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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.
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(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)
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(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
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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
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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.
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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
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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)%
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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.
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Changes in the reserve for loan losses were as follows:
Three Months Ended March 31,
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(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
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$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.
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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
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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.
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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
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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