-----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, UFHergLO3VMjaTOSs1kYg/YB/VsBMRSU5grRWb5Qo1h4f7kkm1CqtZVSpsr0QxXa qFd313dID/u3rDs+E8xPzg== 0000950151-97-000207.txt : 19970617 0000950151-97-000207.hdr.sgml : 19970617 ACCESSION NUMBER: 0000950151-97-000207 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970616 SROS: NASD 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25188 FILM NUMBER: 97624623 BUSINESS ADDRESS: STREET 1: 1201 THIRD AVENUE CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2064612000 MAIL ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: 1201 THIRD AVE CITY: SEATTLE STATE: WA ZIP: 98101 10-Q/A 1 AMENDMENT TO QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20529 FORM 10-Q/A (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 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 Number) 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 last 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the issuer's classes of common stock as of March 31, 1997: COMMON STOCK - 126,361,456 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated financial statements of Washington Mutual, Inc. ("Washington Mutual" or the "Company") begin on page 10. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - - Net income for first quarter 1997 was $114.1 million, up 28% from earnings of $88.8 million during first quarter 1996. Fully diluted earnings per share were 93 cents for first quarter 1997 compared with 74 cents in 1996. For the quarter ended March 31, 1997, the Company's return on average assets was 1.01% compared with 0.85% for the same period a year earlier. - - On January 15, 1997, the Company completed its acquisition of United Western Financial Group, Inc. of Salt Lake City, Utah including its subsidiaries, United Savings Bank, Uniwest Service Corporation and Western Mortgage Loan Corporation (collectively "United Western"). United Western operated eight branches in Utah and one in Idaho and seven loan production offices in five western states. On the acquisition date, United Western had assets of $404.1 million and deposits of $299.9 million. - - On March 6, 1997, the Company announced the signing of an agreement to acquire through a stock merger Great Western Financial Corporation ("GWFC") including its banking subsidiary, Great Western Bank, a Federal Savings Bank ("GWB") and its consumer finance subsidiary, Aristar, Inc. ("Aristar"). GWFC is a diversified financial services company operating more than 1,150 mortgage lending, retail banking and consumer finance offices nationwide. GWB conducts most of its retail banking business through a branch network concentrated in California and Florida. In addition, GWB has real estate lending operations in 27 states with business concentrated in California, Florida, Texas and Washington. At year-end 1996, Aristar operated over 500 offices in 23 states primarily in the Southeast and Southwest regions of the United States principally under the names Blazer Financial Services and City Finance Company. At March 31, 1997, GWFC had assets of $42.9 billion and deposits of $28.2 billion. Under the terms of the agreement, each outstanding share of GWFC common stock would be exchanged for 0.9 shares of Washington Mutual common stock. The agreement has been unanimously approved by the boards of directors of Washington Mutual and GWFC. Pending regulatory and shareholder approval, the merger is scheduled to close during the third quarter of 1997. RESULTS OF OPERATIONS NET INTEREST INCOME. The Company's net interest income was $317.0 million for the quarter ended March 31, 1997 compared with $287.0 million for the same period in 1996. The 10% growth in net interest income from a year ago was generated primarily by an increase in interest-earning assets. Average interest-earning assets of $43.1 billion for the quarter ended March 31, 1997 were up 9% from the same period in 1996. Also contributing to the rise in net interest income was a slight increase in the net interest spread. The Company's combined yield on loans and investments decreased to 7.68% for the quarter ended March 31, 1997 compared with 7.72% for the same period in 1996 while the cost of funds decreased as well to 4.91% for the first quarter of 1997 compared with 4.97% a year ago. As a result, the net interest spread was 2.77% in the first quarter compared with 2.75% for the same period in 1996. (The net interest spread is the difference between the Company's yield on assets and its cost of funds.) The Company's net interest margin was 2.88% for the first quarter of 1997 compared with 2.90% for the same period in 1996. (The net interest margin measures the Company's annualized net interest income as a percentage of interest-earning assets.) Under a restructuring strategy begun in late 1995, the Company has sold the majority of its fixed-rate residential loan production while retaining adjustable-rate residential loan originations and has replaced fixed-rate 1 3 assets with adjustable-rate mortgage-backed securities. (See "Interest Rate Risk Management.") The loss of these higher yielding fixed-rate assets and inclusion of more adjustable-rate assets led to the overall decline in yield on earning assets. As noted above, even though the yield on interest-earning assets was down, net interest income was not adversely affected due to the increase in the level of interest-earning assets and the decrease in cost of funds. The Company's cost of funds was positively affected by a change in its deposit mix. A decline in time deposit accounts was generally offset by an increase in lower interest cost money market and checking accounts. OTHER INCOME. Other income was $75.4 million for the quarter ended March 31, 1997 compared with $57.0 million for the same period in 1996. Depositor fees for the quarter just ended were $28.6 million, an increase of 27% from $22.5 million in first quarter 1996. During the quarter just ended, the Company opened more than 65,000 net new checking accounts. The profitability of these accounts is tempered somewhat by the amount of deposit account-related losses (included with other expenses) incurred by the Company related to the increased number of checking accounts. Management closely monitors the amount of such losses to assure the profitability of its deposit products. Loan servicing fees were $14.3 million for the quarter just ended, compared with $8.5 million for the same period a year ago. The 68% growth in loan servicing fees was primarily due to an increase in the size of the Company's servicing portfolio. Loans serviced for others increased 18% to $26.7 billion at March 31, 1997 from $22.6 billion one year earlier. Also during the first quarter of 1997, American Savings Bank F.A. ("ASB"), the Company's California-based banking subsidiary, recorded $3.3 million of loan servicing fees on securitized loans. Such fees will continue to be reported as loan servicing included in interest income. Securities, annuity and other service fees, principally generated by the Company's nonbanking subsidiaries, were $12.8 million for the quarter ended March 31, 1997 compared with $13.1 million for the same period last year. Other operating income increased to $13.7 million for the quarter just ended compared with $7.8 million from the same period a year ago due primarily to increases in loan related income, late fees and the effect of the United Western merger together with several one-time adjustments totaling $2.3 million. Gain on the sale of loans was $5.7 million for first quarter of 1997 compared with $4.4 million for the same period in 1996. During the quarter just ended, the Company sold $567.9 million of loans compared with $392.6 million in the first quarter 1996. Gain on the sale of other assets was $243,000 for the quarter just ended compared with $806,000 for first quarter 1996. OTHER EXPENSE. Total operating expense for the quarter ended March 31, 1997 was $192.6 million, a 6% increase compared with $181.1 million during the first quarter of 1996. Salaries and employee benefits were $86.8 million for the quarter just ended compared with $81.8 million a year ago due primarily to merger activity and increases in staffing levels in commercial banking and financial centers. The staffing level of full-time equivalent employees was 8,773 at March 31, 1997, up from 7,868 a year earlier. Occupancy and equipment expense increased to $32.9 million for the quarter just ended compared with $27.7 million a year earlier primarily as a result of expenses associated with new financial centers and the merger with United Western in January 1997. Outside telecommunications and data processing services increased to $24.9 million for the quarter ended March 31, 1997 compared with $12.2 million a year ago as a result of the Company's outsourcing of certain support services. Regulatory assessments decreased to $4.1 million for the quarter ended March 31, 1997 from $11.6 million for the same period in 1996, reflecting a reduction in the assessment rates on the Company's deposits. Other operating expense for the quarter was $39.3 million, up 4% from $37.6 million in first quarter 1996. Amortization of goodwill and intangible assets was $6.8 million for the quarter ended March 31, 1997 compared with $6.9 million during the same period in 1996. Real estate owned ("REO") operations, inclusive of write-downs, resulted in income of $2.1 million for the quarter compared with expense of $3.2 million for the same period last year. During the first quarter of 1997, REO operations included recoveries on the sale of several residential and commercial properties, and a recovery on one large commercial property in Washington totaling $1.9 million. 2 4 OPERATING EFFICIENCY RATIO. The operating efficiency ratio is other expense as a percentage of net interest income plus other income. The Company's ratio was 49.1% for the first quarter of 1997 compared with 52.6% for the same period in 1996. Slight increases in other expenses during first quarter 1997 were offset by substantial increases in net interest income and other income during the quarter. NONBANKING SUBSIDIARY OPERATIONS. Pretax operating income (net income before amortization of goodwill and intangible assets and elimination of intercompany transactions) for the quarter ended March 31, 1997 was $8.6 million compared with $13.5 million for the same period in 1996. The Company's insurance subsidiaries reported pretax operating income of $4.4 million for the quarter just ended compared with $4.5 million a year earlier. The securities subsidiaries posted pretax operating income of $4.2 million for the first quarter of 1997 compared with pretax operating income of $4.9 million during the same period a year ago. During the first quarter of 1996, the Company recognized a deferred gain of $4.1 million on the 1995 sale of its travel agency subsidiary. Results of operations for nonbanking subsidiaries were as follows:
Quarter Ended March 31, - ------------------------------------------------------------------------------------------------- (dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------------------------- Insurance $4,389 $ 4,493 Securities 4,230 4,878 Recognition of deferred gain on sale of travel agency subsidiary -- 4,112 - ------------------------------------------------------------------------------------------------- Net income before taxes, amortization of goodwill and other intangible assets, and elimination of intercompany transactions $8,619 $13,483 =================================================================================================
FINANCIAL POSITION ASSETS. At March 31, 1997, the Company's assets were $46.1 billion up 3% from $44.6 billion at December 31, 1996. INVESTMENT ACTIVITIES. Washington Mutual's investment portfolio at March 31, 1997 was $11.7 billion, a 2% decrease from the year-end 1996 balance of $12.0 billion. The Company's mortgage-backed securities ("MBS") constituted $10.2 billion or 86% of the total investment portfolio at quarter end while other investment securities totaled $1.5 billion. MBS that the Company securitized from its own single-family residential loan origination activity totaled $6.1 billion at March 31, 1997 while the remaining $4.1 billion was purchased in the secondary market. During the quarter, Washington Mutual securitized and retained $80.4 million of loans and purchased $7.8 million of MBS. Amortization of outstanding MBS principal during the first quarter of 1997 totaled $308.7 million. LOAN ORIGINATIONS. For the first quarter of 1997, total lending increased 16% to $3.5 billion compared with $3.0 billion for the same period a year earlier. The Company's growing franchise and aggressive marketing strategy together with strong regional economies in its primary markets helped generate increases in lending volumes in all loan categories. The Company remained the leading residential first-mortgage lender in Washington and Oregon and second in California with residential loan originations of $2.4 billion during the quarter just ended compared with $2.3 billion during the first quarter of 1996. Originations of residential loans to purchase homes were $1.3 billion compared with $941.6 million a year ago, while home loan refinancings were $1.1 billion compared with $1.3 billion in the first quarter of 1996. First quarter 1997 originations of residential construction loans were $325.1 million, an increase of 30% from $249.7 million for the first quarter of 1996. Consumer loan originations, primarily home equity and manufactured home loans, increased to $370.0 million for the quarter ending March 31, 1997 from $273.6 million a year ago. Commercial real estate, which includes multi-family and nonresidential lending, increased to $213.4 million for the quarter just ended from $170.5 million for the same period in 1996. Commercial business lending for the first quarter of 1997 was $148.4 million, an increase of 302% from $36.9 million for the first quarter of 1996. The 3 5 growth in commercial business lending resulted from new loan production offices in Washington and Oregon, an emphasis on small business lending and the implementation of an aggressive marketing strategy. DEPOSITS. Total deposits increased to $24.3 billion at March 31, 1997 from $24.1 billion at December 31, 1996. Retail money market and checking accounts - both of which have the benefit of lower interest costs - increased $345.3 million offsetting a $198.6 million decline in retail time deposits. The increase in retail money market and checking accounts was primarily the result of the merger with United Western, which added $299.9 million in total deposits. Retail time deposits were allowed to run off as the Company did not price up to maintain the 1996 year-end level. While the vast majority of its deposits are retail in nature, the Company does engage in certain wholesale activities -- primarily accepting time deposits from political subdivisions and public agencies. The Company considers wholesale deposits to be an alternative borrowing source rather than a customer relationship and, as such, their levels are determined by management's decisions as to the most economic funding sources. BORROWINGS. Washington Mutual's borrowings are primarily securities sold under agreements to repurchase, federal funds purchased and advances from the Federal Home Loan Bank ("FHLB") of Seattle and San Francisco. These three borrowing sources totaled $7.6 billion, $1.2 billion and $8.6 billion at March 31, 1997, compared with $7.8 billion, $1.1 billion and $7.2 billion at year-end 1996, respectively. The exact mix at any given time is dependent upon the market pricing of the various borrowing sources. Specifically, due to relative pricing advantages, the Company primarily used FHLB advances to fund its balance sheet growth during the quarter just ended. INTEREST RATE RISK MANAGEMENT. Washington Mutual 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. One of the Company's strategies to reduce the effect of future movements in interest rates is to increase the percentage of adjustable-rate assets in its portfolio. During the first three months of 1997, the Company securitized and then sold the majority of the fixed-rate loans it originated, while retaining nearly all of its adjustable-rate loan production. The Company retained the servicing rights to the loans that were sold. A conventional measure of interest rate sensitivity for thrift 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:
(dollars in millions) March 31, 1997 Dec. 31, 1996 - -------------------------------------------------------------------------------------------- Interest-sensitive assets $ 31,852 $ 30,613 Derivative instruments 2,727 2,749 Interest-sensitive liabilities (34,929) (34,985) - -------------------------------------------------------------------------------------------- Net liability sensitivity $ (350) $ (1,623) ============================================================================================ One-year gap (0.8)% (3.6)%
4 6 ASSET QUALITY Nonperforming assets increased 2% to $334.6 million at March 31, 1997 compared with $329.5 million at December 31, 1996. Nonperforming assets by type consisted of the following:
(dollars in thousands) March 31, 1997 Dec. 31, 1996 - -------------------------------------------------------------------------------------- Nonperforming loans and REO by collateral type: Residential real estate $ 254,898 $ 253,339 Custom construction 5,204 2,511 Builder construction 8,311 8,388 Apartment buildings 25,272 22,220 Other commercial real estate 23,863 25,016 Consumer and manufactured housing 21,750 24,125 Commercial business 1,647 1,068 Reserve for REO losses (6,374) (7,144) - -------------------------------------------------------------------------------------- Total nonperforming assets $ 334,571 $ 329,523 ====================================================================================== Nonperforming assets as a percentage of total assets 0.73% 0.74%
As required by Statement of Financial Accounting Standards No. 114, the Company evaluates all builder construction, commercial real estate and commercial business loans for impairment. A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. At March 31, 1997, loans totaling $264.6 million were impaired of which $160.5 million had allocated reserves of $41.8 million. Impaired loans consisted of the following:
(dollars in thousands) March 31,1997 Dec. 31, 1996 - ------------------------------------------------------------------------------------------- Nonaccrual loans included in nonperforming assets above $ 27,581 $ 22,749 Other impaired loans 237,031 294,569 - ------------------------------------------------------------------------------------------- Total impaired loans $264,612 $317,318 ===========================================================================================
The average balance of impaired loans during the quarter was $291.0 million and the Company recognized $2.3 million of related interest income. Interest income is normally recognized on an accrual basis. If the impaired loan is nonperforming, interest income is recorded only on the receipt of cash. PROVISION FOR LOAN LOSSES AND RESERVE FOR LOAN AND REO LOSSES. The provision for loan losses for the first quarter 1997 was $15.5 million, down 26% compared with $20.9 million for first quarter 1996. The low level of provision reflected the Company's high level of reserves and asset quality. The reserve for loan losses increased slightly to $367.2 million at March 31, 1997 from $363.4 million at December 31, 1996. Reserves charged off, net of recoveries, totaled $20.0 million for the first quarter of 1997 compared with $23.3 million for the same period in 1996. Approximately 89% of the net charge-offs during the first quarter of 1997 reflect activity at ASB and were anticipated in the establishment of reserve levels during 1996. At March 31, 1997, the reserve for loan losses represented 1.14% of outstanding loans and 152.90% of nonperforming assets, less REO loans, compared with 1.09% and 160.52% at year-end 1996. 5 7 Changes in the reserve for loan losses were as follows:
Three Months Ended March 31, - --------------------------------------------------------------------------------------------- (dollars in thousands) 1997 1996 - --------------------------------------------------------------------------------------------- Balance, beginning of period $ 363,442 $ 235,275 Provision for loan losses 15,526 20,889 Reserves acquired through business combinations 8,260 -- Reserves charged-off: Residential (18,334) (12,896) Residential construction -- (14) Commercial real estate (16) (10,440) Manufactured housing, second mortgage and other consumer (1,934) (1,740) Commercial business (16) (3) - --------------------------------------------------------------------------------------------- (20,300) (25,093) Reserves recovered: Residential 17 1,548 Commercial real estate 6 3 Manufactured housing, second mortgage and other consumer 218 193 Commercial business 47 25 - --------------------------------------------------------------------------------------------- 288 1,769 - --------------------------------------------------------------------------------------------- Balance, end of period $ 367,216 $ 232,840 ============================================================================================= Ratio of net charge-offs during the period to average loans outstanding during the period 0.06% 0.09%
As part of the process of determining the adequacy of the reserve for loan losses, management reviews its loan portfolio for specific weaknesses. A portion of the reserve is then allocated to reflect the loss exposure. The March 31, 1997 analysis of builder construction, commercial real estate and commercial loans resulted in an allocation of $84.8 million of the reserve for loan loss exposure. At December 31, 1996, the Company had allocated reserves of $78.3 million. The remaining reserve of $282.4 million at March 31, 1997 was unallocated and available for potential losses from any of the Company's loans. An analysis of the reserve for loan losses was as follows:
March 31, Dec. 31, (dollars in thousands) 1997 1996 - -------------------------------------------------------------------------------- Allocated reserves: Commercial real estate $ 82,904 $ 77,054 Commercial business 1,930 1,285 - -------------------------------------------------------------------------------- 84,834 78,339 Unallocated reserves 282,382 285,103 - -------------------------------------------------------------------------------- $367,216 $363,442 Total reserve for loan losses as a percentage of: Nonperforming assets 109.76% 110.29% Nonperforming assets, less REO 152.90 160.52 ================================================================================
A reserve for REO losses is maintained for any subsequent decline in the value of foreclosed property. The reserve for REO losses was $6.4 million at March 31, 1997, compared with $7.1 million at December 31, 1996. The level is based upon a routine review of the REO portfolio and the strength of national and local economies. 6 8 LIQUIDITY AND CAPITAL REQUIREMENTS Liquidity. 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 March 31, 1997, the Company had substantial liquidity compared with its established guidelines. The Company also computes ratios promulgated by the Federal Deposit Insurance Corporation ("FDIC") to monitor the liquidity position of Washington Mutual Bank ("WMB"), a subsidiary of the Company. The regulatory liquidity ratio measures WMB's ability to use liquid assets to meet unusual cash demands. The regulatory dependency ratio measures WMB's reliance upon potentially volatile liabilities to fund long-term assets. WMB manages both ratios to remain within the acceptable ranges and, at March 31, 1997, was within the established FDIC guidelines. Regulations promulgated by the Office of Thrift Supervision ("OTS") require that ASB and Washington Mutual Bank fsb ("WMBfsb") maintain for each calendar month an average daily balance of liquid assets at least equal to 5.00% of the prior month's average daily balance of net withdrawable deposits plus borrowings due within one year. For each month during the first quarter of 1997, the liquidity ratio for ASB and for WMBfsb was above 5.00%. To meet its immediate needs for funds as well as long-term lending demands, Washington Mutual maintains various sources of liquid assets and borrowing capabilities. At March 31, 1997, the Company's banking subsidiaries were able to borrow an additional $11.1 billion through the use of collateralized borrowings using unpledged mortgage-backed securities and other wholesale sources. The ability of the Company's banking subsidiaries to pay dividends to the Company is influenced by legal, regulatory and economic restrictions. Because the low interest rate environment of recent years and competition from non-regulated entities (such as mutual funds) has 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 periods. The statement of cash flows includes operating, investing and financing categories. Cash flows from operating activities included net income for the first quarter of 1997 of $114.1 million, $17.2 million of noncash items and $39.8 million of other net cash flows from operating activities. During the quarter ended March 31, 1997, cash flows from investing activities included sales and principal payments on available-for-sale securities and loans held for investment totaling $2.1 billion. New loans originated and purchased for investment required $3.7 billion, and $136.4 million was used for the purchase of available-for-sale securities. Cash flows from financing activities consisted of the net change in deposit accounts and short-term borrowings, the proceeds and repayments from both securities sold under long-term agreements to repurchase and FHLB advances, and also the repayment of long-term debt. During the quarter just ended, the above mentioned financing activities increased cash and cash equivalents by $1.3 billion on a net basis. Cash and cash equivalents were $532.6 million at March 31, 1997. (See "Consolidated Statements of Cash Flows".) CAPITAL REQUIREMENTS. At March 31, 1997, Washington Mutual's banking subsidiaries exceeded all current regulatory capital requirements and were classified as well capitalized institutions, the highest regulatory standard. The regulatory capital ratios of WMB, ASB and WMBfsb and minimum regulatory requirements to be categorized as well capitalized were as follows:
March 31, 1997 Well - ----------------------------------------------------------------------- Capitalized WMB ASB WMBfsb Minimum - ----------------------------------------------------------------------- ---------------- Capital ratios: Leverage 5.17% 5.20% 6.83% 5.00% Tier 1 risk-based 9.36 8.69 10.60 6.00 Total risk-based 10.13 10.67 11.85 10.00
7 9 In addition, ASB and WMBfsb are required by the OTS to maintain core capital of at least 3.00% of assets and tangible capital of at least 1.50% of assets. Both ASB and WMBfsb satisfied this requirement at March 31, 1997. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Washington Mutual 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 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY-HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits 10.1 Employment Contract for Executive Officers 11.1 Statement re computation of per share earnings 27.1 Financial Data Schedule (b) During the quarter, the Company filed the following Current Reports on Form 8-K: 1. Related to the merger with Keystone Holdings, Inc., dated January 3, 1997. 2. Related to the merger with Utah Federal Savings Bank, dated January 22, 1997 as amended by Form 8-K/A on January 22, 1997. 3. Related to the Company's registration statement on Form S-3 for the sale of up to 15,085,305 shares the Company's common stock by certain stockholders, dated January 24, 1997. 4. Related to the announcement of an agreement of merger with Great Western Financial Corporation, dated March 6, 1997. 5. Related to financial statements and exhibits for presentation to investment analysts, dated March 24, 1997, as amended by Form 8-K/A on March 26, 1997. 6. Related to fact sheet for analysts and shareholders, dated March 28, 1997. 7. Related to press release dated March 27, 1997, dated March 28, 1997. 8 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 15, 1997. Washington Mutual, Inc. /s/ Kerry K. Killinger ----------------------------------- Kerry K. Killinger Chairman, President and Chief Executive Officer /s/ Douglas G. Wisdorf ----------------------------------- Douglas G. Wisdorf Deputy Chief Financial Officer, Senior Vice President and Controller 9 11 CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended March 31, - ------------------------------------------------------------------------------------------------ (dollars in thousands, except for per share amounts) 1997 1996 - ------------------------------------------------------------------------------------------------ (Unaudited) Interest income Loans $ 619,496 $ 496,729 Available-for-sale securities 154,244 211,123 Held-to-maturity securities 52,599 55,929 Cash equivalents 394 841 - ------------------------------------------------------------------------------------------------ Total interest income 826,733 764,622 Interest expense Deposits 257,712 274,050 Borrowings 252,068 203,570 - ------------------------------------------------------------------------------------------------ Total interest expense 509,780 477,620 - ------------------------------------------------------------------------------------------------ Net interest income 316,953 287,002 Provision for loan losses 15,526 20,889 - ------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 301,427 266,113 Other income Depositor fees 28,640 22,498 Loan servicing fees 14,280 8,477 Securities, annuity and other service fees 12,812 13,083 Other operating income 13,689 7,766 Gain on sale of loans 5,725 4,380 Gain on sale of other assets 243 806 - ------------------------------------------------------------------------------------------------ Total other income 75,389 57,010 Other expense Salaries and employee benefits 86.819 81,835 Occupancy and equipment 32,864 27,675 Outside telecommunications and data processing services 24,949 12,186 Regulatory assessments 4,066 11,572 Other operating expense 39,261 37,624 Amortization of goodwill and other intangible assets 6,789 6,968 Real estate owned ("REO") operations, inclusive of write-downs (2,116) 3,234 - ------------------------------------------------------------------------------------------------ Total other expense 192,632 181,094 - ------------------------------------------------------------------------------------------------ Income before income taxes and minority interest 184,184 142,029 Income taxes 65,803 31,155 Provision for payments in lieu of income taxes 4,309 18,540 - ------------------------------------------------------------------------------------------------ Income before minority interest 114,072 92,334 - ------------------------------------------------------------------------------------------------ Minority interest in earnings of consolidated subsidiaries -- (3,527) - ------------------------------------------------------------------------------------------------ Net income $ 114,072 $ 88,807 ================================================================================================ Net income attributable to common stock $ 111,567 $ 84,202 ================================================================================================ Net income per common share: Primary $0.93 $0.75 Fully Diluted 0.93 0.74 Dividends declared per common share 0.25 0.21
See Notes to Consolidated Financial Statements 10 12 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(dollars in thousands) March 31, 1997 Dec. 31, 1996 - --------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Cash and cash equivalents $ 532,643 $ 831,063 Trading account securities 2,804 1,647 Available-for-sale securities, amortized cost $8,958,900 and $9,050,960 8,942,084 9,111,274 Held-to-maturity securities, fair value $2,947,030 and $2,922,552 2,807,352 2,860,347 Loans 32,018,457 30,103,386 Loans held for sale 212,506 227,390 REO 94,498 103,111 Bank premises and equipment 495,186 482,391 Goodwill and other intangible assets 130,698 133,509 Other assets 814,922 697,807 - --------------------------------------------------------------------------------------------------------------- Total assets $ 46,051,150 $ 44,551,925 =============================================================================================================== LIABILITIES Deposits: Checking accounts $ 3,164,935 $ 2,979,962 Savings and money market accounts 7,121,545 6,842,061 Time deposit accounts 14,012,013 14,258,118 - --------------------------------------------------------------------------------------------------------------- Total deposits 24,298,493 24,080,141 Annuities 877,841 878,057 Federal funds purchased 1,230,000 1,052,000 Securities sold under agreements to repurchase 7,561,220 7,835,453 Advances from the FHLB 8,643,363 7,241,492 Other borrowings 501,846 676,986 Other liabilities 510,390 389,908 - --------------------------------------------------------------------------------------------------------------- Total liabilities 43,623,153 42,154,037 STOCKHOLDERS' EQUITY Preferred stock, no par value: 10,000,000 shares authorized - 4,722,500 and 4,722,500 shares issued and outstanding -- -- Common stock, no par value: 350,000,000 shares authorized - 126,247,850 and 126,142,285 shares issues and outstanding -- -- Capital surplus 957,234 952,747 Valuation reserve for available-for-sale securities (12,935) 41,666 Retained earnings 1,483,698 1,403,475 - --------------------------------------------------------------------------------------------------------------- Total stockholders' equity 2,427,997 2,397,888 - --------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 46,051,150 $ 44,551,925 ===============================================================================================================
See Notes to Consolidated Financial Statements 11 13 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Shares --------------------- Valuation Total Preferred Common Capital Retained Reserve for Stockholders' (in thousands) Stock Stock Surplus Earnings Securities Equity - -------------------------------------------------------------------------------------------------------------------- (Unaudited) Balance at December 31, 1996 4,723 126,142 $952,747 $1,403,475 $ 41,666 $2,397,888 Net income -- -- -- 114,072 -- 114,072 Cash dividends on preferred stock -- -- -- (2,504) -- (2,504) Cash dividends on common stock -- -- -- (31,415) -- (31,415) Common stock issued through stock options and employee stock plans -- 106 4,487 -- -- 4,487 Miscellaneous stock transactions 70 70 Adjustment in valuation reserve for available-for-sale securities -- -- -- -- (54,601) (54,601) ==================================================================================================================== Balance at March 31, 1997 4,723 126,248 $957,234 $1,483,698 $(12,935) $2,427,997 ==================================================================================================================== Balance at December 31, 1995 6,123 119,688 $920,406 $1,432,583 $188,715 $2,541,704 Net income -- -- -- 88,807 -- 88,807 Cash dividends on preferred stock -- -- -- (4,605) -- (4,605) Cash dividends on common stock -- -- -- (15,125) -- (15,125) Common stock issued through stock options and employee stock plans -- 202 3,962 -- -- 3,962 Adjustment in valuation reserve for available-for-sale securities -- -- -- -- (81,653) (81,653) ==================================================================================================================== Balance at March 31, 1996 6,123 119,890 $924,368 $1,501,660 $107,062 $2,533,090 ====================================================================================================================
See Notes to Consolidated Financial Statements 12 14 CONSOLIDATED STATEMENTS OF CASH FLOW
Quarter Ended March 31, - -------------------------------------------------------------------------------------------------------------------- (dollars in thousands) 1997 1996 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) Net income $ 114,072 $ 88,807 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 15,526 20,889 (Gain) on sale of loans (5,725) (4,380) (Gain) on sale of other assets (350) (1,135) Depreciation and amortization 8,881 21,854 FHLB stock dividend (7,179) (6,818) Decrease (increase) in trading account securities (1,157) (2,204) Origination of loans, held for sale (492,603) (369,550) Proceeds on sale of loans, held for sale 507,487 291,453 (Increase) decrease in other assets (121,094) 27,475 Increase in other liabilities 153,244 53,893 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 171,102 120,284 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale securities (136,419) (591,315) Maturities and principal payments on available-for-sale securities 273,962 473,907 Sales of available-for-sale securities 32,255 1,119,802 Purchases of held-to-maturity securities (3,386) (18,281) Maturities, calls and principal payments on held-to-maturity securities 56,381 83,888 Sales of loans 579,329 103,906 Principal payments on loans 1,121,621 1,003,703 Origination and purchases of loans (3,738,661) (2,745,642) Sales of REO 50,271 30,164 Other REO operations (2,186) 3,412 Expenditures for premises and equipment 3,769 764 Purchases of premises and equipment (25,730) (14,257) Purchases of mortgage servicing rights -- (5,998) - -------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (1,788,794) (555,947) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in deposits 218,352 (234,106) (Decrease) increase in annuities (216) 4,436 Increase in federal funds purchased 178,000 244,000 (Decrease) increase in securities sold under short-term agreements to repurchase (1,194,653) 1,047,346 Proceeds from securities sold under long-term agreements to repurchase 1,356,254 554,081 Repayment of securities sold under long-term agreements to repurchase (435,834) (202,672) Proceeds from FHLB advances 8,176,671 1,202,242 Payments for maturing and prepaid FHLB advances (6,774,800) (2,622,830) (Payments) issuance of other borrowings (175,140) 98,945 Common stock issued through stock options and employee stock plans 4,557 3,962 Cash dividends paid (33,919) (19,730) - -------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 1,319,272 75,674 - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (298,420) (359,989) Cash and cash equivalents at beginning of period 831,063 983,833 ==================================================================================================================== Cash and cash equivalents at end of period $ 532,643 $ 623,844 ====================================================================================================================
13 15 SUPPLEMENTAL DISCLOSURES RELATED TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended March 31, - -------------------------------------------------------------------------------------------- (dollars in thousands) 1997 1996 - -------------------------------------------------------------------------------------------- (Unaudited) NONCASH INVESTING ACTIVITIES Loans exchanged for mortgage-backed securities and held for investment $ 80,441 $461,315 Real estate acquired through foreclosure 50,497 58,295 Loans originated to facilitate the sale of REO 11,025 22,562 CASH PAID DURING THE PERIOD FOR Interest on deposits 243,525 267,764 Interest on borrowings 240,655 208,180 Income taxes 366 --
See Notes to Consolidated Financial Statements 14 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING ADJUSTMENTS The information included in the consolidated statements of financial position as of March 31, 1997 and December 31, 1996 and the consolidated statements of income, stockholders' equity and cash flows of Washington Mutual for the quarter ended March 31, 1997 and 1996 reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the period presented. 2. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. This standard specifies computation and presentation requirements for both basic EPS and, for entities with complex capital structures, diluted EPS. SFAS No. 128 is effective for reporting periods ending after December 15, 1997 and early adoption of the standard is not permitted. The Company does not anticipate the adoption of SFAS No. 128 to have a material affect on its results of operations on a per share basis. 15 17 Washington Mutual, Inc. List of Exhibits
Exhibit Page - ------- ---- 10.1 Employment Contract for Executive Officers................................................ 11.1 Statement re computation of per share earnings............................................ 27.1 Financial Data Schedule...................................................................
16 EX-10.1 2 EMPLOYMENT CONTRACT FOR EXECUTIVE OFFICERS 1 SCHEDULE FOR FORM OF EMPLOYMENT CONTRACT FOR EXECUTIVE OFFICERS
Officer Effective Name Since Title Responsibilities Date ---- ----- ----- ---------------- ---- Craig S. Davis 1/30/89 Executive Vice President Lending and Financial 1/1/97 Services Steven P. Freimuth 6/21/78 Executive Vice President Lending Administration 1/1/97 Lee D. Lannoye 12/27/88 Executive Vice President Corporate Administration and 1/1/95 Credit William A. Longbrake 10/7/96 Executive Vice President Corporate Finance 10/7/96 Deanna W. Oppenheimer 12/2/85 Executive Vice President Corporate Marketing and 1/1/95 Consumer Banking Craig E. Tall 4/1/85 Executive Vice President Corporate Development 1/1/95 Sheila Liane Wilson 2/4/85 Executive Vice President Corporate Operations 1/1/95
-1- 2 EMPLOYMENT AGREEMENT (1997) This Employment Agreement (the "Agreement") is between WASHINGTON MUTUAL, INC., a Washington corporation ("Washington Mutual") and ("Employee"). Employee has many years of experience in the financial services business, and has been employed as an officer of Washington Mutual and/or an affiliate since . Because of Employee's importance to Washington Mutual and the value to be derived from Employee's continued employment, it is the desire of Washington Mutual and Employee to set forth certain terms and conditions relating to Employee's employment as an inducement for Employee continuing his or her employment for so long as Washington Mutual desires to employ Employee. Therefore, the parties agree as follows: 1. Employment. Washington Mutual agrees to, and does hereby, employ Employee, and Employee agrees to, and does hereby, accept such employment. Notwithstanding the foregoing, any other provision in this Agreement or any prior written or oral agreement or understanding between Washington Mutual and Employee, Employee's employment hereunder shall be at will and may be terminated at any time by Washington Mutual without any liability whatsoever to Washington Mutual except for the payment of such amounts and the providing of such benefits as are expressly set forth in Sections 6 and 12. 2. Duties. Employee shall perform such duties as the Chairman, the President or the Board of Directors of Washington Mutual (the "Board") may from time to time direct. (As used herein "Board" shall include the board of directors or other successor body performing their function in the event of a merger, consolidation, etc., as described in paragraph 12 below.) Employee shall initially have the title of with duties principally in the area of , but this may be changed from time to time as the Chairman, the President or the Board may determine. 3. Compensation. During Employee's employment under this Agreement, Employee shall receive base salary compensation in the amount determined by the Directors' Compensation and Stock Option Committee (the "Compensation Committee"), payable semi-monthly or in such manner as is consistent with Washington Mutual's policy relating to salaried employees. In addition, Employee is entitled to participate in Washington Mutual's Bonus and Incentive Plan for Executive and Senior Management as adopted by the Compensation Committee, under which Employee may receive, subject to the terms of the Plan, a bonus based on Washington Mutual's achievement of specified financial goals. Employee may also be awarded stock options and/or restricted stock, as determined by the Compensation Committee. Employee's compensation shall be reviewed by the Compensation Committee annually and, in the sole discretion of the Compensation Committee, such compensation may be adjusted either upward or downward. -1- 3 4. Other Benefits. Subject to the respective eligibility requirements and other terms and provisions of the applicable benefit or insurance plans (including relevant waiting periods), Employee shall be enrolled as a participant in all employee benefit plans (including retirement and insurance plans) available to other officers of Washington Mutual, as the same may from time to time be adopted or amended. Employee shall also be entitled to receive such other perquisites as the Chairman, the President or the Board may from time to time deem appropriate. 5. Performance of Duties. Employee agrees that during his or her employment with Washington Mutual: (a) Employee will faithfully perform the duties of such office or offices as he or she may occupy, which duties shall be such as may be assigned to him or her by the Chairman, the President or the Board; (b) Employee will devote to the performance of his or her duties all such time and attention as the Chairman, the President or the Board shall reasonably require, taking, however, from time to time such reasonable vacations as are consistent with his or her duties and Washington Mutual policy; and (c) Employee will not, without the express consent of the Chairman or the Board, become actively associated with or engaged in any business or activity during the term of this Agreement other than that of Washington Mutual (excepting of course customary family and personal activities which may include management of personal investments so long as it does not entail active involvement in a business enterprise) and Employee will do nothing inconsistent with his or her duties to Washington Mutual. 6. Termination. (a) Washington Mutual may terminate Employee at any time in its sole discretion. Except as expressly provided in (b) and (c) below, upon termination Washington Mutual shall have no liability to pay any further compensation or any other benefit or sum whatsoever to Employee. (b) Upon termination, Employee's rights under Washington Mutual's employee pension plans and employee welfare benefit plans (including medical coverage and insurance plans) shall be determined under the terms of the plans themselves. (c) In the event that (i) Employee is terminated for any reason upon or within three years after a Change in Control (as defined in Section 12 below) or (ii) Employee resigns for "good cause" (as defined in Section 12 below) upon or within three years after a Change in Control, then (but in no other circumstances) Employee shall be entitled to receive, within five business days after the effective date of such termination or resignation, from Washington Mutual or its successor, an amount equal to three times Employee's annual Washington Mutual compensation. In addition, upon such an event: (i) all stock options held by Employee shall become immediately exercisable notwithstanding any provisions in the grant of such options regarding vesting, and (ii) the lapse of the restrictions on Employee's restricted stock shall automatically be accelerated; provided that the provision in this subsection (ii) shall be effective -2- 4 only if (1) the shareholders vote to authorize the Compensation Committee to accelerate the vesting of restricted stock without regard to the vesting schedules contained in the Washington Mutual, Inc. Restricted Stock Plan (whether to submit this issue to a vote of the shareholders is in Washington Mutual's discretion), and (2) the Compensation Committee then approves the acceleration; and provided further that the Compensation Committee may exclude any particular grant(s) of restricted stock from the acceleration provided for in this subsection (ii), either at the time it approves the acceleration or in connection with making any particular grant of restricted stock. (d) For purposes of Section 6(c), Employee's "annual compensation" shall include all items of compensation other than the value of stock options and/or restricted stock granted to Employee. Employee's "annual compensation" shall include the greater of (i) the total of Employee's salary and target bonus for the calendar year in which the termination occurs (if established before the termination) or (ii) Employee's salary and actual bonus for the prior calendar year (annualized if Employee was not employed by Washington Mutual for the entire previous calendar year). Employee's "annual compensation" shall also include the amount of the contributions made or anticipated to have been made on Employee's behalf to Washington Mutual's benefit plans for the calendar year in which the termination occurs, including without limitation contributions to pension plans and cafeteria plan. (e) Notwithstanding the foregoing, if any payment described in Section 6(c), together with any other payments or transfers of property, would constitute a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute then in effect, the aggregate payments by Washington Mutual or its successor pursuant to Section 6(c) shall be reduced to an amount that, when combined with any other payments or transfers of property taken into account under Section 280G, is one dollar less than the smallest sum that would be considered to be a "parachute payment." The foregoing notwithstanding, the reduction provided for in this paragraph shall be made only if it increases the amount received by Employee net of federal income, FICA and golden parachute excise taxes. 7. Continuation of Medical Insurance. If Employee's employment by Washington Mutual terminates for any reason (including early retirement) other than gross misconduct, Employee shall be entitled to continue to participate in Washington Mutual's self-funded group medical plan, at Employee's expense, to the extent provided in the plan and under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). 8. Death or Disability. If Employee should die or become disabled at any time during his or her employment hereunder this Agreement shall terminate and neither Employee nor anyone claiming by, through or under him or her shall be entitled to any further compensation or other sum under this Agreement (other than payments made by insurers under policies of life and disability insurance and any sums which may become available under any employee benefit plan). 9. Determination of Disability. If there should be any dispute between the parties as to Employee's physical or mental disability at any time, such question shall be settled by the opinion of an impartial reputable physician agreed upon for the purpose by the parties or their -3- 5 representatives or, failing agreement within ten days of a written request therefor by either party to the other, then one designated by the then President of the Washington State Medical Association. The certificate of any such physician as to the matter in dispute shall be final and binding on the parties. 10. Confidentiality. Employee agrees that information not generally known to the public to which Employee has been or will be exposed as a result of Employee's employment by Washington Mutual is confidential information that belongs to Washington Mutual. This includes information developed by Employee, alone or with others, or entrusted to Washington Mutual by its customers or others. Washington Mutual's confidential information includes, without limitation, information relating to Washington Mutual's trade secrets, know-how, procedures, purchasing, accounting, marketing, sales, customers, clients, employees, business strategies and acquisition strategies. Employee will hold Washington Mutual's confidential information in strict confidence and will not disclose or use it except as authorized by Washington Mutual and for Washington Mutual's benefit. 11. Possession of Materials. Employee agrees that upon conclusion of employment or request by Washington Mutual, Employee shall turn over to Washington Mutual all documents, files, office supplies and any other material or work product in Employee's possession or control that were created pursuant to or derived from Employee's services for Washington Mutual. 12. Change in Control. For purposes of this Agreement, "Change in Control" shall mean: (a) The acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date of this Agreement), other than Washington Mutual, a Subsidiary or any employee benefit plan of Washington Mutual or its Subsidiaries, of shares representing more than 25% of (i) the common stock of Washington Mutual, (ii) the aggregate voting power of Washington Mutual's voting securities or (iii) the total market value of Washington Mutual's voting securities; (b) During any period of 25 consecutive calendar months, a majority of the Board of Directors of Washington Mutual (the "Board") ceasing to be composed of individuals (i) who were members of the Board on the first day of such period, (ii) whose election or nomination to the Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of the Board or (iii) whose election or nomination to the Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of the Board; (c) The good-faith determination by the Board that any Person or group (other than a Subsidiary or any employee benefit plan of Washington Mutual or its Subsidiaries) has acquired direct or indirect possession of the power to direct or cause to direct the management or policies of Washington Mutual, whether through the ability to exercise voting power, by contract or otherwise; -4- 6 (d) The merger, consolidation, share exchange or similar transaction between Washington Mutual and another Person (other than a Subsidiary) other than a merger in which Washington Mutual is the surviving corporation; or (e) The sale or transfer (in one transaction or a series of related transactions) of all or substantially all of Washington Mutual's assets to another Person (other than a Subsidiary) whether assisted or unassisted, voluntary or involuntary. For purposes of the above definition of Change in Control: (f) "Person" shall mean any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof); and (g) "Subsidiary" shall mean a corporation that is wholly owned by Washington Mutual, either directly or through one or more corporations which are wholly owned by Washington Mutual. In the event of a Change in Control, this Agreement shall bind, and run to the benefit of, the successor to Washington Mutual resulting from the Change in Control. If, upon or within three years after a Change in Control (i) Employee shall be terminated for any reason or (ii) Employee shall resign for "good cause," Employee shall be entitled to the separation payments described in Section 6(c) above, subject to Section 6(e) above. For purposes of this Agreement, "good cause" for Employee to resign shall mean: (h) The assignment of duties to Employee which (i) are materially different from Employee's duties immediately prior to the Change in Control, or (ii) result in Employee having significantly less authority and/or responsibility than he or she had prior to the Change in Control, without his or her express written consent; (i) The removal of Employee from the position held immediately prior to the Change in Control, except where such removal is for cause (as defined below) or by reason of Employee's disability; (j) A reduction of Employee's base salary as in effect on the date of the Change in Control or as the same may be increased from time to time thereafter; (k) A reduction in the overall level of Employee's total compensation below the average total compensation paid by Washington Mutual to Employee for the 24 months immediately preceding the Change in Control; or -5- 7 (l) Any change in Employee's duties which would require him or her to relocate out of the Seattle area, without Employee's express written consent. For purposes of Section 12(i) of this Agreement, a removal of Employee from his or her position will be considered to be for "cause" if, but only if, the removal is because (i) Employee engages in abusive use of alcohol or other drugs on a continuing or recurring basis, (ii) Employee is convicted of any felony or of a misdemeanor involving moral turpitude (including forgery, fraud, theft or embezzlement), or is convicted or enters into a pretrial diversion or similar program in connection with the prosecution for an offense involving dishonesty, breach of trust or money laundering, or (iii) Employee has engaged in dishonesty, fraud, destruction or theft of property of Washington Mutual or an affiliate, physical attack to a fellow employee, willful malfeasance or gross negligence in the performance of his or her duties, or misconduct materially injurious to Washington Mutual or an affiliate. 13. Title. Although it is the intention of the parties that during the term of this Agreement Employee shall be an executive employee of Washington Mutual with the title and duties described in Section 2 above, it is specifically understood that the employment and the nature and situs of services to be rendered shall be subject to the authority of the Chairman, the President or the Board to change the same from time to time and at any time and to provide for the operation of Washington Mutual as specified by applicable banking laws and regulations. 14. Arbitration. Any dispute arising out of or relating to this Agreement or Employee's employment shall be submitted to binding arbitration (instead of being decided in court by a judge or jury) as follows: (a) Each party shall select one neutral arbitrator and the two arbitrators shall together select a third neutral arbitrator. If either party fails to promptly select an arbitrator, or if the two party-selected arbitrators do not promptly select the third arbitrator, the missing arbitrator(s) shall be selected by the Presiding Judge of the King County Superior Court. Each of the arbitrators shall be either a present or former senior executive or board member of a banking, financial or insurance company doing business in the State of Washington or a member of the Washington Bar with at least ten years experience in banking, financial or corporate law. (b) The arbitration shall proceed in Seattle under Washington law. To the extent not inconsistent with this Agreement, the arbitrators shall follow the American Arbitration Association ("AAA") Employment Dispute Resolution Rules effective on November 1, 1993, provided that the arbitration shall not be filed with or administered by the AAA or any other arbitration administrator. The arbitration shall be commenced by serving a written demand for arbitration on the other party, either personally or by both regular first class mail and certified mail, return receipt requested. (c) All pre-hearing matters shall be decided by the third arbitrator. Discovery shall be permitted only upon order of the third arbitrator after a showing of good cause (it being the -6- 8 intent of the parties to limit discovery to that which is reasonably necessary for preparation and presentation of this case). (d) In making the decision and award, the arbitrators shall apply applicable substantive law. On issues of state law, the substantive law (not including choice of law rules) of the state of Washington shall control. The arbitrators may award injunctive relief or any other remedy that would have been available in court. If a court, applying applicable substantive law, would be authorized to award punitive or exemplary damages, the arbitrators shall have the same power, but the arbitrators otherwise shall not award punitive or exemplary damages. All statutes of limitations that would apply in court shall apply in the arbitration. Questions about whether a dispute must be arbitrated shall be determined by the arbitrators. The arbitrators may require the losing party to pay some or all of the costs of the arbitration and the prevailing party's reasonable attorneys' fees. (e) Because of the interstate nature of Washington Mutual's business, this arbitration agreement is governed by the Federal Arbitration Act, 9 U.S.C. Section 1 et seq. (the "FAA"). The provisions of the FAA (and to the extent not preempted by the FAA, the provisions of Washington's arbitration statute, Chapter 7.04 RCW) are incorporated into this Agreement to the extent not inconsistent with the other terms of this Agreement. (f) The decision of the arbitrators shall be binding upon the parties and shall not be subject to judicial review, absent fraud or collusion involving the arbitrators, and judgment may be entered upon the award in the King County Superior Court if the same is not paid within thirty (30) days after the written decision of the arbitrators has been delivered to the parties. (g) The disputes that must be submitted to arbitration under this Agreement include, but are not limited to, pay disputes, wrongful termination disputes and discrimination, harassment or civil rights disputes, and include disputes with (i) Washington Mutual's direct and indirect subsidiaries and (ii) the employees and agents of Washington Mutual and of its direct and indirect subsidiaries so long as the employee or agent with whom the Employee has the dispute is also bound by or consents to this agreement to arbitrate. (h) Either party may request a court to issue such temporary or interim relief (including temporary restraining orders and preliminary injunctions) as may be appropriate, either before or after arbitration is commenced. The temporary or interim relief shall remain in effect pending the outcome of arbitration. No such request shall be a waiver of the right to submit any dispute to arbitration. 15. Miscellaneous. (a) This Agreement is the entire agreement between the parties and may not be modified or abrogated orally or by course of dealing, but only by another instrument in writing duly executed by the parties. This Agreement replaces and supersedes all prior agreements between the parties on these subjects, including without limitation that certain Employment Agreement dated -7- 9 as of January 1, 1994 between Employee, Washington Mutual Savings Bank and Washington Mutual, Inc. (b) This Agreement has been drafted in contemplation of and shall be construed in accordance with and governed by Washington law. Jurisdiction and venue of any action in connection with this Agreement shall be had exclusively in the Superior Court for King County, Washington or the U.S. District Court in Seattle. (c) In the event of any litigation arising out of this Agreement the losing party agrees to pay the prevailing party's reasonable attorneys' fees and costs including those incurred on appeal. (d) Employee acknowledges that this Agreement has been drafted by counsel for Washington Mutual, and that Employee has not relied upon such counsel with respect to this Agreement. (e) If a court of competent jurisdiction or governmental authority declares any term or provision hereof invalid, unenforceable or unacceptable, the remaining terms and provisions hereof shall be unimpaired and the invalid, unenforceable or unacceptable term or provision shall be replaced by a term or provision that is valid, enforceable and acceptable and that comes closest to expressing the intention of the invalid, unenforceable or unacceptable term or provision. (f) Employee may not assign, pledge or encumber his interest in this Agreement or any part thereof without the prior written consent of Washington Mutual. DATED for reference purposes the 1st day of January 1997 but effective as of January 1, 1995. WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC. By ___________________ Kerry K. Killinger Its Chairman EMPLOYEE: ___________________________ -8- EX-11.1 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 SELECTED FINANCIAL INFORMATION
Quarter Ended March 31, - ------------------------------------------------------------------------------------------ (dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------------------ (Unaudited) DATA USED TO COMPUTE PER SHARE AMOUNTS Net income $114,072 $88,807 Preferred stock dividends: Noncumulative Perpetual, Series C (1,569) (1,569) Noncumulative Perpetual, Series E (936) (936) Noncumulative Convertible Perpetual, Series D -- (2,100) ========================================================================================== Net income available to primary common stock $111,567 $84,202 ========================================================================================== Net income $114,072 $88,807 Preferred stock dividends: Noncumulative Perpetual, Series C (1,569) (1,569) Noncumulative Perpetual, Series E (936) (936) ========================================================================================== Net income available to fully diluted common stock $111,567 $86,302 ========================================================================================== Average common shares outstanding: Primary 120,277,744 111,797,730 Fully diluted 120,292,563 117,216,977
17 EX-27.1 4 FINANCIAL DATA SCHEDULE
9 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 530,373 2,270 0 2,804 8,942,084 2,807,352 2,947,030 32,598,178 367,215 46,051,025 24,298,521 9,083,807 510,391 9,730,463 0 113,695 843,539 1,470,763 46,051,025 619,496 206,843 394 826,733 257,712 252,068 316,953 15,526 0 192,632 184,184 114,072 0 0 114,072 0.93 0.93 2.89 240,173 0 94,743 237,031 363,442 20,300 286 367,215 84,834 0 282,381
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