of stock or any agreement between the Company and any national securities exchange. -43- 55 ARTICLE XII Amendment The Company may increase or decrease its capital stock or otherwise amend these Articles of Incorporation by a vote of the stockholders representing two-thirds of its issued capital stock at any regular meeting or special meeting duly called for that purpose in the manner prescribed by its Bylaws, provided, however, that Article XI may not be repealed or amended in any respect unless such action is approved by at least a ninety-five percent (95%) vote of the outstanding Voting Stock beneficially owned by shareholders other than any Major Stockholder, and provided further, that the Board of Directors may amend these Articles without stockholder action as necessary to designate the preferences, limitations, and relative rights of a class or series of shares of the Company prior to issuance of any shares in that class or series. Notice of a meeting to increase or decrease authorized capital stock shall first be published once a week for four weekly issues in a newspaper published in Seattle, Washington, of if there is no newspaper published in Seattle, then in some newspaper published in King County, Washington. The notice shall state the purpose of the meeting, the amount of the present authorized capital stock of the Company and the proposed new authorized capital stock. ARTICLE XIII Limitation of Liability A director of the Company shall not be personally liable to the Company or its shareholders for monetary damages for conduct as a director ("Protected Conduct"). However, Protected Conduct shall exclude (i) acts or omissions which involve intentional misconduct by the director or a knowing violation of law by the director, (ii) any conduct violating Section 23B.08.310 of the Revised Code of Washington, and (iii) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. If Washington law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by Washington law, as so amended. Any repeal or modification of this Article XIII by the shareholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification. -44- 56 ARTICLE XIV The street address of the initial registered office of the Company is: 1201 Third Avenue 15th Floor Seattle, WA 98101 and the name of the initial registered agent at that address is: Marc R. Kittner ARTICLE XV The name and address of the incorporator is: William L. Lynch Washington Mutual Savings Bank 1201 Third Ave. 15th Floor Seattle, WA 98101 ARTICLE XVI Special Meeting of the Shareholders Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the board of directors or by any other person or persons authorized to do so in the Company's Bylaws. Notwithstanding RCW 23B.07.020(1)(b) or any other provision in these Articles or the Company's Bylaws, a special meeting of the shareholders may be called by the shareholders only if the holders of at least twenty-five percent of all the votes to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Company's secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held. Executed this 28th day of November 1994. /s/ William L. Lynch -------------------------------------- William L. Lynch, Corporate Secretary -45- EX-3.2 3 BY-LAWS OF THE REGISTRANT 1 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS (Amendments since the September 28, 1994, adoption of Restated Bylaws; organized according to the affected article and, within the section for each article, organized chronologically)
Date of Article Effect of Amendment Amendment ------- ------------------- --------- Article II The board of directors of this corporation shall 1/16/96 consist of thirteen (13) directors. Article II The board of directors of this corporation shall 12/17/96 consist of fifteen (15) directors. Article II The board of directors of this corporation shall 4/15/97 consist of thirteen (13) directors. Article II The board of directors of this corporation shall 6/17/97 consist of seventeen (17) directors. Article II The board of directors of this corporation shall 7/15/97 consist of sixteen (16) directors. Article II The board of directors of this corporation shall 4/21/98 consist of fifteen (15) directors. Article II The board of directors of this corporation shall 9/15/98 consist of up to eighteen (18) directors.
2 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 2 - ------------------------------ Article IV Section 4.11. AUDIT COMMITTEE. The board of 2/18/97 Section 4.11 directors, at any regular meeting of the Board, shall elect from their number an Audit Committee of not less than three members, none of whom shall be employed by the corporation. At least annually the Board of Directors shall determine that each Committee member is independent of management of the corporation and not a "large customer" as defined by the Code of Federal Regulations, and that at least two Committee members have banking or related financial expertise. The Audit Committee (a) shall review the basis for the audited financial statements of the corporation; (b) shall oversee the corporation's internal control structure, its accounting and financial reporting process, its independent audit function, and its compliance with applicable laws and regulations; (c) shall cause such examination of the records and affairs of the corporation to be made for the purpose of determining its financial condition as is necessary under applicable State and Federal laws and regulations; (d) shall review compliance with all corporate policies that have been approved by the Board; and (e) shall have such other responsibilities as required by law or regulation or as determined to be necessary or appropriate in the judgment of the Board or the Chairperson of the Committee, including but not limited to ensuring the independence of the corporation's internal audit functions. In performing all of its responsibilities, the Audit Committee may take whatever steps it deems necessary. Among other things, the Audit Committee shall have authority to require the assistance of the corporation's General Auditor, of the corporation's Internal Audit Department, of management, of the corporation's independent public accountant, and of outside counsel to perform these responsibilities.
3 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 3 - ------------------------------ Article IV Section 4.4. SPECIAL MEETINGS. Special meetings 9/16/97 Section 4.4 of the board of directors may be called by the board of directors, the chairman of the board, or the president. The notice of a special meeting of the board of directors shall state the date and time and, if the meeting is not exclusively telephonic, the place of the meeting. Unless otherwise required by law, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Notice shall be given by the person or persons authorized to call such meeting, or by the secretary at the direction of the person or persons authorized to call such meeting. The notice may be oral or written. If the notice is orally communicated in person or by telephone to the director or to the director's personal secretary or is sent by electronic mail, telephone or wireless equipment, which transmits a facsimile of the notice to the director's electronic mail designation or telephone number appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than twenty-four (24) hours prior to the time set for such meeting. If the notice is sent by courier to the director's address appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than three (3) full days prior to the time set for such meeting. If the notice is sent by mail to the director's address appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than five (5) full days prior to the time set for such meeting. Article IV Section 4.14. CORPORATE RELATIONS COMMITTEE. The 12/16/97 Section 4.14 Chairman, with the approval of the board of directors, may appoint from among the members of the board of the Corporation, a Corporate Relations Committee which shall consist of no fewer than two Directors and shall have supervisory control
4 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 4 - ------------------------------ and direction of the performance of voluntary commitments that the Corporation has made to support its communities, and of contributions by the Corporation to the Washington Mutual Foundation. Article IV Section 4.15 CORPORATE DEVELOPMENT COMMITTEE. The 12/16/97 Section 4.15 Chairman, with the approval of the board of directors, shall appoint from among the members of the board a Corporate Development Committee which shall consist of the Chairman of the Board and not less than two other directors. The Corporate Development Committee shall exercise all the authority of the Board: (A) with regard to the authorization of negotiations and approval of the terms of offers and agreements and of investments relating to mergers and acquisitions not involving a change of control of the Corporation; provided, that further action of the board of directors shall be required for submission to shareholders of a plan of merger or consolidation; and (B) with regard to approval of the final terms, rights, designations and preferences of stock to be issued by the Corporation, provided, that prior action of the board of directors shall be required to specify the maximum number or value of the shares to be issued. Prior Article IV, Section 4.16 OTHER BOARD COMMITTEES. The Board of 12/16/97 Section 4.14 Directors may by resolution designate from among renumbered as its members such other committees as the Board in Article IV, its discretion may determine, each of which must Section 4.16 have two or more members. To the extent provided in such resolutions, each such committee shall have and may exercise the authority of the board of directors, except as limited by applicable law. The designation of any such committee and the delegation thereto of authority shall not relieve the Board of Directors, or any members thereof, of any responsibility imposed by law. In addition, the Chairman of the Board, with the approval of the Board of Directors, may
5 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 5 - ------------------------------ appoint from among the members of the Board such committees as he deems appropriate. Article IV Section 4.17 COMMITTEE PROCEDURES. Except as 12/16/97 Section 4.17 provided in the bylaws or in specific resolutions of the Board of Directors, the committees of the Board shall be governed by the same rules regarding meetings, action without meetings, notice, waiver of notice, and quorum and voting requirements as applied to the Board of Directors. Prior Article IV, Renumbered as Article IV, Sections 4.18 through 12/16/97 Sections 4.15 4.22, respectively. through 4.19 Article IV Sec. 4.14. CORPORATE RELATIONS COMMITTEE The 2/17/98 Section 4.14 Chairman, with the approval of the board of directors, may appoint from among the members of the board of the Corporation, a Corporate Relations Committee which shall consist of no fewer than two Directors and shall monitor the performance of voluntary commitments that the Corporation has made to support its communities, and the contributions by the Corporation to the Washington Mutual Foundation.
6 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 6 - ------------------------------ Article V Section 5.2 CHIEF EXECUTIVE OFFICER. The Chief 4/15/97 Section 5.2 Executive Officer of the corporation shall have direct supervision and management of its affairs and the general powers and duties of supervision and management usually vested in the Chief Executive Officer of a corporation, subject to the Bylaws of the corporation. He shall be ex-officio a member of all committees except the Audit Committee and the Compensation and Stock Option Committee. The Chief Executive Officer shall perform such other duties as may be assigned by the board of directors. In the absence of the Chief Executive Officer, his duties shall be assumed by the President, and in their absence such duties shall be assume by a person designated by the Chief Executive Officer or the board of directors. Article V Sec. 5.1 RANKS AND TERMS IN OFFICE. The officers 9/16/97 Sec. 5.1 of the corporation shall be a Chief Executive Officer, a President, a controller, a General Auditor, a Secretary and such Executive Vice Presidents, Senior Vice Presidents, First Vice Presidents, Vice Presidents, or other officers as the Board may designate. The officers shall be elected by the board of directors, to serve, unless earlier removed, until the next annual meeting of directors and until the appointment and qualification of their successors. Officers may be terminated or removed at will at any time. Article V Sec. 5.8 SENIOR VICE PRESIDENTS, FIRST VICE 9/16/97 Sec. 5.8 PRESIDENTS, AND VICE PRESIDENTS. Any Senior Vice Presidents, First Vice Presidents, and Vice Presidents shall perform such duties as may be specified in duly adopted policies of the corporation or as may from time to time be assigned to them by the Chief Executive Officer, the President, or an Executive Vice President.
7 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 7 - ------------------------------ Article V Sec. 5.12 CONTRACTS AND SATISFACTIONS. The Chief 9/16/97 Sec. 5.12 Executive Officer, the President, or any Executive Vice President may from time to time designate the officers or employees of Washington Mutual, Inc. who shall have authority to sign deeds, contracts, satisfactions, releases, and assignments of mortgages, and all other instruments in writing to be made or executed by the corporation.
8 WASHINGTON MUTUAL, INC. AMENDMENTS TO BYLAWS -- PAGE 2 - ------------------------------ Article VIII This section is hereby amended so that the 2/20/96 Section 8.6 existing language is retained except that it is identified as subparagraph (a), the final period in the paragraph is replaced by a semicolon and the word "or", and a new subparagraph (b) is added as follows: (b) The corporation shall pay for or reimburse the reasonable expenses incurred by any officer or employee of the corporation, who is not a director, who is a party to a proceeding in advance of final disposition of the proceeding if: (1) such person furnishes the corporation with an affidavit stating that (a) he or she was made a party to a proceeding because he or she is or was an officer or employee of the corporation, (b) he or she acted in good faith, (c) the conduct in question was carried out in his or her official capacity with the corporation, and (d) his or her conduct was in the corporation's best interests, (2) such person furnishes the corporation with a written undertaking, executed personally, to repay the advance if it is ultimately determined that such person did not meet the standard of conduct set forth in the affidavit and (3) such payment or reimbursement is approved in writing by the President or the Chief Executive Officer of the corporation, or by a designee of either of them.
9 RESTATED BYLAWS OF WASHINGTON MUTUAL, INC. 10 Originally adopted on SEPTEMBER 28, 1994 Restated on MARCH 16, 1995 -2- 11 TABLE OF CONTENTS Article I. OFFICES...........................................................................1 Article II. NUMBER OF DIRECTORS..............................................................1 Article III. SHAREHOLDERS....................................................................1 Section 3.1 Annual Meeting................................................................1 Section 3.2 Special Meetings..............................................................1 Section 3.3 Place of Meetings.............................................................1 Section 3.4 Fixing of Record Date.........................................................1 Section 3.5 Voting Lists..................................................................2 Section 3.6 Notice of Meetings............................................................2 Section 3.7 Waiver of Notice..............................................................3 Section 3.8 Manner of Acting; Proxies.....................................................3 Section 3.9 Quorum........................................................................3 Section 3.10 Voting of Shares.............................................................3 Section 3.11 Voting for Directors.........................................................4 Section 3.12 Voting of Shares by Certain Holders..........................................4 Section 3.13 Notice of Nomination.........................................................5 Section 3.14 Action Without a Meeting.....................................................5 Article IV. BOARD OF DIRECTORS...............................................................5 Section 4.1 General Powers................................................................5 Section 4.2 Number, Tenure and Qualification..............................................5 Section 4.3 Annual and Other Regular Meetings.............................................5 Section 4.4 Special Meetings..............................................................6 Section 4.5 Waiver of Notice..............................................................6 Section 4.6 Quorum........................................................................6 Section 4.7 Manner of Acting..............................................................6 Section 4.8 Participation by Conference Telephone.........................................7 Section 4.9 Presumption of Assent.........................................................7 Section 4.10 Action by Board Without a Meeting............................................7 Section 4.11 Audit Committee..............................................................7 Section 4.12 Compensation and Stock Option Committee......................................7 Section 4.13 Directors' Loan & Investment Committee.......................................8 Section 4.14 Other Board Committees.......................................................9 Section 4.15 Resignation..................................................................9 Section 4.16 Removal......................................................................9 Section 4.17 Vacancies....................................................................9 Section 4.18 Compensation.................................................................9
-i- 12 Section 4.19 Chairman of the Board........................................................9 Article V. OFFICERS.........................................................................10 Section 5.1 Ranks and Terms in Office....................................................10 Section 5.2 Chief Executive Officer......................................................10 Section 5.3 President....................................................................10 Section 5.4 Senior Executive Vice President..............................................10 Section 5.5 Controller...................................................................10 Section 5.6 General Auditor..............................................................10 Section 5.7 Secretary and Assistant Secretary............................................11 Section 5.8 Executive Vice Presidents....................................................11 Section 5.9 Senior Vice Presidents and Vice Presidents...................................11 Section 5.10 Combining Offices...........................................................11 Section 5.11 Other Officers..............................................................11 Section 5.12 Official Bonds..............................................................11 Section 5.13 Contracts and Satisfactions.................................................11 Section 5.14 Resignation.................................................................11 Section 5.15 Compensation of Officers and Employees......................................12 Article VI. SHARES..........................................................................12 Section 6.1 Certificates for Shares......................................................12 Section 6.2 Issuance of Shares...........................................................12 Section 6.3 Beneficial Ownership.........................................................12 Section 6.4 Transfer of Shares...........................................................12 Section 6.5 Lost or Destroyed Certificates...............................................12 Section 6.6 Stock Transfer Records.......................................................12 Article VII. SEAL...........................................................................13 Article VIII. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS......................................................................................13 Section 8.1 Director's Right To Indemnification..........................................13 Section 8.2 Director's Burden of Proof and Procedure For Payment.........................14 Section 8.3 Right of Claimant to Bring Suit..............................................14 Section 8.4 Nonexclusivity of Rights.....................................................14 Section 8.5 Insurance, Contracts and Funding.............................................14 Section 8.6 Indemnification of Officers, Employees and Agents of the Corporation.........15 Section 8.7 Contract Right...............................................................15 Section 8.8 Severability.................................................................15
-ii- 13 Article IX. BOOKS AND RECORDS...............................................................15 Article X. FISCAL YEAR......................................................................15 Article XI. VOTING OF SHARES OF ANOTHER CORPORATION.........................................15 Article XII. AMENDMENTS TO BYLAWS...........................................................16
-iii- 14 BYLAWS OF WASHINGTON MUTUAL, INC. ARTICLE I. OFFICES The principal office and place of business of the corporation in the state of Washington shall be located at 1201 Third Avenue, Seattle, Washington 98101. The corporation may have such other offices within or without the state of Washington as the board of directors may designate or the business of the corporation may require from time to time. ARTICLE II. NUMBER OF DIRECTORS The board of directors of this corporation shall consist of fifteen (15) directors. ARTICLE III. SHAREHOLDERS SECTION 3.1 ANNUAL MEETING. The annual meeting of the shareholders shall be held on the third Tuesday in the month of April in each year, beginning with the year 1995, at 10:00 a.m., or at such other date or time as may be determined by the board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state of Washington, the meeting shall be held on the next succeeding business day. If the election of directors is not held on the day designated herein for any annual meeting of the shareholders or at any adjournment thereof, the board of directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. SECTION 3.2 SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes unless otherwise prescribed by statute may be called by the Chairman, by the board of directors, or by the written request of any director or holders of at least twenty-five percent (25%) of the votes entitled to be cast on each issue to be considered at the special meeting. SECTION 3.3 PLACE OF MEETINGS. Meetings of the shareholders shall be held at either the principal office of the corporation or at such other place within or without the state of Washington as the person or persons calling the meeting may designate. SECTION 3.4 FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or -1- 15 shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, which date in any case shall not be more than seventy (70) days and, in the case of a meeting of shareholders, not less than 20 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend or distribution, the day before the first notice of a meeting is dispatched to shareholders or the date on which the resolution of the board of directors authorizing such dividend or distribution is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. The record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent in lieu of meeting. SECTION 3.5 VOTING LISTS. At least ten (10) days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the corporation shall prepare an alphabetical list of all its shareholders on the record date who are entitled to vote at the meeting or any adjournment thereof, arranged by voting group, and within each voting group by class or series of shares, with the address of and the number of shares held by each, which record for a period of ten (10) days prior to the meeting shall be kept on file at the principal office of the corporation or at a place identified in the meeting notice in the city where the meeting will be held. Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder, shareholder's agent or shareholder's attorney at any time during the meeting or any adjournment thereof. Failure to comply with the requirements of this bylaw shall not affect the validity of any action taken at the meeting. SECTION 3.6 NOTICE OF MEETINGS. Written or printed notice stating the date, time and place of a meeting of shareholders and, in the case of a special meeting of shareholders, the purpose or purposes for which the meeting is called, shall be given by the person or persons calling the meeting or by the Secretary at the direction of such person or persons to each shareholder of record entitled to vote at such meeting (unless required by law to send notice to all shareholders regardless of whether or not such shareholders are entitled to vote), not less than ten (10) days and not more than sixty (60) days before the meeting, except that notice of a meeting to act on an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange or other disposition of all or substantially all of the assets of the corporation other than in the usual course of business, or the dissolution of the corporation shall be given not less than twenty (20) days and not more than sixty (60) days before the meeting. Written notice may be transmitted by: Mail, private carrier or personal delivery; telegraph or teletype; or telephone, wire or wireless equipment which transmits a -2- 16 facsimile of the notice. Such notice shall be effective upon dispatch if sent to the shareholder's address, telephone number, or other number appearing on the records of the corporation. If an annual or special shareholders' meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment unless a new record date is or must be fixed. If a new record date for the adjourned meeting is or must be fixed, however, notice of the adjourned meeting must be given to persons who are shareholders as of the new record date. SECTION 3.7 WAIVER OF NOTICE. A shareholder may waive any notice required to be given under the provisions of these bylaws, the articles of incorporation or by applicable law, whether before or after the date and time stated therein. A valid waiver is created by any of the following three methods: (a) in writing signed by the shareholder entitled to the notice and delivered to the corporation for inclusion in its corporate records; (b) by attendance at the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; or (c) by failure to object at the time of presentation of a matter not within the purpose or purposes described in the meeting notice. SECTION 3.8 MANNER OF ACTING; PROXIES. A shareholder may vote either in person or by proxy. A shareholder may vote by proxy by means of a proxy appointment form which is executed in writing by the shareholder, his agent, or by his duly authorized attorney-in-fact. All proxy appointment forms shall be filed with the secretary of the corporation before or at the commencement of meetings. No unrevoked proxy appointment form shall be valid after eleven (11) months from the date of its execution unless otherwise expressly provided in the appointment form. No proxy appointment may be effectively revoked until notice in writing of such revocation has been given to the secretary of the corporation by the shareholder appointing the proxy. SECTION 3.9 QUORUM. At any meeting of the shareholders, a majority in interest of all the shares entitled to vote on a matter by the voting group, represented in person or by proxy by shareholders of record, shall constitute a quorum of that voting group for action on that matter. If less than a majority is represented, a majority of those represented may adjourn the meeting to such time and place as they may determine, without further notice, except as set forth in Section 3.6. Once a share is represented at a meeting, other than to object to holding the meeting or transacting business, it is deemed to be present for purposes of a quorum for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be fixed for the adjourned meeting. At such reconvened meeting, any business may be transacted which might have been transacted at the adjourned meeting. If a quorum exists, action on a matter is approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the question is one upon which a different vote is required by express provision of law or of the articles of incorporation or of these bylaws. SECTION 3.10 VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except as may be otherwise provided in the articles of incorporation. -3- 17 SECTION 3.11 VOTING FOR DIRECTORS. In the election of directors every shareholder of record entitled to vote at the election shall have the right to vote in person the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Shareholders entitled to vote at any election of directors shall have no right to cumulate votes. In any election of directors the candidates elected are those receiving the largest numbers of votes cast by the shares entitled to vote in the election, up to the number of directors to be elected by such shares. SECTION 3.12 VOTING OF SHARES BY CERTAIN HOLDERS. 3.12.1 Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the board of directors of such corporation may determine. A certified copy of a resolution adopted by such directors shall be conclusive as to their determination. 3.12.2 Shares held by a personal representative, administrator, executor, guardian or conservator may be voted by such administrator, executor, guardian or conservator, without a transfer of such shares into the name of such personal representative, administrator, executor, guardian or conservator. Shares standing in the name of a trustee may be voted by such trustee, but no trustee shall be entitled to vote shares held in trust without a transfer of such shares into the name of the trustee. 3.12.3 Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. 3.12.4 If shares are held jointly by three or more fiduciaries, the will of the majority of the fiduciaries shall control the manner of voting or appointment of a proxy, unless the instrument or order appointing such fiduciaries otherwise directs. 3.12.5 Unless the pledge agreement expressly provides otherwise, a shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. 3.12.6 Shares held by another corporation shall not be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote at any given time if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this corporation. 3.12.7 On and after the date on which written notice of redemption of redeemable shares has been dispatched to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the -4- 18 redemption price to the holders thereof upon surrender of certificates therefor, such shares shall not be entitled to vote on any matter and shall be deemed to be not outstanding shares. SECTION 3.13 NOTICE OF NOMINATION. Nominations for the election of directors and proposals for any new business to be taken up at any annual or special meeting of shareholders may be made by the board of directors of the corporation or by any shareholder of the corporation entitled to vote generally in the election of directors. In order for a shareholder of the corporation to make any such nomination or proposal at any annual meeting, the shareholder must first give notice thereof in writing, delivered or mailed by first class United States mail, postage prepaid (the "Required Method of Mailing"), to the Secretary of the corporation not less than 90 days in advance of the date corresponding to the date that the corporation's proxy statement was released to security holders in connection with the previous year's annual meeting of security holders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date of the previous year's annual meeting, a proposal shall be received by the corporation in accordance with the method set forth hereafter for proposals or nominations in advance of a special meeting of shareholders. Notice of shareholder nominations or proposals to be taken up at a special meeting of shareholders must be delivered or mailed by the Required Method of Mailing to the Secretary of the corporation not less than ten days nor more than sixty days prior to any such meeting. Each such notice given by a shareholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee. SECTION 3.14 ACTION WITHOUT A MEETING. Any action permitted or required to be taken at a meeting of the shareholders may be taken without a meeting if one or more consents in writing setting forth the action so taken shall be signed by all the shareholders. ARTICLE IV. BOARD OF DIRECTORS SECTION 4.1 GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. SECTION 4.2 NUMBER, TENURE AND QUALIFICATION. The number of directors set forth in Article II of these bylaws may be increased or decreased from time to time by amendment to or in the manner provided in these bylaws. No decrease, however, shall have the effect of shortening the term of any incumbent director unless such director resigns or is removed in accordance with the provisions of these bylaws. The directors shall be classified and shall hold such terms as set forth in the articles of incorporation. In all cases, directors shall serve until their successors are duly elected and qualified or until their earlier resignation, removal from office or death. Directors need not be residents of the state of Washington or shareholders of the corporation. SECTION 4.3 ANNUAL AND OTHER REGULAR MEETINGS. Regular meetings of the board shall be held at two-thirty o'clock, or an earlier hour in the discretion of the Chairman or the -5- 19 President, in the afternoon of the third Tuesday of the months of January, February, March, April, May, June, July, September, October, and December unless such day is a legal holiday, in which case the meeting shall be held on the first business day thereafter, or unless such meeting has been canceled by the Chairman or the President upon giving notice to the members of the board at least three calendar days before the date on which such meeting is scheduled. The date of any regular meeting may be changed to such other date within the month as shall be determined by the Chairman or the President, or in their absence by the Senior Executive Vice President, or in the absence of the Chairman, the President, and the Senior Executive Vice President, by any three members of the board, provided notice of the time and place of such meeting is given as provided in Section 4.4. In each year, the regular meeting on the day of the Annual Meeting of Shareholders shall be known as the Annual Meeting of the Board. SECTION 4.4 SPECIAL MEETINGS. Special meetings of the board of directors may be called by the board of directors, the chairman of the board, or the president. Notice of special meetings of the board of directors stating the date, time and place thereof shall be given at least three (3) days prior to the date set for such meeting by the person or persons authorized to call such meeting, or by the secretary at the direction of the person or persons authorized to call such meeting. The notice may be oral or written. Oral notice may be communicated in person or by telephone, wire or wireless equipment, which does not transmit a facsimile of the notice. Oral notice is effective when communicated. Written notice may be transmitted by mail, private carrier, or personal delivery; telegraph or teletype; or telephone, wire, or wireless equipment which transmits a facsimile of the notice. Written notice is effective upon dispatch if such notice is sent to the director's address, telephone number, or other number appearing on the records of the corporation. If no place for such meeting is designated in the notice thereof, the meeting shall be held at the principal office of the corporation. Unless otherwise required by law, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 4.5 WAIVER OF NOTICE. Any director may waive notice of any meeting at any time. Whenever any notice is required to be given to any director of the corporation pursuant to applicable law, a waiver thereof in writing signed by the director, entitled to notice, shall be deemed equivalent to the giving of notice. The attendance of a director at a meeting shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully convened. A director waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the director objects to considering the matter when it is presented. SECTION 4.6 QUORUM. A majority of the number of directors specified in or fixed in accordance with these bylaws shall constitute a quorum for the transaction of any business at any meeting of directors. If less than a majority shall attend a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and a quorum present at such adjourned meeting may transact business. SECTION 4.7 MANNER OF ACTING. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors. -6- 20 SECTION 4.8 PARTICIPATION BY CONFERENCE TELEPHONE. Directors may participate in a regular or special meeting of the board by, or conduct the meeting through the use of, any means of communication by which all directors participating can hear each other during the meeting and participation by such means shall constitute presence in person at the meeting. SECTION 4.9 PRESUMPTION OF ASSENT. A director who is present at a meeting of the board of directors at which action is taken shall be presumed to have assented to the action taken unless such director's dissent shall be entered in the minutes of the meeting or unless such director shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 4.10 ACTION BY BOARD WITHOUT A MEETING. Any action permitted or required to be taken at a meeting of the board of directors may be taken without a meeting if one or more written consents setting forth the action so taken, shall be signed, either before or after the action taken, by all the directors. Action taken by written consent is effective when the last director signs the consent, unless the consent specifies a later effective date. SECTION 4.11 AUDIT COMMITTEE. The board of directors, at any regular meeting of the Board, shall elect from their number an Audit Committee of not less than three members, none of whom shall be employed by the corporation. At least annually the board of directors shall determine that each Committee member is independent of management of the corporation and not a "large customer" of the corporation or any of its subsidiaries as defined by the Code of Federal Regulations, and that at least two Committee members have banking or related financial management expertise. The Audit Committee (a) shall review the basis for the audited financial statements of the corporation; (b) shall oversee the corporation's adherence to the laws and regulations governing the corporation's operations; (c) shall review compliance with all corporate policies that have been approved by the Board; and (d) shall have such other responsibilities as required by law or regulation or as determined necessary or appropriate in the judgment of the Board or the Chairperson of the Committee, including but not limited to ensuring the independence of the corporation's internal audit functions. In performing all of its responsibilities, the Audit Committee may take whatever steps it deems necessary. Among other things, the Audit Committee shall have authority to require the assistance of the corporation's General Auditor, of management, of the corporation's independent public accountant, and of outside counsel to perform these responsibilities. SECTION 4.12 COMPENSATION AND STOCK OPTION COMMITTEE. The board of directors at any regular meeting of the board, shall elect from their number a Compensation and Stock Option Committee which committee shall have not less than three members, none of whom shall be employed by the corporation. -7- 21 The Compensation and Stock Option Committee shall concern itself with all forms of compensation and benefits for officers and employees of the corporation. It shall serve as the Option Committee pursuant to the stock option plans of the corporation, and shall have oversight of the corporation's pension and retirement plans and such other plans as are subject to the Employees Retirement Income Security Act of 1974. The Compensation and Stock Option Committee shall determine the proper salaries which the Board is to establish for all officers of the corporation who are in Salary Grade 19 or higher, and shall have oversight of the determination of the compensation of other officers and employees of the corporation. The Compensation and Stock Option Committee shall have all the authority of the Board of Directors to oversee the administration of and to amend policies that govern the corporation's employee relations (the "Employee Policies") following initial approval by the Board. The compensation and Stock Option Committee shall report to the Board on any material amendment of the Employee Policies. SECTION 4.13 DIRECTORS' LOAN & INVESTMENT COMMITTEE. At any regular meeting of the board, the Chairman of the Board, with the approval of the board of directors shall appoint from the members of the board a Directors' Loan & Investment Committee. The Committee shall consist of the Chairman and President (if he is a member of the board) of the Corporation and certain other members of the board, a majority of whom shall not be officers of the Corporation. The Chairman of the Board shall appoint a committee chairman who is not an officer of the Corporation. The Committee Chairman shall coordinate with the Corporation's staff in the preparation of reports for the Committee and the Board. The Committee shall have oversight of the officers of the Corporation who are responsible for the loans or investments of the Corporation and for managing the sale, exchange and other disposition of loans or investments. Its power shall include, but not be limited to oversight of all securities and loan investments and dispositions, and all purchases of real estate and the disposition of all property, real or personal, tangible or intangible, acquired by the Corporation in satisfaction of debts owing to it or otherwise (except the Corporation premises or other real property acquired for use by the Corporation). In connection with the monitoring of the Corporation's return on investments in subsidiaries and other Corporations, the Committee shall also have oversight of the officers of the Corporation who are responsible for such investments. The Committee shall have authority to oversee the administration of the policies that govern the Corporation's loans or investments. The Committee shall have all the authority of the board of directors to amend such policies following initial approval by the Board. -8- 22 SECTION 4.14 OTHER BOARD COMMITTEES. The board of directors may by resolution designate from among its members such other committees as the board in its discretion may determine, each of which must have two (2) or more members. All committees of the board shall be governed by the same rules regarding meetings, action without meetings, notice, waiver of notice, and quorum and voting requirements as applied to the board of directors, except that unless otherwise specified in the bylaws or the resolution creating the committee, notice of the date, time and place of the meeting may be given only one (1) day prior to the date set for the meeting. To the extent provided in such resolutions, each such committee shall have and may exercise the authority of the board of directors, except as limited by applicable law. The designation of any such committee and the delegation thereto of authority shall not relieve the board of directors, or any members thereof, of any responsibility imposed by law. SECTION 4.15 RESIGNATION. Any director may resign at any time by delivering written notice to the chairman of the board, the president, the secretary, or the registered office of the corporation, or by giving oral notice at any meeting of the directors or shareholders. Any such resignation shall take effect at any subsequent time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.16 REMOVAL. At a meeting of the shareholders called expressly for that purpose, any director or the entire board of directors may be removed from office, with cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of the director or directors whose removal is sought. If the board of directors or any one or more directors is so removed, new directors may be elected at this same meeting. SECTION 4.17 VACANCIES. A vacancy on the board of directors may occur by the resignation, removal or death of an existing director, or by reason of increasing the number of directors on the board of directors as provided in these bylaws. Except as may be limited by the articles of incorporation, any vacancy occurring in the board of directors may be filled by the affirmative vote of four-fifths of the remaining directors though less than a quorum. A director elected to fill a vacancy shall be elected for a team of office continuing only until the next election of directors by shareholders. If the vacant office was held by a director or elected by holders of one or more authorized classes or series of shares, only the holders of those classes or series of shares are entitled to vote to fill the vacancy. SECTION 4.18 COMPENSATION. By resolution of the board of directors, the directors may be paid a fixed sum plus their expenses, if any, for attendance at meetings of the board of directors or committee thereof, or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 4.19 CHAIRMAN OF THE BOARD. The Chairman shall preside at meetings of the board of directors. In the absence of the Chairman and the Chief Executive Officer, the directors -9- 23 present may select someone from their number to preside. The Chairman shall be ex-officio a member of all committees, except the Audit Committee and the Compensation and Stock Option Committee. The Chairman shall perform such other duties as may be assigned by the board of directors. ARTICLE V. OFFICERS SECTION 5.1 RANKS AND TERMS IN OFFICE. The officers of the corporation shall be a Chief Executive Officer, a President, a Senior Executive Vice President, a Controller, a General Auditor, a Secretary and such Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, or other officers as the Board may designate. The officers shall be elected by the board of directors, to serve, unless earlier removed, until the next annual meeting of directors and until the appointment and qualification of their successors. Officers may be terminated or removed at will at any time. SECTION 5.2 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the corporation shall have direct supervision and management of its affairs and the general powers and duties of supervision and management usually vested in the Chief Executive officer of a corporation, subject to the Bylaws of the corporation. He shall be ex-officio a member of all committees. The Chief Executive Officer shall perform such other duties as may be assigned by the board of directors. In the absence of the Chief Executive Officer, his duties shall be assumed by the President, and in their absence such duties shall be assumed by a person designated by the Chief Executive Officer or the board of directors. SECTION 5.3 PRESIDENT. The President shall perform such duties as may be assigned by the Chief Executive Officer or the board of directors. The President shall preside over all meetings of the shareholders, which duty shall include the authority to adjourn such meetings. SECTION 5.4 SENIOR EXECUTIVE VICE PRESIDENT. The Senior Executive Vice President shall perform such duties as may be assigned to him or her by the Chief Executive Officer or the President. SECTION 5.5 CONTROLLER. The Controller shall be the chief accounting officer of the corporation and shall have supervisory control and direction of the general accounting, accounting procedure, budgeting and general bookkeeping, and shall be the custodian of the general accounting books, records, forms and papers. He shall also perform such other duties as may from time to time be assigned to him by the Chief Executive Officer, the President, the Senior Executive Vice President or an Executive Vice President. SECTION 5.6 GENERAL AUDITOR. The General Auditor shall supervise and maintain continuous audit control of the assets and liabilities of the corporation. He shall be responsible only to the board of directors in coordination with the Chief Executive officer. He shall perform such other duties as may be assigned to him by the Chief Executive Officer, the President, the -10- 24 Senior Executive Vice President or an Executive Vice President, only to the extent that such other duties do not compromise the independence of audit control. SECTION 5.7 SECRETARY AND ASSISTANT SECRETARY. The Secretary shall keep the minutes of all meetings of the board of directors and of the shareholders. He shall give such notices to the directors as may be required by law or by these Bylaws. He shall have the custody of the corporate seal, if any, and the contracts, papers and documents belonging to the corporation. He shall also perform such other duties as may from time to time be assigned to him by the Chief Executive Officer, the President, the Senior Executive Vice President or an Executive Vice President. In the absence of the Secretary, the powers and duties of the Secretary shall devolve upon an Assistant Secretary or such person as shall be designated by the Secretary or the Chief Executive Officer. SECTION 5.8 EXECUTIVE VICE PRESIDENTS. Any Executive Vice President shall perform such duties as may be assigned to him by the Chief Executive Officer of the President. SECTION 5.9 SENIOR VICE PRESIDENTS AND VICE PRESIDENTS. Any Senior Vice Presidents and Vice Presidents shall perform such duties as may be assigned to them by the Chief Executive Officer, the President, the Senior Executive Vice President or an Executive Vice President. SECTION 5.10 COMBINING OFFICES. An officer whom the board of directors elects or has previously elected to hold one office may be elected by the board of directors to hold another office, with or without resigning from the previous office, as the board of directors shall determine upon a recommendation of the Chief Executive Officer. SECTION 5.11 OTHER OFFICERS. The other Officers shall perform such duties as may be assigned to them by the Chief Executive Officer or the President. The Chief Executive Officer or the President may designate such functional titles to an Officer as he deems appropriate from time to time. SECTION 5.12 OFFICIAL BONDS. The corporation may be indemnified in the event of the dishonest conduct or unfaithful performance of an officer, employee, or agent by a corporate fidelity bond, the premiums for which may be paid by the corporation. SECTION 5.13 CONTRACTS AND SATISFACTIONS. The Chief Executive Officer, the President, or in their absence the Senior Executive Vice President, shall from time to time designate the officers or employees who shall have authority to sign deeds, contracts, satisfactions, releases, and assignments of mortgages, and all other instruments in writing to be made or executed by the corporation. SECTION 5.14 RESIGNATION. Any officer may resign at any time by delivering written notice to the chairman of the board, the President, a Vice-president, the Secretary or the board of directors, or by giving oral notice at any meeting of the board. Any such resignation shall take effect at any subsequent time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -11- 25 SECTION 5.15 COMPENSATION OF OFFICERS AND EMPLOYEES. The board of directors shall fix compensation of officers and may fix compensation of other employees from time to time. No officer shall be prevented from receiving a salary by reason of the fact that such officer is also a director of the corporation. ARTICLE VI. SHARES SECTION 6.1 CERTIFICATES FOR SHARES. The shares of the corporation may be represented by certificates in such form as prescribed by the board of directors. Signatures of the corporate officers on the certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. All certificates shall be consecutively numbered or otherwise identified. All certificates shall bear such legend or legends as prescribed by the board of directors or these bylaws. SECTION 6.2 ISSUANCE OF SHARES. Shares of the corporation shall be issued only when authorized by the board of directors, which authorization shall include the consideration to be received for each share. SECTION 6.3 BENEFICIAL OWNERSHIP. Except as otherwise permitted by these bylaws, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. The board of directors may adopt by resolution a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. Upon receipt by the corporation of a certification complying with such procedure, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification. SECTION 6.4 TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, on surrender for cancellation of the certificate for the shares. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. SECTION 6.5 LOST OR DESTROYED CERTIFICATES. In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. SECTION 6.6 STOCK TRANSFER RECORDS. The stock transfer books shall be kept at the principal office of the corporation or at the office of the corporation's transfer agent or registrar. The name and address of the person to whom the shares represented by any certificate, together -12- 26 with the class, number of shares and date of issue, shall be entered on the stock transfer books of the corporation. Except as provided in these bylaws, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE VII. SEAL This corporation need not have a corporate seal. If the directors adopt a corporate seal, the seal of the corporation shall be circular in form and consist of the name of the corporation, the state and year of incorporation, and the words "Corporate Seal." ARTICLE VIII. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS SECTION 8.1 DIRECTOR'S RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director of the corporation or, being or having been such a director, he or she is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or in any other capacity while serving as a director, shall be indemnified and held harmless by the corporation against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith; provided, however, that (a) the corporation shall not indemnify any person from or on account of any acts or omissions of such person finally adjudged to be intentional misconduct or knowing violation of the law of such person, or from conduct of the person in violation of RCW 23B.08.310, or from or on account of any transaction with respect to which it is finally adjudged that such person personally received a benefit in money, property, or services to which such person was not legally entitled, and (b) except as provided in subsection 8.3 with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. Such indemnification shall continue as to a person who has ceased to be a director and shall inure to the benefit of his or her heirs, executors and administrators. If the Washington Business Corporation Act is amended to authorize further indemnification of directors, then directors of the corporation shall be indemnified to the fullest extent permitted by the Washington Business Corporation Act, as so amended. -13- 27 SECTION 8.2 DIRECTOR'S BURDEN OF PROOF AND PROCEDURE FOR PAYMENT. (a) The claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the undertaking in (b) below has been tendered to the corporation) and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is so entitled. (b) The right to indemnification shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director, to repay all amounts so advanced if it shall ultimately be determined that such director is not entitled to be indemnified under this Article or otherwise. SECTION 8.3 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. Neither the failure of the corporation (including its board of directors, its shareholders or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances nor an actual determination by the corporation (including its board of directors, its shareholders or independent legal counsel) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled. SECTION 8.4 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. SECTION 8.5 INSURANCE, CONTRACTS AND FUNDING. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may, without any shareholder action, enter into contracts with such director or officer in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to -14- 28 ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. SECTION 8.6 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS OF THE CORPORATION. The corporation may, by action of its board of directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to officers, employees and agents of the corporation or another corporation, partnership, joint venture trust or other enterprise with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of directors of the corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise. SECTION 8.7 CONTRACT RIGHT. The rights to indemnification conferred in this Article shall be a contract right and any amendment to or repeal of this Article shall not adversely affect any right or protection of a director of the corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. SECTION 8.8 SEVERABILITY. If any provision of this Article or any application thereof shall be invalid, unenforceable or contrary to applicable law, the remainder of this Article, or the application of such provision to persons or circumstances other than those as to which it is held invalid, unenforceable or contrary to applicable law, shall not be affected thereby and shall continue in full force and effect. ARTICLE IX. BOOKS AND RECORDS The corporation shall keep correct and complete books and records of account, stock transfer books, minutes of the proceedings of its shareholders and the board of directors and such other records as may be necessary or advisable. ARTICLE X. FISCAL YEAR The fiscal year of the corporation shall be the calendar year. ARTICLE XI. VOTING OF SHARES OF ANOTHER CORPORATION Shares of another corporation held by this corporation may be voted by the Chief Executive Officer, by the President, by the Senior Executive Vice President, by an Executive Vice President, or by a Senior Vice President, or by proxy appointment form executed by any of them, unless the directors by resolution shall designate some other person to vote the shares. -15- 29 ARTICLE XII. AMENDMENTS TO BYLAWS These bylaws may be altered, amended or repealed, and new bylaws may be adopted, by the board of directors, subject to the concurrent power of the shareholders, by at least two-thirds affirmative vote of the shares of the corporation entitled to vote thereon, to alter amend or repeal these bylaws or to adopt new bylaws. The undersigned, being the secretary of the corporation, hereby certifies that these bylaws are the restated bylaws of WASHINGTON MUTUAL, INC., adopted by resolution of the directors on September 28, 1994 and amended on October 19, 1994, November 28, 1994 and December 20, 1994. DATED this 16th day of March, 1995. /s/ WILLIAM L. LYNCH ---------------------------------------- William L. Lynch, Secretary -16- EX-27.1 4 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1,313,409 40,750 0 38,452 18,455,982 11,413,929 11,240,535 73,094,310 686,156 108,359,066 50,559,035 24,165,230 3,474,624 24,359,190 0 0 1,975,074 3,825,913 108,359,066 4,154,969 1,388,916 95,331 5,639,216 1,540,445 3,483,730 2,155,486 126,998 16,314 1,434,256 1,284,564 792,039 0 0 792,039 2.10 2.10 2.92 591,019 0 138,969 573,426 670,494 126,655 16,152 686,156 85,918 0 600,238 ON APRIL 20, 1998, THE COMPANY'S BOARD OF DIRECTORS DECLARED A 3-FOR-2 COMMON STOCK SPLIT IN THE FORM OF A 50% STOCK DIVIDEND WHICH WAS PAID ON JUNE 1, 1998 TO SHAREHOLDERS OF RECORD AS OF MAY 31, 1998. ALL EARNINGS PER SHARE FIGURES PRESENTED FOR 1998 HAVE BEEN ADJUSTED FOR THIS SPLIT. FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
EX-27.2 5 AMENDED FIN. DATA SCHEDULE FOR PERIOD END 6.30.98
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 992,346 47,147 0 36,024 15,163,849 12,373,349 12,233,607 70,967,344 684,436 103,396,952 50,461,145 16,534,237 1,283,772 29,482,146 0 49,250 1,966,249 3,620,153 103,396,952 2,747,961 915,766 63,662 3,727,389 1,027,783 2,288,044 1,439,345 91,748 11,117 944,874 846,369 517,742 0 0 517,742 1.37 1.37 2.92 588,516 0 158,837 588,399 670,494 89,384 11,578 684,436 85,776 0 598,660 ON APRIL 20, 1998, THE COMPANY'S BOARD OF DIRECTORS DECLARED A 3-FOR-2 COMMON STOCK SPLIT IN THE FORM OF A 50% STOCK DIVIDEND WHICH WAS PAID ON JUNE 1, 1998 TO SHAREHOLDERS OF RECORD AS OF MAY 31, 1998. ALL EARNINGS PER SHARE FIGURES PRESENTED FOR 1998 HAVE BEEN ADJUSTED FOR THIS SPLIT. FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
EX-27.3 6 AMENDED FIN, DATA SCHEDULE FOR PERIOD END 3.31.98
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'SCONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF FINANCIALPOSITION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,037,192 27,015 0 130,912 16,247,250 12,492,556 12,612,245 69,475,130 673,172 103,123,908 51,313,052 19,455,888 3,377,418 23,540,551 0 49,250 1,957,522 3,430,197 103,123,908 1,357,305 440,498 28,849 1,826,652 515,901 1,113,779 712,873 45,343 3,415 442,218 419,141 256,471 0 0 256,471 0.68 0.68 2.92 604,034 0 138,396 591,472 670,494 48,544 5,879 673,172 41,839 0 585,585 On April 20, 1998, The Company's Board of Directors declared a 3-for-2 stock split in the form of a 50% stock dividend which was paid on June 1, 1998 to shareholders of record as of May 21, 1998. All earnings per share figures presented for 1998 have been adjusted for this split. FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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