1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1998.

[_] Transaction 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, address and 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 [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the issuer's classes of common stock as of
April 30, 1998.

COMMON STOCK - 258,060,967

WASHINGTON MUTUAL, INC.
MARCH 31, 1998 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Part I

Item 1. Financial Statements
Consolidated Statements of Income--
Three months ended March 31, 1998 and March 31, 1997............................ 1
Consolidated Statements of Financial Position--
March 31, 1998 and December 31, 1997............................................ 2
Consolidated Statements of Stockholders' Equity--
Three months ended March 31, 1998 and March 31, 1997............................ 3
Consolidated Statements of Cash Flows--
Three months ended March 31, 1998 and March 31, 1997............................ 4
Notes to the Consolidated Financial Statements.................................... 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
General........................................................................... 8
Results of Operations............................................................. 8
Review of Financial Position......................................................13
Asset Quality.....................................................................18
Market Risk and Asset/Liability Management........................................22
Liquidity.........................................................................23
Capital Adequacy..................................................................24
Impact of Recently Adopted Accounting Standards...................................24
Subsequent Events.................................................................24

Part II
Item 1. Legal Proceedings...............................................................25
Item 6. Exhibits and Reports on Form 8-K................................................25
(a) Exhibits.................................................................25
(b) Reports on Form 8-K......................................................25

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PART I

ITEM 1. FINANCIAL STATEMENTS

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)

INTEREST INCOME
Loans ....................................................... $ 1,357,305 $ 1,236,568
Available-for-sale securities ............................... 206,095 71,395
Held-to-maturity securities ................................. 234,403 271,582
Cash equivalents and other .................................. 28,849 35,871
----------- -----------
Total interest income ..................................... 1,826,652 1,615,416
INTEREST EXPENSE
Deposits .................................................... 515,901 537,488
Borrowings .................................................. 597,878 418,386
----------- -----------
Total interest expense .................................... 1,113,779 955,874
----------- -----------
Net interest income ........................................... 712,873 659,542
Provision for loan losses ..................................... 45,343 53,810
----------- -----------
Net interest income after provision for loan losses ........... 667,530 605,732
OTHER INCOME
Depositor and other retail banking fees .................... 92,308 82,673
Loan servicing fees ........................................ 14,821 23,176
Loan related income ........................................ 15,125 12,508
Securities fees and commissions ............................ 38,582 36,381
Insurance fees and commissions ............................. 11,849 12,599
Gain on sale of loans and leases ........................... 15,444 8,795
Gain on sale of other assets ............................... 3,321 7,165
Write down of loans securitized and retained ............... (7,266) (6,250)
Other operating income ..................................... 9,645 11,204
----------- -----------
Total other income ....................................... 193,829 188,251
OTHER EXPENSE
Salaries and employee benefits .............................. 189,439 203,267
Occupancy and equipment ..................................... 72,296 80,584
Telecommunications and outsourced information services ...... 49,188 43,226
Regulatory assessments ...................................... 9,477 8,643
Transaction-related expense ................................. 8,650 33,721
Amortization of intangible assets arising from acquisitions . 14,701 15,763
Foreclosed asset expense .................................... 876 3,642
Other operating expenses .................................... 97,591 106,250
----------- -----------
Total other expense ....................................... 442,218 495,096
----------- -----------
Income before income taxes .................................... 419,141 298,887
Income taxes ................................................ 158,469 114,803
Provision for payments in lieu of taxes ...................... 4,201 4,309
----------- -----------
NET INCOME .................................................... $ 256,471 $ 179,775
=========== ===========
Net income attributable to common stock ....................... $ 254,733 $ 173,847
=========== ===========
Net income per common share:
Basic ....................................................... $ 1.02 $ 0.72
Diluted ..................................................... 1.02 0.71

See Notes to Consolidated Financial Statements

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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)

MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS)

ASSETS
Cash ........................................................ $ 1,037,192 $ 1,285,222
Cash equivalents ............................................ 27,015 275,668
Trading securities .......................................... 130,912 23,364
Available-for-sale securities,
amortized cost $16,126,556 and $11,258,232.............. 15,057,318 10,188,107
Mortgage-backed securities ("MBS")
Investment securities ..................................... 1,189,932 1,185,815
Held-to-maturity securities,
fair value $12,612,245 and $12,699,653
MBS ....................................................... 12,368,181 12,659,217
Investment securities ..................................... 124,375 120,397
Loans
Loans held in portfolio ................................... 68,188,583 67,124,935
Loans held for sale ....................................... 1,286,547 685,716
Reserve for loan losses ................................... (673,172) (670,494)
------------ ------------
Total loans ............................................. 68,801,958 67,140,157
Investment in Federal Home Loan Banks ("FHLBs") ............. 1,103,629 1,059,491
Foreclosed assets ........................................... 198,597 205,272
Premises and equipment ...................................... 966,237 937,198
Intangible assets arising from acquisitions ................. 341,939 356,650
Mortgage servicing rights ................................... 221,695 215,360
Other assets ................................................ 1,554,928 1,329,181
------------ ------------
Total assets ............................................ $103,123,908 $96,981,099
============ ============
LIABILITIES
Deposits
Checking accounts ......................................... $ 8,382,782 $ 7,914,375
Savings accounts and money market deposit accounts ........ 15,404,138 14,940,045
Time deposit accounts ..................................... 27,526,132 28,131,597
------------ ------------
Total deposits .......................................... 51,313,052 50,986,017
Federal funds purchased and commercial paper ................ 4,208,718 2,928,282
Reverse repurchase agreements ............................... 14,414,500 12,279,040
Advances from FHLBs ......................................... 20,858,731 20,301,963
Trust preferred securities .................................. 800,000 800,000
Other borrowings ............................................ 2,714,490 2,689,362
Other liabilities ........................................... 3,377,418 1,687,364
------------ ------------
Total liabilities ......................................... 97,686,909 91,672,028
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 10,000,000 shares authorized
1,970,000 and 4,722,500 shares issued and outstanding,
liquidation preference .................................... 49,250 118,063
Common stock, no par value: 800,000,000 shares authorized --
257,887,741 and 257,560,018 shares issued and outstanding . --- ---
Capital surplus - common stock .............................. 1,957,552 1,943,294
Accumulated other comprehensive income ...................... 137,128 134,610
Retained earnings ........................................... 3,293,069 3,113,104
------------ ------------
Total stockholders' equity .............................. 5,436,999 5,309,071
------------ ------------
Total liabilities and stockholders' equity .............. $103,123,908 $96,981,099
============ ============

See Notes to Consolidated Financial Statements

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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)

PREFERRED STOCK
Balance, beginning of period ........................... $ 118,063 $ 283,063
Redemption of Preferred Stock, Series C................. (68,813) --
----------- -----------
Balance, end of period .................................. 49,250 283,063

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............................................... 14,186 32,806
Common stock issued under dividend reinvestment plan ... 72 847
Common stock repurchased ............................... -- (32,008)
----------- -----------
Balance, end of period ................................. 1,957,552 1,666,515

ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period ........................... 134,610 118,625
Other comprehensive income ............................. 2,518 (89,764)
----------- -----------
Balance, end of period ................................. 137,128 28,861

RETAINED EARNINGS
Balance, beginning of period ........................... 3,113,104 2,926,530
Net income ............................................. 256,471 179,775
Cash dividends declared on preferred stock ............. (1,738) (5,928)
Cash dividends declared on common stock ................ (74,768) (65,819)
----------- -----------
Balance, end of period ................................. 3,293,069 3,034,558
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................ $ 5,436,999 $ 5,012,997
=========== ===========

THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
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) --
-------- --------
Balance, end of period .............................. 1,970 5,383
======== ========

COMMON STOCK
Balance, beginning of period ........................ 257,560 250,231
Common stock issued through stock options, restricted
stock grants and employee stock plans, including
tax benefits ..................................... 327 995
Common stock issued under dividend reinvestment plan 1 20
Common stock acquired ............................... -- (901)
-------- --------
Balance, end of period .............................. 257,888 250,345
======== ========

See Notes to Consolidated Financial Statements

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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................ $ 256,471 $ 179,775
Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for loan losses .................................... 45,343 53,810
(Gain) on sale of loans and leases ............................ (15,444) (8,795)
(Gain) on sale of other assets ................................ (3,321) (7,165)
Depreciation and amortization ................................. 34,524 43,441
Stock dividends from FHLBs .................................... (17,709) (13,263)
Write downs of loans securitized and retained ................. 7,266 6,250
(Increase) in trading securities .............................. -- (1,157)
Originations of loans held for sale ........................... (3,026,777) (1,071,240)
Sales of loans held for sale .................................. 2,441,390 988,798
(Increase) in other assets .................................... (229,532) (125,236)
(Decrease) increase in other liabilities ...................... (126,001) 160,499
----------- -----------
Net cash (used) provided by operating activities ........... (633,790) 205,717

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities ........................ (5,662,666) (959,594)
Principal payments and maturities of available-for-sale securities 2,278,426 475,304
Sales of available-for-sale securities ............................ 296,661 882,548
Purchases of held-to-maturity securities .......................... (4,110) (3,386)
Principal payments and maturities of held-to-maturity securities .. 428,258 120,893
Sales of loans .................................................... 8,482 9,515
Originations of loans, net of principal payments .................. (1,442,490) (2,414,181)
Proceeds from sale of foreclosed assets ........................... 89,736 137,511
Purchases of premises and equipment, net........................... (48,956) (6,389)
----------- -----------
Net cash (used) by investing activities .................... (4,056,659) (1,757,779)

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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)

THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits ............................... $ 327,035 $ (210,090)
(Decrease) in annuities ....................................... -- (216)
Increase in federal funds purchased and commercial paper ...... 1,280,436 363,436
Increase (decrease) in short-term reverse repurchase agreements 2,005,890 (908,735)
Proceeds from long-term reverse repurchase agreements ......... 603,243 1,356,254
Repayments of long-term reverse repurchase agreements ......... (473,673) (435,834)
Proceeds from FHLB advances ................................... 15,380,261 11,270,989
Repayments of FHLB advances ................................... (14,823,493) (10,080,753)
Proceeds from trust preferred securities ...................... -- 300,000
Proceeds (repayments) from other borrowings ................... 25,128 (275,513)
Common stock repurchase ....................................... -- (32,008)
Common stock issued ........................................... 14,258 33,653
Redemption of preferred stock ................................. (68,813) --
Cash dividends paid ........................................... (76,506) (71,747)
------------ ------------
Net cash provided by financing activities ..................... 4,193,766 1,309,436
------------ ------------
(Decrease) in cash and cash equivalents ....................... (496,683) (242,626)
Cash and cash equivalents, beginning of period ................ 1,560,890 1,665,355
------------ ------------
Cash and cash equivalents, end of period ...................... $ 1,064,207 $ 1,422,729
============ ============

NONCASH INVESTING ACTIVITIES
Loans exchanged for MBS ....................................... $ 137,090 $ 66,862
Loans exchanged for trading securities ........................ 107,544 --
Real estate acquired through foreclosure ...................... 97,351 108,321
Loans originated to facilitate the sale of foreclosed assets .. 14,290 20,938
Loans originated to refinance existing loans .................. 1,407,683 288,624

CASH PAID DURING THE PERIOD FOR
Interest on deposits .......................................... 508,571 525,238
Interest on borrowings ........................................ 588,992 436,598
Income taxes .................................................. 66,033 957

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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: EARNINGS PER SHARE ("EPS")

Basic EPS excludes dilution and is computed by dividing income available
to common stockholders 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
------------------------------------------------------------------------
March 31, 1998 March 31, 1997
--------------------------------- ----------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amounts (numerator) (denominator) Amounts
---------- ------------ ------- ---------- ------------ -------
(dollars in thousands, except per share amounts)

Basic EPS:
Net income.................... $256,471 $179,775
Less: preferred stock dividends (1,738) (5,928)
-------- --------
Income available to common
shareholders............... 254,733 249,708,312 $1.02 173,847 241,876,355 $0.72
Diluted EPS:
Effect of dilutive securities:
Stock options.............. 1,017,031 3,307,817
-------- ----------- -------- -----------
Income available to common
shareholders and assumed
conversions................. $254,733 250,725,343 $1.02 $173,847 245,184,172 $0.71
======== =========== ========= ===========

NOTE 2: COMPREHENSIVE INCOME

Washington Mutual, Inc. ("Washington Mutual" or the "Company") 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 months ended March 31, 1998 and 1997, the Company's comprehensive
income was as follows:

Three Months Ended
----------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
(dollars in thousands)

Net income.................. $256,471 $179,775
Other comprehensive income.. 2,518 (89,764)
-------- ---------
Total comprehensive income $258,989 $ 90,011
======== =========

NOTE 3: THE AHMANSON MERGER

On March 17, 1998, Washington Mutual and H.F. Ahmanson & Company
("Ahmanson") announced the signing of a definitive merger agreement that would
create the nation's seventh-largest banking institution, based on total 1997
year-end assets of approximately $150 billion. Under the agreement, each share
of Ahmanson stock is to be exchanged for 1.12 shares of Washington Mutual common
stock. Subsequent to the signing of the agreement, the Company declared a
3-for-2 stock split. When such stock split becomes effective, each share of
Ahmanson common stock will convert into the right to receive 1.68 shares of
Washington Mutual common stock. The Ahmanson merger is expected to be accounted
for as a pooling of interests.

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NOTE 4: STOCK SPLIT

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 payable on June 1, 1998
to shareholders of record as of May 18, 1998.

NOTE 5: SEGMENT REPORTING

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 on January 1, 1998, and did not impact the results of operations or
financial position of the Company.

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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," "WMI" 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 real estate secured loans,
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 (the "Keystone
Transaction") 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 (the "Great Western Merger"), 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 March 17, 1998, Washington Mutual and H.F.
Ahmanson & Company ("Ahmanson") announced the signing of a definitive merger
agreement that would create the nation's seventh-largest banking institution,
based on total 1997 year-end assets of approximately $150 billion. Under the
agreement each share of Ahmanson stock is to be exchanged for 1.12 shares of
Washington Mutual common stock. Subsequent to the signing of the agreement, the
Company declared a 3-for-2 stock split. When such stock split becomes effective,
each share of Ahmanson common stock will convert into the right to receive 1.68
shares of Washington Mutual common stock. The Ahmanson merger is expected to be
accounted for as a pooling of interests.

The merger, which requires regulatory approval and the approval of both
companies' shareholders, is expected to close during the latter part of 1998.
Special meetings for the shareholders of both companies to consider the
transaction are expected to be held in the third quarter of 1998. The Company
expects to merge Ahmanson's subsidiary, Home Savings of America, FSB, into
WMBFA.

RESULTS OF OPERATIONS

Overview. The Company's net income for first quarter 1998 was $256.5
million compared with $179.8 million for first quarter 1997. The Company's net
income for first quarter 1998 was reduced by pretax charges of $8.7 million for
transaction-related expenses in connection with the Great Western Merger. The
Company's first quarter 1997 net income was reduced by pretax charges of $33.7
million in transaction-related expense related to the Great Western Merger.

Net Interest Income. Net interest income for the first quarter of 1998
was $712.9 million, an increase from $659.5 million in the first quarter of
1997. The net interest margin for the first quarter of 1998 was 2.96% compared
with 3.08% in the first quarter of 1997. (The net interest margin measures the
Company's annualized net interest income as a percentage of average earning
assets.)

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11

The first quarter 1998 increase in net interest income was due to a 13%
rise in average earning assets to $94.93 billion from $84.21 billion in the
first quarter of 1997, which more than offset the decline in the net interest
spread to 2.78% in first quarter 1998 from 2.91% in first quarter 1997. (The net
interest spread is the difference between the Company's yield on assets and its
cost of funds.) To a certain extent, the Company's net interest spread is
affected by changes in the yield curve. During the first 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 53 basis points compared with 160 basis points for
the same period a year earlier.

Selected average financial balances and the net interest spread and
margin were as follows:

Three Months Ended
----------------------------
March 31, March 31,
1998 1997
----------- -----------
(dollars in thousands)

Selected Average Balances:
Loans .............................. $68,217,014 $62,674,428
Investments ........................ 26,708,295 21,538,930
----------- -----------
Total interest earning assets .... 94,925,309 84,213,358

Deposits ........................... 50,769,603 52,363,008
Borrowings ......................... 40,733,951 28,853,943
----------- -----------
Total interest bearing liabilities 91,503,554 81,216,951

Total assets ....................... 98,880,487 86,879,354
Stockholders' equity ............... 5,349,788 5,004,857

Net Interest Spread:
Yield on loans ...................... 7.98% 7.91%
Yield on investments ................ 7.03 7.04

Combined yield on earning assets... 7.71 7.68

Cost of deposits .................... 4.12 4.16
Cost of borrowings .................. 5.95 5.88

Combined cost of funds ............ 4.93 4.77

Net interest spread ................. 2.78 2.91
Net interest margin ................. 2.96 3.08

9
12

Other Income. Other income was $193.8 million for first quarter 1998
compared with other income of $188.3 million for first quarter 1997.

Other income consisted of the following:

Three Months Ended
--------------------------
March 31, March 31,
1998 1997
--------- ---------
(dollars in thousands)

Depositor and other retail banking fees:
Checking account and money market deposit accounts ("MMDAs")
charges................................................... $ 77,656 $ 65,920
ATM transaction fees ....................................... 5,576 6,436
Other ...................................................... 9,076 10,317
--------- ---------
Total depositor and other retail banking fees ............ 92,308 82,673
Loan servicing fees .......................................... 14,821 23,176
Loan related income .......................................... 15,125 12,508
Securities fees and commissions .............................. 38,582 36,381
Insurance fees and commissions ............................... 11,849 12,599
Gain on sale of loans and leases:
Gain on sale of mortgage loans ............................. 15,277 7,253
Gain on sale of student loans .............................. 167 827
Gain on sale of leases ..................................... -- 715
--------- ---------
Total gain on sale of loans and leases ................... 15,444 8,795
Gain on sale of other assets:
Gain (loss) on sale of premises and equipment .............. (94) 6,840
Gain on sale of available-for-sale securities .............. 3,415 233
Gain on sale of trading securities ......................... -- 92
--------- ---------
Total gain on sale of other assets ....................... 3,321 7,165
Write down of loans securitized and retained ................. (7,266) (6,250)
Other operating income ....................................... 9,645 11,204
--------- ---------
Total other income ....................................... $ 193,829 $ 188,251
========= =========

Depositor and other retail banking fees of $92.3 million for the three
months ended March 31, 1998 increased from $82.7 million for the three months
ended March 31, 1997. The increase reflected an expanded collection of
nonsufficient funds ("NSF") charges and overdraft protection charges on checking
accounts and MMDAs and an increase in the number of checking accounts.

The growth in depositor and other retail banking fees has been offset
somewhat by deposit account-related losses (included in other operating expense)
incurred by the Company resulting from the increased number of checking
accounts. Management closely monitors the amount of such losses incurred.

Loan servicing fees of $14.8 million declined 36% from $23.2 million in
the first quarter of 1997. The decline reflected an increase in the amortization
of mortgage servicing rights by approximately $5.0 million during the first
quarter of 1998 compared with the first quarter of 1997. The increased
amortization was due to the higher rate of prepayment in the loan servicing
portfolio.

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For the first quarter of 1998, the Company had a net gain on the sale of
loans and leases of $15.4 million compared with $8.8 million for the quarter
ended March 31, 1997. Due to the increase in fixed-rate loan production
resulting from the relatively low interest rate environment, the Company sold
$2.31 billion of fixed-rate single family residential ("SFR") loans.

Included in the gain on sale of premises and equipment for first quarter
1997 was the $4.2 million gain associated with the sale of branch premises at
GWB.

Impairment charge offs on mortgage-backed securities ("MBS") are
reported in the line item -- Write down of loans securitized and retained -- as
a charge to earnings in other income. Write downs on loans securitized and
retained were $7.3 million for first quarter 1998 up from $6.3 million for the
quarter ended March 31, 1997. The increase in write-downs was due to an increase
in the size of the MBS with recourse portfolio.

Other Expense. Other expense for first quarter 1998 totaled $442.2
million compared with $495.1 million for first quarter 1997.

Other expense consisted of the following:

Three Months Ended
-------------------------
March 31, March 31,
1998 1997
------------ -----------
(dollars in thousands)

Salaries and employee benefits............................... $189,439 $203,267
Occupancy and equipment:
Premises and equipment..................................... 53,940 59,246
Data processing............................................ 18,356 21,338
--------- ---------
Total occupancy and equipment............................ 72,296 80,584
Telecommunications and outsourced information services....... 49,188 43,226
Regulatory assessments....................................... 9,477 8,643
Transaction-related expense.................................. 8,650 33,721
Amortization of intangible assets arising from acquisitions.. 14,701 15,763
Foreclosed asset expense..................................... 876 3,642
Other operating expenses:
Advertising and promotion.................................. 20,517 16,392
Postage.................................................... 12,702 12,339
Operating losses and settlements........................... 11,662 13,627
Professional fees.......................................... 7,943 14,546
Office supplies............................................ 4,925 5,114
Other...................................................... 39,842 44,232
---------- ---------
Total other operating expenses........................... 97,591 106,250
---------- ---------
Total other expense...................................... $442,218 $495,096
======== ========

As a result of the Great Western Merger, the Company recorded
transaction-related expense of $8.7 million for first quarter 1998 and $33.7
million for first quarter 1997. For first quarter 1998, the majority of the
charges were for one time nonrecurring incremental costs associated with
combining entities, which are being expensed as incurred. These charges were
partially offset by a pre-tax reduction of $8.3 million in the estimate of
contract exit fees. For first quarter 1997, the majority of transaction-related
expense were for various investment banking and legal fees.

Salaries and employee benefits decreased to $189.4 million for the first
quarter of 1998 from $203.3 million for the first quarter of 1997. Full-time
equivalent employees ("FTE") were 19,207 at March 31, 1998 compared with 20,149
at March 31, 1997. The decrease in FTEs was primarily due to employee
separations in connection with the Great Western Merger and the restructuring
plan at GWFC. However, this decrease was mitigated by increasing staffing levels
throughout the Company to support its growth.

11
14

The Company expected total staff reductions related to the Keystone
Transaction and the Great Western Merger (inclusive of the GWFC restructuring
plan) of approximately 2,850. As of March 31, 1998, approximately 2,050 employee
separations had occurred under these plans.

Prior to the proposed Ahmanson merger, offices used by the Company on
the Chatsworth campus were being consolidated in order to make more efficient
use of building space. The Company had anticipated that approximately 565,000
square feet, located predominately in six buildings, would become available for
sub-leasing to third parties. However, as a result of the proposed Ahmanson
merger, it is now anticipated that the Chatsworth Campus will be utilized by the
Company.

Reconciliation of the transaction-related expense and accrual activity
during 1998 was as follows:

1998 Activity Three Months
December 31, 1997 Charged March 31, 1998 Ended
Accrued Against Accrued March 31, 1998
Balance Accrual Balance Period Costs
----------------- ------------- ------------ ----------------
(dollars in thousands)

Severance............. $ 93,104 $(21,792) $ 71,312 $ --
Premises.............. 57,304 (3,552) 53,752 --
Legal, underwriting
and other direct
transaction costs.... 742 (271) 471 --
Contract cancellation
costs............... 33,699 (10,060) 23,639 (7,190)
Other................. 11,243 (3,540) 7,703 15,840
-------- --------- -------- -------
Total............. $196,092 $(39,215) $156,877 $ 8,650
======== ========= ======== =======

Year 2000. Washington Mutual is implementing a program to test and
document the readiness of its electronic systems, programs and processes to
recognize properly the year 2000. While the Company does not believe that the
process of making its systems, programs and processes ready for year 2000 will
result in a material cost, it is expected that a substantial amount of
management and staff time will be required on the year 2000 project. In
addition, the Federal Financial Institutions Examinations Council (the "FFIEC")
issues periodic guidelines that clarify federal regulatory requirements for the
testing and documentation of the readiness of an insured depository
institution's electronic systems, programs and processes to recognize properly
the year 2000. The FFIEC has recently published guidelines that require
additional date testing of systems, programs and processes. These recent
guidelines will cause the Company to perform additional work and incur
additional expense in order to be in complete compliance with regulatory
requirements. There can be no assurance that such recent guidelines will not
require additional work or cause the Company to incur additional expenses beyond
those that are currently contemplated by Washington Mutual or delay the
completion of Washington Mutual's Year 2000 preparations. In addition, 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 preparations. No assurance can be
given that the completion of the year 2000 project will proceed as anticipated
or that the results of operations of the Company will not be adversely affected
by difficulties and delays in these projects.

Taxation. Income taxes include federal and applicable state income
taxes. The provision for income taxes was $162.7 million for the first quarter
1998, which represented an effective tax rate of 38.81% as compared with a
39.85% effective tax rate for first quarter 1997.

12
15

Consumer Finance Operations. During first quarter 1998, the consumer
finance line of business had net income of $12.3 million, up from $10.7 million
in first quarter 1997. Contributing to the improvement was a 5% increase in the
loan portfolio and the corresponding increase in interest income. Nonperforming
assets were slightly higher in the first quarter 1998, compared with the first
quarter 1997, but showed an improvement from year-end 1997. The increase in
charge offs and loan loss provision reflected, in part, the growth of the
loan portfolio and a continued high level of personal bankruptcies. The loan
loss provision increased to $18.0 million in first quarter of 1998 from $15.4
million in first quarter of 1997.

Three Months Ended
------------------------
March 31, March 31,
1998 1997
-------- --------
(dollars in thousands)

Consumer finance operations:
Net interest income................................. $68,142 $61,828
Provision for loan losses........................... 18,000 15,400
Other income........................................ 10,462 9,971
Other expense....................................... 40,110 38,569
------- -------
Net income before income taxes...................... 20,494 17,830
Income taxes........................................ 8,200 7,100
------- -------
Net income........................................ $12,294 $10,730
======= =======

REVIEW OF FINANCIAL POSITION

Assets. At March 31, 1998, the Company's assets were $103.12 billion, an
increase of 6% from $96.98 billion at December 31, 1997. Most of the growth
during the first quarter of 1998 resulted from the purchase of agency MBS in the
secondary market. The Company's loan portfolio grew only slightly as first
quarter 1998 loan originations were offset by principal paydowns and sales. It
is the Company's current practice to sell the majority of its fixed-rate loan
production.

Interest-earning assets. The Company's interest-earning assets consisted
of the following:

March 31, December 31,
1998 1997
------------ ------------
(dollars in thousands)

Cash equivalents ............... $ 27,015 $ 275,668
Securities:
Trading securities ........... 130,912 23,364
Available-for-sale securities:
MBS ........................ 15,057,318 10,188,107
Investment securities ...... 1,189,932 1,185,815
Held-to-maturity securities:
MBS ........................ 12,368,181 12,659,217
Investment securities ...... 124,375 120,397
------------ ------------
28,870,718 24,176,900
Loans:
Loans held in portfolio ...... 68,188,583 67,124,935
Loans held for sale .......... 1,286,547 685,716
Reserve for loan losses ...... (673,172) (670,494)
------------ ------------
68,801,958 67,140,157
Investment in FHLBs ............ 1,103,629 1,059,491
------------ ------------
$ 98,803,320 $ 92,652,216
============ ============

13
16

Securities. The Company's trading, available-for-sale and
held-to-maturity securities consisted of the following (at carrying value):

March 31, December 31,
1998 1997
----------- -----------
(dollars in thousands)

Agency MBS....................................... $25,224,625 $20,781,456
Private-issue MBS................................ 2,328,736 2,088,248
U.S. government and agency securities .......... 550,940 530,566
Corporate debt securities........................ 471,979 478,823
Municipal securities............................. 104,129 100,150
Equity securities................................ 191,245 196,673
----------- -----------
28,871,654 24,175,916
Derivative instruments........................... (936) 984
----------- -----------
$28,870,718 $24,176,900
=========== ===========

The Company's securities portfolio increased by $4.69 billion during
the first three months of 1998 due to the purchase of agency MBS in the
secondary market. The majority of these purchases were placed in the
available-for-sale portfolio. Securities classified as trading increased by
$107.5 million due to securitization of loans, which were subsequently sold in
second quarter of 1998.

At March 31, 1998, 87% of MBS in the Company's securities portfolio were
adjustable rate. Of the securities indexed to an adjustable rate, 73% were
indexed to the Cost of Funds Index ("COFI") of the Eleventh District Federal
Home Loan Bank ("FHLB"), 20% to U.S. Treasury indices, and 7% to LIBOR. The
remaining 13% of MBS were fixed rate.

14
17

Loans. Total loans (exclusive of the reserve for loan losses) at March
31, 1998 were $69.48 billion, up from $67.81 billion at December 31, 1997.
Changes in the loan balances are primarily driven by originations of new loans,
prepayments of existing loans, scheduled repayments of principal, loan
securitizations and sales.

Loans (exclusive of the reserve for loan losses) consisted of the
following:

March 31, December 31,
1998 1997
----------- -----------
(dollars in thousands)

Loans:
Real estate loans:
SFR............................................ $54,876,334 $53,431,451
SFR construction............................... 874,108 877,449
Apartment buildings............................ 4,169,206 4,187,580
Other commercial real estate................... 2,381,430 2,425,961
----------- -----------
62,301,078 60,922,441
Manufactured housing, second mortgage and
other consumer................................. 4,097,491 3,806,337
Consumer finance................................. 2,271,688 2,309,407
Commercial business.............................. 804,873 772,466
----------- -----------
$69,475,130 $67,810,651
=========== ===========
Loans as a percentage of total loans
(exclusive of the reserve for loans losses):
SFR.............................................. 79% 79%
SFR construction................................. 1 1
Apartment buildings.............................. 6 6
Other commercial real estate..................... 3 4
Manufactured housing, second mortgage and other
consumer...................................... 7 6
Consumer finance................................. 3 3
Commercial business.............................. 1 1
--- ---
100% 100%
=== ===

Real estate loans by product type were as follows:

March 31, 1998 December 31, 1997
------------------------- -----------------------------
Percent of Percent of
Total Real Total Real
Amount Estate Loans Amount Estate Loans
----------- ------------- ------------ ------------
(dollars in thousands)

Short-term adjustable-rate mortgages ("ARMSs"):
COFI......................................... $30,856,139 50% $32,108,461 53%
MTA.......................................... 2,273,204 4 1,602,123 3
CMT.......................................... 3,644,600 6 3,800,156 6
Other........................................ 4,516,731 7 4,553,499 7
----------- --- ----------- ---
41,290,674 67 42,064,239 69
Medium-term ARMs:
CMT.......................................... 4,153,825 6 4,135,947 7
COFI......................................... 1,141,788 2 1,244,357 2
MTA.......................................... 3,688,721 6 2,880,587 5
----------- --- ----------- ---
8,984,334 14 8,260,891 14
Fixed-rate mortgages........................... 12,026,070 19 10,597,311 17
----------- --- ----------- ---
$62,301,078 100% $60,922,441 100%
=========== === =========== ===

Number of real estate loans.................... 517,093 513,417

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.

15
18

Loan originations were as follows:

Three Months Ended
----------------------------
March 31, March 31,
1998 1997
---------- ----------
(dollars in thousands)

Real estate loans:
SFR:
Adjustable rate................................ $2,962,108 $2,631,727
Fixed rate..................................... 3,964,732 1,369,450
---------- ----------
6,926,840 4,001,177
SFR construction:
Custom......................................... 152,721 168,342
Builder........................................ 149,482 157,169
Apartment buildings.............................. 123,061 134,589
Other commercial real estate..................... 99,606 86,400
---------- ----------
524,870 546,500
Manufactured housing............................. 55,510 62,885
Second mortgage and other consumer............... 391,268 376,814
Consumer finance................................. 513,621 463,914
Commercial business.............................. 212,930 148,404
---------- ----------
1,173,329 1,052,017
---------- ----------
$8,625,039 $5,599,694
========== ==========

SFR originations by product type were as follows:

Three Months Ended
March 31, 1998
---------------------------------------------
Percent Percent
of of
Amount Category Total
---------- --------- -------
(dollars in thousands)

Short-term ARMs:
MTA.......................... $ 908,333 65% 13%
COFI......................... 323,021 23 5
CMT.......................... 133,551 10 2
Other........................ 23,434 2 --
---------- --- ---
1,388,339 100% 20
===
Medium-term ARMs:
MTA.......................... 1,002,951 64% 14
CMT.......................... 388,416 25 6
Other........................ 182,402 11 3
---------- --- ---
1,573,769 100% 23
===
Fixed-rate mortgages........... 3,964,732 57
---------- ---
$6,926,840 100%
========== ===

The strong housing market and attractive interest rates led to record
loan production which included a significant amount of refinance activity during
first quarter 1998. As a result of borrower preference for fixed-rate mortgages,
fixed-rate loan production accounted for 57% of total SFR originations in first
quarter 1998 compared with 34% in first quarter 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 on wholesale
borrowings to fund its asset growth.

16
19

Deposits. Total deposits were $51.31 billion at March 31, 1998, up from
$50.99 billion at December 31, 1997.

Deposits consisted of the following:

March 31, December 31,
1998 1997
------------- ------------
(dollars in thousands)

Checking accounts:..............................
Interest bearing.............................. $ 4,372,614 $4,380,133
Noninterest bearing........................... 4,010,168 3,534,242
----------- -----------
8,382,782 7,914,375
Savings accounts................................ 3,359,470 3,267,732
MMDAs........................................... 12,044,668 11,672,313
Time deposit accounts:
Due within one year........................... 23,501,379 23,411,811
After one but within two years................ 2,439,377 2,746,532
After two but within three years.............. 543,696 879,090
After three but within four years............. 566,433 546,680
After four but within five years.............. 393,093 462,110
After five years.............................. 82,154 85,374
----------- -----------
27,526,132 28,131,597
----------- -----------
$51,313,052 $50,986,017
=========== ===========

Time deposit accounts in amounts of $100,000 or more totaled $6.08
billion at March 31, 1998 and $5.74 billion at December 31, 1997. At March 31,
1998, $1.98 billion of these deposits mature within three months, $1.42 billion
mature in three to six months, $1.77 billion mature in six months to one year,
and $912.0 million mature after one year.

The absence of significant growth in deposits 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, MMDAs and checking accounts have increased as
a percentage of total deposits. These latter two products have the benefit of
lower interest costs compared with time deposit accounts. Even though 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.

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. The Company's borrowings primarily take the form of federal
funds purchased, commercial paper, 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.

Borrowings consisted of the following:

March 31, December 31,
1998 1997
------------ -------------
(dollars in thousands)

Federal funds purchased and commercial paper .... $ 4,208,718 $ 2,928,282
Reverse repurchase agreements.................... 14,414,500 12,279,040
Advances from FHLBs.............................. 20,858,731 20,301,963
Trust preferred securities....................... 800,000 800,000
Other borrowings................................. 2,714,490 2,689,362
----------- -----------
$42,996,439 $38,998,647
=========== ===========

17
20

The following summarizes borrowings by date of maturity as of March 31,
1998:

Due within After one
one year year Total
------------- ------------ -----------
(dollars in thousands)

Federal funds purchased and commercial paper.... $ 4,208,718 $ -- $ 4,208,718
Reverse repurchase agreements................... 8,465,412 5,949,088 14,414,500
Advances from FHLBs............................. 6,047,000 14,811,731 20,858,731
Trust preferred securities...................... -- 800,000 800,000
Other borrowings................................ 734,758 1,979,732 2,714,490
----------- ----------- ----------
$19,455,888 $23,540,551 $42,996,439
=========== =========== ===========

To fund the growth in mortgage lending and the purchase of agency MBS on
the secondary market, the Company utilized wholesale borrowings which resulted
in an increase of $4.00 billion in borrowing at March 31, 1998 compared with
December 31, 1997. Specifically, due to relative pricing advantages, the Company
increased its borrowings primarily through the use of reverse repurchase
agreements and federal funds during the quarter.

ASSET QUALITY

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 an adequate reserve for loan losses inherent in the Company's loan
portfolio. The Company's determination of the level of the reserve and,
correspondingly, the provision for loan losses rests upon various judgments and
assumptions, including 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 the regulatory examination process. The Company has an Officer's Loan
Committee ("OLC") that reports to the Board of Directors and continuously
reviews loan quality. The Company also has its internal staff regularly review
the classification of commercial loans and report such classifications to the
OLC. These reviews assist management in establishing reserve levels.
Examinations by the Company's primary regulators generally occur annually and
target various activities of the Company, including specific segments of the
loan portfolio. As a result of the Company's analysis discussed above, the
Company's reserve and provision declined from $688.0 million and $53.8 million
in first quarter 1997 to $673.2 million and $45.3 million in first quarter 1998.

18
21

Changes in the reserve for loan losses were as follows:

Three Months Ended
------------------------
March 31, March 31,
1998 1997
-------- --------
(dollars in thousands)

Balance, beginning of period........... $670,494 $677,141
Provision for loan losses.............. 45,343 53,810
Reserves added through business
combinations......................... -- 8,261
Loans charged off:
SFR.................................. (15,205) (27,112)
Commercial real estate............... (3,623) (5,348)
Manufactured housing, second
mortgage and other consumer........ (6,580) (4,646)
Consumer finance..................... (22,105) (19,239)
Commercial business.................. (1,031) (125)
-------- --------
(48,544) (56,470)
Recoveries of loans previously charged off:
SFR.................................. 419 278
Commercial real estate............... 658 438
Manufactured housing, second
mortgage and other consumer........ 385 372
Consumer finance..................... 4,273 4,139
Commercial business.................. 144 47
-------- --------
5,879 5,274
-------- --------
Net charge offs........................ (42,665) (51,196)
-------- --------
Balance, end of period................. $673,172 $688,016
======== ========

As part of the process of determining the adequacy of the reserve for
loan losses, management reviews the loan portfolio for specific weaknesses. A
portion of the reserve is then either specified or allocated to reflect the
identified loss exposure. SFR and consumer loans are not individually analyzed
for impairment and loss exposure because of the significant number of loans and
their relatively small individual balances. Commercial real estate, commercial
business and builder construction loans are evaluated individually for
impairment. At March 31, 1998, the Company had specific or allocated reserves
totaling $87.6 million. Specific and allocated reserves were $90.5 million at
December 31, 1997.

Unallocated reserves are established for loss exposure that is not yet
identified but may exist in the remainder of the loan portfolio. In determining
the adequacy of unallocated reserves, management considers changes in the size
and composition of the loan portfolio, historical loan loss experience, current
and anticipated economic conditions, and the Company's credit administration and
asset management philosophies and procedures.

An analysis of the reserve for loan losses was as follows:

March 31, December 31,
1998 1997
-------- --------
(dollars in thousands)

Specific and allocated reserves:
Commercial real estate...................... $ 80,348 $ 84,969
Commercial business......................... 5,230 3,277
Builder construction........................ 2,009 2,207
-------- --------
87,587 90,453
Unallocated reserves.......................... 585,585 580,041
-------- --------
$673,172 $670,494
======== ========
Total reserve for loan losses as a percentage of:
Nonaccrual loans............................ 111% 112%
Nonperforming assets........................ 84 83

19
22

The Company considers the reserve for loan losses of $673.2 million
adequate to cover losses inherent in the loan portfolio at March 31, 1998.
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.

In addition to reviewing the adequacy of the reserve for loan losses,
management also reviews any loan pool where the Company has a recourse
obligation resulting from securitization of its loans. The Company has recorded
an impairment to cover potential losses on this portfolio. At March 31, 1998,
the Company had securitized $14.68 billion of loans with recourse. The related
impairment totaled $38.0 million at March 31, 1998.

The Company also maintains a contingent liability to cover potential
losses on recourse MBS and loans that have been sold with recourse to third
parties. At March 31, 1998, the Company had sold $1.86 billion of recourse MBS
and loans sold with recourse, and the contingent liability totaled $9.8 million,
which the Company considers adequate to cover estimated future losses.

Both the impairment and contingent liability are evaluated periodically
and any subsequent adjustments are recorded as a write down on loans
securitized and retained. Increases to the contingent liability for off balance
sheet items are recorded as gains on sales of loans and leases.

Delinquent Assets. The Company regularly reviews its portfolio of
accruing and performing loans for delinquencies. Loans with two or three
delinquent payments were as follows:

March 31, 1998 December 31, 1997
--------------------- ----------------------
Percent Percent
of of
Amount Portfolio Amount Portfolio
-------- --------- -------- ---------
(dollars in thousands)

Delinquent loans(1):
SFR............................ $536,570 0.77% $499,638 0.73%
SFR construction............... 10,007 1.14 9,143 1.04
Commercial real estate......... 18,948 0.25 30,685 0.34
Manufactured housing........... 26,397 2.44 24,647 2.28
Second mortgage and other
consumer..................... 32,670 1.08 55,121 2.02
Consumer finance............... 61,024 2.69 68,814 2.98
Commercial business............ 2,752 0.34 1,013 0.13
-------- --------
$688,368 0.81 $689,061 0.81
======== ========

______________

(1) Loans that have been securitized or sold for which the Company
retains the credit risk are also included.

20
23

Nonperforming Assets. Assets considered to be nonperforming include
nonaccrual loans and securities, foreclosed assets and real estate held for
investment properties that do not generate sufficient income to meet return on
investment criteria. When loans securitized or sold on a recourse basis are
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 uncollectable in whole or in part. Loans are generally
placed on nonaccrual status when they are four payments or more past due.

Nonperforming assets were $802.6 million or 0.78% of total assets at
March 31, 1998 compared with $806.7 million or 0.83% of total assets at December
31, 1997.

Nonperforming assets consisted of the following:

March 31, 1998 December 31, 1997
-------------- -----------------
(dollars in thousands)

Nonaccrual loans:
Real estate loans:
SFR................................... $480,518 $469,127
SFR construction...................... 11,385 10,413
Apartment buildings................... 16,440 17,296
Other commercial real estate.......... 21,274 25,825
--------- --------
529,617 522,661
Manufactured housing.................. 11,526 11,127
Second mortgage and other consumer.... 11,743 14,071
Consumer finance...................... 48,719 50,930
Commercial business................... 2,429 2,585
--------- --------
604,034 601,374
Foreclosed assets......................... 198,597 205,272
--------- --------
$802,631 $806,646
========= ========
Nonperforming assets as a percentage of total assets 0.78% 0.83%

The increase in consumer finance delinquencies, charge offs and loan
loss provision reflected, in part, the growth of the portfolio but also a
decline in the credit quality of the portfolio.

Impaired Loans. Commercial real estate, commercial business and builder
construction loans are individually evaluated for impairment. A loan in one of
these categories is considered impaired when it is (i) probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement, or (ii) a substandard loan, whether or not performing.
Factors involved in determining impairment include, but are not limited to, the
financial condition of the borrower, the value of the underlying collateral, and
current economic conditions.

At March 31, 1998, loans totaling $519.4 million were impaired, of which
$442.2 million had allocated reserves of $87.6 million. The remaining $77.1
million were either nonperforming or previously written down and had no reserves
allocated to them. Of the $519.4 million of impaired loans, $41.8 million were
on nonaccrual status.

21
24

The amount of impaired loans and the related allocate reserve for loan
losses were as follows:

March 31, 1998 December 31, 1997
--------------------- --------------------
Loan Allocated Loan Allocated
Amount Reserves Amount Reserves
-------- --------- --------- ---------
(dollars in thousands)

Nonaccrual loans:
With allocated reserves........ $ 23,804 $ 6,979 $ 33,980 $ 7,760
Without allocated reserves..... 18,035 -- 15,481 --
-------- ------- -------- -------
41,839 6,979 49,461 7,760
Other impaired loans:
With allocated reserves........ 418,446 80,608 420,662 82,693
Without allocated reserves..... 59,077 -- 81,160 --
-------- ------- -------- -------
477,523 80,608 501,822 82,693
-------- ------- -------- -------
Total impaired loans.......... $519,362 $87,587 $551,283 $90,453
======== ======= ======== =======

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:

March 31, December 31,
1998 1997
------------ -------------
(dollars in thousands)

Interest-sensitive assets............................... $78,872,975 $ 74,938,422
Derivative instruments designated against assets........ 300,000 1,450,000
Interest-sensitive liabilities.......................... (76,271,914) (70,204,799)
Derivative instruments designated against liabilities... 608,800 1,078,400
----------- -----------
Net asset sensitivity................................. $ 3,509,861 $ 7,262,023
=========== ===========
One-year gap............................................ 3.40% 6.50%

While the one-year gap helps provide some information about a financial
institution's interest 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.

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25

Asset and Liability Strategy.

The Company's asset/liability strategy is to reduce the risk of
significant decreases in net interest income caused by interest-rate changes
without unduly penalizing current earnings. The implementation of strategies to
reduce interest-rate risk, however, generally has a negative effect on earnings.
Nevertheless, rising interest rates or a flat yield curve adversely affect the
Company's operations. Management tries to balance these two factors in
administering its interest-rate risk program. As part of this strategy, the
Company actively manages asset and liability maturities. An inherent
characteristic of the Company's deposit structure is customers' preference for
liquidity. This is apparent from the fact that at March 31, 1998 the Company's
MMDAs accounted for $12.04 billion or 23% of total deposits, and time deposit
accounts with maturities less than one year totaled $23.43 billion or 46% of
total deposits. Because its principal funding source of deposits is
interest-rate sensitive, the Company's primary asset strategy is to originate
and retain ARMs in the portfolio. During the first quarter of 1998 and 1997, the
Company either sold or securitized and then sold the majority of the fixed-rate
loans it originated, while retaining most of its ARM production. At March 31,
1998, 87% of the Company's total MBS and 81% of the Company's total loan
portfolio had adjustable 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.

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, 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 FDIC as benchmarks for liquidity management. At March
31, 1998, WMB's ratios were above the minimums established by its Board of
Directors. Regulations promulgated by the OTS require that the Company's federal
savings banks maintain, for each calendar month, certain liquidity ratios. At
March 31, 1998, each of the Company's federal savings banks' liquidity ratios
was in excess of the regulatory minimums.

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 first quarter 1998 of $256.5 million, $69.4 million for
noncash items offset by $959.7 million of other net cash flows used in operating
activities. Cash flows from investing activities consisted mainly of both
proceeds from and purchases of securities, and loan principal repayments and
loan originations. For the first quarter 1998, cash flows from investing
activities included sales and principal payments on securities and loans held
for investment totaling $3.01 billion. Loans originated, net of principal
payments, required $1.44 billion, and $5.67 billion was used for the purchase of
securities. 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 first quarter 1998, the above
mentioned financing activities increased cash and cash equivalents by $4.32
billion on a net basis. Cash and cash equivalents were $1.06 billion at March
31, 1998. See "Consolidated Financial Statements -- Consolidated Statements of
Cash Flows."

At March 31, 1998, the Company was in a position to obtain approximately
$28.00 billion in additional borrowings primarily through the use of
collateralized borrowings and deposits of public funds using unpledged MBS and
other wholesale sources.

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26

CAPITAL ADEQUACY

The Company's capital (stockholders' equity) was $5.44 billion at March 31, 1998
and $5.31 billion at December 31, 1997. At the end of first quarter 1998, the
ratio of capital to total assets was 5.27% 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:

MARCH 31, 1998
--------------------------------- WELL-CAPITALIZED
WMBFA WMB WMBfsb MINIMUM
---------- ---------- ---------- ---------------

Capital ratios:
Leverage...................... 5.69% 5.92% 6.57% 5.00%
Tier 1 risk-based............. 9.86 9.99 10.46 6.00
Total risk-based.............. 11.41 10.74 11.62 10.00

The Company's federal savings bank subsidiaries are also required by OTS
regulations to maintain core capital of at least 3.00% of assets and tangible
capital of at least 1.50% of assets. WMBFA and WMBfsb each satisfied these
requirements at March 31, 1998.

The Company's securities subsidiaries are also subject to capital
requirements. At March 31, 1998, all of Washington Mutual's securities
subsidiaries were in compliance with their applicable capital requirements.

IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS

SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, was issued in June 1996 and established,
among other things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for as a
sale or as a pledge of collateral in a secured borrowing. As issued, SFAS No.
125 was effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. In December
1996, the Financial Accounting Standards Board ("FASB") issued SFAS No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125.
SFAS No. 127 defers for one year the effective date of certain provisions of
SFAS No. 125. The Company has implemented SFAS No. 125, as amended by SFAS No.
127. The adoption did not have a material impact on the results of operations or
financial position of the Company.

SFAS No. 130, Reporting Comprehensive Income was issued in June 1997 and
requires businesses to disclose comprehensive income and its components in their
financial statements. This statement does not affect the results of operations
or financial position of the Company. SFAS No. 130 was adopted on January 1,
1998. See Consolidated Financial Statements - Note 2: Comprehensive Income.

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 on January 1, 1998, and did not impact the results of operations or
financial position of the Company.

SFAS No. 132, Employers' Disclosure about Pensions and Other
Postretirement Benefits was issued February 1998 and standardizes the disclosure
requirements for pensions and other postretirement benefits. Disclosure
requirements for December 31, 1998 will not have a material impact on the result
of operations or the financial position of the Company.

SUBSEQUENT EVENTS

Stock Split

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 payable on June 1, 1998
to shareholders of record as of May 18, 1998.

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27
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 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS
See Index of Exhibits on page 27.

(B) REPORTS ON FORM 8-K

A current report on Form 8-K dated March 17, 1998, as amended,
March 18, 1998 containing Items 2 and 7 was filed with the Securities and
Exchange Commission, and included under Item 2 a description of the merger (the
"Merger") of H.F. Ahmanson & Company with and into Washington Mutual, Inc. and a
discussion regarding forward looking statements and factors to be considered.
The report on Form 8-K, as amended, also included under item 7 the following
exhibits: (i) Press Release dated March 17, 1998 announcing the Merger, (ii)
copies of slides presented to investment analysts at a meeting on March 17,
1998, and (iii) the Agreement of Merger dated March 16, 1998 between Washington
Mutual, Inc. and H.F. Ahmanson & Company.

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28

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 May 14, 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)

26
29
WASHINGTON MUTUAL, INC.

INDEX OF EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- -----------

3.1 Restated Articles of Incorporation of the Registrant, as amended
(the "Articles") (Incorporated by reference to the
Washington Mutual, Inc. Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended December 31,
1997, as amended on April 1, 1998). (File No. 0-25188).

3.2 Bylaws of the Registrant (Incorporated by reference to the
Washington Mutual, Inc. Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended December 31,
1995. File No. 0-25188).

10.1 Agreement and Plan of Merger between Washington Mutual, Inc. and
H.F. Ahmanson & Company ("Ahmanson") dated March 16, 1998
(Incorporated by reference to the Washington Mutual, Inc. Current
Report on Form 8-K dated March 17, 1998, as amended March 18,
1998).

10.2 Stock Option Agreement between Washington Mutual, Inc. and
Ahmanson, dated March 16, 1998.

27 Financial Data Schedule.