UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2000
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 1-14667
WASHINGTON MUTUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1653725
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
1201 THIRD AVENUE, SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 461-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock New York Stock Exchange
8% Corporate Premium Income Equity Securities New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 2, 2001:
COMMON STOCK -- $28,799,686,768(1)
(1) Does not include any value attributable to 12,000,000 shares that are held in escrow and not traded.
The number of shares outstanding of the issuer's classes of common stock as
of March 2, 2001:
COMMON STOCK -- 583,802,776(2)
(2) Includes the 12,000,000 shares held in escrow.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held April 17, 2001, are incorporated by reference into Part III.
WASHINGTON MUTUAL, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I...................................................... 1
ITEM 1. BUSINESS.......................................... 1
Overview............................................... 1
Banking and Financial Services Group................... 1
Home Loans and Insurance Services Group................ 3
Specialty Finance Group................................ 6
Treasury Division...................................... 7
Employees.............................................. 8
Competitive Environment................................ 8
Factors That May Affect Future Results................. 9
Business Combinations.................................. 11
Taxation............................................... 11
Environmental Regulation............................... 12
Regulation and Supervision............................. 13
Principal Officers..................................... 24
ITEM 2. PROPERTIES........................................ 25
ITEM 3. LEGAL PROCEEDINGS................................. 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................ 26
PART II..................................................... 26
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS......................................... 26
ITEM 6. SELECTED FINANCIAL DATA........................... 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 29
Overview............................................... 29
Results of Operations.................................. 30
Review of Financial Condition.......................... 35
Provision and Allowance for Loan and Lease Losses...... 38
Operating Segments..................................... 42
Asset and Liability Management Strategy................ 43
Liquidity.............................................. 45
Capital Adequacy....................................... 46
Recently Issued Accounting Standards Adopted in These
Financial Statements.................................. 46
Recently Issued Accounting Standards Not Yet Adopted... 47
Tax Contingency........................................ 47
Goodwill Litigation.................................... 48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................ 49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 51
PART III.................................................... 51
PART IV..................................................... 51
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.................................... 51
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PART I
ITEM 1. BUSINESS
OVERVIEW
With a history dating back to 1889, Washington Mutual, Inc. is a financial services company committed to serving consumers and small to mid-sized businesses. Based on our consolidated assets at December 31, 2000, we were the largest savings institution and the seventh largest banking company in the United States.
Our principal business offices are located at 1201 Third Avenue, Seattle, Washington 98101 and our telephone number is (206) 461-2000. When we refer to "we" or "Washington Mutual" or the "Company" in this Form 10-K, we mean Washington Mutual, Inc., and its consolidated subsidiaries. When we refer to WMI, we mean Washington Mutual, Inc. exclusively.
Our business operations are conducted by our subsidiaries. Our principal banking subsidiaries are Washington Mutual Bank, FA ("WMBFA"), Washington Mutual Bank ("WMB") and Washington Mutual Bank fsb ("WMBfsb"). Our other principal subsidiaries are Washington Mutual Finance Corporation ("Washington Mutual Finance"), Long Beach Mortgage Company ("Long Beach Mortgage") and WM Financial Services, Inc. ("WMFS").
Our assets have grown over the last five years primarily through acquisitions. In 1996, we acquired Keystone Holdings, Inc., the parent of American Savings Bank, F.A. ("ASB"). This acquisition, referred to as the "Keystone Transaction," gave us our first depository institution in California. In 1997, we acquired Great Western Financial Corporation ("Great Western") and in October 1998, we acquired H.F. Ahmanson & Co. ("Ahmanson"). In February 1998, Ahmanson had acquired Coast Savings Financial, Inc. (the "Coast Acquisition").
On January 31, 2001, we acquired the mortgage operations of The PNC Financial Services Group, Inc. The principal subsidiaries acquired in that transaction were renamed Washington Mutual Home Loans, Inc. ("WMHLI") and Washington Mutual Mortgage Securities Corp. ("WMMSC").
On February 9, 2001, we acquired Texas-based Bank United Corp., which was merged into Washington Mutual, Inc. As a result, all of the subsidiaries of Bank United Corp., including Bank United, a federally chartered savings bank, became our subsidiaries. Bank United was subsequently merged into WMBFA.
As a result of the acquisitions described above, our company has been transformed into a national financial services company. Although we operate principally in California, Washington, Oregon, Florida, Texas and Utah, we have physical operations in 42 states.
Effective January 1, 2001, we realigned our business segments. The following discussion of our business portrays our business as it is now being managed. Separately, we are in the process of enhancing our segment reporting process methodologies and allocations and will be reporting segment results under the new methodologies and as realigned beginning with the first quarter of 2001.
These business segments are:
- Banking and Financial Services Group
- Home Loans and Insurance Services Group
- Specialty Finance Group
- Treasury Division
BANKING AND FINANCIAL SERVICES GROUP
Our Banking and Financial Services Group ("Banking & FS") offers a comprehensive line of consumer and business financial products and services to individuals and small and middle market businesses. We provide service to approximately five million households through multiple delivery channels: over 1,100 finan-
cial centers (both free-standing and in-store), including 35 business banking centers, and over 1,600 automated teller machines located in eight states. We also offer our customers the convenience of 24-hour telephone and internet banking and investment services.
Our strategy is to expand our base of consumer and business relationships by combining national convenience with local customer service and a broad-based product line. In addition to traditional banking products, we offer investment management, securities brokerage services and annuity products through our subsidiaries and affiliates. In May 2000, we launched our own web complex, made up of our banking site, wamu.com; Invest1to1.com and wmfinancial.com, which provide on-line financial planning and stock trading; and wmgroupoffunds.com, featuring WM Group of Funds information and interaction with investors and financial advisors. In partnership with our Home Loans & Insurance Services Group, mortgage loans and insurance products are made available through our financial centers.
Banking & FS offers various consumer and business deposit products, as well as a variety of value-added, fee-based banking services. Deposit products offered include checking accounts, savings accounts, money market deposit accounts ("MMDAs") and time deposit accounts. Fee-based services include, but are not limited to:
- payment choices, including debit card, pay-by-phone, on-line banking, money orders, bank checks, and traveler's checks,
- a membership program featuring free checks, a variety of product discounts, shopping and travel services, and credit card protection service, and
- safety deposit box rentals.
A primary focus of the Banking & FS Group in 2000 was the opening of financial centers in Las Vegas with project Occasio(TM) (Latin for "favorable opportunity"), which features a completely new retail approach to banking. Occasio(TM) provides Banking & FS an additional vehicle for expanding into new market areas where acquisition opportunities may be limited. Based on the favorable customer acceptance and strong results in Las Vegas, we will expand into Phoenix beginning in 2001 and will open a total of approximately 40 financial centers in Phoenix throughout 2001 and 2002. Occasio(TM) financial centers welcome customers in an open, free-flowing retail environment where they can either interact with roaming customer service representatives or become engaged by high-tech, self-help, touch screens. Occasio(TM) focuses on the customer and how the customer chooses to be served. Customers can also log onto Washington Mutual's home page, which provides links to all of our internet products and services.
One of Banking & FS's primary business objectives is to expand consumer and business lending activities, as they generally offer higher yields than prime mortgage lending activities. The size of our consumer and commercial business loan portfolio has grown in recent years, partly due to the introduction of the consumer lending product line in California, Florida and Texas and the expansion of WM Business Bank in California. The following consumer loan products are available through our financial centers:
- second mortgage loans, both for purposes unrelated to the property securing the loan and for a variety of purposes related to the property, including its renovation or remodeling,
- manufactured housing loans,
- purchase money loans for automobiles, marine and recreational vehicles,
- student loans,
- loans secured by deposit accounts, and
- secured and unsecured loans made under our line of credit or term loan programs.
We offer a full line of business loan products and banking services through our Western Bank offices in the northwest and WM Business Bank offices in California. We concentrate on developing and maintaining
strong client relationships with small and mid-sized companies. Our core business customers are companies with $5 million to $100 million in sales. We provide the following loan products to our business customers:
- business lines of credit,
- working capital loans,
- equipment loans,
- loans secured by real estate, and
- Small Business Administration ("SBA") loans.
We also offer an array of banking services to our business customers including:
- international trade finance,
- deposit, cash, and treasury management services, and
- merchant bankcard services.
Commercial business loans are made on a secured or unsecured basis. Collateral for secured commercial loans may be business assets, real estate, personal assets, or some combination thereof. Our decision to make a consumer or commercial loan is based on an evaluation of the borrower's financial capacity, including such factors as income, other indebtedness and credit history; company performance, in the case of commercial loans; and collateral.
The merger with Bank United Corp. enhances our presence in the State of Texas. Prior to the merger, our operations served more than 125,000 households through 48 financial centers in and around Dallas and Houston. The merger with Bank United Corp. adds over 300,000 households and approximately 160 financial centers to our Texas presence and expands our market coverage into the Austin and San Antonio markets. The merger with Bank United Corp. strengthens our market position for business lending in Texas, as well as nationally through SBA lending offices located in some of the nation's most attractive geographic markets.
Our investment services are offered through: (1) WMFS, a licensed broker-dealer, (2) WM Fund Advisors, Inc. ("WM Advisors") providing investment advisory and distribution services for the WM Group of Funds, and (3) the Annuity Program. At December 31, 2000, WMFS was licensed in 49 states and Puerto Rico and operated in the eight states where our financial centers are located. Over 500 financial consultants and 800 licensed bank employees provide investment services to retail customers.
WM Advisors, our registered investment advisor subsidiary, had $8.21 billion of assets under management in 17 mutual funds, five asset management portfolios, and one variable annuity at December 31, 2000. The WM Group of Funds is managed both by WM Advisors and by three subadvisors. The WM Group of Funds is distributed through our financial centers and is also distributed through a network of over 400 broker-dealers and independent financial advisors. The Annuity Program utilizes over 800 licensed bank employees who sell fixed annuities to our customers.
HOME LOANS AND INSURANCE SERVICES GROUP
The Home Loans and Insurance Services Group ("Home Loans Group") originates, purchases and services the single-family residential ("SFR") mortgage assets of WMBFA, WMB, WMBfsb, and Long Beach Mortgage. This group also includes the activities of Washington Mutual Insurance Services, Inc., an insurance agency that supports the mortgage lending process, as well as the insurance needs of all consumers doing business with us.
The Home Loans Group's mission is to be the premier catalyst for affordable homeownership, using our proprietary approach to home lending encompassed in our branding, the Power of Yes(TM). The goal of the Home Loans Group is to be the nation's leading mortgage lender. We will measure our success by our origination and servicing market share, our profitability, and brand awareness.
During 2000, the Home Loans Group announced partnerships with two electronic mortgage origination companies to develop a mortgage origination and decision-making platform known as Optis(TM). This system will be available in all of our distribution channels, which will allow consumers to conduct business with us according to their preferences. In the third quarter of 2000, we re-launched www.wamumortgage.com. The new site possesses a more robust recommendation engine, numerous calculators, interactive customer service, and provides 24-hour customer access to the status of their loan application.
As of December 31, 2000, the Home Loans Group served about 1.2 million households throughout the United States by providing a wide range of mortgage financing products. Our principal banking subsidiaries offer first mortgage loan products that provide permanent home financing as well as loans for the construction of single-family homes. Permanent loans made available to consumers include conventional fixed-rate and adjustable-rate mortgage ("ARM") loans, FHA-insured, VA-guaranteed fixed-rate mortgage loans, and both fixed- and adjustable-rate Jumbo (loan amounts in excess of $275,000) loans. All loan products are offered with a variety of maturities, amortization schedules and, in the case of ARMs, rate repricing frequencies.
The primary ARM products that we offer are indexed to the 12-month average of the annual yields on actively traded United States Treasury securities adjusted to a constant maturity of one-year ("MTA"). Under our current programs, a borrower may choose among loans that have interim payment caps or interim interest rate caps.
Our loans with payment caps typically have monthly rate adjustments with initial start rates fixed for one-, three-, six-, or twelve-months. We often offer a "teaser" rate with our payment-capped ARMs, which means the initial start rate of the loan is below market rates. These loans offer our borrowers payment flexibility not offered in other loan products, which has made this our most popular home-financing product. The loans feature four payment options each month: a minimum payment based on the start rate; a payment that covers the full interest due; a payment that ensures full amortization over the term of the loan; and a payment that amortizes the loan over 15 years. These loans typically have payments that we cannot change annually by more than a contractual percentage, usually 7.5%. In addition, we offer loans with fixed initial start rates for one-, three-, or five-years and annual rate adjustments thereafter. The annual rate adjustments are usually limited to 2% and the payments are always re-amortized to the remaining maturity of the loan. In addition, we offer each of our loan products with a prepayment premium as well as at a different rate without a prepayment premium.
These mortgage products are made available to consumers through various distribution channels, which include retail home loan centers, wholesale home loan centers, financial centers and the internet. For 2000, based on total originations, the Home Loans Group was the nation's largest ARM lender as well as the nation's largest Jumbo lender. In addition, the Home Loans Group was the nation's fifth largest residential lender and sixth largest residential loan servicer.
Two of our primary business objectives are to stabilize income and diversify revenues. To achieve these objectives, we have implemented a three-point strategy to generate: (1) spread income from loans held in portfolio; (2) fee income through loan servicing, loan-related fees, and insurance services income; and (3) gains from sales of loans and mortgage-backed securities ("MBS").
The acquisitions of Bank United Corp. and the mortgage operations of The PNC Financial Services Group, Inc. further diversify our mortgage operations geographically, enhance our position in the home loan business, and build our loan servicing portfolio. These acquisitions make us the nation's second largest residential mortgage originator and fourth largest servicer of residential mortgages based on pro forma numbers for the year ended December 31, 2000. They enhance our position by giving us a stronger capability to originate loans in all 50 states, including originating FHA-insured and VA-guaranteed loans on a national scale. With the acquisition of WMMSC, we also obtained an improved capability to securitize loans and sell the resulting MBS in the secondary market and to generate fee income through master servicing activities.
Originations of prime SFR loans (excluding SFR construction loans) increased during 2000, fueled particularly by originations of short-term ARMs, which reprice primarily on a monthly basis according to the index (e.g., MTA, 11th District monthly weighted average cost of funds index ("COFI")) to which the
ARMs are tied. The increase in short-term ARM originations was attributable to the higher interest rate environment during the first half of 2000 and the resulting customer preference for short-term ARMs over fixed-rate loans.
We generally sell the fixed-rate SFR loans we originate. Most of the fixed-rate conforming mortgage loans are sold to Fannie Mae. In addition, we securitize loans that are also sold to Fannie Mae. We use our own underwriting standards and origination system to originate loans.
We occasionally securitize loans through Fannie Mae and Freddie Mac under programs in which they have recourse against us as the servicer of the loans ("Recourse MBS"). These securitizations primarily involve ARMs. They generally are less costly and sometimes require less documentation than securitizations without recourse ("Non-Recourse MBS"). We can either sell Recourse MBS in the secondary market or use them to collateralize borrowings and to meet regulatory liquidity requirements. We have retained the majority of Recourse MBS in our portfolio.
The Home Loans Group has also been developing ways of selling ARM loans in the secondary market to complement our existing strategy of selling fixed-rate loans. Selling ARM loans in the secondary market will allow us to manage asset growth more efficiently and should reduce the volatility of income related to loans during changing interest rate environments. To achieve optimum pricing, current ARM production that is not retained in the loan portfolio will either be sold to investors shortly following origination or securitized and retained in the available-for-sale securities portfolio for a period of time, and then sold as Non-Recourse MBS. We expect to be able to increase the amount of noninterest income relative to net interest income through gains on sales of loans and MBS as well as loan servicing income.
Through Long Beach Mortgage, we are engaged in the business of originating, purchasing and selling specialty mortgage loans. Long Beach Mortgage originates loans primarily through wholesale channels of production. Long Beach Mortgage's nationwide network of independent mortgage loan brokers generates loans in all 50 states and the District of Columbia. In 2000, none of Long Beach Mortgage's wholesale brokers was responsible for more than 1% of Long Beach Mortgage's wholesale originations during the year. Long Beach Mortgage maintains a close working relationship with brokers through its sales force of approximately 280 account executives located in 59 offices.
Long Beach Mortgage has followed a strategy of selling or securitizing and selling substantially all of its loan originations in the secondary market. Long Beach Mortgage has historically sold its entire economic interest in the loan except for the related servicing rights, which it has generally retained. In 2000, Long Beach Mortgage began securitizing and selling its production while retaining rights to residual cash flows in the securities created.
The Home Loans Group also purchases loan portfolios with risk characteristics similar to those of loans originated by Long Beach Mortgage. Because these portfolios, as well as those of Long Beach Mortgage, tend to have higher credit risk, they generally provide higher yields than the prime mortgage loans made by our banking subsidiaries and WMHLI. Our typical borrowers within these portfolios would generally not qualify for a loan from our banking subsidiaries due to their credit history, higher debt-to-income ratio or other factors. While we screen these portfolios for unacceptable credit risk, these loans, by their nature, bear more credit risk than is found in prime mortgage loans or in agency MBS. Accordingly, we expect that loan charge offs on these portfolios will be higher over time than on our other mortgage portfolios.
In addition to SFR mortgage loans, the Home Loans Group also offers construction financing on SFR properties. We make custom construction loans to the intended occupant of a house to finance the house's construction. We typically combine construction phase financing with permanent financing of the completed home.
All loans originated are subject to the same nondiscriminatory underwriting standards. All loans are subject to underwriting review and approval by various levels of our personnel, depending on the size and characteristics of the loan. We require title insurance on all first liens on real property securing loans. We also require our borrowers to maintain property and casualty insurance in an amount at least equal to the total of
our loan amount plus all prior liens on the property or the replacement cost of the property, whichever is less. We perform re-underwriting and appraisal review on some of the loans acquired from our correspondents.
Washington Mutual Insurance Services, Inc. is an insurance agency that supports the mortgage lending process by offering fire, homeowners, flood, earthquake and other property and casualty insurance products to borrowers. In addition, the agency offers mortgage life insurance, accidental death and dismemberment, term, whole life, and other life insurance products to existing mortgage and deposit customers. The Washington Mutual Insurance Services, Inc. website, wamuins.com, was launched in October 2000, providing information, quotes, and buying capabilities over the internet.
SPECIALTY FINANCE GROUP
The Specialty Finance Group conducts operations through WMBFA, WMB, WMBfsb, and Washington Mutual Finance. An array of commercial products are offered to our customers through our group, all under the Washington Mutual brand name. Additionally, consumer finance products are offered through Washington Mutual Finance.
The Specialty Finance Group provides industry specialty financing for the following business sectors: syndicated finance, asset-based finance, and franchise finance. In each of these areas, we have developed specialized expertise that allows us to serve our markets efficiently while at the same time ensuring high credit quality from a diverse group of customers.
The merger with Bank United Corp. complements our plans to grow our commercial business portfolio and extends our market presence into some of the nation's most attractive geographic markets, including Texas. Like our existing business, Bank United Corp. offers a full line of commercial products and services to businesses across the nation. Lending programs added as a result of the merger with Bank United Corp. include mortgage banker finance, and energy and healthcare lending.
The Specialty Finance Group provides real estate secured financing for commercial and multi-family real estate lending and residential builder construction. As a result of the merger with Bank United Corp., the Group also provides non-real estate secured lending activities, as previously mentioned. In addition, the Specialty Finance Group provides loan servicing for these lending activities.
Commercial and multi-family real estate loans are offered to property owners and developers through 19 Washington Mutual commercial real estate offices in Washington, Oregon, Utah, Colorado, and California. The payment experience on loans secured by income-producing properties usually depends on the successful operations of the real estate projects that secure the loans and, thus, may be subject to adverse conditions in the real estate market or in the economy, particularly the interest rate environment. Commercial real estate values tend to be cyclical and, while commercial real estate values trended upward in many parts of the country in 2000, we closely monitor the commercial real estate environment to determine the appropriate level of our activity in this area. In commercial real estate lending, we consider the project's location, marketability, and overall attractiveness. Current underwriting guidelines for commercial real estate loans require an economic analysis of each property with regard to the annual revenue and expenses, debt service coverage, and fair value to determine the maximum loan amount. Before we make a commercial real estate loan, various levels of approvals must be obtained depending on the size and characteristics of the loan.
Residential builder construction provides loans to borrowers who are in the business of acquiring land and building homes for resale. Each builder loan is made on a property-by-property basis and generally matures one to three years from origination. Proper consideration is given to the higher risk inherent in these transactions as each loan is underwritten. During 2000, substantially all of our SFR builder construction loans were made in Washington, Oregon, Utah, Florida, and California. The addition of Bank United Corp.'s residential builder construction business qualifies us as one of the largest builder construction lenders in the nation and diversifies our geographic market presence.
Mortgage banker finance provides small- and medium-sized mortgage and consumer finance companies with credit facilities, including secured lines of credit, securities purchased under agreements to resell and
working capital credit lines. Mortgage banker finance also offers cash management, document custody, and deposit services to its customers.
Washington Mutual Finance currently operates 533 branches in 25 states, primarily in the southeastern United States, Texas and California. Washington Mutual Finance originates and services consumer installment loans and real estate secured loans. These loans, which are generally held in the loan portfolio, are primarily for personal, family or household purposes. These loans typically have original terms ranging from 12 to 360 months. In 2000, originations had an average original term of 74 months. Of the originations (in dollars) in 2000, 70% were unsecured or secured by luxury goods, automobiles or other personal property, and 30% were secured by real estate. Additionally, Washington Mutual Finance acquires installment contracts from local retail establishments, usually without recourse to the originating merchant. These contracts are typically written with original terms of three to 60 months, averaging 28 months in 2000.
The loans made by Washington Mutual Finance generally have a higher yield than the prime mortgage loans made by our banking subsidiaries, because these loans tend to have higher credit risk. Our typical consumer finance borrower would generally not qualify for a loan from our banking subsidiaries due to their credit history, high debt-to-income ratio or other factors.
TREASURY DIVISION
The primary responsibilities of our treasury division are:
- interest rate risk management,
- liquidity management,
- investing activities,
- borrowing activities, and
- capital management.
Interest Rate Risk Management
We actively manage the amounts and maturities of our assets and liabilities to mitigate repricing and prepayment risks. We sell fixed-rate loans, since they are difficult to match in duration to liabilities because of prepayment risk and longer maturities. To further mitigate repricing risk, prepayment risk, and to a lesser extent cap risk, we use derivative instruments, such as interest rate exchange agreements and interest rate cap agreements. See "Management of Interest Rate Risk and Derivative Activities." We do not attempt to hedge lag or basis risk because the impacts of these risks are usually short-lived and the cost of hedging is high.
To monitor the sensitivity of earnings to interest rate changes, we conduct financial modeling of the balance sheet and earnings under a variety of interest rate scenarios. This modeling does require significant assumptions about loan prepayment rates, loan origination volumes and liability funding sources. While these assumptions may ultimately differ from actual results, these simulations are helpful for measuring interest rate sensitivity. We monitor interest rate sensitivity and attempt to reduce the risk of a significant decrease in net interest income caused by a change in interest rates. We also monitor the impact of interest rate changes on our net portfolio value.
Liquidity Management
Our liquidity policy is to maintain sufficient liquidity above daily funding needs to protect against unforeseen liquidity demands. We manage liquidity primarily through the securitization of mortgage loans and through various sources of borrowings, including securities sold under agreements to repurchase ("repurchase agreements"), Federal Home Loan Bank ("FHLB") advances, and other secured and unsecured sources of funds.
Investing Activities
We manage the Company's purchased investment securities, which are primarily comprised of agency MBS and investment grade private MBS. During 2000, our purchases of MBS declined, since the MBS had acceptable, but lower returns than loans originated by us and held in our portfolio or securitized and retained.
Borrowing Activities
To keep pace with asset growth in recent years, we have increasingly relied on wholesale borrowings to fund asset growth. Borrowings include repurchase agreements, the purchase of federal funds, the issuance of capital notes and other types of debt securities, the issuance of commercial paper, and funds obtained as advances from the FHLBs of Seattle and San Francisco. We also have access to the Federal Reserve Bank's discount window.
We actively engage in repurchase agreements with authorized broker-dealers and major customers, selling U.S. Government debt securities and MBS under agreements to repurchase them at a future date.
WMB and WMBfsb are members of the FHLB of Seattle, and WMBFA is a member of the FHLB of San Francisco. As members, each company maintains a credit line that is a percentage of its total regulatory assets, subject to collateralization requirements. Each institution obtaining FHLB advances is required to enter into a written agreement with the lending FHLB under which the borrowing institution is primarily and unconditionally obligated to repay such advances and all other amounts owed to the lending FHLB. All advances must be fully secured by eligible collateral. Eligible collateral includes all stock owned of the FHLBs, deposits with the FHLBs, and certain mortgages or deeds of trust and securities of the U.S. Government and its agencies.
Our depository institutions accept deposits, primarily time deposit accounts, from political subdivisions and public agencies. We consider these deposits to be a borrowing source rather than a customer relationship and, hence, they are managed by the treasury division.
Other funding activities include the issuance of commercial paper by WMI and Washington Mutual Finance. We have commercial paper facilities backed by combined credit facilities from a syndicate of banks. We also issue senior and subordinated debt at WMI and WMBFA, and senior notes at Washington Mutual Finance.
Capital Management
In order to deploy accumulated capital, we repurchased our common stock during the first half of 2000. From April 20, 1999, the inception of the repurchase program, through June 30, 2000, we repurchased a total of 66.3 million shares as part of our previously announced purchase programs. We did not repurchase any shares during the last half of 2000. During this time, capital was accumulated to facilitate balance sheet growth and accommodate the acquisitions of Bank United Corp. and the mortgage operations of The PNC Financial Services Group, Inc. Our capital management strategy also focuses on the risk-based capital and leverage ratios of our principal banking subsidiaries.
EMPLOYEES
Our number of full-time equivalent employees ("FTE") at December 31, 2000 was 28,798, a slight increase from 28,509 at December 31, 1999. During the previous year, the number of FTE also increased slightly from 27,957 at December 31, 1998, primarily as a result of approximately 1,000 employees added in the acquisition of Long Beach Mortgage. We believe that we have been successful in attracting quality employees and that our employee relations are good.
COMPETITIVE ENVIRONMENT
We operate in a highly competitive environment. The activities of our three major lines of business (Banking and Financial Services, Home Loans and Insurance Services, and Specialty Finance) are subject to
significant competition in attracting and retaining deposits and making loans as well as in providing other financial services in all of our market areas. Competition focuses on customer services, interest rates on loans and deposits, lending limits and customer convenience, such as product lines offered and the accessibility of services.
Our most direct competition for deposits has historically come from savings institutions, credit unions and commercial banks doing business in our primary market areas of California, Washington, Oregon, Florida, Texas and Utah. Enacted in 1999, the Gramm-Leach-Bliley ("GLB") Act does not increase our authority to affiliate, but it does benefit our competitors, as discussed below. See "Business -- Regulation and Supervision." As with all banking organizations, we have also experienced competition from nonbanking sources, including mutual funds, corporate and governmental debt securities and other investment alternatives offered within and outside of our primary market areas.
Our most direct competition for loans has traditionally come from other savings institutions, national mortgage companies, insurance companies, commercial banks and government-sponsored enterprises ("GSEs"). In addition to the provisions of the GLB Act, technological advances and heightened e-commerce activities have also increased accessibility to services without physical presence, which has intensified competition among banking as well as nonbanking companies in offering financial products and services. Although our competitors' activities may make it a bigger challenge for us to achieve our financial goals, we are continuously reassessing our overall competitive edge to attract more customers for our products and services.
With the changes in technology and increased competition from banking as well as from nonbanking entities, the traditional environment in which we have operated in the past has been transformed into a fiercely dynamic and competitive environment. Although we are faced with increased competitive pressures, we remain adaptable to these changes by continuously reviewing and redefining the ways in which we do our business and, as a result, we remain a strong market force in our core areas.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, we have made and will make forward-looking statements. Our Form 10-K and other documents that we file with the Securities and Exchange Commission have forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media, and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words, such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs, such as "will," "would," "should," "could," or "may."
Forward-looking statements provide our expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. These statements speak only as of the date they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. There are a number of factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements.
Some of these factors are described below.
Business and Economic Conditions
Our business and earnings are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, the strength of the U.S. economy, and the local economies in which we conduct business. If any of these conditions worsen, our business and earnings could be adversely affected. For example, if interest rates continue to decline, this could increase loan prepayments, which could lead to a decline in the value of our mortgage servicing rights. An economic downturn or rising interest rate
environment could decrease the demand for loans and increase the number of customers who become delinquent or default on their loans. An increase in delinquencies or defaults could result in a higher level of charge offs and provision for loan and lease losses, which could adversely affect our earnings. Higher interest rates would also increase our cost of interest-bearing liabilities, which could outpace the increase in the yield on interest-earning assets and lead to a reduction in the net interest margin.
Diversification of Assets
We have reduced the percentage of SFR loans and MBS in our portfolio and increased the percentage of consumer loans, commercial business loans and specialty mortgage finance loans. Although these loans generally provide a higher yield than our SFR loans and MBS, they also carry more credit risk. To the extent that we need to increase our provision for loan and lease losses as a result of these loans, our earnings could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") -- Provision and Allowance for Loan and Lease Losses" in this Form 10-K for more specific discussion.
Concentration of Operations in California
At December 31, 2000, 52% of our loan portfolio and 71% of our deposits were concentrated in California. As a result, our results of operations and financial condition are particularly subject to the conditions in the single-family and multi-family residential markets in California. If economic conditions generally, or in California in particular, worsen or if the market for residential real estate declines, we may experience greater delinquencies, which may result in decreased net income and decreased collateral values on our existing portfolio. We also may not be able to originate the volume or type of loans or achieve the level of deposits that we currently anticipate.
The forward-looking statements contained within MD&A assume that the California economy and real estate market will remain healthy. Worsening of economic conditions or a significant decline in real estate values in California could have a materially adverse effect on our results of operations and financial condition.
Competition
We face significant competition both in attracting and retaining deposits and in making loans in all of our markets. As with all banking organizations, we have also experienced competition from nonbanking sources, including mutual funds and securities brokerage companies. We expect increased competition in the financial services industry as a result of recent legislation that removes many of the restrictions on affiliations among banks, insurance companies, and securities firms. Our most direct competition for loans comes from other savings institutions, national mortgage companies, insurance companies, commercial banks, and government-sponsored enterprises ("GSEs"), such as Fannie Mae and Freddie Mac. Competition from such sources could increase in the future and could adversely affect our ability to achieve our financial goals. In addition, competitive factors, such as the lower cost structure of less-regulated originators and the influence of the GSEs in establishing rates, heavily influence our lending activities.
Fiscal and Monetary Policies
Our business and earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board's policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict.
Mergers and Acquisitions
We expand our business, in part, by acquiring other financial institutions or a portion of their business. We continue to explore opportunities to acquire other financial institutions that will complement and enhance our key strategies. A number of factors related to past and future acquisitions could adversely affect our
business and earnings. In addition, our acquisitions are often subject to regulatory approval. The failure to receive required regulatory approvals within the time frame or on the conditions expected by management could also adversely affect our business and earnings.
BUSINESS COMBINATIONS
Most of our growth since 1988 has occurred as a result of business combinations. The following table summarizes our business combinations since 1988:
ACQUISITION NAME DATE ACQUIRED LOANS DEPOSITS ASSETS
---------------- -------------- ------- -------- -------
(DOLLARS IN MILLIONS)
Columbia Federal Savings Bank and Shoreline Savings
Bank............................................. April 29, 1988 $ 551 $ 555 $ 753
Old Stone Bank(1).................................. June 1, 1990 230 293 294
Frontier Federal Savings Association(2)............ June 30, 1990 -- 96 --
Williamsburg Federal Savings Bank(2)............... Sept. 14, 1990 -- 4 --
Vancouver Federal Savings Bank..................... July 31, 1991 200 253 261
CrossLand Savings, FSB(2).......................... Nov. 8, 1991 -- 185 --
Sound Savings and Loan Association................. Jan. 1, 1992 17 21 24
World Savings and Loan Association(2).............. March 6, 1992 -- 38 --
Great Northwest Bank............................... April 1, 1992 603 586 710
Pioneer Savings Bank............................... March 1, 1993 625 660 927
Pacific First Bank, A Federal Savings Bank......... April 9, 1993 3,771 3,832 5,861
Far West Federal Savings Bank(2)................... April 15, 1994 -- 42 --
Summit Savings Bank................................ Nov. 14, 1994 128 169 188
Olympus Bank, a Federal Savings Bank............... April 28, 1995 238 279 391
Enterprise Bank.................................... Aug. 31, 1995 93 139 154
Western Bank....................................... Jan. 31, 1996 501 696 776
Utah Federal Savings Bank.......................... Nov. 30, 1996 89 107 122
American Savings Bank, F.A. ....................... Dec. 20, 1996 14,563 12,815 21,894
United Western Financial Group..................... Jan. 15, 1997 273 300 404
Great Western Financial Corporation................ July 1, 1997 32,448 27,785 43,770
H.F. Ahmanson & Company(3)......................... Oct. 1, 1998 33,939 33,975 50,355
Industrial Bank.................................... Dec. 31, 1998 11 26 27
Long Beach Financial Corporation................... Oct. 1, 1999 415 -- 821
Alta Residential Mortgage Trust.................... Feb. 1, 2000 156 -- 158
Mortgage operations of The PNC Financial Services
Group, Inc.(1)................................... Jan. 31, 2001 3,290 -- 7,363
Bank United Corp................................... Feb. 9, 2001 15,095 7,673 18,286
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TAXATION
General
For federal income tax purposes, we report income and expenses using the accrual method of accounting on a calendar year basis. We are subject to federal income tax under existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), in generally the same manner as other corporations.
Tax Bad Debt Reserve Recapture
The Small Business Job Protection Act of 1996 (the "Job Protection Act") requires that qualified thrift institutions, such as WMBFA, WMB and WMBfsb, generally recapture for federal income tax purposes that portion of the balance of their tax bad debt reserves that exceeds the December 31, 1987 balance, with certain adjustments. Such recaptured amounts generally are to be taken into ordinary income ratably over a six-year period beginning in 1997. Accordingly, we have paid or will have to pay approximately an additional $4 million (based upon current federal income tax rates) each year of the six-year period in federal income taxes due to the Job Protection Act.
State Income Taxation
The states of California, Oregon, Florida, Texas, Utah and Idaho, as well as many other states in which we do business, impose corporate income taxes on companies doing business in those states.
The state of Washington does not currently have a corporate income tax. Washington imposes on businesses a business and occupation tax based on a percentage of gross receipts. Currently, the tax does not apply to interest received on loans secured by first mortgages or deeds of trust on residential properties. However, it is possible that legislation might be introduced in the future that would repeal or limit this exemption.
Assistance Agreement
As a result of the acquisition of ASB in 1996, we are party to an agreement (the "Assistance Agreement") with a predecessor of the Federal Savings & Loan Insurance Corporation Resolution Fund (the "FRF"). The Assistance Agreement provides, in part, for the payment to the FRF over time of 75% of most of the federal tax savings and 19.5% of most of the California tax savings (in each case computed in accordance with specific provisions contained in the Assistance Agreement) attributable to the utilization of certain tax loss carryforwards of New West Federal Savings and Loan Association. The provision for such payments is reflected in the financial statements as "Income Taxes." See "Notes to Consolidated Financial Statements -- Note 12: Income Taxes."
ENVIRONMENTAL REGULATION
Our business and properties are subject to federal and state laws and regulations governing environmental matters, including the regulation of hazardous substances and wastes. For example, under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and similar state laws, owners and operators of contaminated properties may be liable for the costs of cleaning up hazardous substances without regard to whether such persons actually caused the contamination. Such laws may affect us both as an owner of properties used in or held for our business, and as a secured lender of property that is found to contain hazardous substances or wastes.
Further, although CERCLA exempts holders of security interests, the exemption may not be available if a secured party engages in the management of its borrower or the collateral property in a manner deemed beyond the protection of the secured party's interest. Recent federal and state legislation, as well as guidance issued by the United States Environmental Protection Agency and a number of court decisions, have provided assurance to lenders regarding the activities they may undertake and remain within CERCLA's secured party exemption. However, these assurances are not absolute and generally will not protect a lender or fiduciary that participates or otherwise involves itself in the management of its borrower, particularly in foreclosure proceedings. As a result, CERCLA and similar state statutes may influence our decision whether to foreclose on property that is found to be contaminated. Our general policy is to obtain an environmental assessment prior to foreclosure of commercial property. The existence of hazardous substances or wastes on such property may cause us to elect not to foreclose on the property, thereby limiting, and in some instances precluding, our realization on such loans.
REGULATION AND SUPERVISION
References in this section to applicable statutes and regulations are brief summaries only. You should consult the statutes and regulations for a full understanding of the details of their operation.
General
As a savings and loan holding company, WMI is subject to regulation by the Office of Thrift Supervision ("OTS"). WMBFA and WMBfsb are federal savings associations and are subject to extensive regulation and examination by the OTS, which is their primary federal regulator. Their deposit accounts are insured by the Federal Deposit Insurance Corporation ("FDIC"), through the Savings Association Insurance Fund (the "SAIF") and, to a lesser extent, in the case of WMBFA, the Bank Insurance Fund (the "BIF"). The FDIC also has some authority to regulate WMBFA and WMBfsb. WMB is subject to regulation and supervision by the Director of Financial Institutions of the State of Washington ("State Director"). The FDIC insures the deposit accounts of WMB through both the BIF and the SAIF. The FDIC examines and regulates WMB and other state-chartered banks that are not members of the Federal Reserve System ("FDIC-regulated banks"). Federal and state laws and regulations govern, among other things, investment powers, deposit activities, borrowings, maintenance of guaranty funds and retained earnings.
PRIMARY
FEDERAL
ENTITY CHARTER REGULATOR STATE REGULATOR INSURANCE FUND(S)
------ ---------- --------- ----------------- -----------------
WMI............................ State (WA) OTS n.a. n.a.
WMBFA.......................... Federal OTS None SAIF, BIF
WMB............................ State (WA) FDIC WA State Director BIF, SAIF
WMBfsb......................... Federal OTS None SAIF
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State and federal laws govern our consumer finance subsidiaries. Federal laws apply to various aspects of their lending practices. State laws establish applicable licensing requirements, provide for periodic examinations and establish maximum finance charges on credit extensions.
On November 12, 1999, the GLB Act was signed into law. The GLB Act significantly reforms various aspects of the financial services business and includes provisions which:
- establish a new framework under which bank holding companies and banks (subject to numerous restrictions) can own securities firms, insurance companies and other financial companies;
- generally subject banks to the same securities regulation as other providers of securities products;
- prohibit new unitary savings and loan holding companies from engaging in nonfinancial activities or affiliating with nonfinancial entities;
- provide consumers with new protections regarding the transfer and use of their nonpublic personal information by financial institutions; and
- change the FHLB system in numerous ways, which are described in more detail below.
The provisions permitting full affiliations between bank holding companies or banks and other financial companies do not increase our authority to affiliate. As a unitary savings and loan holding company, we were generally permitted to have such affiliations prior to the enactment of the GLB Act. It is expected, however, that these provisions will benefit our competitors.
The provisions subjecting banks to securities regulation are not expected to significantly affect us since primarily all of our securities business is conducted through securities subsidiaries that are already subject to such regulation. Some new provisions restricting or regulating ownership of insurance companies by banks apply also to savings institutions, and may hinder WMBFA, WMBfsb or WMB from acquiring certain insurance companies.
The prohibition on the ability of new unitary savings and loan holding companies to engage in nonfinancial activities or affiliating with nonfinancial entities generally applies only to savings and loan holding companies that were not, or had not submitted an application to become, savings and loan holding companies as of May 4, 1999. Since we were treated as a unitary savings and loan holding company prior to that date, the GLB Act will not prohibit us from engaging in nonfinancial activities or acquiring nonfinancial subsidiaries. However, the GLB Act generally restricts any nonfinancial entity from acquiring us unless such nonfinancial entity was, or had submitted an application to become, a savings and loan holding company as of May 4, 1999.
Management does not believe that complying with the new consumer privacy provision will have a significant impact on our business.
Changes to the FHLB system in the GLB Act included a change in the manner of calculating the Resolution Funding Corporation ("REFCORP") obligations payable by the FHLBs; a broadening of purposes for which FHLB advances may be used; and removal of the requirement that federal savings associations be FHLB members. Previously, the aggregate amount of the annual REFCORP obligation paid by all FHLBs was $300 million. The GLB Act imposes an annual obligation equal to 20% of the net earnings of the FHLBs. This change will result in a greater obligation in years when FHLBs have high income levels, thereby reducing the return on members' investments. With the broadening in the purpose for which FHLB advances can be used, our borrowing costs may rise as demand for advances increases.
Holding Company Regulation
WMI is a multiple savings and loan holding company, as defined by federal law, because it owns three savings associations: WMB, WMBFA and WMBfsb. WMB is a state-chartered savings bank that has elected to be treated as a savings association for purposes of the federal savings and loan holding company law. WMI is regulated as a unitary savings and loan holding company because WMBFA and WMBfsb are deemed to have been acquired in supervisory transactions. Therefore, certain restrictions under federal law on the activities and investments of multiple savings and loan holding companies do not apply to WMI. These restrictions will apply to WMI if WMB, WMBFA or WMBfsb fails to be a qualified thrift lender ("QTL"). By this we mean generally that:
- at least 65% of a specified asset base must consist of: loans to small businesses, credit card loans, educational loans, or certain assets related to domestic residential real estate, including residential mortgage loans and mortgage securities; or
- at least 60% of total assets must consist of cash, United States government or government agency debt or equity securities, fixed assets, or loans secured by: deposits, real property used for residential, educational, church, welfare or health purposes, or real property in certain urban renewal areas.
WMB, WMBFA and WMBfsb are currently in compliance with QTL standards. Failure to remain a QTL would restrict the ability of WMBFA, WMBfsb or WMB to obtain advances from the FHLB. Failure to remain a QTL also would restrict the ability of WMBFA or WMBfsb to establish new branches and pay dividends.
Acquisitions by Savings and Loan Holding Companies. Neither WMI nor any other person may acquire control of a savings institution or a savings and loan holding company without the prior approval of the OTS, or, if the acquirer is an individual, the OTS' lack of disapproval. In either case, the public must have an opportunity to comment on the proposed acquisition, and the OTS must complete an application review. Without prior approval from the OTS, WMI may not acquire more than 5% of the voting stock of any savings institution that is not one of its subsidiaries.
Annual Reporting; Examinations. Under the Home Owners' Loan Act ("HOLA") and OTS regulations WMI, as a savings and loan holding company, must file periodic reports with the OTS. In addition, WMI must comply with OTS record keeping requirements.
WMI is subject to holding company examination by the OTS. The OTS may take enforcement action if the activities of a savings and loan holding company constitute a serious risk to the financial safety, soundness or stability of a subsidiary savings association.
Commonly Controlled Depository Institutions; Affiliate Transactions. Depository institutions are "commonly controlled" if they are controlled by the same holding company or if one depository institution controls another depository institution. WMI controls WMB, WMBFA and WMBfsb. The FDIC has authority to require FDIC-insured banks and savings associations to reimburse the FDIC for losses it incurs in connection either with the default of a "commonly controlled" depository institution or with the FDIC's provision of assistance to such an institution.
WMB, WMBFA and WMBfsb, as holding company subsidiaries that are depository institutions, are subject to both qualitative and quantitative limitations on the transactions they conduct with WMI and its other subsidiaries.
Capital Adequacy. WMI is not currently subject to any regulatory capital requirements, but each of its subsidiary depository institutions is subject to various capital requirements. See "Regulation and Supervision-Capital Requirements." The OTS has proposed a regulation which would require savings and loan holding companies to give prior notice to the OTS of certain transactions which could affect capital and which would also set forth the circumstances under which the OTS would, on a case-by-case basis, review a holding company's capital adequacy and, when necessary, require additional capital.
Subsidiary Savings Institution Regulation
As federally-chartered savings associations, WMBFA and WMBfsb are subject to regulation and supervision by the OTS. As a state-chartered savings bank, WMB is subject to regulation and supervision by the State Director and the FDIC.
Federal Regulation and Supervision of WMBFA and WMBfsb. Federal statutes empower federal savings institutions, such as WMBFA and WMBfsb, to conduct, subject to various conditions and limitations, business activities that include:
- accepting deposits and paying interest on them;
- making loans on residential and other real estate;
- making a limited amount of consumer loans;
- making a limited amount of commercial loans;
- investing in corporate obligations, government debt securities, and other securities;
- offering various trust and banking services to their customers; and
- owning subsidiaries that invest in real estate and carry on certain other activities.
OTS regulations further delineate such institutions' investment and lending powers. Federal savings institutions generally may not invest in noninvestment-grade debt securities, nor may they generally make equity investments, other than investments in service corporations.
State Regulation and Supervision. Washington State statutes empower savings banks, such as WMB, to conduct, subject to various conditions and limitations, business activities that include:
- accepting deposits and paying interest on them;
- making loans on or investing in residential and other real estate;
- making consumer loans;
- making commercial loans;
- investing in corporate obligations, government debt securities, and other securities;
- offering various trust and banking services to their customers; and
- owning subsidiaries that engage in a wide variety of activities.
Under state law, savings banks in Washington also generally have all of the powers that federal mutual savings banks have under federal laws and regulations.
Federal Prohibitions on Exercise of State Bank Powers. Federal law
prohibits banks, such as WMB, and their subsidiaries from exercising certain
powers that were granted by state law to make investments or carry on activities
as principal (i.e., for their own account) unless either (i) national banks have
power under federal law to make such investments or carry on such activities, or
(ii) the bank and such investments or activities meet certain requirements
established by federal law and the FDIC.
Federal Restrictions on Transactions with Affiliates. All banks and savings institutions are subject to affiliate and insider transaction rules applicable to member banks of the Federal Reserve System set forth in Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act, as well as such additional limitations as the institution's primary federal regulator may adopt. These provisions prohibit or limit a savings institution from extending credit to, or entering into certain transactions with, affiliates, principal stockholders, directors and executive officers of the savings institution and its affiliates. For these purposes, the term "affiliate" generally includes a holding company such as WMI and any company under common control with the savings institution. In addition, the federal law governing unitary savings and loan holding companies flatly prohibits WMB, WMBFA or WMBfsb from making any loan to any affiliate whose activity is not permitted for a subsidiary of a bank holding company. This law also prohibits WMB, WMBFA or WMBfsb from making any equity investment in any affiliate that is not its subsidiary. We currently are in material compliance with all these provisions.
Restrictions on Subsidiary Savings Institution Capital Distributions. WMI's principal sources of funds are cash dividends paid to it by its banking and other subsidiaries, investment income and borrowings. Federal and state law limits the ability of a depository institution, such as WMB, WMBFA or WMBfsb, to pay dividends or make other capital distributions.
Washington state law prohibits WMB from declaring or paying a dividend greater than its retained earnings if doing so would cause its net worth to be reduced below (i) the amount required for the protection of preconversion depositors or (ii) the net worth requirements, if any, imposed by the State Director.
OTS regulations limit the ability of savings associations such as WMBFA and WMBfsb to pay dividends and make other capital distributions. Associations (such as WMBFA and WMBfsb) that are subsidiaries of a savings and loan holding company must file a notice with the OTS at least 30 days before the proposed declaration of a dividend or approval of the proposed capital distribution by its board of directors. In addition, a savings association must obtain prior approval from the OTS if it fails to meet certain regulatory conditions, if, after giving effect to the proposed distribution, the association's capital distributions in a calendar year would exceed its year-to-date net income plus retained net income for the preceding two years or the association would not be at least adequately capitalized or if the distribution would violate a statute, regulation, regulatory agreement or a regulatory condition to which the association is subject.
FDIC Insurance
The FDIC insures the deposits of each of our banking subsidiaries to the applicable maximum in each institution. The FDIC administers two separate deposit insurance funds, the BIF and the SAIF. The BIF is a deposit insurance fund for commercial banks and some state-chartered savings banks. The SAIF is a deposit insurance fund for most savings associations. WMB is a member of the BIF, but a portion of its deposits is insured through the SAIF. WMBFA and WMBfsb are members of the SAIF, but a portion of WMBFA's deposits is insured through the BIF. WMB and WMBFA are subject to payment of assessments ratably to both funds.
The FDIC has established a risk-based system for setting deposit insurance assessments. Under the risk-based assessment system, an institution's insurance assessments vary according to the level of capital the
institution holds and the degree to which it is the subject of supervisory concern. In addition, regardless of the potential risk to the insurance fund, federal law requires the FDIC to establish assessment rates that will maintain each insurance fund's ratio of reserves to insured deposits at $1.25 per $100. Both funds currently meet this reserve ratio. During 2000, the assessment rate for both SAIF and BIF deposits ranged from zero to 0.27% of covered deposits. WMB and WMBFA qualified for the lowest rate on their BIF deposits in 2000, and WMB, WMBFA and WMBfsb qualified for the lowest rate on their SAIF deposits in 2000. Accordingly, none of these institutions paid any deposit insurance assessments in 2000.
In addition to deposit insurance assessments, the FDIC is authorized to collect assessments against insured deposits to be paid to the Financing Corporation ("FICO") to service FICO debt incurred in the 1980s. The FICO assessment rate is adjusted quarterly.
Before 2000, the FICO assessment rate for SAIF-insured deposits was five times higher than the rate for BIF-insured deposits. The average annual assessment rate in 1999 was 5.925 cents per $100 of SAIF-insured deposits and 1.185 cents per $100 of BIF-insured deposits. Beginning in 2000, SAIF- and BIF-insured deposits were assessed at the same rate by FICO. For the year 2000, the average annual rate was 2.07 cents per $100 of insured deposits. Because we have substantially more SAIF-insured deposits than BIF-insured deposits, this change resulted in an overall reduction of the amount of our FICO assessments.
Capital Requirements
Each of our subsidiary depository institutions is subject to various capital requirements. WMB is subject to FDIC capital requirements, while WMBFA and WMBfsb are subject to OTS capital requirements.
WMB. FDIC regulations recognize two types or tiers of capital: core ("Tier 1") capital and supplementary ("Tier 2") capital. Tier 1 capital generally includes common stockholders' equity and noncumulative perpetual preferred stock less most intangible assets. Tier 2 capital, which is limited to 100% of Tier 1 capital, includes such items as qualifying general loan loss reserves, cumulative perpetual preferred stock, mandatory convertible debt, term subordinated debt and limited life preferred stock; however, the amount of term subordinated debt and intermediate term preferred stock that may be included in Tier 2 capital is limited to 50% of Tier 1 capital.
The FDIC uses a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. For example, U.S. Treasury Bills and GNMA securities are placed in the 0% risk category, FNMA and FHLMC MBS are placed in the 20% risk category, loans secured by SFR properties and certain private issue MBS are generally placed in the 50% risk category, and commercial real estate and consumer loans are generally placed in the 100% risk category. These risk weights are multiplied by corresponding asset balances to determine a risk-weighted asset base. Certain off-balance sheet items are added to the risk-weighted asset base by converting them to a balance sheet equivalent and assigning them the appropriate risk weight in one of four categories.
Under FDIC guidelines, the ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least 8.00%, and the ratio of Tier 1 capital to risk-weighted assets must be at least 4.00%.
In addition to the risk-based capital guidelines, the FDIC uses a leverage ratio to evaluate a bank's capital adequacy. Most banks are required to maintain a minimum leverage ratio of Tier 1 capital to average assets of 4.00%. The FDIC retains the right to require a particular institution to maintain a higher capital level based on the institution's particular risk profile.
The FDIC may consider other factors that may affect a bank's financial condition. These factors may include interest rate risk exposure, liquidity, funding and market risks, the quality and level of earnings, concentration of credit risk, risks arising from nontraditional activities, loan and investment quality, the effectiveness of loan and investment policies, and management's ability to monitor and control financial operating risks.
The following table sets forth the current regulatory requirement for capital ratios for FDIC regulated banks as compared with our capital ratios at December 31, 2000:
TIER 1 CAPITAL TO
AVERAGE ASSETS TIER 1 CAPITAL TO TOTAL CAPITAL TO
(FDIC LEVERAGE RATIO) RISK-WEIGHTED ASSETS RISK-WEIGHTED ASSETS
--------------------- -------------------- --------------------
Regulatory Minimum......... 4.00%(1) 4.00% 8.00%
WMB's Actual............... 5.83 10.15 11.24
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WMBFA and WMBfsb. The OTS requires savings associations, such as WMBFA and WMBfsb, to meet each of three separate capital adequacy standards:
- a core capital leverage requirement,
- a tangible capital requirement, and
- a risk-based capital requirement.
For a limited time, core capital may include certain amounts of qualifying supervisory goodwill.
OTS regulations incorporate a risk-based capital requirement that is designed to be no less stringent than the capital standard applicable to national banks. It is modeled in many respects on, but not identical to, the risk-based capital requirements adopted by the FDIC. Associations whose exposure to interest-rate risk is deemed to be above normal will be required to deduct a portion of such exposure in calculating their risk-based capital. The OTS may establish, on a case-by-case basis, individual minimum capital requirements for a savings association that vary from the requirements that otherwise would apply under the OTS capital regulations. The OTS has not established such individual minimum capital requirements for WMBFA or WMBfsb.
The following table sets forth the current regulatory requirement for capital ratios for savings associations as compared with our capital ratios at December 31, 2000:
TIER 1 CAPITAL
TO ADJUSTED
TOTAL ASSETS TANGIBLE CAPITAL TIER 1 CAPITAL TO TOTAL CAPITAL TO
(OTS TO TANGIBLE RISK-WEIGHTED RISK-WEIGHTED
LEVERAGE RATIO) ASSETS ASSETS ASSETS
--------------- ---------------- ----------------- ----------------
Regulatory Minimum...... 4.00%(1) 1.50% 4.00% 8.00%
WMBFA's Actual.......... 5.81 5.81 10.40 11.36
WMBfsb's Actual......... 6.97 6.97 11.14 12.10
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FDICIA Requirements
FDICIA created a statutory framework that increased the importance of meeting applicable capital requirements. FDICIA established five capital categories:
- well-capitalized,
- adequately capitalized,
- undercapitalized,
- significantly undercapitalized, and
- critically undercapitalized.
An institution's category depends upon where its capital levels are in relation to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital measure, and certain other factors. The federal banking agencies (including the FDIC and the OTS) have adopted regulations that implement this statutory framework. Under these regulations, an institution is treated as well-capitalized if its ratio of total capital to risk-weighted assets is 10.00% or more, its ratio of core capital to risk-weighted assets is 6.00% or more, its leverage ratio is 5.00% or more, and it is not subject to any federal supervisory order or directive to meet a specific capital level. In order to be adequately capitalized, an institution must have a total risk-based capital ratio of not less than 8.00%, a Tier 1 risk-based capital ratio of not less than 4.00%, and a leverage ratio of not less than 4.00%. Any institution that is neither well capitalized nor adequately capitalized will be considered undercapitalized.
Federal law requires that the federal banking agencies' risk-based capital guidelines take into account various factors including interest rate risk, concentration of credit risk, risks associated with nontraditional activities, and the actual performance and expected risk of loss of multi-family mortgages. In 1994, the federal banking agencies jointly revised their capital standards to specify that concentration of credit and nontraditional activities are among the factors that the agencies will consider in evaluating capital adequacy. In that year, the OTS and FDIC amended their risk-based capital standards with respect to the risk weighting of loans made to finance the purchase or construction of multi-family residences. The OTS adopted final regulations adding an interest rate risk component to the risk-based capital requirements for savings associations (such as WMBFA and WMBfsb), although implementation of the regulation has been delayed. Management believes that the effect of including such an interest rate risk component in the calculation of risk-adjusted capital will not cause WMBFA or WMBfsb to cease to be well capitalized. In June 1996, the FDIC and certain other federal banking agencies (not including the OTS) issued a joint policy statement providing guidance on prudent interest rate risk management principles. The agencies stated that they would evaluate the banks' interest rate risk on a case-by-case basis, and would not adopt a standardized measure or establish an explicit minimum capital charge for interest rate risk.
Other FDIC and OTS Regulations and Examination Authority
The FDIC has adopted regulations to protect the deposit insurance funds and depositors, including regulations governing the deposit insurance of various forms of accounts. The FDIC also has adopted numerous regulations to protect the safety and soundness of FDIC-regulated banks. These regulations cover a wide range of subjects including financial reporting, change in bank control, affiliations with securities firms and capital requirements. In certain instances, these regulations restrict the exercise of powers granted by state law.
An FDIC regulation and a joint FDIC/OTS policy statement place a number of restrictions on the activities of WMB's and WMBFA's securities affiliates and on such affiliates' transactions with WMB, WMBFA and WMBfsb. These restrictions include requirements that such affiliates follow practices and procedures to distinguish them from WMB, WMBFA and WMBfsb and that such affiliates give customers notice from time to time of their separate corporate status and of the distinction between insured deposits and uninsured nondeposit products.
FDICIA imposes supervisory standards requiring periodic OTS or FDIC examinations, independent audits, uniform accounting and management standards, and prompt corrective action for problem institutions. As a result of FDICIA, depository institutions and their affiliates are subject to federal standards governing asset growth, interest rate exposure, executive compensation, and many other areas of depository institution operations. FDICIA contains numerous other provisions, including reporting requirements and revised regulatory standards for, among other things, real estate lending.
The FDIC may sanction any FDIC-regulated bank that does not operate in accordance with FDIC regulations, policies and directives. Proceedings may be instituted against any FDIC-regulated bank, or any institution-affiliated party, such as a trustee, director, officer, employee, agent, or controlling person of the bank, who engages in unsafe and unsound practices, including violations of applicable laws and regulations. The FDIC may revalue assets of an institution, based upon appraisals, and may require the establishment of
specific reserves in amounts equal to the difference between such revaluation and the book value of the assets. The State Director has similar authority under Washington state law, and the OTS has similar authority under HOLA. The FDIC has additional authority to terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is operating in an unsafe or unsound condition, or has violated any applicable law, regulation, rule, or order of or condition imposed by the FDIC.
Federal law and regulations require that WMBFA and WMBfsb maintain liquid assets in excess of a specified limit. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity."
Federal regulation of depository institutions is intended for the protection of depositors (and the BIF and the SAIF), and not for the protection of stockholders or other creditors. In addition, a provision in the Omnibus Budget Reconciliation Act of 1993 ("Budget Act") requires that in any liquidation or other resolution of any FDIC-insured depository institution, claims for administrative expenses of the receiver and for deposits in U.S. branches (including claims of the FDIC as subrogee of the insured institution) shall have priority over the claims of general unsecured creditors.
Federal Reserve Regulation
Under Federal Reserve Board regulations, WMB, WMBFA and WMBfsb are each required to maintain a reserve against their transaction accounts (primarily interest-bearing and noninterest-bearing checking accounts). Because reserves must generally be maintained in cash or in noninterest-bearing accounts, the effect of the reserve requirements is to increase an institution's cost of funds. These regulations generally require that WMB, WMBFA and WMBfsb each maintain reserves against net transaction accounts in the amount of 3% on amounts of $44.3 million or less, plus 10% on amounts in excess of $44.3 million. Institutions may designate and exempt $5.0 million of certain reservable liabilities from these reserve requirements. These amounts and percentages are subject to adjustment by the Federal Reserve Board. A savings bank, like other depository institutions maintaining reservable accounts, may borrow from the Federal Reserve Bank discount window, but the Federal Reserve Board's regulations require the savings bank to exhaust other reasonable alternative sources before borrowing from the Federal Reserve Bank.
Numerous other regulations promulgated by the Federal Reserve Board affect the business operations of our banking subsidiaries. These include regulations relating to equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings and availability of funds.
Federal Home Loan Bank System
The FHLB System was created in 1932 and consists of twelve regional FHLBs. The FHLBs are federally chartered but privately owned institutions created by Congress. The Federal Housing Finance Board ("Finance Board") is an agency of the federal government and is generally responsible for regulating the FHLB System. Each FHLB is owned by its member institutions. The primary purpose of the FHLBs is to provide funding to their members for making housing loans as well as for affordable housing and community development lending. FHLBs are generally able to make advances to their member institutions at interest rates that are lower than could otherwise be obtained by such institutions.
Under current rules, an FHLB member is generally required to purchase FHLB stock in an amount equal to at least 5% of the aggregate outstanding advances made by the FHLB to the member. The GLB Act and new regulations adopted by the Finance Board in December 2000 require a new capital structure for the FHLBs. The new capital structure will contain risk-based and leverage capital requirements similar to those currently in place for depository institutions. Each FHLB must submit a capital structure plan to the Finance Board for approval within 270 days of the publication of the new regulations.
Generally, an institution is eligible to be a member of the FHLB for the district where the member's principal place of business is located. WMBFA, whose home office is Stockton, California, is a member of the San Francisco FHLB; WMB, whose head office is in Seattle, is a member of the Seattle FHLB, as is
WMBfsb, whose home office is in Salt Lake City. Prior to its merger with WMBFA, Bank United was a member of the Dallas FHLB. Under Finance Board regulations, Bank United membership terminated when it merged into WMBFA. The Federal Home Loan Bank Act provides, however, for membership of the FHLB adjoining the district in which an institution is located if membership is demanded by convenience and approved by the Finance Board. WMBFA has applied to become a member of the Dallas FHLB. The Dallas FHLB has approved the application contingent upon the approval of the Finance Board.
Community Reinvestment Act
The Community Reinvestment Act ("CRA") requires financial institutions regulated by the federal financial supervisory agencies to ascertain and help meet the credit needs of their delineated communities, including low- to moderate-income neighborhoods within those communities, while maintaining safe and sound banking practices. The regulatory agency assigns one of four possible ratings to an institution's CRA performance and is required to make public an institution's rating and written evaluation. The four possible ratings of meeting community credit needs are outstanding, satisfactory, needs to improve, and substantial noncompliance. In 1999, WMBFA and WMBfsb each received an "outstanding" CRA rating from the OTS, and WMB received an "outstanding" CRA rating from the FDIC. These ratings reflect our commitment to meeting the credit needs of the communities we serve.
Under regulations that apply to all CRA performance evaluations after July 1, 1997, many factors play a role in assessing a financial institution's CRA performance. The institution's regulator must consider its financial capacity and size, legal impediments, local economic conditions and demographics, including the competitive environment in which it operates. The evaluation does not rely on absolute standards, and the institutions are not required to perform specific activities or to provide specific amounts or types of credit. We maintain a CRA file available for public viewing, as well as an annual CRA highlights document. These documents describe our credit programs and services, community outreach activities, public comments and other efforts to meet community credit needs.
In May 1998, we announced a ten-year $120 billion community commitment to all areas in which we conduct business. The commitment replaced prior ones made by us and the companies we acquired.
The $120 billion commitment targets single-family, small business and consumer, and multi-family lending, and community investment at the following levels:
- Single-family lending -- $81.6 billion in affordable housing loans to minority racial and ethnic borrowers, borrowers in low- to moderate-income ("LMI") census tracts, and borrowers earning less than 80% of median income. Of this amount, $30 billion is specifically targeted to LMI borrowers.
- Small business and consumer lending -- $25 billion in loans to small businesses and LMI consumers, including:
- Consumer loans and lines of credit to borrowers with low-to moderate-incomes and in LMI census tracts, and
- Small businesses, with an emphasis on loans and lines of credit of $50,000 or less and loans to people of color, women and disabled persons.
- Multi-family lending -- $12.1 billion for multi-family structures, including (among others) apartment and manufactured home park developments, in LMI census tracts or serving families earning less than 80% of median income.
- Community investment -- $1.3 billion in investments and loans for community development. This commitment area includes low-income housing initiatives, tax-exempt housing revenue bonds, minority financial institutions and community banks and financial institutions targeting minority racial and ethnic communities or other community needs.
In addition to these goals and objectives, we made a commitment (along with pledges in other areas, like diversity) to philanthropically support the communities in which we conduct our business. Towards that end
we "will strive to return" to our neighborhoods the greater of 2% of our pre-tax earnings or 3% of our after-tax earnings plus 10% of any net recovery from the resolution of Ahmanson's goodwill litigation against the U.S. government. This corporate support is returned through grants, sponsorships, loans at below market rates, in-kind donations, paid employee volunteer time, and other financial support of our efforts to develop our communities.
As of December 31, 2000, we exceeded our 2000 targets for lending in LMI neighborhoods and underserved market areas in the second year of our $120 billion, ten-year commitment in loans and investments.
Recent and Proposed Legislation and Regulation
The GLB Act is summarized in "Regulation and Supervision -- General." The new capital structure for FHLBs is summarized in "Regulation and Supervision -- Federal Home Loan Bank System."
In February 1999, the OTS proposed a regulation that could affect WMI's treatment as a unitary savings and loan holding company. If a holding company owns more than one savings association, it is a multiple savings and loan holding company ("SLHC"); if it owns only one savings association, it is a unitary SLHC. HOLA generally restricts multiple SLHCs and their non-association subsidiaries to traditional savings association activities and services and to activities permitted bank holding companies. These restrictions do not apply to unitary SLHCs. In addition, these restrictions do not apply to a multiple SLHC if all, or all but one, of its subsidiary savings associations were acquired in transactions involving a sale or transfer from an ailing or failing institution. Such savings associations are sometimes referred to as "supervisory" acquisitions, and a multiple SLHC is sometimes referred to as an "exempt" multiple SLHC if all, or all but one, of its subsidiary associations are supervisory acquisitions. The OTS proposal stated that, under certain circumstances, an exempt multiple SLHC could lose its exempt status if it or one of its supervisory subsidiary associations is involved in a merger. This proposal has been withdrawn by the OTS. The OTS may, however, issue the same or a similar proposal in the future.
WMI has had the status of an exempt multiple SLHC because two of its three subsidiary associations -- WMBFA and WMBfsb -- have been deemed supervisory acquisitions. However, both WMBFA and WMBfsb, as well as WMI, have been involved in subsequent merger transactions. Accordingly, it is possible that, if the proposed regulation or a similar regulation were adopted, the OTS could assert that WMI is not an exempt multiple SLHC. If that were to occur, WMI would have to merge its subsidiary associations or discontinue activities, including real estate development activities not permitted to multiple SLHCs.
The OTS and other banking regulators proposed revisions to their capital rules concerning the treatment of residual interests in asset securitizations and other transfers of financial assets. Generally, the proposed rule would require that risk-based capital be held in an amount equal to the amount of residual interests retained on an institution's balance sheet and would limit the amount of residual interests that may be included in Tier 1 capital.
The OTS has proposed a regulation which would require certain SLHCs to notify the OTS before engaging in or committing to engage in a limited set of debt transactions, transactions that reduce capital, some asset acquisitions, and other transactions. In addition, while the regulation does not propose capital requirements applicable to all SLHCs, the OTS is considering whether to adopt a rule setting forth the circumstances in which it would review, on a case-by-case basis, the capital adequacy of an SLHC and, when necessary, require additional capital.
In January 2001, the four federal banking agencies jointly issued expanded examination and supervision guidance relating to subprime lending activities. In the guidance, "subprime" lending generally refers to programs that target borrowers with weakened credit histories or lower repayment capacity. The guidance principally applies to institutions with subprime lending programs with an aggregate credit exposure equal to or greater than 25 percent of an institution's Tier 1 capital. Such institutions would be subject to more stringent risk management standards and, in many cases, additional capital requirements. As a starting point, the guidance generally expects that such an institution would hold capital against subprime portfolios in an
amount that is one and one half to three times greater than the amount appropriate for similar types of non-subprime assets.
The guidance is primarily directed at insured depository institutions. WMBFA currently holds specialty mortgage finance loans in excess of 25 percent of its Tier 1 capital and could be adversely affected by the application of the guidance. A significant portion of these loans and the consumer finance loans originated by Washington Mutual Finance may be considered subprime loans under the guidance. While WMI, Long Beach Mortgage and Washington Mutual Finance are not currently subject to any specific capital requirements imposed by the federal banking agencies, the OTS does have certain examination authority over WMI in its capacity as an SLHC and, accordingly, WMI and its nonbanking subsidiaries could also be adversely affected by the guidance. Management is currently analyzing the impact of the guidance on the conduct of its business.
In December 2000, the Federal Reserve Board published proposed regulations
which would implement the Home Ownership and Equity Protection Act ("HOEPA").
HOEPA, which was enacted in 1994, imposes additional disclosure requirements
and certain substantive limitations on certain mortgage loans with rates or fees
above specified levels. The proposed regulations would lower the rate levels
that trigger the application of HOEPA and would include additional fees in the
calculation of the fee amount that triggers HOEPA. The loans Washington Mutual
currently makes are generally below the rate and fee levels that trigger HOEPA.
However, if the changes to the rate levels and the calculation of fee amounts in
the proposed regulation are adopted, more of the loans we currently offer would
be subject to HOEPA.
Regulation of Nonbanking Affiliates
As broker-dealers registered with the Securities and Exchange Commission and as members of the National Association of Securities Dealers, Inc. ("NASD"), WM Financial Services and our mutual fund distributor subsidiary are subject to various regulations and restrictions imposed by those entities, as well as by various state authorities. As our registered investment advisor, WM Advisors is subject to various federal and state securities regulations and restrictions.
The NASD has adopted rules concerning NASD member operations conducted in branches of depository institutions. The NASD requirements are substantially similar to the policy statements governing the activities of our securities affiliates previously issued by the various banking regulators.
Our consumer finance subsidiaries are subject to various federal and state laws and regulations, including those relating to truth-in-lending, equal credit opportunity, fair credit reporting, real estate settlement procedures, debt collection practices and usury. The subsidiaries are subject to various state licensing and examination requirements.
PRINCIPAL OFFICERS
The following table sets forth certain information regarding the principal officers of Washington Mutual:
EMPLOYEE OF
PRINCIPAL OFFICERS AGE CAPACITY IN WHICH SERVED COMPANY SINCE
------------------ --- ------------------------ -------------
Kerry K. Killinger................... 51 Chairman of the Board of Directors, 1983
President and
Chief Executive Officer
Fay L. Chapman....................... 54 Senior Executive Vice President and General 1997
Counsel
Craig S. Davis....................... 49 President, Home Loans and Insurance Services 1996
Group
William W. Ehrlich................... 34 Executive Vice President, Corporate 1993
Relations
Steven P. Freimuth................... 44 Senior Executive Vice President, Corporate 1988
Services
William A. Longbrake................. 57 Vice Chair and Chief Financial Officer 1996
Deanna W. Oppenheimer................ 42 President, Banking and Financial Services 1985
Group
Craig E. Tall........................ 55 Vice Chair, Corporate Development and 1985
Specialty
Finance Group
S. Liane Wilson...................... 58 Vice Chair, Corporate Technology 1985
Robert H. Miles...................... 44 Senior Vice President and Controller 1999
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Mr. Killinger is Chairman, President and Chief Executive Officer of Washington Mutual. He was named President and director in 1988, Chief Executive Officer in 1990 and Chairman in 1991. Mr. Killinger joined Washington Mutual as an Executive Vice President of WMB in 1983.
Ms. Chapman has been Senior Executive Vice President and General Counsel since 1999. She became Executive Vice President, General Counsel and a member of the Executive Committee in 1997. Prior to joining Washington Mutual, Ms. Chapman was a partner with Foster Pepper & Shefelman PLLC, a Seattle, Washington law firm, since 1979.
Mr. Davis is President, Home Loans and Insurance Services Group. He is responsible for single family lending and insurance services. Mr. Davis became Executive Vice President and a member of the Executive Committee in January 1997. Prior to joining Washington Mutual, he was Director of Mortgage Originations of American Savings Bank, F.A. from 1993 through 1996 and served as President of ASB Financial Services, Inc. from 1989 to 1993.
Mr. Ehrlich has been Executive Vice President, Corporate Relations and a member of the Executive Committee since 1999. He is responsible for overseeing the Company's corporate public relations, employee communications, government relations and investor relations. Mr. Ehrlich became Assistant Vice President of Corporate Communications in 1994 and Senior Vice President in 1998. He joined Washington Mutual as a public relations consultant in 1990 and then rejoined the Company in 1993 as a coordinator in the Mergers and Acquisitions Department.
Mr. Freimuth has been Senior Executive Vice President, Corporate Services since 1999. He is responsible for a variety of central corporate support areas, including human resources and credit oversight. Mr. Freimuth became Senior Vice President in 1991 and Executive Vice President and a member of the Executive Committee in 1997. Mr. Freimuth joined WMB as a Vice President in 1988.
Mr. Longbrake has been Vice Chair and Chief Financial Officer since 1999. He is responsible for corporate finance. Mr. Longbrake rejoined Washington Mutual as Executive Vice President and Chief Financial Officer and a member of the Executive Committee in October 1996. From March of 1995 through September of 1996, he served as Deputy to the Chairman for Finance and Chief Financial Officer of the FDIC.
Mr. Miles has been Senior Vice President and Controller since January 2001. He serves as Washington Mutual's principal accounting officer. Mr. Miles joined the Company as Senior Vice President and Corporate
Tax Manager in June 1999. Prior to joining the Company, Mr. Miles was Director, Domestic Taxes of BankBoston, N.A.
Ms. Oppenheimer is President, Banking and Financial Services Group. She is responsible for consumer banking, financial services and business banking. Ms. Oppenheimer became Executive Vice President in 1993 and has been a member of the Executive Committee since its formation in 1990. She has been an officer of the Company since 1985.
Mr. Tall is Vice Chair, Corporate Development and Specialty Finance Group. He is responsible for mergers and acquisitions, commercial real estate, specialty commercial lending, and the consumer finance subsidiaries. Mr. Tall became Executive Vice President in 1987 and Vice Chair in 1999. He has been a member of the Executive Committee since its formation in 1990.
Ms. Wilson has been Vice Chair, Corporate Technology since 1999. She is responsible for corporate information technology. Ms. Wilson became an Executive Vice President in 1988 and has been a member of the Executive Committee since its formation in 1990. Ms. Wilson joined WMB in 1985 as Senior Vice President of Information Technology.
ITEM 2. PROPERTIES
As of December 31, 2000, our banking subsidiaries conducted business in 42 states through 1,053 consumer financial centers, 71 Western Bank branches, 10 WM Business Bank offices in California, 183 home loan centers and 23 wholesale loan centers. Consumer finance operations were conducted in over 590 locations in 38 states.
The administration offices that we owned or leased were as follows:
APPROXIMATE TERMINATION OR
LOCATION LEASED/OWNED SQUARE FOOTAGE RENEWAL DATE(1)
-------- ------------ -------------- ---------------
1201 3rd Ave., Seattle, WA....................... Leased 289,000 2007
1191 2nd Ave., Seattle, WA....................... Leased 115,000 2006
1101 2nd Ave., Seattle, WA....................... Leased 75,000 2006
999 3rd Ave., Seattle, WA........................ Leased 43,000 2004
1111 3rd Ave., Seattle, WA....................... Leased 161,000 2004
1301 5th Ave., Seattle, WA....................... Leased 59,000 2008
1401 2nd Ave., Seattle, WA....................... Leased 85,000 2009
1501 4th Ave., Seattle, WA....................... Leased 50,000 2004
2520 & 2530 223rd St. SE, Bothell, WA............ Leased 110,000 2008
188 106th Ave. NE, Bellevue, WA.................. Leased 39,000 2002
17875/77 Van Karman, Irvine, CA.................. Owned 156,000 n.a.
3351 Michaelson Dr., Irvine, CA.................. Leased 47,000 2004
Stockton, CA(2).................................. Owned 252,000 n.a.
Chatsworth, CA(2)................................ Owned 327,000 n.a.
Chatsworth, CA(2)................................ Leased 644,000 2003 - 2015
1000 Wilshire Blvd., Los Angeles, CA............. Leased 19,000 2002
1100 Town & Country Rd., Orange, CA.............. Leased 73,000 2001 - 2002
8900 Grand Oak Circle, Tampa, FL................. Owned 71,000 n.a.
3405 McLemore Dr., Pensacola, FL................. Leased 50,000 2004
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(2) Multiple locations.
ITEM 3. LEGAL PROCEEDINGS
We have 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 our results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Our common stock trades on The New York Stock Exchange under the symbol WM. Prior to December 9, 1998, our common stock traded on The Nasdaq Stock Market under the symbol WAMU. As of March 2, 2001, there were 583,802,776 shares issued and outstanding held by 35,207 shareholders of record. The closing price of our common stock on March 2, 2001 was $51.10 per share.
Common Stock
The high and low common stock prices by quarter were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
Fourth quarter.......................... $55.88 $37.88 $35.94 $25.13
Third quarter........................... 40.56 30.19 36.63 27.94
Second quarter.......................... 32.63 24.63 41.94 34.63
First quarter........................... 27.00 21.81 45.25 38.44
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The cash dividends declared by quarter were as follows:
YEAR ENDED
DECEMBER 31,
----------------
2000 1999
------ ------
Fourth quarter............................................. $0.300 $0.260
Third quarter.............................................. 0.290 0.250
Second quarter............................................. 0.280 0.240
First quarter.............................................. 0.270 0.230
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Preferred Stock
At December 31, 2000, we had no preferred stock outstanding.
Payment of Dividends and Policy
Payment of future dividends is subject to declaration by the Board of Directors. Factors considered in determining the size of dividends are the amount and stability of profits, adequacy of capitalization, and expected asset and deposit growth of our subsidiaries. Our dividend policy is also dependent on the ability of WMB, WMBFA and WMBfsb to pay dividends to their respective parent company, which is influenced by legal, regulatory and economic restrictions. See "Business -- Regulation and Supervision -- Restrictions on Subsidiary Savings Institution Dividends."
Our retained earnings at December 31, 2000 included a pre-1988 thrift bad debt reserve for tax purposes of $2.01 billion for which no federal income taxes have been provided. In the future, if the thrift bad debt reserve is used for any purpose other than to absorb bad debt losses, or if any of the banking subsidiaries no longer qualifies as a bank, we will incur a federal income tax liability, at the then prevailing corporate tax rate, to the extent of such subsidiaries' pre-1988 thrift bad debt reserve. As a result, our ability to pay dividends in excess of current earnings may be limited.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for Washington Mutual and is derived from and should be read in conjunction with the Consolidated Financial Statements of Washington Mutual and the Notes thereto, which are included in this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Interest income............. $ 13,783 $ 12,062 $ 11,221 $ 10,203 $ 9,892
Interest expense............ 9,472 7,610 6,929 6,287 6,027
Net interest income......... 4,311 4,452 4,292 3,916 3,865
Provision for loan and lease
losses.................... 185 167 162 247 498
Noninterest income.......... 1,984 1,509 1,507 980 819
Noninterest expense......... 3,126 2,910 3,268 3,111 3,595
Income before income
taxes..................... 2,984 2,884 2,369 1,538 591
Net income.................. 1,899 1,817 1,487 885 375
Net income attributable to
common stock.............. 1,899 1,817 1,471 830 292
Net income per common share:
Basic..................... 3.55 3.17 2.61 1.56 0.55
Diluted................... 3.54 3.16 2.56 1.52 0.54
Average diluted common
shares used to calculate
earnings per share........ 536,463,063 574,553,031 578,562,305 556,759,023 539,058,104
Cash dividends paid per
common share:
Pre-business
combinations(1)........ $ 1.14 $ 0.98 $ 0.82 $ 0.71 $ 0.60
Post-business
combinations(2)........ 1.14 0.98 0.73 0.66 0.65
Common stock dividend payout
ratio(2).................. 32.95% 31.40% 29.32% 40.61% 94.12%
Return on average assets.... 1.01 1.04 0.96 0.63 0.28
Return on average
stockholders' equity...... 21.15 19.66 16.62 11.73 4.70
Return on average common
stockholders' equity...... 21.15 19.66 16.67 11.95 3.95
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DECEMBER 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Assets............... $ 194,716 $ 186,514 $ 165,493 $ 143,522 $ 137,329
Securities........... 58,724 60,786 47,046 37,025 35,036
Loans held for
sale............... 3,404 794 1,827 1,141 1,399
Loans held in
portfolio.......... 119,626 113,746 107,612 97,531 92,610
Deposits............. 79,574 81,130 85,492 83,429 87,509
Borrowings........... 101,656 94,327 65,200 49,976 40,015
Stockholders'
equity............. 10,166 9,053 9,344 7,601 7,426
Ratio of
stockholders'
equity to total
assets............. 5.22% 4.85% 5.65% 5.30% 5.41%
Diluted book value
per common share... $ 19.26(3) $ 16.18(3) $ 16.07(3) $ 13.23(3)(4) $ 12.52(3)(4)
Number of common
shares outstanding
at end of period... 527,855,720(3) 559,589,272(3) 581,408,525(3) 550,689,721(3)(4) 554,811,012(3)(4)
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(2) Based on dividends paid and earnings of the Company after restatement of financial statements for transactions accounted for as poolings of interests.
(3) 12,000,000 shares of common stock issued to an escrow for the benefit of the general and limited partners of Keystone Holdings and the FSLIC Resolution Fund and their transferees were not included.
(4) Net of outstanding treasury shares and included potential conversion of outstanding convertible preferred stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto presented elsewhere in this report.
This section contains forward-looking statements, which are not historical facts and pertain to our future operating results. These forward-looking statements are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the results discussed in these forward-looking statements for the reasons, among others, discussed under the heading "Factors That May Affect Future Results" included in this Form 10-K.
Our net income for 2000 was $1.90 billion, compared with $1.82 billion in 1999 and $1.49 billion in 1998. We had diluted earnings per share of $3.54 in 2000, $3.16 in 1999 and $2.56 in 1998.
During 2000, one of management's goals was to decrease the proportion of SFR loans on our balance sheet by selling SFR loans and MBS. We continued our policy of selling substantially all of our fixed-rate SFR originations and the specialty mortgage finance loans originated by our subsidiary, Long Beach Mortgage. We also began to sell ARM loans in the secondary market. In order to achieve optimum pricing, current ARM production that is not held in the loan portfolio is either sold to investors shortly following origination or securitized and retained in the available-for-sale securities portfolio for a period of time, and then sold. As a result of this initiative, we sold $18.07 billion of adjustable-rate loans during 2000. This strategy of selling current ARM production or securitizing and retaining as securities for sale at a later time resulted in an increase in the balance of loans held for sale to $3.40 billion at December 31, 2000, from $794 million at year-end 1999.
Growing noninterest income is an important part of our strategy to reduce our exposure to changes in interest rates. During 2000, noninterest income represented 32% of total revenue (net interest income and noninterest income), compared with 25% for 1999. We increased the amount of noninterest income relative to net interest income by producing gains on sales of loans and increasing our loan servicing income, as well as increasing depositor and other retail banking fees.
We also expanded our capability to generate loans. Total loan volume increased by $7.07 billion from 1999 to 2000. To further mitigate our exposure to adverse changes in interest rates, we increased our originations of non-SFR loans to 29% of total originations during 2000, compared with 22% for the prior year. We also purchased specialty mortgage finance and commercial loans to further diversify our balance sheet. These loans have the benefit of yielding wider margins, compared with our traditional home mortgage products. These specialty mortgage finance and commercial loans also have more predictable and stable prepayment rates. The characteristics of these portfolios should mitigate our exposure to margin compression during periods of rising interest rates. As this strategy also increases our credit risk, management closely monitors the performance of these loans.
Starting in 1998 and continuing in 1999, we purchased shorter duration investment grade MBS in the secondary market. The MBS had acceptable, but lower returns than loans originated by us and held in our portfolio. After reviewing first quarter 1999 results, management re-evaluated our capital deployment strategy. In April 1999, the Board of Directors approved a share repurchase program and MBS purchases were curtailed. From the second quarter of 1999 through June 30, 2000, we purchased a total of 66.3 million shares as part of our previously announced repurchase programs totaling 111.3 million shares. We have not
repurchased any of our common stock since the second quarter of 2000. Management instead focused on internal growth and acquisitions as a means of deploying capital.
On January 31, 2001, we acquired the mortgage operations of The PNC Financial Services Group, Inc. The principal subsidiaries acquired in that transaction were renamed Washington Mutual Home Loans, Inc. ("WMHLI") and Washington Mutual Mortgage Securities Corp. ("WMMSC"). The acquisition further diversifies our mortgage operations geographically and expands our loan origination, servicing and securitization capacity. At January 31, 2001, WMHLI and WMMSC had total assets of approximately $7 billion.
On February 9, 2001, we acquired Bank United Corp. This acquisition enhances our existing plans to grow our commercial business and expands our ability to originate FHA-insured and VA-guaranteed loans. At February 9, 2001, Bank United Corp. had total assets of approximately $18 billion.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income was $4.31 billion for 2000, compared with $4.45 billion in 1999 and $4.29 billion in 1998. The decline in net interest income for 2000 was due to the decrease in the net interest spread and margin, partially offset by an increase in average interest-earning assets. The net interest spread and margin were 2.25% and 2.38% for 2000, compared with 2.48% and 2.63% for 1999. The net interest spread and margin were 2.70% and 2.88% for 1998.
The compression in the net interest spread and margin was primarily due to the fact that our liabilities reprice to market rates more quickly than our assets. This compression was in response to the rising interest rate environment during the first half of 2000, evidenced by an increase in the average three-month London Interbank Offered Rate ("LIBOR") from 6.14% in the fourth quarter of 1999 to 6.70% in the third quarter of 2000, and by a 100 basis point increase in the federal funds rate from 5.50% in November 1999 to 6.50% in May 2000. Accordingly, the cost of our interest-bearing liabilities increased 71 basis points to 5.37% for 2000 from 4.66% for 1999. This increase was primarily due to a 91 basis point increase in the cost of our borrowings from 5.52% in 1999 to 6.43% in 2000. The increased usage of wholesale borrowings (our primary funding source for asset growth) also contributed to the higher borrowing expense. The cost of our interest-bearing liabilities and cost of borrowings were 4.83% and 5.85% for 1998.
Interest rates stabilized during the latter half of 2000, which caused an improvement in the net interest margin during the fourth quarter. The net interest spread and margin rose to 2.29% and 2.42% for the fourth quarter, compared with 2.19% and 2.31% for the third quarter. Reflecting this lower interest rate environment, adjustable-rate SFR loan originations were 76% of total SFR originations for the fourth quarter of 2000, as compared with an average of 88% over the prior three quarters.
The overall yield on our interest-earning assets increased 48 basis points during 2000, driven primarily by a 57 basis point increase in the yield on our loans to 7.97%, compared with 7.40% for 1999. The rise in the yield on our loan portfolio was the result of adjustments to variable-rate loans tied to treasury-based indices and COFI. For the same reasons, there was a 36 basis point increase in the yield on our other interest-earning assets to 6.97% for 2000, compared with 6.61% for 1999. For 1998, the overall yield on our interest-earning assets was 7.53%, which was primarily attributable to the 7.73% yield on our loan portfolio.
With the reduction in the federal funds rate to 5.50% in January 2001, coupled with the "snap back" effect on our ARM portfolio from the rate increases during the first half of 2000, we anticipate an improvement in the net interest margin during 2001. If interest rates remain stable or decline further, then the net interest margin could expand even further. If further rate reductions do occur, we may adopt the strategy of extending the maturity range of our wholesale borrowings and increasing our holdings of interest rate cap contracts embedded within these liabilities. Restructuring this portfolio in such a manner would reduce our exposure to margin compression during periods of rising interest rates.
Certain average balances, together with the total dollar amounts of interest income and expense and the weighted average interest rates, were as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -----------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME OR AVERAGE INCOME OR AVERAGE INCOME OR
BALANCE(1) RATE EXPENSE BALANCE(1) RATE EXPENSE BALANCE(1) RATE EXPENSE
---------- ---- --------- ---------- ---- --------- ---------- ---- ---------
(DOLLARS IN MILLIONS)
ASSETS
Cash equivalents, securities and
FHLB stock...................... $ 63,067 6.97% $ 4,395 $ 56,177 6.61% $ 3,714 $ 43,484 7.02% $ 3,054
Loans(2).......................... 117,742 7.97 9,388 112,859 7.40 8,348 105,595 7.73 8,167
-------- ------- -------- ------- -------- -------
Total interest-earning
assets.................. 180,809 7.62 13,783 169,036 7.14 12,062 149,079 7.53 11,221
Other assets...................... 6,763 5,750 6,042
-------- -------- --------
Total assets.............. $187,572 $174,786 $155,121
======== ======== ========
LIABILITIES
Deposits:
Checking accounts............... $ 14,120 0.46 65 $ 13,645 0.60 82 $ 12,165 0.61 75
Savings accounts and MMDAs...... 29,816 4.05 1,207 30,267 4.82 1,460 25,924 3.65 947
Time deposit accounts........... 36,340 5.55 2,018 39,183 4.16 1,628 48,341 5.31 2,566
-------- ------- -------- ------- -------- -------
Total deposits............ 80,276 4.10 3,290 83,095 3.82 3,170 86,430 4.15 3,588
Borrowings:
Repurchase agreements........... 28,491 6.33 1,804 26,082 5.36 1,397 17,695 5.67 1,004
Advances from FHLBs............. 56,979 6.33 3,608 47,008 5.37 2,522 30,110 5.65 1,701
Federal funds purchased and
commercial paper.............. 3,442 6.52 224 2,421 5.19 126 4,122 5.61 231
Other........................... 7,198 7.59 546 4,958 7.97 395 5,226 7.76 405
-------- ------- -------- ------- -------- -------
Total borrowings.......... 96,110 6.43 6,182 80,469 5.52 4,440 57,153 5.85 3,341
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities............. 176,386 5.37 9,472 163,564 4.66 7,610 143,583 4.83 6,929
-------- ------- -------- ------- -------- -------
Other liabilities................. 2,207 1,978 2,591
-------- -------- --------
Total liabilities............... 178,593 165,542 146,174
STOCKHOLDERS' EQUITY.............. 8,979 9,244 8,947
-------- -------- --------
Total liabilities and
stockholders' equity............ $187,572 $174,786 $155,121
======== ======== ========
Net interest spread and net
interest income................. 2.25 $ 4,311 2.48 $ 4,452 2.70 $ 4,292
======= ======= =======
Net interest margin............... 2.38 2.63 2.88
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The dollar amounts of interest income and interest expense fluctuate depending upon changes in interest rates and upon changes in amounts (volume) of our interest-earning assets and interest-bearing liabilities. Changes attributable to (i) changes in volume (changes in average outstanding balances multiplied by the prior period's rate), (ii) changes in rate (changes in average interest rate multiplied by the prior period's volume), and (iii) changes in rate/volume (changes in rate times the change in volume that were allocated proportionately to the changes in volume and the changes in rate) were as follows:
2000 VS. 1999 1999 VS. 1998
----------------------------------- ----------------------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO
-------------------- -------------------
VOLUME(1) RATE TOTAL CHANGE VOLUME(1) RATE TOTAL CHANGE
---------- ------- ------------ ---------- ------ ------------
(DOLLARS IN MILLIONS)
INTEREST INCOME
Cash equivalents, securities and
FHLB stock....................... $ 473 $ 208 $ 681 $ 848 $(188) $ 660
Loans(2)........................... 371 669 1,040 547 (366) 181
----- ------ ------ ------ ----- ------
Total interest income.... 844 877 1,721 1,395 (554) 841
INTEREST EXPENSE
Deposits:
Checking accounts................ 3 (20) (17) 9 (2) 7
Savings accounts and MMDAs....... (21) (232) (253) 176 337 513
Time deposit accounts............ (125) 515 390 (437) (501) (938)
----- ------ ------ ------ ----- ------
Total deposit expense.... (143) 263 120 (252) (166) (418)
Borrowings:
Repurchase agreements............ 137 270 407 452 (59) 393
Advances from FHLBs.............. 587 499 1,086 911 (90) 821
Federal funds purchased and
commercial paper.............. 61 37 98 (89) (16) (105)
Other............................ 171 (20) 151 (21) 11 (10)
----- ------ ------ ------ ----- ------
Total borrowing
expense................ 956 786 1,742 1,253 (154) 1,099
----- ------ ------ ------ ----- ------
Total interest expense... 813 1,049 1,862 1,001 (320) 681
----- ------ ------ ------ ----- ------
Net interest income................ $ 31 $ (172) $ (141) $ 394 $(234) $ 160
===== ====== ====== ====== ===== ======
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(2) Nonaccrual loans were included in the average loan amounts outstanding.
Noninterest Income
Noninterest income consisted of the following:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
Depositor and other retail banking fees.................. $ 976 $ 764 $ 569
Securities fees and commissions.......................... 318 271 192
Insurance fees and commissions........................... 44 43 42
Loan servicing income.................................... 147 112 117
Loan related income...................................... 117 103 111
Gain on sale of loans.................................... 262 109 133
Gain on sale of retail deposit branch systems............ -- -- 289
Loss from securities..................................... (1) (12) (30)
Other income............................................. 121 119 84
------ ------ ------
Total noninterest income....................... $1,984 $1,509 $1,507
====== ====== ======
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Depositor and other retail banking fees of $976 million for 2000 increased 28% from $764 million for 1999 and 72% from $569 million for 1998. The increase in 2000 was primarily due to higher collections of nonsufficient funds and other fees on existing checking accounts from higher customer usage and fee increases. The increase from 1998 to 1999 was primarily due to collecting more debit card, ATM, nonsufficient funds and other fees that resulted from an increased number of checking accounts. The number of checking accounts increased by more than 500,000 during 2000 to 4.8 million accounts at December 31, 2000 and over 400,000 during 1999 to 4.3 million accounts at December 31, 1999.
Securities fees and commissions increased to $318 million for 2000 from $271 million in 1999 and $192 million in 1998. During 2000, we earned more investment management fees due to the growth in assets under management in the WM Group of Funds. Assets under management grew from $7.42 billion at December 31, 1999 to $8.21 billion at December 31, 2000. Higher volume of securities transactions in 2000 also contributed to the increase in fee income.
Loan servicing income increased to $147 million in 2000, compared with $112 million in 1999 and $117 million in 1998. The increase was primarily due to growth in loans serviced for others as a result of loan sales and securitizations. The impact of this portfolio growth was partially offset by an increase in the amortization of mortgage servicing rights ("MSR") primarily resulting from the larger servicing portfolio. We also incurred an MSR impairment of $9 million during the fourth quarter of 2000 due to an increase in prepayment estimates as a result of falling long-term interest rates. The weighted average servicing fee was approximately 43 basis points during 2000 and 39 basis points during 1999.
Loan related income was $117 million in 2000, up from $103 million in 1999 and $111 million in 1998. This income is comprised of late charges, prepayment fees, reconveyance fees, and other miscellaneous fees. The increase in income from 1999 to 2000 resulted from increased volume of late charges on the loan portfolio and higher prepayment fees on the purchased specialty mortgage finance portfolio as the result of increased refinancing activity. The decrease in income from 1998 to 1999 was due to the rise in interest rates, which caused a decline in loan prepayments and the related prepayment fees. Late charges also decreased as a result of a downward trend in delinquencies.
Gain on sale of loans increased to $262 million for 2000, compared with $109 million in 1999 and $133 million in 1998. The gain for 2000 was attributable to the sale of fixed- and adjustable-rate loans, which included $12.90 billion of seasoned loans and $8.71 billion of current loan production. Additionally, we sold $3.74 billion of loans originated by Long Beach Mortgage. The gains for 1999 and 1998 resulted from sales of $8.96 billion and $18.24 billion of current loan production, which were comprised of fixed-rate loans. Sales of loans originated by Long Beach Mortgage contributed $23 million towards the 1999 gains.
Losses from securities were $1 million during 2000, compared with $12 million during 1999 and $30 million during 1998. During the first half of 2000, we incurred net losses on MBS sales. The proceeds from these sales were used to repurchase our common stock. These sales also reduced our interest rate sensitivity. Substantially offsetting these losses were $9 million in gains from the sale of ARM loan originations in 2000 that were securitized and held in the available-for-sale securities portfolio for a period of time prior to being sold, as well as $9 million in gains from the sale of securities that were purchased as hedges against our MSR portfolio.
Noninterest Expense
Noninterest expense consisted of the following:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
Compensation and benefits................................ $1,348 $1,186 $1,189
Occupancy and equipment.................................. 604 565 498
Telecommunications and outsourced information services... 323 276 256
Depositor and other retail banking losses................ 105 107 88
Transaction-related expense.............................. -- 96 508
Amortization of goodwill and other intangible assets..... 106 98 104
Advertising and promotion................................ 132 111 114
Postage.................................................. 98 89 77
Professional fees........................................ 101 70 61
Regulatory assessments................................... 31 59 63
Office supplies.......................................... 30 35 42
Travel and training...................................... 63 52 45
Other expense............................................ 185 166 223
------ ------ ------
Total noninterest expense...................... $3,126 $2,910 $3,268
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Compensation and benefits expense increased to $1.35 billion, compared with $1.19 billion for both 1999 and 1998. A significant portion of the increase was due to increased commission expense resulting from the higher volume of loan originations and securities transactions. Other significant factors were increases in base compensation expense and higher premiums on employee medical and dental insurance. Also contributing to the increase was the acquisition of Long Beach Mortgage in October 1999, which was not included in our results prior to its acquisition. Full-time equivalent employees ("FTE") were 28,798 at December 31, 2000, compared with 28,509 at December 31, 1999 and 27,957 at December 31, 1998.
Occupancy and equipment expense was $604 million in 2000, compared with $565 million for 1999 and $498 million for 1998. The increase during 2000 was primarily due to higher rent and depreciation expense that resulted from additional building leases and the leasehold improvements thereon, and computer equipment upgrades. Similar computer system upgrades caused an increase in equipment expense during 1999, partially offset by occupancy expense reductions from the closure of 162 consumer financial centers in California as a result of the merger with Ahmanson.
Telecommunications and outsourced information services expense was $323 million in 2000, compared with $276 million in 1999 and $256 million in 1998. In 2000, the increase reflected higher use of services resulting from additional locations, higher levels of customer support, and increased use of outsourced data processing. During 2000, the opening of 26 financial centers in new markets, in conjunction with project Occasio(TM) as well as the development of Optis(TM), also contributed to higher telecommunications expense.
We completed the integration of Ahmanson in the fourth quarter of 1999. As a result, there were no transaction-related expenses incurred in 2000.
Advertising and promotion expense increased to $132 million in 2000 from $111 million in 1999 and $114 million in 1998. The increase during 2000 was primarily due to additional costs associated with campaigns for various loan and deposit products. In 1998, we incurred additional costs associated with campaigns designed to introduce products to the California market.
Professional fees for 2000 were $101 million, compared with $70 million in 1999 and $61 million in 1998. The 2000 increase was attributable to various consulting projects designed to streamline our processes and procedures, and to develop and deliver new products.
Regulatory assessments were $31 million in 2000, compared with $59 million in 1999 and $63 million in 1998. The overall assessment rate for Savings Association Insurance Fund deposits was significantly reduced in the first quarter of 2000, which caused a corresponding decrease in regulatory assessments. See "Business -- Regulation and Supervision -- FDIC Insurance."
Other expense increased to $185 million in 2000 from $166 million in 1999. The increase of $19 million during 2000 was mainly comprised of increases in loan expenses, contributions, and other outside services. The higher loan expenses in 2000 were attributable to an overall increase in loan originations and purchases. The decrease from 1998 to 1999 was due to 1998 expenses associated with the donation of land for open space to support further development of property owned by Ahmanson as a real estate investment.
Taxation
Income taxes include federal and applicable state income taxes and payments in lieu of taxes. The provision for income taxes was $1.09 billion for 2000, which represented an effective tax rate of 36.37%.
In connection with the Keystone Transaction, we acquired ASB. ASB was formed to effect the December 1988 acquisition (the "1988 Acquisition") of certain assets and liabilities of the failed savings and loan association subsidiary of Financial Corporation of America. In connection with the 1988 Acquisition, the Internal Revenue Service (the "Service") entered into a closing agreement (the "Closing Agreement") with respect to the federal income tax consequences of the 1988 Acquisition and certain aspects of the taxation of Keystone Holdings and certain of its affiliates. The Closing Agreement contains provisions that were intended to ensure that losses generated by New West Federal Savings and Loan Association would be available to offset income of ASB for federal income tax purposes. In connection with the 1988 Acquisition, Keystone Holdings and certain of its affiliates entered into a number of continuing agreements with the predecessor to the FDIC, including an Assistance Agreement.
See "Notes to Consolidated Financial Statements -- Note 12: Income Taxes."
REVIEW OF FINANCIAL CONDITION
Assets. At December 31, 2000, our assets were $194.72 billion, an increase of $8.21 billion or 4% from $186.51 billion at December 31, 1999. This increase primarily resulted from the retention of loans originated by us, either as loans or in securitized form, and the purchase of whole loans. In particular, loans held for sale and loans held in portfolio increased by $2.61 billion and $5.88 billion.
Securities. Our securities portfolio decreased by $2.07 billion or 3% to $58.72 billion at December 31, 2000 from $60.79 billion at year-end 1999. The decrease was primarily due to principal paydowns and sales of MBS that had been purchased in 1998 and the first half of 1999, partially offset by the retention of MBS that were created from loan securitizations. In 2001, we expect to increase our purchases of other investment securities, such as government bonds. These bonds have fixed-maturities, are non-callable and non-prepayable and are expected to serve as economic hedges of mortgage servicing rights, which are subject to prepayment risk in a declining interest rate environment.
At December 31, 2000, we held $21.99 billion of private issue MBS and CMOs. Of this total, 73% were rated the highest investment grade (AAA), 3% were rated investment grade (AA through BBB), 1% were rated below investment grade and 23% were unrated.
At December 31, 2000, 60% of MBS were adjustable rate. Of the 60% indexed to an adjustable rate, 52% were indexed to COFI, 34% to U.S. Treasury indices, and 14% to other indices. The remaining 40% of MBS were fixed-rate.
Loans. Total loans at December 31, 2000 were $123.03 billion, up $8.49 billion or 7% from $114.54 billion at December 31, 1999. This increase was primarily due to growth in ARM, second mortgage and other consumer, and specialty mortgage finance loans. These increases were partially offset by sales and securitizations of SFR loans as well as principal payments. During 2000, we expanded our capacity to generate loans and developed a market to sell ARM loans, in addition to our ongoing policy of selling fixed-rate loans. This was done as part of our strategy to remix the balance sheet and to become less reliant on net interest income by increasing gain on sale of loans and loan servicing income. Our current strategy is to hold newly originated monthly adjustable-rate loans during periods of high prepayment activity and sell a sufficient amount during periods of low prepayment activity to stabilize balance sheet growth over time. This strategy of selling current ARM production or securitizing and retaining as securities for sale at a later time resulted in an increase in the balance of loans held for sale to $3.40 billion at December 31, 2000, from $794 million at year-end 1999.
Loans (exclusive of the allowance for loan and lease losses) consisted of the following:
DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- ------- -------
(DOLLARS IN MILLIONS)
SFR................................... $ 83,113 $ 80,628 $ 81,102 $72,161 $69,101
SFR construction...................... 1,431 1,243 1,020 877 728
Second mortgage and other consumer:
Banking subsidiaries................ 7,992 6,393 5,478 4,913 4,216
Washington Mutual Finance........... 2,486 2,134 1,853 1,800 1,730
Specialty mortgage finance............ 7,254 4,452 722 529 463
Commercial business................... 2,274 1,452 1,129 838 395
Commercial real estate:
Apartment buildings................. 15,658 15,261 14,559 14,022 13,871
Other commercial real estate........ 2,822 2,977 3,576 3,551 3,513
-------- -------- -------- ------- -------
$123,030 $114,540 $109,439 $98,691 $94,017
======== ======== ======== ======= =======
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We have been diversifying our SFR loans by product type from a COFI concentration to Treasury-based. This diversification reduces our interest rate risk because Treasury-based loans have repricing frequencies that more closely match the repricing of our borrowings. This diversification is achieved through the securitization and sale of COFI-based loans and paydowns of portfolio loans indexed to COFI. At December 31, 2000, 88% of SFR loans were adjustable rate, of which 66% were indexed to U.S. Treasury indices, 28% were indexed to COFI, and 6% to other indices. The remaining 12% of the SFR loan portfolio at year-end 2000 were fixed rate. At December 31, 1999, 85% of SFR loans were adjustable rate, of which 52% were indexed to U.S. Treasury indices, 42% were indexed to COFI, and 6% to other indices. The remaining 15% of the year-end 1999 SFR loan portfolio were fixed rate.
Loan volume (originations and purchases) was as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN MILLIONS)
SFR:
Adjustable rate..................................... $37,286 $33,114 $20,929
Fixed rate.......................................... 6,631 10,678 23,960
------- ------- -------
43,917 43,792 44,889
SFR construction:
Custom.............................................. 639 977 1,017
Builder............................................. 1,210 1,026 731
Second mortgage and other consumer:
Banking subsidiaries................................ 5,004 2,946 3,096
Washington Mutual Finance........................... 2,342 2,101 1,838
Specialty mortgage finance............................ 8,249 5,009 429
Commercial business................................... 2,695 1,186 1,013
Commercial real estate:
Apartment buildings................................. 1,601 1,673 2,015
Other commercial real estate........................ 358 236 472
------- ------- -------
$66,015 $58,946 $55,500
======= ======= =======
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Originations and purchases were as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN MILLIONS)
Originated............................................ $59,263 $51,589 $52,431
Purchased............................................. 6,752 7,357 3,069
------- ------- -------
$66,015 $58,946 $55,500
======= ======= =======
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Our loan originations increased 15% to $59.26 billion in 2000 from $51.59 billion the year before. In particular, originations of short-term ARMs, which reprice primarily on a monthly basis, increased to $31.65 billion in 2000, compared with $15.24 billion in 1999. The increase in short-term ARM originations in 2000 was attributable to the higher interest rate environment during the first half of 2000 and customer preference for short-term ARMs over fixed-rate loans.
We purchased $6.75 billion of loans in 2000, compared with $7.36 billion in 1999 and $3.07 billion in 1998. Of the 2000 purchases, $4.01 billion were specialty mortgage finance loans with a weighted average yield of 8.50%. The 1999 purchases included $3.30 billion of specialty mortgage finance loans with a weighted average yield of 8.70%.
Real estate construction (including SFR construction and commercial real estate construction) and commercial business loans by maturity date were as follows:
DECEMBER 31, 2000
----------------------------------------------------
REAL ESTATE COMMERCIAL
CONSTRUCTION BUSINESS
------------------ --------------------
ARMS FIXED-RATE ARMS FIXED-RATE TOTAL
---- ---------- ------ ---------- ------
(DOLLARS IN MILLIONS)
Due within one year......................... $824 $244 $ 730 $190 $1,988
After one but within five years............. 123 13 294 161 591
After five years............................ 40 454 423 476 1,393
---- ---- ------ ---- ------
$987 $711 $1,447 $827 $3,972
==== ==== ====== ==== ======
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MSR increased to $1.02 billion at December 31, 2000 from $643 million at December 31, 1999. Additions of $516 million to MSR during the year were primarily due to loan sales and securitizations. The acquisitions of Bank United Corp. and the mortgage operations of The PNC Financial Services Group, Inc. adds about $2 billion of MSR to our balance sheet.
Deposits. Deposits declined slightly to $79.57 billion at December 31, 2000 from $81.13 billion at December 31, 1999.
Our goal is to increase the ratio of transaction accounts to total deposits. As a result, savings accounts, MMDAs and checking accounts have increased to 57% of total deposits at year-end 2000, compared with 54% at year-end 1999. These three products have the benefit of interest-free funding or lower costs, compared with time deposit accounts. Even though transaction accounts are more liquid, we consider them to be a core relationship with our customers. In the aggregate, we view these core accounts to be a more stable source of long-term funding than time deposits.
Time deposit accounts in amounts of $100,000 or more totaled $8.75 billion and $8.84 billion at December 31, 2000 and 1999. At December 31, 2000, $3.14 billion of these deposits mature within three months, $2.02 billion mature in over three to six months, $2.63 billion mature in over six months to one year, and $962 million mature after one year.
While the vast majority of our deposits are retail in nature, we do engage in certain wholesale activities -- primarily accepting time deposits from political subdivisions and public agencies. We consider wholesale deposits to be an alternative borrowing source rather than a customer relationship, and as such, their levels are determined by management's decision as to the most economic funding sources.
Borrowings. Our borrowings primarily take the form of 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.
Our wholesale borrowing portfolio increased by $3.60 billion at December 31, 2000, compared with the prior year. Other borrowings also increased by $3.73 billion over December 31, 1999. These increases in funding were used primarily to support asset growth.
Certain portions of the repurchase agreements and advances from FHLBs contain embedded derivatives. See "Notes to Consolidated Financial Statements -- Note 9: Repurchase Agreements and Note 10: Advances from FHLBs."
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's estimate of credit losses inherent in our loan and lease portfolios. Management performs periodic reviews of the portfolios in order to identify these inherent losses, and to assess the overall probability of collection of these portfolios. The process by which the allowance is determined encompasses the analysis of the historical performance of each loan category and an assessment of current economic and portfolio trends and conditions, as well as specific risk factors impacting the loan and lease portfolios. We monitor delinquency, default, and loss rates, among other factors impacting portfolio risk. In addition, non-homogeneous type loans, such as commercial business and commercial real estate loans, are reviewed on an individual loan basis in order to identify impairment, and for risk rating purposes.
As of December 31, 2000, 76% of the allowance was allocated to individual loans or loan categories, although the entire allowance was available for charge offs across the entire loan and lease portfolio.
Changes in the allowance for loan and lease losses were as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
Balance, beginning of year.................... $1,042 $1,068 $1,048 $1,066 $ 979
Provision for loan and lease losses........... 185 167 162 247 498
Identified allowance for loans sold or
securitized................................. (36) (1) (74) (25) --
Allowance acquired through business
combinations................................ -- -- 108 11 16
------ ------ ------ ------ ------
1,191 1,234 1,244 1,299 1,493
Loans charged off:
SFR and SFR construction.................... (20) (38) (66) (141) (297)
Second mortgage and other consumer:
Banking subsidiaries..................... (43) (46) (34) (23) (12)
Washington Mutual Finance................ (120) (97) (90) (80) (60)
Specialty mortgage finance.................. (5) -- -- -- --
Commercial business......................... (11) (5) (5) (3) (1)
Commercial real estate:
Apartments............................... (2) (15) (22) (41) (67)
Other commercial real estate............. (2) (22) (10) (17) (48)
------ ------ ------ ------ ------
Total charge offs................... (203) (223) (227) (305) (485)
Recoveries of loans previously charged off:
SFR and SFR construction.................... 1 4 18 22 27
Second mortgage and other consumer:
Banking subsidiaries..................... 4 3 2 3 1
Washington Mutual Finance................ 17 16 16 18 16
Specialty mortgage finance.................. 1 -- -- -- --
Commercial business......................... 1 1 1 -- --
Commercial real estate:
Apartments............................... 1 3 6 7 9
Other commercial real estate............. 1 4 8 4 5
------ ------ ------ ------ ------
Total recoveries.................... 26 31 51 54 58
------ ------ ------ ------ ------
Net charge offs............................. (177) (192) (176) (251) (427)
------ ------ ------ ------ ------
Balance, end of year.......................... $1,014 $1,042 $1,068 $1,048 $1,066
====== ====== ====== ====== ======
Net charge offs as a percentage of average
loans....................................... 0.15% 0.17% 0.17% 0.26% 0.48%
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During the second quarter of 2000, in conjunction with our continued expansion of our lending activity beyond traditional SFR loans, management enhanced its methodology for determining the allocated components of the allowance. This enhancement resulted in an allocation of previously unallocated allowance amounts to individual loan categories. Portions of the allowance for loan and lease losses are now allocated to cover estimated losses inherent in each loan and lease category as well as to individual loans. Management also maintains an unallocated component of the allowance to cover estimated credit losses not fully considered in the allocated portion of the allowance. Factors impacting the level of the unallocated component include modeling deficiencies resulting from the absence of comprehensive historical information, lack of credit performance data related to newly developed loan products or programs, changes in underwriting standards and other factors impacting the estimation of credit losses.
An analysis of the allowance for loan and lease losses was as follows:
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997
----------------------- ----------------------- ----------------------- -----------------------
LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY
AS A % OF AS A % OF AS A % OF AS A % OF
ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN MILLIONS)
Specific and allocated
allowances:
SFR........................ $ 250 68% $ -- 70% $ -- 74% $ -- 73%
SFR construction........... 8 1 5 1 1 1 2 1
Second mortgage and other
consumer:
Banking subsidiaries...... 115 6 -- 6 -- 5 -- 5
Washington Mutual
Finance................. 104 2 -- 2 -- 2 -- 2
Specialty mortgage
finance................... 52 6 -- 4 -- 1 -- *
Commercial business........ 44 2 18 1 17 1 3 1
Commercial real estate:
Apartment buildings....... 138 13 59 13 126 13 123 14
Other commercial real
estate.................. 64 2 -- 3 -- 3 -- 4
------ --- ------ --- ------ --- ------ ---
Total allocated
allowance.......... 775 100 82 100 144 100 128 100
Unallocated allowance...... 239 -- 960 -- 924 -- 920 --
------ --- ------ --- ------ --- ------ ---
Total allowance for
loan and lease
losses............. $1,014 100% $1,042 100% $1,068 100% $1,048 100%
====== === ====== === ====== === ====== ===
DECEMBER 31,
-----------------------
1996
-----------------------
LOAN
CATEGORY
AS A % OF
ALLOWANCE TOTAL LOANS
--------- -----------
(DOLLARS IN MILLIONS)
Specific and allocated
allowances:
SFR........................ $ -- 73%
SFR construction........... -- 1
Second mortgage and other
consumer:
Banking subsidiaries...... -- 4
Washington Mutual
Finance................. -- 2
Specialty mortgage
finance................... -- 1
Commercial business........ 1 *
Commercial real estate:
Apartment buildings....... 174 15
Other commercial real
estate.................. -- 4
------ ---
Total allocated
allowance.......... 175 100
Unallocated allowance...... 891 --
------ ---
Total allowance for
loan and lease
losses............. $1,066 100%
====== ===
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We record an allowance for recourse obligations to cover inherent losses on loans securitized and retained in our MBS portfolio for which we retain the credit risk, and to cover estimated losses on loans and MBS sold to third parties for which a recourse obligation exists. A regular review is performed to determine the adequacy of the allowance for recourse obligations. As of December 31, 2000, the allowance for recourse obligations totaled $104 million, compared with $113 million at year-end 1999.
The total loss coverage percentage is the allowance for loan and lease losses and the allowance for recourse obligations as a percentage of nonaccrual loans:
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
Total loss coverage percentage.............................. 126% 140% 129%
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At December 31, 2000 and 1999, we had $16.16 billion and $18.12 billion of loans securitized and retained with recourse, and $4.06 billion and $4.65 billion of loans securitized and sold with recourse.
Nonperforming Assets
Assets considered to be nonperforming include nonaccrual loans and foreclosed assets. When loans securitized or sold with recourse become nonperforming, they are included in nonaccrual loans. Management generally classifies loans as nonaccrual if the timely collection of principal and interest is not expected, any portion of the loan has been charged off, or the loan is four payments or more past due.
Nonperforming assets were $1.04 billion or 0.53% of total assets at December 31, 2000, compared with $1.03 billion or 0.55% of total assets at year-end 1999.
Nonperforming assets consisted of the following:
DECEMBER 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
Nonaccrual loans:
SFR......................................... $ 529 $ 602 $ 752 $ 845 $ 999
SFR construction............................ 18 18 9 10 9
Second mortgage and other consumer:
Banking subsidiaries..................... 51 43 39 29 25
Washington Mutual Finance................ 66 55 52 49 43
Specialty mortgage finance.................. 179 57 2 2 3
Commercial business......................... 12 10 7 3 1
Commercial real estate:
Apartment buildings...................... 10 22 44 38 65
Other commercial real estate............. 21 20 33 58 29
------ ------ ------ ------ ------
886 827 938 1,034 1,174
Foreclosed assets............................. 153 199 275 341 470
Other nonperforming assets.................... -- -- -- -- 7
------ ------ ------ ------ ------
Total nonperforming assets.......... $1,039 $1,026 $1,213 $1,375 $1,651
====== ====== ====== ====== ======
Nonperforming assets as a percentage of total
assets...................................... 0.53% 0.55% 0.73% 0.96% 1.20%
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If interest on nonaccrual loans had been recognized, such income would have been $83 million in 2000, $67 million in 1999 and $66 million in 1998.
Specialty mortgage finance loans on nonaccrual status increased by $122 million during 2000 and by $55 million during 1999 due to the continued growth and seasoning of this portfolio. This increase in nonaccrual loans was consistent with our expectations. We expect the balance of nonaccrual loans to increase as the portfolio continues to grow and season. The balance of specialty mortgage finance loans increased to $7.26 billion at year-end 2000 from $4.45 billion at year-end 1999.
Loans (exclusive of the allowance for loan and lease losses) and nonaccrual loans by geographic concentration at December 31, 2000 were as follows:
WASHINGTON
CALIFORNIA OREGON OTHER TOTAL
---------------------- ---------------------- ------------------------- ----------------------
PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL PORTFOLIO(1) NONACCRUAL PORTFOLIO NONACCRUAL
--------- ---------- --------- ---------- ------------ ---------- --------- ----------
(DOLLARS IN MILLIONS)
SFR........................ $42,797 $240 $12,221 $ 76 $28,095 $213 $ 83,113 $529
SFR construction........... 335 5 731 5 365 8 1,431 18
Second mortgage and other
consumer:
Banking subsidiaries..... 3,791 9 2,982 30 1,219 12 7,992 51
Washington Mutual
Finance................ 259 5 40 1 2,187 60 2,486 66
Specialty mortgage
finance.................. 1,534 32 316 10 5,404 137 7,254 179
Commercial business........ 255 1 930 11 1,089 -- 2,274 12
Commercial real estate:
Apartment buildings...... 14,232 9 1,106 -- 320 1 15,658 10
Other commercial real
estate................. 1,384 7 1,056 1 382 13 2,822 21
------- ---- ------- ---- ------- ---- -------- ----
$64,587 $308 $19,382 $134 $39,061 $444 $123,030 $886
======= ==== ======= ==== ======= ==== ======== ====
Loans and nonaccrual loans
as a percentage of total
loans and total
nonaccrual loans......... 52% 35% 16% 15% 32% 50% 100% 100%
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At December 31, 2000, nonaccrual loans in California accounted for 35% of total nonaccrual loans, down from 49% in 1999. Due to the concentration of our loans in California, the California real estate market
requires continual review. In general, real estate values have increased during 1998, 1999 and 2000. However, economic performance within California may vary significantly among property types or by region.
Impaired Loans
Commercial real estate loans over $1 million and all commercial business and builder construction loans are individually evaluated for impairment. Management generally identifies loans to be evaluated for impairment when such loans are on nonaccrual status or have been restructured. However, not all nonaccrual loans are impaired. Loans are considered impaired when it is probable that we will be unable to collect all amounts contractually due, including scheduled interest payments. Restructured loans are evaluated for impairment based on the contractual terms specified by the original loan agreement, rather than the contractual terms specified by the restructuring agreement. Loans performing under restructured terms beyond a specified performance period are classified as accruing, but may still be deemed impaired. 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.
OPERATING SEGMENTS
Effective January 1, 2001, we realigned our business segments. Separately, we are in the process of enhancing our segment reporting process methodologies and allocations and will be reporting segment results under these new methodologies and as realigned beginning with the first quarter of 2001.
For the historical periods presented in this Form 10-K, we managed our business along five major operating segments: Consumer Banking, Mortgage Banking, Commercial Banking, Financial Services, and Consumer Finance. Although we did not consider the Treasury group to be an operating segment, it managed investments and interest rate risk. Generally, MBS that we purchased were allocated to Treasury. Refer to Note 23 of the Notes to the Consolidated Financial Statements for summarized financial information for these operating segments.
Deposit accounts managed by the Western Bank/WM Business Bank division are allocated to the commercial banking segment, and substantially all of the retail consumer deposits are allocated to the consumer banking segment. The related interest expense is allocated to those segments. The consumer banking segment was allocated an amount of assets equal to the excess of its deposits over its balance of consumer loans. The other segments were allocated an amount of indebtedness in excess of deposits necessary to support the interest-earning assets of the segment. The rate on such indebtedness was our weighted average borrowing cost.
Consumer Banking
Net interest income was $2.50 billion in 2000, $2.49 billion in 1999, and $2.56 billion in 1998. Net interest income for the consumer banking group increased slightly from 1999 to 2000 primarily due to the increase in the net interest spread and margin, whereas the decline from 1998 to 1999 was due to the compression of the net interest spread and margin. The yield on the consumer banking group's SFR and consumer loans responded more quickly than the cost of deposits to the rise in short-term interest rates during the first half of 2000. Noninterest income was $1.04 billion in 2000, $817 million in 1999, and $626 million in 1998. The rise in noninterest income during the comparative periods resulted from an increase in depositor and other retail banking fees associated with higher collections of nonsufficient funds and other fees on existing checking accounts from higher customer usage and fee increases. The increase from 1998 to 1999 was primarily due to collecting more debit card, ATM, nonsufficient funds and other fees that resulted from an increased number of checking accounts. The number of checking accounts increased by more than 500,000 during 2000 to 4.8 million accounts at December 31, 2000 and over 400,000 during 1999 to 4.3 million accounts at December 31, 1999.
Mortgage Banking
Net interest income was $741 million in 2000, $796 million in 1999, and $833 million in 1998. The decline in net interest income during the comparative periods was primarily due to the compression of the net interest spread and margin in the mortgage banking group. The cost of borrowings for the mortgage banking
group responded more quickly than the yield on ARMs to the rise in short-term interest rates during the first half of 2000. In addition, the volume of wholesale borrowings increased during 2000 to fund asset growth. Noninterest income was $431 million in 2000, $259 million in 1999, and $326 million in 1998. Noninterest income increased from 1999 to 2000 primarily as a result of increased gain on sale of loans, loan servicing income, and other income. The increase in gain on sale of loans was attributable to the sale of $12.90 billion of seasoned loans and $8.71 billion of current loan production during 2000. The increase in loan servicing income was primarily due to growth in loans serviced for others as a result of loan sales and securitizations. The impact of this portfolio growth was partially offset by an increase in mortgage servicing rights amortization. The decline in noninterest income from 1998 to 1999 was due to a decrease in loan servicing income and loan related income. In addition, gain on sale of loans was lower in 1999 due to a decrease in fixed-rate loan originations and sales.
Total assets increased $8.61 billion, nearly 19%, to $54.98 billion at December 31, 2000 from $46.37 billion at year-end 1999. This increase was primarily due to an increase in MBS.
Commercial Banking
Net interest income was $362 million in 2000, $376 million in 1999, and $368 million in 1998. The decline in net interest income from 1999 to 2000 resulted from the compression of the net interest spread and margin in the commercial real estate portfolio. Repricing indices for the majority of the commercial real estate portfolio responded more slowly to the rise in short-term interest rates than the cost of borrowings. Net interest income was higher in 1999, compared with 1998, due to an increase in the net interest spread and margin in the commercial real estate portfolio. Noninterest income was $34 million in 2000, $30 million in 1999, and $24 million in 1998. Noninterest expense was $128 million in 2000, $104 million in 1999, and $101 million in 1998. The increase in noninterest expense during 2000 was primarily due to higher compensation and benefits expense within commercial real estate lending and as a result of our expansion of WM Business Bank offices in California.
Financial Services
Noninterest income was $371 million in 2000, $317 million in 1999, and $230 million in 1998. Noninterest income was up during the comparative periods due to increased securities fees and commissions. During these periods, there were higher sales of investment products and growth of assets under management. Noninterest expense was $240 million in 2000, $200 million in 1999, and $165 million in 1998. The increase in noninterest expense was primarily due to an increase in commission expense related to a higher volume of securities transactions.
Consumer Finance
Net interest income was $354 million in 2000, $255 million in 1999, and $203 million in 1998. The increase during the comparative periods was due to an increase in the net interest spread and margin. Average loans increased as a result of the growth in loans originated, purchases of specialty mortgage finance loans, and the acquisition of Long Beach Mortgage on October 1, 1999. Noninterest income was $141 million in 2000, $56 million in 1999, and $10 million in 1998. The increase during the comparative periods was primarily due to an increase in gains on sales of loans originated by Long Beach Mortgage. Noninterest expense was $274 million in 2000 compared with $164 million in 1999 and $127 million in 1998. The increase in 2000 was primarily due to the inclusion of Long Beach Mortgage operating expenses.
Total assets increased $2.88 billion to $10.25 billion at December 31, 2000 from $7.37 billion at year-end 1999. This increase was primarily due to purchases of specialty mortgage finance loans, in addition to loans originated and purchased by Washington Mutual Finance.
ASSET AND LIABILITY MANAGEMENT STRATEGY
Our long-term profitability depends not only on the success of the services we offer to our customers and the credit quality of our loans and securities, but also the extent to which our earnings are not negatively affected by changes in interest rates. We engage 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. As part of this strategy, we actively manage the amounts and maturities of our assets and liabilities.
A key component of our strategy is the origination and retention of short-term and adjustable-rate assets whose repricing characteristics more closely match the repricing characteristics of our liabilities. At December 31, 2000, approximately 78% of our total SFR loan and MBS portfolio had adjustable rates.
During periods of moderate to high market interest rates, our customers prefer ARMs. ARMs are also well received whenever long-term rates remain appreciably higher than short-term rates. During 2000, market interest rates rose 50 to 100 basis points; and the difference between the yields on a three-month U.S. Treasury bill and a ten-year U.S. Government note averaged 4 basis points, compared with 88 basis points in 1999. Even though short-term rates were not significantly lower than long-term rates, 85% of our SFR loan originations were ARMs, while 15% were fixed rate during 2000 due to higher long-term rates compared with recent years.
Prior to the upward trend in interest rates in late 1999 and 2000, a low and flat yield curve and significant repricings during 1998 and early 1999 resulted in lowered asset yields. Subsequently, when short-term interest rates rose, the higher funding costs compressed the net interest margin. This compression began to lessen in the latter half of 2000 as interest rates stabilized and the yield on assets tied to lagging market indices rose. We estimate that it takes three to four quarters for asset yields to catch up with increases in funding costs after an increase in short-term interest rates. However, continued higher short-term rates during the latter half of 2000 limited the widening of the net interest margin.
To manage the risk of timing differences in the repricing of assets and liabilities, our interest-earning assets are matched with interest-bearing liabilities that have similar repricing characteristics. For example, in general, our fixed-rate loans are matched with long-term deposits and borrowings, and our ARMs are matched with short-term deposits and borrowings. Periodically, mismatches are identified and managed by adjusting the repricing characteristics of our interest-bearing liabilities with derivatives. Derivatives such as interest rate cap and exchange agreements are generally utilized to match the duration of liabilities to that of the assets.
We also continue to sell fixed-rate loans to adjust the balance between interest-sensitive liabilities and interest-sensitive assets. During 2000, we started to sell adjustable-rate loans with three-to five-year initial fixed rates. To establish balance sheet flexibility and diversity, we also began to sell some monthly option ARMs in 2000. We continued to purchase specialty mortgage finance loans during 2000.
Lag risk
During 2000, lag risk was our primary interest rate risk. In times of rising interest rates, we are negatively affected by an inherent timing difference between the repricing of our adjustable-rate assets and our liabilities. The effect of this timing difference, or "lag," will be favorable during a period of declining interest rates. Although the effect of this lag generally balances out over the life of a given loan, it can produce short-term volatility in our net interest income during periods of interest rate movement. One example of this is the delay in the repricing of COFI-based assets, commonly referred to as "COFI lag." This lag results from the two-month delay in reported COFI because of the time required to gather the data necessary to compute the index. The COFI used to reprice ARMs and adjustable-rate MBS generally reflects the cost of funds for a period two months prior to the adjustment date. As a result, COFI loans reprice more slowly than our liabilities.
Repricing risk
Repricing risk is caused by the mismatch in the maturities or repricing periods between interest-earning assets and interest-bearing liabilities. In periods of rising interest rates, the net interest margin will compress if the repricing period of liabilities is shorter than the repricing period of assets because funding costs will rise faster than asset yields. The impact in periods of falling interest rates would be positive. Repricing risk can be managed by changing the repricing characteristics of interest-bearing liabilities with derivatives.
Prepayment risk
In a declining interest rate environment with a flat yield curve, customers' preference for fixed-rate loans usually results in the prepayment and refinancing of existing loans, fixed-rate and ARMs, to lower coupon, fixed-rate mortgage loans. This preference, when combined with our policy of selling most of our fixed-rate loan production, may make it more difficult for us to increase or even maintain the size of our loan and MBS portfolio during these periods. During such periods, it is likely that we would continue to securitize ARMs, but hold them in the portfolio, rather than selling them, to offset some of this risk. When prepayments occur on our loan servicing portfolio, the value of MSR may decline as servicing cash flows diminish. In addition, premiums related to loans and MBS on our Consolidated Statement of Financial Condition must be written off at the time of repayment and can have an adverse impact on earnings.
Basis risk
The repricing of our assets and liabilities is also at risk from interest rate movements because generally our assets and liabilities are tied to a variety of indices which may react differently to changes in interest rates. Loans tied to the COFI index create a form of basis risk. Our general cost of funds is higher than most other savings institutions whose costs are a component of the COFI index because a larger portion of our liabilities are borrowings, rather than lower costing deposits. To reduce basis risk, we offer the MTA loan. This loan has all the same borrower advantages as the COFI product, such as a 7.5% annual payment cap and four payment options. However, the MTA loan is indexed to the 12-month moving average of the one-year Treasury bills, which more closely reflects our borrowing costs. Management has reduced potential net interest income volatility caused by COFI basis risk by increasing production of MTA and other non-COFI adjustable-rate products and short-term fixed-rate products, such as consumer loans. There continues to be basis risk with the MTA index, as it moves with the Treasury rates, and most of our borrowings are tied to LIBOR indices.
Borrowings are generally more rate sensitive than deposits and reprice more quickly as market interest rates (such as treasury rates) change. To the extent that loan indices move at a different rate or in a different direction from our cost of funds, the general cost of funds basis risk may be realized.
Loan indices
As discussed previously, the majority of our loans and MBS have adjustable rates that are tied to a market index. Our cost of funds (representing the cost of total interest-bearing liabilities) compared to various indices was as follows:
WASHINGTON
MUTUAL'S COST OF
FUNDS LESS THAN
(GREATER THAN)
WASHINGTON MUTUAL'S -----------------
FOR THE QUARTER ENDED COST OF FUNDS COFI MTA COFI MTA
--------------------- ------------------- ---- ---- ------ -----
December 31, 2000........................................ 5.60% 5.60% 6.11% --% 0.51%
September 30, 2000....................................... 5.51 5.50 5.96 (0.01) 0.45
June 30, 2000............................................ 5.27 5.21 5.69 (0.06) 0.42
March 31, 2000........................................... 5.08 4.96 5.34 (0.12) 0.26
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Cap risk
The lifetime interest rate caps that we offer to ARM borrowers introduce another element of interest rate risk to our earnings. In periods of rising interest rates, it is possible for the repriced interest rates (index rate plus the margin) to exceed the lifetime interest caps of existing ARM loans.
LIQUIDITY
Liquidity management focuses on the need to meet both short-term funding requirements and long-term growth objectives. Our long-term growth objectives 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 has inhibited growth of consumer deposits, we have supported our growth through business combinations with other financial institutions and by increasing our use of wholesale borrowings.
We monitor our ability to meet short-term cash requirements using guidelines established by our Boards of Directors. These guidelines ensure that short-term secured borrowing capacity is sufficient to satisfy unanticipated cash needs.
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 2000 of $1.90 billion, $503 million for net noncash items and $881 million of other net cash inflows from operating activities. Cash flows from investing activities consisted mainly of proceeds from sales and purchases of securities, loan and security principal repayments, loan originations and sales of loans. In 2000, cash flows from investing activities included sales, maturities and principal payments on securities totaling $12.22 billion. Loans originated and purchased for investment were in excess of repayments and sales by $15.86 billion. Cash flows from financing activities consisted of the net change in our deposit accounts and short-term borrowings, deposits sold, the proceeds and repayments of long-term borrowings and FHLBs advances, and the repurchase of our common stock. In 2000, the above mentioned financing activities increased cash and cash equivalents by $4.76 billion on a net basis. Cash and cash equivalents were $2.62 billion at December 31, 2000. See "Consolidated Financial Statements -- Consolidated Statements of Cash Flows."
As of December 31, 2000, we had two revolving credit facilities: a $1.20 billion 364-day facility and a $600 million four-year facility, which provide back-up for our commercial paper programs. At December 31, 2000, we had $841 million available under these facilities, which represents the total amount of the two revolving credit facilities, net of the amount of commercial paper outstanding at year end.
With the acquisition of the mortgage operations of The PNC Financial Services Group, Inc. on January 31, 2001, we paid off approximately $7 billion of intercompany borrowings to their former parent company. The funds were borrowed through additional advances from FHLBs and by federal funds purchased.
CAPITAL ADEQUACY
Our capital (stockholders' equity) was $10.17 billion at December 31, 2000, up from $9.05 billion at December 31, 1999. In order to effectively deploy capital, we repurchased our common stock during the first half of 2000. During the second half of 2000, we used capital to facilitate balance sheet growth and retained additional capital in anticipation of completing the announced acquisitions of Bank United Corp., WMHLI and WMMSC. The decrease in unrealized loss on available-for-sale securities to $51 million at December 31, 2000 from $667 million at December 31, 1999 in addition to net income of $1.90 billion for 2000 more than offset the stock repurchases during the first half of 2000. This caused a rise in the ratio of stockholders' equity to total assets to 5.22% at year-end 2000, compared with 4.85% at year-end 1999.
The regulatory capital ratios of WMBFA, WMB and WMBfsb and minimum regulatory requirements to be categorized as well capitalized were as follows:
DECEMBER 31, 2000
------------------------ WELL-CAPITALIZED
WMBFA WMB WMBFSB MINIMUM
----- ----- ------ ----------------
Tier 1 capital to total assets................... 5.81% 5.83% 6.97% 5.00%
Tier 1 capital to risk-weighted assets........... 10.40 10.15 11.14 6.00
Total capital to risk-weighted assets............ 11.36 11.24 12.10 10.00
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Our federal savings bank subsidiaries are also required by OTS regulations to maintain tangible capital of at least 1.50% of assets. WMBFA and WMBfsb both satisfied this requirement at December 31, 2000.
Our broker-dealer subsidiaries are also subject to capital requirements. At December 31, 2000, both of our securities subsidiaries were in compliance with their applicable capital requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS ADOPTED IN THESE FINANCIAL STATEMENTS
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, was issued in September 2000 and replaces SFAS No. 125 of the same title. This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain disclosures, but carries over most of SFAS No. 125's provisions without reconsideration. This
statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Our adoption of this statement is not expected to materially affect our results of operations or financial condition. See "Notes to Consolidated Financial Statements -- Note 3: Securities and Note 5: Mortgage Banking Activities."
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
On January 1, 2001, we recorded a transition adjustment representing a $0.6 million loss ($0.4 million net of tax) related to the implementation of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This loss will be reflected in our earnings for the first quarter of 2001. This loss represents the excess of book value over the remaining fair value of certain interest rate cap agreements designated as cash flow hedges and the difference between book value and fair value of forward loan sale contracts for which hedge accounting was not elected. These losses were partially offset by unrealized gains representing the fair value of commitments to originate loans that will be held for sale when originated. We consider these commitments to be derivatives and are therefore carried at market value.
The adoption of SFAS No. 133 on January 1, 2001 also resulted in an $11 million decrease ($7 million net of tax) in other comprehensive income. This decrease represents $43 million ($27 million net of tax) in unrealized losses on interest rate swap agreements and interest rate cap agreements designated as cash flow hedges. This was partially offset by the net unrealized gain of $32 million ($20 million net of tax) that resulted from the reclassification of our entire held-to-maturity MBS and investment portfolios of $16.57 billion to available for sale upon adopting SFAS No. 133.
In conjunction with the reclassification of our held-to-maturity MBS portfolio to available for sale, $126 million was allocated to MSR, representing retained interests from securitizations of loans that we had completed after January 1, 1996 and for which no MSR had been previously capitalized. MSR are capitalized for all securitizations of loans occurring after January 1, 1996 that are either sold or retained in the available-for-sale securities portfolio.
The adoption of SFAS No. 133 on January 1, 2001 also resulted in a $151 million increase in derivative-related assets, a $129 million increase in the book values of hedged borrowings, and a $66 million increase in derivative-related liabilities. Management does not anticipate that SFAS No. 133 will significantly increase the volatility of earnings or stockholders' equity reported in future periods.
TAX CONTINGENCY
From 1981 through 1985, Ahmanson acquired thrift institutions in six states through Federal Savings and Loan Insurance Corporation ("FSLIC")-assisted transactions. The position was that assistance received from the FSLIC included out-of-state branching rights valued at approximately $740 million. Prior to December 31, 1998, Ahmanson had sold its deposit-taking businesses and abandoned such branching rights in five states, the first of which was Missouri in 1993. Our financial statements do not contain any benefit related to our determination that we are entitled to a deduction for the amount of our tax bases in certain state branching rights when we sold our deposit-taking businesses in those states, thereby abandoning such branching rights. Our position is that the tax bases result from the tax treatment of property received as assistance from the FSLIC in conjunction with FSLIC-assisted transactions. The potential tax benefit related to these abandonments as of December 31, 2000 could approach $238 million.
The Internal Revenue Service has completed its examination of the Ahmanson federal income tax returns for the years 1990 through 1993. The return for 1993 included the proposed adjustment related to the abandonment of the Missouri branching rights. The matter is currently before the Appeals Branch of the Service. In accordance with generally accepted accounting principles, we do not believe it is appropriate at this time to reflect any tax benefits in our financial statements.
GOODWILL LITIGATION
On August 9, 1989, the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") was enacted. Among other things, FIRREA raised the minimum capital requirements for savings institutions and required a phase-out of the amount of supervisory goodwill that could be included in satisfying certain regulatory capital requirements. The exclusion of supervisory goodwill from regulatory capital led many savings institutions to either replace the lost capital by issuing new qualifying debt or equity securities or to reduce assets.
To date, trials have been concluded and opinions have been issued in a number of actions in the United States Court of Federal Claims (the "Court") in which savings institutions and investors in savings institutions sought damages from the U.S. Government based on breach of contract and other theories. Generally, in cases in which these opinions on the merits have been issued by the Court, either the plaintiff(s), the defendant (U.S. Government), or both the plaintiff(s) and the defendant, have opted to appeal the Court's decision. Such appeals are now pending before the United States Court of Appeals for the Federal Circuit (the "Federal Circuit").
Home Savings
In September 1992, Home Savings filed a lawsuit against the U.S. Government in the Court for unspecified damages involving supervisory goodwill related to its acquisitions of troubled savings institutions from 1981 to 1988.
In March 1998, the U.S. Government conceded, while reserving the right to contest certain issues on appeal, that Home Savings had entered into certain contracts with the U.S. Government and that the U.S. Government took actions that were inconsistent with those contracts. These contracts relate to Home Savings' purchase of troubled savings institutions in Florida, Missouri, Texas and Illinois and the purchase of Century Federal Savings of New York, with associated unamortized supervisory goodwill of $426 million as of August 31, 1989.
The U.S. Government has denied the existence of a contract and actions inconsistent with such a contract in connection with Home Savings' purchase of savings institutions in Ohio with unamortized supervisory goodwill of approximately $34 million as of August 31, 1989. Home Savings had also pursued legal remedies against the U.S. Government for the loss of supervisory goodwill related to Home Savings' 1988 acquisition of The Bowery Savings Bank of New York. On November 3, 1999, WMBFA (as successor to Home Savings) notified the Court that WMBFA would not continue to pursue remedies in connection with The Bowery Savings Bank of New York acquisition. Unamortized supervisory goodwill from acquisitions that remain subjects of the lawsuit totaled approximately $460 million as of August 31, 1989.
The U.S. Government has not conceded that Home Savings was damaged by any breaches of contract addressed by the lawsuit, and as yet, there has been no determination as to the amount of any damages that Home Savings may have sustained as a result of any breach of contract. WMBFA (as successor to Home Savings) continues to pursue a favorable outcome of this lawsuit.
American Savings Bank, F.A.
In December 1992, ASB, Keystone Holdings and certain related parties brought a lawsuit against the United States, alleging, among other things, that in connection with the acquisition of ASB they entered into a contract with agencies of the United States and that the U.S. Government breached that contract. As a result of the Keystone Transaction, we succeeded to all of the rights of ASB, Keystone Holdings and such related parties in such litigation and will receive any recovery from the litigation. ASB is now WMBFA.
In connection with the Keystone Transaction, we delivered a specified number of shares of our common stock into an escrow. There are currently 12 million shares in the escrow (the "Escrow Shares"). Upon our receipt of net cash proceeds from a judgment in or settlement of the litigation, all or part of the Escrow Shares will be released, 64.9% to investors in Keystone Holdings or their assigns, and 35.1% to the FSLIC Resolution Fund or its assigns. The number of Escrow Shares to be released will be equal to the case proceeds, reduced by certain tax and litigation-related costs and expenses, divided by $27.7417. The escrow will expire on
December 20, 2002, subject to extensions in certain circumstances. If not all Escrow Shares are released prior to such expiration, any remaining Escrow Shares will be returned to us for cancellation.
The allegations made in the ASB case are similar to those asserted in other cases where the United States Supreme Court affirmed decisions holding the U.S. Government liable for breach of contract. However, no record has been established in these other cases which would indicate what, if any, damages we are entitled to receive in this case. Accordingly, the ultimate outcome of the ASB case is uncertain, and there can be no assurance that we will benefit financially from it. Generally, we expect to receive financial benefit only if the cash proceeds, after reduction for certain tax and litigation-related costs and expenses, exceed $333 million.
Coast and Bank United Corp.
Prior to their acquisitions, Coast and Bank United Corp. had similar lawsuits against the U.S. Government. Generally, securities representing interests in these lawsuits were issued to Coast and Bank United Corp. shareholders. These securities, called contingent payment rights certificates, are currently traded on the NASDAQ Stock Market under the symbols CCPRZ and BNKUZ, respectively. We do not own a significant number of these securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk. The majority of our interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading. They include loans, securities, deposits, borrowings, long-term debt and derivative financial instruments used for asset/liability management. Interest rate risk occurs when assets and liabilities reprice or mature at different times or frequencies as market interest rates change.
During the year, we implemented additional methodologies for analyzing interest rate risk. These included projecting net interest income based on parallel and non-parallel changes in the yield curve. The results of these analyses are used as part of our overall framework for asset/liability management. Accordingly, we have changed our market risk analysis from a tabular presentation to a presentation of net interest income sensitivity.
The table below indicates the sensitivity of pretax net interest income to interest rate movements. The comparative scenarios assume that interest rates rise or fall in even quarterly increments over the next twelve months for a total increase or decrease of 200 basis points. The interest rate scenarios are used for analytical purposes and do not necessarily represent management's view of future market movements.
Our net interest income sensitivity profile as of year-end 2000 and 1999 is stated below:
GRADUAL CHANGE IN RATES
------------------------
-200BP +200BP
-------- --------
Net interest income change for the one-year period
beginning:
January 1, 2001........................................... 11.0% (12.4)%
January 1, 2000........................................... 11.3% (11.6)%
|
Our net interest income at risk position has not changed significantly year-over-year. Assumptions are made in modeling the sensitivity of net interest income. The simulation model captures expected prepayment behavior under changing interest rate environments. Additionally, the model captures the impact of interest rate caps and floors on adjustable-rate products. Assumptions regarding interest rate or balance behavior of non-maturity deposits reflect management's best estimate of future behavior. Sensitivity of new loan volume to market interest rate levels is included as well.
We analyze additional interest rate scenarios, including more extreme rising and falling rate environments to support interest rate risk management. These additional scenarios also address the risk exposure in time periods beyond the twelve months captured in this net interest income sensitivity analysis.
Management of Interest Rate Risk and Derivative Activities
To mitigate interest rate risk, we use derivative instruments, such as interest rate exchange agreements and interest rate cap agreements. At December 31, 2000, we had entered into interest rate exchange agreements and interest rate cap agreements with notional values of $22.18 billion. Additionally, $13.20 billion of interest rate floors and $751 million of interest rate caps have been embedded within certain borrowings as of December 31, 2000. The majority of these derivative contracts embedded within the borrowings will not become effective until the first quarter of 2001 and beyond. Derivative instruments, if not used appropriately, can subject a company to unintended financial exposure. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Statement of Financial Condition. The contract or notional amount of these instruments reflects the extent of involvement we have in particular classes of financial instruments.
Management, in conjunction with the Board of Directors, has established
strict policies and guidelines for the use of derivative instruments. These
instruments are not intended to be used as techniques to generate earnings by
speculating on the movements of interest rates, nor do we act as a dealer of
these instruments. See "Notes to Consolidated Financial Statements -- Note 20:
Interest Rate Risk Management."
Our strategy is to use derivative instruments to hedge the repricing risk associated with deposits and borrowings. For example, we have entered into interest rate cap agreements to provide an additional layer of protection should interest rates on deposits and borrowings rise. Through the use of these agreements, management attempts to offset increases in interest expense related to these deposits and borrowings and effectively lengthen the repricing period. Thus, we have a degree of interest rate protection when interest rates increase because the interest rate cap agreements provide a mechanism for repricing the deposits and borrowings generally on pace with current market rates. There can be no assurance that interest rate exchange agreements and interest rate cap agreements will provide us with protection in all scenarios or to the full extent of our exposure.
During 2000, we entered into borrowing arrangements which contain embedded derivative instruments. These instruments included caps and floors. Interest rate floors are intended to hedge prepayment risk associated with our loans, MBS and MSR. With interest rate floors, we will receive cash flows when the interest rate index drops below certain levels (strike rate). The amount of the cash flows are calculated based on the difference between the strike rate and the index rate multiplied by the notional amount. Similarly, the interest rate caps provide us cash flows when the interest rate index exceeds the strike rate. Interest rate caps are intended to hedge repricing of liabilities and securities that are purchased to hedge MSR.
We also hedge the risks associated with the mortgage pipeline. The mortgage pipeline consists of fixed-and adjustable-rate SFR loans which will be sold in the secondary market. The risk with the mortgage pipeline is that interest rates might rise between the time the customer locks in the interest rate on the loan and the time the loan is sold. This period is usually 30 to 60 days. To hedge this risk, we execute forward sales agreements and option contracts. A forward sales agreement protects us in a rising interest rate environment since the sales price and delivery date have already been established. A forward sales agreement, however, is different from an option contract in that we are obligated to deliver the loan to the third party on the agreed upon future date. As a result, if the loans do not fund, we may not have the necessary assets to meet our commitment. Therefore, we would be required to purchase other assets, at current market prices, to satisfy the forward sales agreement. To mitigate this risk, we use fallout factors, which represent the percentage of loans which are not expected to close, when calculating the amount of forward sales agreements to execute.
Counterparty Risk
Our borrowing activities (including repurchase agreements) and derivative instruments generally involve an exchange of obligations with another financial institution, referred to in such transactions as a "counterparty." If a counterparty were to default, we could be exposed to a financial loss. A loss would result to the extent that the value of the collateral or funds held by the counterparty exceeded the value of the collateral or funds held by us. In order to minimize the risk, all counterparties are evaluated for financial strength on at least an annual basis. Exposure limits are then established for each counterparty. Our primary focus is to deal with well-established, reputable and financially strong firms.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements, see Index to Consolidated Financial Statements on page 53.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Part III is incorporated by reference from our definitive proxy statement issued in conjunction with our Annual Meeting of Shareholders to be held April 17, 2001. Certain information regarding our principal officers is set forth in "Business -- Principal Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page 53.
(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
(b) REPORTS ON FORM 8-K:
Washington Mutual filed the following reports on Form 8-K during the fourth quarter of 2000:
1. Report filed October 19, 2000. Items included: Item 5. Other Events, and Item 7. Financial Statements and Exhibits. The report included a press release announcing the Company's third quarter financial results.
(c) EXHIBITS:
The Index of Exhibits is included in the version of this Form 10-K filed with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 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 February 20, 2001.
WASHINGTON MUTUAL, INC.
/s/ KERRY K. KILLINGER -------------------------------------- Kerry K. Killinger Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on February 20, 2001.
/s/ KERRY K. KILLINGER /s/ WILLIAM A. LONGBRAKE
-------------------------------------------- --------------------------------------------
Kerry K. Killinger William A. Longbrake
Chairman, President and Chief Executive Vice Chair and Chief Financial Officer
Officer; Director (Principal Executive (Principal Financial Officer)
Officer)
/s/ ROBERT H. MILES
--------------------------------------------
Robert H. Miles
Senior Vice President and Controller
(Principal Accounting Officer)
/s/ DOUGLAS P. BEIGHLE /s/ PHILLIP D. MATTHEWS
-------------------------------------------- --------------------------------------------
Douglas P. Beighle Phillip D. Matthews
Director Director
-------------------------------------------- --------------------------------------------
David Bonderman Michael K. Murphy
Director Director
/s/ MARY E. PUGH
-------------------------------------------- --------------------------------------------
J. Taylor Crandall Mary E. Pugh
Director Director
/s/ ROGER H. EIGSTI /s/ WILLIAM G. REED, JR.
-------------------------------------------- --------------------------------------------
Roger H. Eigsti William G. Reed, Jr.
Director Director
/s/ JOHN W. ELLIS /s/ ELIZABETH A. SANDERS
-------------------------------------------- --------------------------------------------
John W. Ellis Elizabeth A. Sanders
Director Director
/s/ ANNE V. FARRELL
-------------------------------------------- --------------------------------------------
Anne V. Farrell William D. Schulte
Director Director
/s/ STEPHEN E. FRANK /s/ JAMES H. STEVER
-------------------------------------------- --------------------------------------------
Stephen E. Frank James H. Stever
Director Director
/s/ WILLIAM P. GERBERDING /s/ WILLIS B. WOOD, JR.
-------------------------------------------- --------------------------------------------
William P. Gerberding Willis B. Wood, Jr.
Director Director
--------------------------------------------
Enrique Hernandez, Jr.
Director
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ 54
Consolidated Statements of Income for the years ended
December 31, 2000, 1999, and 1998......................... 55
Consolidated Statements of Financial Condition at December
31, 2000 and 1999......................................... 56
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31,
2000, 1999 and 1998....................................... 57
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 58
Notes to Consolidated Financial Statements.................. 60
Supplementary Data.......................................... 106
|
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Washington Mutual, Inc.:
We have audited the accompanying consolidated statements of financial condition of Washington Mutual, Inc. and subsidiaries ("the Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and comprehensive income, and of cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial condition of Washington Mutual, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE Seattle, Washington February 23, 2001 |
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
INTEREST INCOME
Loans....................................................... $ 9,388 $ 8,348 $ 8,167
Available-for-sale securities............................... 2,811 2,481 1,708
Held-to-maturity securities................................. 1,319 1,050 1,175
Other interest and dividend income.......................... 265 183 171
------- ------- -------
Total interest income..................................... 13,783 12,062 11,221
INTEREST EXPENSE
Deposits.................................................... 3,290 3,170 3,588
Borrowings.................................................. 6,182 4,440 3,341
------- ------- -------
Total interest expense.................................... 9,472 7,610 6,929
------- ------- -------
Net interest income....................................... 4,311 4,452 4,292
Provision for loan and lease losses......................... 185 167 162
------- ------- -------
Net interest income after provision for loan and lease
losses................................................. 4,126 4,285 4,130
NONINTEREST INCOME
Depositor and other retail banking fees..................... 976 764 569
Securities fees and commissions............................. 318 271 192
Insurance fees and commissions.............................. 44 43 42
Loan servicing income....................................... 147 112 117
Loan related income......................................... 117 103 111
Gain on sale of loans....................................... 262 109 133
Gain on sale of retail deposit branch systems............... -- -- 289
Loss from securities........................................ (1) (12) (30)
Other income................................................ 121 119 84
------- ------- -------
Total noninterest income.................................. 1,984 1,509 1,507
NONINTEREST EXPENSE
Compensation and benefits................................... 1,348 1,186 1,189
Occupancy and equipment..................................... 604 565 498
Telecommunications and outsourced information services...... 323 276 256
Depositor and other retail banking losses................... 105 107 88
Transaction-related expense................................. -- 96 508
Amortization of goodwill and other intangible assets........ 106 98 104
Other expense............................................... 640 582 625
------- ------- -------
Total noninterest expense................................. 3,126 2,910 3,268
------- ------- -------
Income before income taxes................................ 2,984 2,884 2,369
Income taxes................................................ 1,085 1,067 882
------- ------- -------
NET INCOME.................................................. $ 1,899 $ 1,817 $ 1,487
======= ======= =======
Net income attributable to common stock..................... $ 1,899 $ 1,817 $ 1,471
======= ======= =======
Net income per common share:
Basic..................................................... $ 3.55 $ 3.17 $ 2.61
Diluted................................................... 3.54 3.16 2.56
|
See Notes to Consolidated Financial Statements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ 2,622 $ 3,040
Available-for-sale securities, total amortized cost of
$42,288 and $42,564:
Encumbered................................................ 23,576 17,531
Unencumbered.............................................. 18,583 23,854
-------- --------
42,159 41,385
Held-to-maturity securities, total fair value of $16,486 and
$19,037:
Encumbered................................................ 9,566 10,074
Unencumbered.............................................. 6,999 9,327
-------- --------
16,565 19,401
Loans held for sale......................................... 3,404 794
Loans:
Loans held in portfolio................................... 119,626 113,746
Allowance for loan and lease losses....................... (1,014) (1,042)
-------- --------
Total loans, net of allowance for loan and lease
losses................................................ 118,612 112,704
Mortgage servicing rights ("MSR")........................... 1,017 643
Investment in Federal Home Loan Banks ("FHLBs")............. 3,260 2,917
Goodwill and other intangible assets........................ 1,084 1,200
Other assets................................................ 5,993 4,430
-------- --------
Total assets........................................... $194,716 $186,514
======== ========
LIABILITIES
Deposits:
Checking accounts......................................... $ 14,500 $ 13,490
Savings accounts and money market deposit accounts
("MMDAs").............................................. 30,656 30,048
Time deposit accounts..................................... 34,418 37,592
-------- --------
Total deposits......................................... 79,574 81,130
Federal funds purchased and commercial paper................ 4,115 867
Securities sold under agreements to repurchase ("repurchase
agreements").............................................. 29,756 30,163
Advances from FHLBs......................................... 57,855 57,094
Other borrowings............................................ 9,930 6,203
Other liabilities........................................... 3,320 2,004
-------- --------
Total liabilities...................................... 184,550 177,461
STOCKHOLDERS' EQUITY
Common stock, no par value: 1,600,000,000 shares authorized,
539,855,720 and 571,589,272 shares issued and
outstanding............................................... -- --
Capital surplus -- common stock............................. 1,425 2,205
Accumulated other comprehensive loss:
Unrealized loss on securities............................. (51) (667)
Minimum pension liability adjustment...................... (3) (7)
Retained earnings........................................... 8,795 7,522
-------- --------
Total stockholders' equity............................. 10,166 9,053
-------- --------
Total liabilities and stockholders' equity............. $194,716 $186,514
======== ========
|
See Notes to Consolidated Financial Statements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
CAPITAL ACCUMULATED COMMON
SURPLUS -- OTHER STOCK
PREFERRED COMMON COMPREHENSIVE RETAINED IN
TOTAL STOCK STOCK INCOME (LOSS) EARNINGS TREASURY
------- --------- ---------- ------------- -------- --------
(IN MILLIONS)
BALANCE, December 31, 1997............... $ 7,601 $ 597 $ 2,630 $ 62 $5,244 $(932)
Comprehensive income:
Net income -- 1998..................... 1,487 -- -- -- 1,487 --
Other comprehensive income (loss), net
of tax:
Net unrealized gains on securities
arising during the year, net of
reclassification adjustments....... 25 -- -- 25 -- --
Minimum pension liability
adjustment......................... (13) -- -- (13) -- --
-------
Total comprehensive income............... 1,499 -- -- -- -- --
Cash dividends declared on preferred
stock.................................. (20) -- -- -- (20) --
Cash dividends declared on common
stock.................................. (436) -- -- -- (436) --
Repurchase of common stock............... (24) -- -- -- -- (24)
Redemption or conversion of preferred
stock.................................. (313) (597) (112) -- -- 396
Common stock issued to acquire Coast
Savings Financial, Inc. ("Coast")...... 925 -- 373 -- -- 552
Common stock issued through employee
stock plans, including tax benefit..... 112 -- 115 -- -- (3)
Treasury shares retired.................. -- -- (11) -- -- 11
------- ----- ------- ----- ------ -----
BALANCE, December 31, 1998............... 9,344 -- 2,995 74 6,275 --
------- ----- ------- ----- ------ -----
Comprehensive income:
Net income -- 1999..................... 1,817 -- -- -- 1,817 --
Other comprehensive income (loss), net
of tax:
Net unrealized losses on securities
arising during the year, net of
reclassification adjustments....... (754) -- -- (754) -- --
Minimum pension liability
adjustment......................... 6 -- -- 6 -- --
-------
Total comprehensive income............... 1,069 -- -- -- -- --
Cash dividends declared on common
stock.................................. (570) -- -- -- (570) --
Common stock repurchased and retired..... (1,082) -- (1,082) -- -- --
Common stock issued to acquire Long Beach
Financial Corp......................... 207 -- 207 -- -- --
Common stock issued through employee
stock plans, including tax benefit..... 85 -- 85 -- -- --
------- ----- ------- ----- ------ -----
BALANCE, December 31, 1999............... 9,053 -- 2,205 (674) 7,522 --
------- ----- ------- ----- ------ -----
Comprehensive income:
Net income -- 2000..................... 1,899 -- -- -- 1,899 --
Other comprehensive income, net of tax:
Net unrealized gains on securities
arising during the year, net of
reclassification adjustments....... 616 -- -- 616 -- --
Minimum pension liability
adjustment......................... 4 -- -- 4 -- --
-------
Total comprehensive income............... 2,519 -- -- -- -- --
Cash dividends declared on common
stock.................................. (626) -- -- -- (626) --
Common stock repurchased and retired..... (869) -- (869) -- -- --
Common stock issued through employee
stock plans, including tax benefit..... 89 -- 89 -- -- --
------- ----- ------- ----- ------ -----
BALANCE, December 31, 2000............... $10,166 $ -- $ 1,425 $ (54) $8,795 $ --
======= ===== ======= ===== ====== =====
|
See Notes to Consolidated Financial Statements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 1,899 $ 1,817 $ 1,487
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses................... 185 167 162
Gain on sale of loans................................. (262) (109) (133)
Loss from securities.................................. 1 12 30
Depreciation and amortization......................... 539 400 313
Stock dividends from FHLBs............................ (221) (139) (112)
Transaction-related expense........................... -- -- 82
Origination of loans held for sale.................... (13,123) (4,996) (13,501)
Proceeds from sales of loans held for sale............ 12,610 8,960 18,238
Decrease (increase) in other assets................... 802 (506) 256
Increase (decrease) in other liabilities.............. 592 (336) 93
-------- -------- --------
Net cash provided by operating activities........... 3,022 5,270 6,915
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities.................................... (2,843) (17,091) (17,389)
Sales and maturities of securities......................... 3,842 1,680 2,585
Principal payments on securities........................... 8,373 12,411 10,010
Purchases of investment in FHLBs........................... (136) (787) (344)
Purchases of loans......................................... (6,752) (7,357) (3,069)
Proceeds from sales of loans............................... 13,164 55 49
Origination of loans, net of principal payments............ (22,271) (16,571) (7,733)
Proceeds from sales of foreclosed assets................... 265 354 609
Cash (used for) provided by acquisitions................... (23) (144) 400
Purchases of premises and equipment, net................... (272) (319) (320)
Purchases of bank owned life insurance..................... (1,000) -- --
-------- -------- --------
Net cash used by investing activities, carried
forward.......................................... (7,653) (27,769) (15,202)
|
See Notes to Consolidated Financial Statements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Net cash used by investing activities, brought
forward.......................................... (7,653) (27,769) (15,202)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposits....................................... (1,553) (4,289) (1,103)
Deposits sold.............................................. (3) (73) (3,236)
(Decrease) increase in short-term borrowings............... (6,373) 5,413 2,335
Proceeds from long-term borrowings......................... 32,615 15,881 1,383
Repayments of long-term borrowings......................... (19,817) (9,911) (3,650)
Proceeds from FHLBs advances............................... 88,749 87,174 67,189
Repayments of FHLBs advances............................... (87,990) (69,828) (53,882)
Cash dividends paid on preferred and common stock.......... (626) (570) (456)
Redemption of preferred stock.............................. -- -- (313)
Repurchase of common stock................................. (869) (1,082) (24)
Other...................................................... 80 67 81
-------- -------- --------
Net cash provided by financing activities........... 4,213 22,782 8,324
-------- -------- --------
(Decrease) increase in cash and cash equivalents.... (418) 283 37
Cash and cash equivalents, beginning of year........ 3,040 2,757 2,720
-------- -------- --------
Cash and cash equivalents, end of year.............. $ 2,622 $ 3,040 $ 2,757
======== ======== ========
NONCASH ACTIVITIES
Loans exchanged for MBS.................................... $ 7,414 $ 14,764 $ 754
Real estate acquired through foreclosure................... 255 338 512
Loans originated to facilitate the sale of foreclosed
assets................................................... 36 65 55
Loans held for sale originated to refinance existing
loans.................................................... 631 2,512 5,289
Loans held in portfolio originated to refinance existing
loans.................................................... 3,361 4,347 2,556
Loans held in portfolio transferred to loans held for
sale..................................................... 1,314 -- --
Trade date purchases not yet settled....................... 306 -- 2,610
Trade date sales not yet settled........................... 301 -- --
CASH PAID DURING THE YEAR FOR
Interest on deposits....................................... 3,287 3,151 3,610
Interest on borrowings..................................... 6,257 4,251 3,195
Income taxes............................................... 389 827 814
|
See Notes to Consolidated Financial Statements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Washington Mutual, Inc. ("WMI" and together with its subsidiaries,
"Washington Mutual" or the "Company") is a financial services company committed
to serving consumers and small to mid-sized businesses. Through its
subsidiaries, Washington Mutual engages in the following lines of business:
consumer banking, mortgage banking, commercial banking, financial services and
consumer finance. The Company's principal banking subsidiaries are Washington
Mutual Bank, FA ("WMBFA"), Washington Mutual Bank ("WMB") and Washington Mutual
Bank fsb ("WMBfsb"). The banking subsidiaries accept deposits from the general
public, make, buy and sell residential loans, consumer loans, and commercial
loans, and engage in certain commercial banking activities. The Company
originates, purchases, sells and services specialty mortgage finance loans
through its subsidiaries, Washington Mutual Finance Corporation ("Washington
Mutual Finance") and Long Beach Mortgage Company ("Long Beach Mortgage"). In
addition, WMBFA purchases specialty mortgage finance loans. Through licensed
subsidiaries, Washington Mutual also markets annuities and other insurance
products, offers full service securities brokerage operations, and acts as the
investment advisor to and the distributor of mutual funds.
The Company has a concentration of operations in California. At December 31, 2000, 52% of the Company's loan portfolio and 71% of the Company's deposits were concentrated in California.
Certain reclassifications have been made to the 1999 and 1998 financial statements to conform to the 2000 presentation. All intercompany transactions and balances have been eliminated.
On October 1, 1998, H.F. Ahmanson & Company ("Ahmanson") merged with and into WMI and all of the subsidiaries of Ahmanson, including Home Savings of America, FSB ("Home Savings"), became subsidiaries of the Company (the "Ahmanson Merger"). The Ahmanson Merger was accounted for as a pooling of interests. When Washington Mutual acquires a company through a pooling of interests, current and prior period financial statements are restated to include the accounts of merged companies. As a result, the accompanying financial statements and notes thereto are presented as if the companies were merged as of the beginning of the earliest period shown. Previously reported balances of the merged companies have been reclassified to conform to the Company's presentation and restated to give effect to the combinations.
On February 13, 1998, Ahmanson had acquired Coast Savings Financial, Inc. ("Coast"). On October 1, 1999, Washington Mutual acquired Long Beach Financial Corporation, parent of Long Beach Mortgage. Both acquisitions were accounted for as purchases.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, U.S. Treasury bills, overnight investments, commercial paper and repurchase agreements with an initial maturity of three months or less.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Held-to-Maturity Securities
Investments classified as held to maturity are accounted for at amortized cost because the Company has both the positive intent and the ability to hold those securities to maturity. Other than temporary declines in fair value are recognized in the income statement as loss from securities.
Available-for-Sale Securities
Securities not classified as held to maturity are considered to be available for sale. Gains and losses realized on the sale of these securities are based on the specific identification method. Unrealized gains and losses from available-for-sale securities are excluded from earnings and reported (net of tax) in accumulated other comprehensive income until realized. Other than temporary declines in fair value are recognized in the income statement as loss from securities.
Loans Held for Sale
Loans held for sale include originated and purchased mortgage loans intended for sale in the secondary market. The loans so designated are carried at the lower of net cost or fair value on an aggregate basis.
Loans Held in Portfolio
Loans held in portfolio are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts or premiums on purchased loans. Deferred costs or fees, discounts and premiums are amortized using the interest method over the contractual term of the loan adjusted for actual prepayments.
Management generally ceases to accrue interest income on all loans that become four payments delinquent and reverses all interest accrued up to that time. Thereafter, interest income is accrued only if and when, in management's opinion, projected cash proceeds are deemed sufficient to repay both principal and interest. All loans for which interest is not being accrued are referred to as loans on nonaccrual status.
Commercial real estate loans over $1 million, and all commercial business and builder construction loans are individually evaluated for impairment. Management generally identifies loans to be evaluated for impairment when such loans are on nonaccrual status or have been restructured. However, not all nonaccrual loans are impaired. Loans are considered impaired when it is probable that the Company will be unable to collect all amounts contractually due, including scheduled interest payments. Restructured loans are evaluated for impairment based on the contractual terms specified by the original loan agreement, rather than the contractual terms specified by the restructuring agreement. Loans performing under restructured terms beyond a specified performance period are classified as accruing, but may still be deemed impaired. 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. All other loans are reviewed on a collective basis.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents management's estimate of credit losses inherent in the Company's loan and lease portfolios as of the balance sheet date. Management performs periodic reviews of its portfolios to identify these inherent losses, and to assess the overall probability of collection of these portfolios. The process by which the allowance is determined encompasses the analysis of the historical performance of each loan category and an assessment of current economic and portfolio trends and conditions, as well as specific risk factors impacting the loan and lease portfolios. The Company monitors delinquency, default, and loss rates, among other factors impacting portfolio risk. In addition, non-homogeneous type loans, such as commercial business and commercial real estate loans, are reviewed on an individual loan basis in order to identify impairment and for risk rating purposes.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for loan and lease losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not evidenced the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; or the fair value of the loan collateral is significantly below the current loan balance and there is little or no near-term prospect for improvement.
Consumer finance loans secured by collateral other than real estate are charged off if and when they exceed a specified number of days contractually delinquent (180 days for substantially all loans).
The ultimate recovery of all loans is susceptible to future market factors beyond the Company's control. These factors may result in losses or recoveries differing significantly from those provided for in the Consolidated Financial Statements.
Allowance for Recourse Obligations
The Company records an allowance for recourse obligations to cover inherent losses on loans securitized and retained in its mortgage-backed securities ("MBS") portfolio for which the Company retains the credit risk and to cover estimated losses on loans and MBS sold to third parties for which a recourse obligation exists. A regular review is performed to determine the adequacy of the allowance for recourse obligations. The review is substantially similar to the review of the adequacy of the allowance for loan and lease losses, because the sold loans and securities, as to which a recourse obligation exists, are similar to the Company's single-family residential ("SFR") loan portfolio. Increases to the allowance for recourse obligations are recorded as loss from securities.
Foreclosed Assets
Foreclosed assets include properties acquired through foreclosure that are transferred at fair value, less estimated selling costs, which represents the new recorded basis of the property. Subsequently, properties are evaluated and any additional declines in value are recorded in current period earnings. The amount the Company ultimately recovers from foreclosed assets may differ substantially from the net carrying value of these assets because of future market factors beyond the Company's control or because of changes in the Company's strategy for sale or development of the property.
Transfers and Servicing of Financial Assets
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, was issued in September 2000 and replaces SFAS No. 125 of the same title. This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of SFAS No. 125's provisions without reconsideration. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this statement by the Company is not expected to materially affect the results of operations or financial condition of the Company. See "Notes to Consolidated Financial Statements -- Note 3: Securities and Note 5: Mortgage Banking Activities."
In connection with securitizations or transfers, certain retained interests, including MSR, are recorded at their allocated carrying value based on their relative fair value. Initially and at subsequent measurement dates, fair value is determined by computing the present value of the estimated cash flows retained, using the dates that such cash flows are expected to be released to the Company, at a discount rate considered to be
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commensurate with the risks associated with the cash flows. The amounts and timing of the cash flows are estimated after considering various economic factors including prepayment, delinquency, default and loss assumptions. Valuation of retained interests in securitizations may also involve the use of quoted market prices on same or similar securities.
MSR are capitalized at their allocated carrying value and amortized in proportion to, and over the period of, estimated future net servicing income.
The Company assesses impairment of the MSR based on the fair value of those rights on a stratum-by-stratum basis, with any impairment recognized through a valuation allowance for each impaired stratum. For purposes of measuring impairment, the MSR are stratified based on the following characteristics of the underlying loans: fixed-rate mortgage loans by loan type (conforming, nonconforming, and government) and by coupon rate (less than 7.5%, between 7.5% and less than 9.0%, and greater than or equal to 9.0%) and adjustable-rate mortgage ("ARM") loans. The Company changed the stratification used for impairment review in the fourth quarter of 2000 and such change did not have a material effect on the financial statements.
In order to determine the fair value of the MSR, the Company uses a model that estimates the present value of expected future cash flows. Assumptions used in the model include market discount rates and anticipated prepayment speeds. The prepayment speeds are determined in relation to forecasted yield curves of selected government securities. In addition, the Company uses market comparables for estimates of the cost of servicing per loan, inflation rates, ancillary income per loan and default rates.
Premises and Equipment
Land, buildings, leasehold improvements and equipment are carried at amortized cost. Buildings and equipment are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their useful lives or lease terms. The Company reviews buildings, leasehold improvements, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment exists when the estimated undiscounted cash flows for the property is less than its carrying value. If identified, an impairment loss is recognized through a charge to earnings based on the fair value of the property.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets represent the excess of purchase price over the fair value of net assets acquired by the Company. The excess cost over fair value of net assets acquired consists of goodwill, core deposit premiums, and other intangible assets. Substantially all of the Company's goodwill is being amortized using the straight-line method over 10 to 25 years. Other intangible assets are amortized over their estimated useful lives. The Company reviews its intangible assets periodically for other-than-temporary impairment. If such impairment is indicated, recoverability of the asset is assessed based on expected undiscounted net cash flows.
Repurchase Agreements
The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company transfers legal control over the assets but still retains effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, repurchase agreements are accounted for as financing arrangements and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Consolidated Statements of Financial Condition while the dollar amount of securities underlying the agreements remains in the respective asset accounts. These securities are classified as encumbered.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax bases of existing assets and liabilities are expected to be reported in the Company's income tax returns. The comprehensive deferred tax provision for the year is equal to the change in the deferred tax asset from the beginning to the end of the year. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date of the change.
The Company reports income and expenses using the accrual method of accounting and files a consolidated tax return on that basis as well. The Company's federal tax filings generally include all subsidiaries.
Earnings Per Share
Earnings per share ("EPS") are presented under two formats: basic EPS and diluted EPS. EPS is computed by dividing net income (after deducting dividends on preferred stock) by the weighted average number of common shares outstanding during the year. Diluted EPS is computed by dividing net income (after deducting dividends on preferred stock) by the weighted average number of common shares outstanding during the year, plus the impact of dilutive potential common shares, such as stock options.
Derivative Instruments
The Company uses derivative instruments, such as interest rate exchange agreements, interest rate cap agreements, and forward sales contracts of financial instruments to reduce its exposure to interest rate risk. All of the Company's derivative instruments are used for purposes other than trading. Interest rate exchange agreements and interest rate cap agreements are used only if they have the effect of changing the interest rate characteristics of the assets or liabilities to which they are designated. Such effect is measured through ongoing correlation or effectiveness tests.
Interest rate exchange agreements and interest rate cap agreements are designated against interest-earning assets, deposits and borrowings. Interest rate exchange agreements and interest rate cap agreements designated against deposits and borrowings are reported at historical cost.
The interest differential paid or received on interest rate exchange agreements and interest rate cap agreements is recorded as an adjustment to interest income or interest expense. The purchase premium of interest rate cap agreements is capitalized and amortized as a component of interest income or interest expense over the original term of the interest rate cap agreement. No purchase premiums are paid at the time of entering into interest rate exchange agreements.
From time to time, the Company terminates interest rate exchange agreements and interest rate cap agreements prior to maturity. Such circumstances arise if, in the judgment of management, such instruments no longer effectively meet policy objectives.
Usually such instruments are within one year of maturity. Gains and losses from terminated interest rate exchange agreements and interest rate cap agreements are recognized, consistent with the gain or loss on the asset or liability associated with the agreement. When the asset or liability is not sold or paid off, the gains or losses are deferred and amortized as additional interest income or interest expense over the original terms of the agreements or the remaining life of the designated asset or liability, whichever is less.
From time to time, the Company redesignates interest rate exchange agreements and interest rate cap agreements between interest-earning assets and deposits and borrowings. Such redesignations are recorded at fair value at the time of transfer.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company may write covered call options on its available-for-sale portfolio. If the option is exercised, the option fee is recorded as an adjustment to the gain or loss on the sale of the security. If the option is not exercised, the option fee is recognized as fee income.
Recently Issued Accounting Standards Not Yet Adopted
On January 1, 2001, the Company recorded a transition adjustment representing a $0.6 million loss ($0.4 million net of tax) related to the implementation of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This loss will be reflected in the Company's earnings for the first quarter of 2001. This loss represents the excess of book value over the remaining fair value of certain interest rate cap agreements designated as cash flow hedges and the difference between book value and fair value of forward loan sale contracts for which hedge accounting was not elected. These losses were partially offset by unrealized gains representing the fair value of commitments to originate loans that will be held for sale when originated. The Company considers these commitments to be derivatives and are therefore carried at market value.
The adoption of SFAS No. 133 on January 1, 2001 also resulted in an $11 million decrease ($7 million net of tax) in other comprehensive income. This decrease represents $43 million ($27 million net of tax) in unrealized losses on interest rate swap agreements and interest rate cap agreements designated as cash flow hedges. This was partially offset by the net unrealized gain of $32 million ($20 million net of tax) that resulted from the reclassification of the Company's entire held-to-maturity MBS and investment portfolios of $16.57 billion to available for sale upon adopting SFAS No. 133.
In conjunction with the reclassification of the Company's held-to-maturity MBS portfolio to available for sale, $126 million was allocated to MSR, representing retained interests from securitizations of loans that the Company had completed after January 1, 1996 and for which no MSR had been previously capitalized. MSR are capitalized for all securitizations of loans occurring after January 1, 1996 that are either sold or retained in the available-for-sale securities portfolio.
The adoption of SFAS No. 133 on January 1, 2001 also resulted in a $151 million increase in derivative-related assets, a $129 million increase in the book values of hedged borrowings, and a $66 million increase in derivative-related liabilities. Management does not anticipate that SFAS No. 133 will significantly increase the volatility of earnings or stockholders' equity reported in future periods.
NOTE 2: BUSINESS COMBINATIONS
On January 31, 2001, Washington Mutual, Inc. acquired the mortgage operations of The PNC Financial Services Group, Inc. The principal subsidiaries acquired in that transaction were renamed Washington Mutual Home Loans, Inc. ("WMHLI") and Washington Mutual Mortgage Securities Corp. ("WMMSC"). At January 31, 2001, WMHLI and WMMSC had total assets of approximately $7 billion.
On February 9, 2001, Washington Mutual, Inc. acquired Texas-based Bank United Corp. This acquisition was accounted for as a purchase. At February 9, 2001, Bank United Corp. had total assets of approximately $18 billion. The Company issued approximately 42,600,000 shares of its common stock to acquire Bank United Corp. Each share of Bank United Corp. common stock was converted into 1.3 shares of Washington Mutual, Inc. common stock.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: SECURITIES
The amortized cost, unrealized gains, unrealized losses, and fair value of securities were as follows:
DECEMBER 31, 2000
------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE YIELD(1)
--------- ---------- ---------- ------- --------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and agency............ $ 1,432 $ 39 $ (1) $ 1,470 6.28%
Corporate debt........................ 118 -- (1) 117 6.22
Municipal............................. 40 1 (1) 40 6.04
Equity securities:
Preferred stock.................... 178 1 (5) 174 6.16
Other securities................... 15 -- (6) 9 --
------- ---- ----- -------
1,783 41 (14) 1,810
MBS:
U.S. Government and agency............ 24,639 123 (191) 24,571 6.78
Private issue......................... 15,866 64 (152) 15,778 7.08
------- ---- ----- -------
40,505 187 (343) 40,349
------- ---- ----- -------
$42,288 $228 $(357) $42,159 6.87
======= ==== ===== =======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt........................ $ 20 $ -- $ -- $ 20 7.98%
Municipal............................. 117 3 (1) 119 5.48
------- ---- ----- -------
137 3 (1) 139
MBS:
U.S. Government and agency............ 10,211 30 (107) 10,134 7.04
Private issue......................... 6,217 49 (53) 6,213 6.96
------- ---- ----- -------
16,428 79 (160) 16,347
------- ---- ----- -------
$16,565 $ 82 $(161) $16,486 7.00
======= ==== ===== =======
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE YIELD(1)
--------- ---------- ---------- ------- --------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and agency............ $ 60 $-- $ (3) $ 57 5.18%
Corporate debt........................ 163 -- -- 163 6.19
Municipal............................. 7 -- -- 7 5.59
Equity securities:
Preferred stock.................... 189 2 (8) 183 6.13
Other securities................... 7 -- (5) 2 --
------- --- ------- -------
426 2 (16) 412 6.27
MBS:
U.S. Government and agency............ 27,883 17 (703) 27,197 6.33
Private issue......................... 14,255 5 (484) 13,776 6.61
------- --- ------- -------
42,138 22 (1,187) 40,973 6.43
------- --- ------- -------
$42,564 $24 $(1,203) $41,385 6.42
======= === ======= =======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt........................ $ 20 $-- $ (1) $ 19 7.97%
Municipal............................. 118 2 (3) 117 5.52
------- --- ------- -------
138 2 (4) 136 5.88
MBS:
U.S. Government and agency............ 11,990 52 (283) 11,759 6.41
Private issue......................... 7,273 -- (131) 7,142 6.52
------- --- ------- -------
19,263 52 (414) 18,901 6.45
------- --- ------- -------
$19,401 $54 $ (418) $19,037 6.45
======= === ======= =======
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of debt securities by contractual maturity was as follows:
DECEMBER 31, 2000
-----------------------------------------------------------------------------
DUE AFTER ONE AFTER FIVE
FAIR WITHIN BUT WITHIN BUT WITHIN
VALUE YIELD(1) ONE YEAR YIELD(1) FIVE YEARS YIELD(1) TEN YEARS
------- -------- -------- -------- ---------- -------- ----------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and
agency................... $ 1,470 6.28% $ -- --% $240 5.97% $1,224
Corporate debt............. 117 6.22 17 6.18 67 6.33 11
Municipal.................. 40 6.04 -- -- -- -- --
MBS(2):
U.S. Government and
agency................... 24,571 6.78 151 7.63 355 7.66 217
Private issue.............. 15,778 7.08 -- -- -- -- --
------- ---- ---- ------
$41,976 6.87 $168 7.48 $662 6.91 $1,452
======= ==== ==== ======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt............. $ 20 7.98% $ -- --% $ -- --% $ --
Municipal.................. 119 5.48 4 5.34 14 5.45 20
MBS(2):
U.S. Government and
agency................... 10,134 7.04 -- -- 6 6.78 78
Private issue.............. 6,213 6.96 18 6.55 -- -- 3
------- ---- ---- ------
$16,486 7.00 $ 22 6.34 $ 20 5.86 $ 101
======= ==== ==== ======
DECEMBER 31, 2000
-------------------------------
AFTER
YIELD(1) TEN YEARS YIELD(1)
-------- --------- --------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and
agency................... 6.34% $ 6 7.42%
Corporate debt............. 6.56 22 7.48
Municipal.................. -- 40 6.04
MBS(2):
U.S. Government and
agency................... 5.98 23,848 6.77
Private issue.............. -- 15,778 7.08
-------
6.29 $39,694 6.89
=======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt............. --% $ 20 7.98%
Municipal.................. 5.54 81 5.48
MBS(2):
U.S. Government and
agency................... 6.62 10,050 7.04
Private issue.............. 7.60 6,192 6.96
-------
6.44 $16,343 7.00
=======
|
Amortized cost of debt securities by contractual maturity was as follows:
DECEMBER 31, 2000
-------------------------------------------------------------------------------
DUE AFTER ONE AFTER FIVE
AMORTIZED WITHIN BUT WITHIN BUT WITHIN
COST YIELD(1) ONE YEAR YIELD(1) FIVE YEARS YIELD(1) TEN YEARS
--------- -------- -------- -------- ---------- -------- ----------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and agency... $ 1,432 6.28% $ -- --% $238 5.97% $1,188
Corporate debt............... 118 6.22 17 6.18 68 6.34 11
Municipal.................... 40 6.04 -- -- -- -- --
MBS(2):
U.S. Government and agency... 24,639 6.78 151 7.63 354 7.66 217
Private issue................ 15,866 7.08 -- -- -- -- --
------- ---- ---- ------
$42,095 6.87 $168 7.48 $660 6.91 $1,416
======= ==== ==== ======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt............... $ 20 7.98% $ -- --% $ -- --% $ --
Municipal.................... 117 5.48 4 5.34 14 5.45 19
MBS(2):
U.S. Government and agency... 10,211 7.04 -- -- 6 6.78 78
Private issue................ 6,217 6.96 18 6.55 -- -- 3
------- ---- ---- ------
$16,565 7.00 $ 22 6.34 $ 20 5.86 $ 100
======= ==== ==== ======
DECEMBER 31, 2000
-------------------------------
AFTER
YIELD(1) TEN YEARS YIELD(1)
-------- --------- --------
(DOLLARS IN MILLIONS)
AVAILABLE-FOR-SALE SECURITIES
Investment securities:
U.S. Government and agency... 6.34% $ 6 7.42%
Corporate debt............... 6.56 22 7.48
Municipal.................... -- 40 6.04
MBS(2):
U.S. Government and agency... 5.98 23,917 6.77
Private issue................ -- 15,866 7.08
-------
6.29 $39,851 6.89
=======
HELD-TO-MATURITY SECURITIES
Investment securities:
Corporate debt............... --% $ 20 7.98%
Municipal.................... 5.54 80 5.48
MBS(2):
U.S. Government and agency... 6.62 10,127 7.04
Private issue................ 7.60 6,196 6.96
-------
6.44 $16,423 7.00
=======
|
(2) MBS were allocated based on contractual principal maturities assuming no prepayments.
In addition to agency MBS, the securities portfolio contained investment grade private issue MBS of $16.66 billion and $14.40 billion at December 31, 2000 and 1999. At December 31, 2000, the Company had private issue MBS from the following issuers, each of which exceeded 10% of the Company's equity: General Electric Capital Mortgage Services with an amortized cost of $1.12 billion and a fair value of $1.11 billion;
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Norwest Asset Securities Corp. with an amortized cost of $1.05 billion and a fair value of $1.03 billion; and Residential Funding Mortgage Services Inc. with an amortized cost of $1.23 billion and a fair value of $1.21 billion; and Washington Mutual Bank, FA, with an amortized cost of $14.61 billion and a fair value of $14.64 billion.
Proceeds from sales of securities in the available-for-sale portfolio during 2000, 1999 and 1998 were $4.14 billion, $1.44 billion and $2.16 billion. The Company realized $27 million in gains and $29 million in losses on these sales during 2000. The Company realized $4 million in gains and $13 million in losses on sales during 1999. Similarly, the Company realized $19 million in gains and $1 million in losses during 1998.
Pledged securities having a fair value of $33.07 billion and an amortized cost of $33.22 billion are also subject to certain agreements which may allow the secured party to either sell, rehypothecate or otherwise pledge the securities. In accordance with SFAS No. 140, these amounts have been separately identified in the statement of financial condition. In addition, securities with an amortized cost of $13.21 billion and a fair value of $13.03 billion were pledged to secure public deposits, other borrowings, FHLB advances and access to the Federal Reserve discount window. The Company had not accepted any securities as collateral that it was permitted to sell or repledge as of December 31, 2000. With the adoption of SFAS No. 133 on January 1, 2001, the Company reclassified its entire held-to-maturity MBS and investment portfolios of $16.57 billion to available for sale.
NOTE 4: LOANS
Loans consisted of the following:
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
LOAN BALANCE(1) LOAN COMMITMENTS(2)
-------------------- --------------------
(IN MILLIONS)
SFR............................................... $ 83,113 $ 80,628 $ 2,722 $ 3,528
SFR construction.................................. 1,431 1,243 958 966
Second mortgage and other consumer:
Banking subsidiaries............................ 7,992 6,393 5,192 3,777
Washington Mutual Finance....................... 2,486 2,134 240 251
Specialty mortgage finance........................ 7,254 4,452 487 427
Commercial business............................... 2,274 1,452 1,076 952
Commercial real estate:
Apartment buildings............................. 15,658 15,261 184 185
Other commercial real estate.................... 2,822 2,977 50 203
Allowance for loan and lease losses............... (1,014) (1,042) -- --
Outstanding letters of credit..................... -- -- 327 292
-------- -------- ------- -------
$122,016 $113,498 $11,236 $10,581
======== ======== ======= =======
|
(2) Includes commitments by the Company to originate loans as well as undisbursed amounts of closed loans.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of impaired loans and the related allowances were as follows:
DECEMBER 31,
--------------
2000 1999
----- -----
(IN MILLIONS)
Impaired loans:
With allowances........................................... $226 $305
Without allowances........................................ 285 316
---- ----
$511 $621
==== ====
Allowance for impaired loans................................ $ 40 $ 82
|
The average balance of impaired loans and the related interest income recognized were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
(IN MILLIONS)
Average balance of impaired loans........................... $566 $670 $834
Interest income recognized.................................. 38 46 59
|
Loans totaling $62.43 billion and $69.34 billion at December 31, 2000 and 1999 were pledged to secure advances from FHLBs.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the allowance for loan and lease losses were as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
Balance, beginning of year............................... $1,042 $1,068 $1,048
Provision for loan and lease losses...................... 185 167 162
Identified allowance for loans sold or securitized....... (36) (1) (74)
Allowance acquired through business combinations......... -- -- 108
------ ------ ------
1,191 1,234 1,244
Loans charged off:
SFR and SFR construction............................... (20) (38) (66)
Second mortgage and other consumer:
Banking subsidiaries................................ (43) (46) (34)
Washington Mutual Finance........................... (120) (97) (90)
Specialty mortgage finance............................. (5) -- --
Commercial business.................................... (11) (5) (5)
Commercial real estate:
Apartments.......................................... (2) (15) (22)
Other commercial real estate........................ (2) (22) (10)
------ ------ ------
Total charge offs.............................. (203) (223) (227)
Recoveries of loans previously charged off:
SFR and SFR construction............................... 1 4 18
Second mortgage and other consumer:
Banking subsidiaries................................ 4 3 2
Washington Mutual Finance........................... 17 16 16
Specialty mortgage finance............................. 1 -- --
Commercial business.................................... 1 1 1
Commercial real estate:
Apartments.......................................... 1 3 6
Other commercial real estate........................ 1 4 8
------ ------ ------
Total recoveries............................... 26 31 51
------ ------ ------
Net charge offs.......................................... (177) (192) (176)
------ ------ ------
Balance, end of year..................................... $1,014 $1,042 $1,068
====== ====== ======
|
Changes in the allowance for recourse obligations were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
(IN MILLIONS)
Balance, beginning of year.................................. $113 $144 $ 80
Transfers................................................... -- (15) 74
Charge offs, net of provision for recourse losses........... (9) (16) (10)
---- ---- ----
Balance, end of year........................................ $104 $113 $144
==== ==== ====
|
During 1998, in connection with the Ahmanson Merger, $74 million was transferred from the allowance for loan and lease losses to the allowance for recourse obligations to conform with Washington Mutual's policy.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: MORTGAGE BANKING ACTIVITIES
During 2000, the Company sold residential mortgage loans in securitization transactions and retained servicing responsibilities and subordinated interests. The Company receives annual servicing fees equal to a percentage of the outstanding balance and rights to cash flows remaining after the investors in the securitization trust have received their contractual payments. The book balance of loans securitized and sold during the year ended December 31, 2000 was $16.90 billion. Of those loans, $812 million are held by investors and securitization trusts that have recourse to the Company. The Company recognized pretax gains of $189 million on these securitizations. The Company's retained interests are subordinate to investors' interests.
Key economic assumptions used in measuring the value of all the retained interests accounted for as sales (excluding MSR) at the date of securitization during the year were as follows (rates per annum and weighted based on principal amounts securitized):
YEAR ENDED DECEMBER 31, 2000
-------------------------------------------
ADJUSTABLE-RATE MORTGAGE LOANS
------------------------------
GOVERNMENT NON-GOVERNMENT SPECIALTY
SPONSORED SPONSORED MORTGAGE
ENTERPRISE ENTERPRISE FINANCE
----------- --------------- ---------
(DOLLARS IN MILLIONS)
Constant prepayment rate ("CPR")............... 20.00% 20.00% 33.30%
Weighted-average life (in years)............... 8.3 9.7 9.1
Spread to risk free rate(1).................... 1.20 2.98 n.a.
Risk free rate................................. 5.45 4.92 n.a.
Expected annual credit losses as a percentage
of average principal balance................. n.a. n.a. 2.82
Residual cash flows discounted at.............. n.a. n.a. 30.00
Other(2)....................................... $ 3 $ (26) n.a.
|
(2) Represents the assumed value/(cost) of a hypothetical derivative used to reduce the LIBOR to COFI basis risk inherent in certain retained interests. The assumed value/(cost) of the hypothetical derivative was included in the determination of the fair value of the retained interests.
Key economic assumptions used in measuring the value of all capitalized MSR created during the year, inclusive of securitizations recorded as sales, securitizations entirely retained, and whole loan sales, were as follows (rates per annum):
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------
FIXED-RATE MORTGAGE LOANS ADJUSTABLE-RATE MORTGAGE LOANS
---------------------------- ------------------------------
GOVERNMENT NON-GOVERNMENT GOVERNMENT NON-GOVERNMENT SPECIALTY
SPONSORED SPONSORED SPONSORED SPONSORED MORTGAGE
ENTERPRISE ENTERPRISE ENTERPRISE ENTERPRISE FINANCE
---------- -------------- ----------- --------------- ---------
CPR......................... 10.50% 12.00% 23.00% 24.00% 30.90%
Cash flows discounted at.... 9.50 12.00 13.00 13.00 14.00
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of retained interests (excluding MSR) to immediate changes in those assumptions were as follows:
DECEMBER 31, 2000
------------------------------------------------
FIXED-RATE ADJUSTABLE-RATE MORTGAGE LOANS
-------------- ------------------------------
NON-GOVERNMENT GOVERNMENT NON-GOVERNMENT
SPONSORED SPONSORED SPONSORED
ENTERPRISE ENTERPRISE ENTERPRISE
-------------- ----------- ---------------
(DOLLARS IN MILLIONS)
Fair value of retained interests.......... $ 932 $1,103 $1,951
Weighted-average life (in years).......... 6.9 8.8 9.5
CPR....................................... 11.00% 18.00% 17.01%
Impact on fair value of 25% decrease.... $ 1 $ 6 $ 6
Impact on fair value of 50% decrease.... 3 14 19
Impact on fair value of 100% increase... 1 (14) (9)
Impact on fair value of 200% increase... 2 (21) (10)
Spread to risk free rate(1)............... 1.42% 1.37% 2.46%
Impact on fair value of 10% decrease.... $ 7 $ 10 $ 25
Impact on fair value of 25% decrease.... 19 23 70
Impact on fair value of 25% increase.... (18) (23) (67)
Impact on fair value of 50% increase.... (35) (45) (129)
Risk free rate............................ 5.55% 5.55% 5.55%
Impact on fair value of 10% decrease.... $ 24 $ 5 $ 11
Impact on fair value of 25% decrease.... 64 12 28
Impact on fair value of 25% increase.... (56) (12) (28)
Impact on fair value of 50% increase.... (107) (24) (53)
Other(2).................................. n.a. 9 (43)
Impact on fair value of 10% decrease.... n.a. 8 6
Impact on fair value of 25% decrease.... n.a. 13 15
Impact on fair value of 25% increase.... n.a. (11) (15)
Impact on fair value of 50% increase.... n.a. (24) (31)
|
(2) Represents the assumed value/(cost) of a hypothetical derivative used to reduce the LIBOR to COFI basis risk inherent in certain retained interests. The assumed value/(cost) of the hypothetical derivative was included in the determination of the fair value of the retained interests.
At December 31, 2000, Specialty Mortgage Finance retained interests (excluding MSR) were not material.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, key economic assumptions and the sensitivity of the current fair value for all capitalized MSR to immediate changes in those assumptions were as follows:
DECEMBER 31, 2000
----------------------------------
MORTGAGE SERVICING RIGHTS
----------------------------------
ADJUSTABLE- FIXED- SPECIALTY
RATE RATE MORTGAGE
LOANS LOANS FINANCE
----------- ------ ---------
(DOLLARS IN MILLIONS)
Fair value of capitalized MSR......................... $ 513 $ 580 $ 32
Weighted-average life (in years)...................... 4.1 5.7 2.6
CPR................................................... 19.20% 10.60% 30.60%
Impact on fair value of 25% decrease................ $ 67 $ 124 $ 5
Impact on fair value of 50% decrease................ 164 275 13
Impact on fair value of 100% increase............... (142) (276) n.a.
Impact on fair value of 200% increase............... (206) (384) n.a.
Impact on fair value of 25% increase................ n.a. n.a. (4)
Impact on fair value of 50% increase................ n.a. n.a. (7)
Future cash flows discounted at....................... 12.00% 10.70% 14.00%
Impact on fair value of 10% decrease................ n.a. n.a. 1
Impact on fair value of 25% decrease................ $ 14 $ 40 $ 2
Impact on fair value of 50% decrease................ 29 81 n.a.
Impact on fair value of 25% increase................ (14) (37) (2)
Impact on fair value of 50% increase................ (29) (74) (3)
|
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
Static pool losses are calculated by summing the actual and projected future credit losses and dividing them by the original balance of each pool of assets. As of December 31, 2000, static pool losses for all Adjustable Non-Government Sponsored Enterprise assets and Specialty Mortgage Finance assets that were valued using specific credit loss assumptions were not material.
The table below summarizes certain cash flows received from and paid to securitization trusts:
YEAR ENDED
DECEMBER 31, 2000
------------------
(IN MILLIONS)
Proceeds from new securitizations........................... $17,012
Principal and interest received on retained interests....... 360
Servicing fees received (1)................................. 276
Loan repurchases (1)........................................ 177
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below presents quantitative information about delinquencies, net credit losses, and components of securitized financial assets and other assets managed together with them: (Excludes securitized assets that an entity continues to service but which it has no other continuing involvement.)
YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 2000
--------------------------------------------- -----------------
UNPAID PRINCIPAL PRINCIPAL AMOUNT OF LOANS
BALANCE ON NONACCRUAL STATUS NET CREDIT LOSSES
---------------- ------------------------- -----------------
(IN MILLIONS)
Mortgage loans.................. $115,058 $563 $30
Specialty Mortgage Finance
loans......................... 6,005 267 9
-------- ---- ---
Total loans managed... $121,063 $830 $39
======== ==== ===
Comprised of:
Loans sold, including
securitizations............ $ 9,432
Loans held in portfolio....... 79,178
Loans securitized and
retained................... 32,453
--------
Total loans managed... $121,063
========
|
Changes in the balance of MSR were as follows:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------- ----- -----
(IN MILLIONS)
Balance, beginning of year.................................. $ 643 $461 $311
Additions................................................... 516 266 240
Amortization of MSR......................................... (133) (88) (89)
Impairment adjustment....................................... (9) 4 (1)
------ ---- ----
Balance, end of year........................................ $1,017 $643 $461
====== ==== ====
|
At December 31, 2000, the loan servicing portfolio with capitalized MSR totaled $79.34 billion compared with $55.27 billion at December 31, 1999.
Changes in the valuation for impairment of MSR were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
(IN MILLIONS)
Balance, beginning of year.................................. $ 4 $ 8 $7
Net change.................................................. 9 (4) 1
--- --- --
Balance, end of year........................................ $13 $ 4 $8
=== === ==
|
As of December 31, 2000, the Company serviced 306 Government National Mortgage Association ("GNMA") loan pools with an outstanding security balance of $179 million. The Company did not issue any additional GNMA loan pools during 2000.
As of December 31, 2000, Long Beach Mortgage did not service any FHA-insured mortgage loans. Long Beach Mortgage also did not originate any FHA-insured mortgage loans during 2000.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: OTHER ASSETS
Other assets consisted of the following:
DECEMBER 31,
----------------
2000 1999
------ ------
(IN MILLIONS)
Premises and equipment...................................... $1,568 $1,559
Investment in bank owned life insurance..................... 1,456 417
Accrued interest receivable................................. 1,157 980
Foreclosed assets........................................... 153 199
Other assets................................................ 1,659 1,275
------ ------
$5,993 $4,430
====== ======
|
Depreciation expense for 2000, 1999 and 1998 was $246 million, $207 million and $146 million.
The Company leases various branch offices, office facilities and equipment under capital and noncancelable operating leases which expire at various dates through 2072. Some leases contain escalation provisions for adjustments in the consumer price index and provide for renewal options for five- to ten-year periods. Rental expense, including amounts paid under month-to-month cancelable leases, amounted to $197 million, $191 million and $183 million in 2000, 1999 and 1998.
Future minimum net rental commitments, including maintenance and other associated costs, for all noncancelable leases were as follows:
OPERATING LEASE CAPITAL LEASE
-------------------------- --------------------------
LAND AND FURNITURE AND LAND AND FURNITURE AND
BUILDINGS EQUIPMENT BUILDINGS EQUIPMENT
--------- ------------- --------- -------------
(IN MILLIONS)
Year ending December 31,
2001................................ $ 159 $23 $ 8 $2
2002................................ 148 21 8 --
2003................................ 133 15 8 --
2004................................ 117 2 8 --
2005................................ 95 -- 6 --
Thereafter............................ 376 -- 48 --
------ --- --- --
$1,028 $61 $86 $2
====== === === ==
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: DEPOSITS
Deposits consisted of the following:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN MILLIONS)
Checking accounts:
Interest bearing.......................................... $ 5,925 $ 6,215
Noninterest bearing....................................... 8,575 7,275
------- -------
14,500 13,490
Savings accounts............................................ 5,436 5,654
MMDAs....................................................... 25,220 24,394
Time deposit accounts:
Due within one year....................................... 30,678 32,202
After one but within two years............................ 2,633 4,100
After two but within three years.......................... 440 764
After three but within four years......................... 254 210
After four but within five years.......................... 380 264
After five years.......................................... 33 52
------- -------
34,418 37,592
------- -------
$79,574 $81,130
======= =======
|
Accrued but unpaid interest on deposits included in other liabilities totaled $79 million and $68 million at December 31, 2000 and 1999.
NOTE 8: FEDERAL FUNDS PURCHASED AND COMMERCIAL PAPER
Federal funds purchased and commercial paper consisted of the following:
DECEMBER 31,
--------------
2000 1999
------ ----
(IN MILLIONS)
Federal funds purchased..................................... $3,156 $525
Commercial paper............................................ 959 342
------ ----
$4,115 $867
====== ====
|
Federal funds purchased had remaining average maturities of 33 days at December 31, 2000. Commercial paper had remaining average maturities of 17 days at December 31, 2000.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial data pertaining to federal funds purchased and commercial paper were as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(DOLLARS IN MILLIONS)
FEDERAL FUNDS PURCHASED
Weighted average interest rate, end of year.............. 6.57% 5.74% 5.25%
Weighted average interest rate during the year........... 6.52 5.11 5.60
Average balance of federal funds purchased............... $2,856 $2,001 $3,758
Maximum amount outstanding at any month end.............. 6,668 2,836 6,070
COMMERCIAL PAPER
Weighted average interest rate, end of year.............. 6.95% 6.20% 5.63%
Weighted average interest rate during the year........... 6.51 5.54 5.65
Average balance of commercial paper...................... $ 586 $ 420 $ 364
Maximum amount outstanding at any month end.............. 959 651 516
|
NOTE 9: REPURCHASE AGREEMENTS
Scheduled maturities of repurchase agreements were as follows:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN MILLIONS)
Due within 30 days.......................................... $ 7,125 $ 4,450
After 30 but within 90 days................................. 5,549 10,543
After 90 but within 180 days................................ 5,926 4,539
After 180 days but within one year.......................... 1,550 1,656
After one year.............................................. 9,606 8,975
------- -------
$29,756 $30,163
======= =======
|
Financial data pertaining to repurchase agreements were as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(DOLLARS IN MILLIONS)
Weighted average interest rate, end of year........... 6.61% 5.81% 5.38%
Weighted average interest rate during the year........ 6.33 5.36 5.67
Average balance of repurchase agreements.............. $28,491 $26,082 $17,695
Maximum amount outstanding at any month end........... 30,726 30,163 18,340
|
At December 31, 2000, interest rate floors and caps embedded in repurchase agreements were as follows:
WEIGHTED WEIGHTED
AVERAGE INDEX AT AVERAGE
NOTIONAL AMOUNT STRIKE INDEX DECEMBER 31, 2000 LIFE(1)
--------------------- -------- ------------- ----------------- -----------
(DOLLARS IN MILLIONS) (IN MONTHS)
Floors(2)............ $13,200 5.99% 3 month LIBOR 6.40% 49
Caps(3).............. 680 7.62 3 month LIBOR 6.40 43
|
(2) Contractual start dates range from December 20, 2000 to July 17, 2003.
(3) Contractual start dates range from May 26, 2000 to January 15, 2001.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10: ADVANCES FROM FHLBS
As members of the FHLBs of San Francisco and Seattle, WMBFA, WMB, and WMBfsb maintain credit lines that are percentages of their total regulatory assets, subject to collateralization requirements. Advances are collateralized in the aggregate by all stock owned of the FHLBs, by deposits with the FHLBs, and by certain mortgages or deeds of trust and securities of the U.S. Government and its agencies. The maximum amount of credit, which the FHLBs will extend for purposes other than meeting withdrawals, varies from time to time in accordance with their policies. The interest rates charged by the FHLBs for advances vary depending upon maturity, the cost of funds in the individual FHLB and the purpose of the borrowing.
Scheduled maturities of advances from FHLBs were as follows:
DECEMBER 31,
----------------------------------------------------
2000 1999
------------------------ ------------------------
RANGES OF RANGES OF
INTEREST INTEREST
AMOUNT RATES AMOUNT RATES
------- ------------- ------- -------------
(DOLLARS IN MILLIONS)
Due within one year.............. $42,596 5.74% - 6.72% $34,107 4.50% - 9.34%
After one but within two years... 12,051 3.50 - 6.73 18,444 5.21 - 6.40
After two but within three
years.......................... 1,627 5.19 - 6.94 2,960 3.50 - 6.55
After three but within four
years.......................... 1,225 6.33 - 8.65 200 5.76 - 6.03
After four but within five
years.......................... 175 5.39 - 7.45 1,225 6.05 - 8.65
After five years................. 181 2.80 - 8.57 158 2.80 - 8.57
------- -------
$57,855 $57,094
======= =======
|
Financial data pertaining to advances from FHLBs were as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(DOLLARS IN MILLIONS)
Weighted average interest rate, end of year........... 6.57% 5.92% 5.35%
Weighted average interest rate during the year........ 6.33 5.37 5.65
Average balance of advances from FHLBs................ $56,979 $47,008 $30,110
Maximum amount outstanding at any month end........... 59,325 57,094 39,749
|
At December 31, 2000, interest rate caps embedded in advances from FHLBs were as follows:
WEIGHTED WEIGHTED
AVERAGE INDEX AT AVERAGE
NOTIONAL AMOUNT STRIKE INDEX DECEMBER 31, 2000 LIFE(1)
--------------- -------- ------------- ----------------- -----------
(DOLLARS IN MILLIONS) (IN MONTHS)
$71(2) 7.25% 3 month LIBOR 6.40% 37
---------------
(1) Weighted average life is computed from the contractual start date to the
maturity date.
(2) Contractual start date is July 20, 2000.
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11: OTHER BORROWINGS
Other borrowings consisted of the following:
DECEMBER 31,
---------------------------------------------------
2000 1999
---------------------- -------------------------
INTEREST INTEREST
AMOUNT RATE(S) AMOUNT RATE(S)
------ ------------ ------ ---------------
(DOLLARS IN MILLIONS)
Senior notes:
Due in 2000....................... $ -- --% $ 552 6.13% - 7.65%
Due in 2001....................... 650 5.88 - 7.75 649 5.88 - 7.75
Due in 2002....................... 764 6.00 - 8.60 763 6.00 - 8.60
Due in 2003....................... 150 6.50 149 6.50
Due in 2004....................... 200 5.85 200 5.85
Due in 2005....................... 598 7.25 - 8.25 149 7.25
Due in 2006....................... 1,238 7.25 - 7.50 1,236 7.25 - 7.50
Subordinated notes:
Due in 2000....................... -- -- 325 5.23 - 6.15
Due in 2001....................... 150 9.88 150 9.88
Due in 2004....................... 548 6.50 - 7.88 548 6.50 - 7.88
Due in 2006....................... 99 6.63 99 6.63
Due in 2010....................... 495 8.25 -- --
Trust preferred securities(1):
Due in 2025....................... 100 8.25 99 8.25
Due in 2026....................... 149 8.36 149 8.36
Due in 2027....................... 694 8.21 - 8.38 693 8.21 - 8.38
Asset transfers accounted for as
secured financing due in 2001..... 4,044 6.67 -- --
Other............................... 51 4.20 - 15.21 442 4.20 - 15.20
------ ------
$9,930 $6,203
====== ======
|
The Company is the guarantor of four separate issues of trust preferred securities, as discussed below:
On May 31, 1997, Washington Mutual Capital I ("WMC I"), a wholly-owned subsidiary of Washington Mutual, issued $400 million of 8.375% Subordinated Capital Income Securities. In connection with WMC I's issuance of these securities, Washington Mutual issued to WMC I $412 million principal amount of its 8.375% Junior Subordinated Debentures, due 2027 (the "subordinated debentures"). The sole assets of WMC I are and will be the subordinated debentures.
On January 27, 1997, Great Western Financial Trust II ("GWFT II"), a wholly-owned subsidiary of Great Western, issued $300 million of 8.206% Trust Originated Preferred Securities. In connection with GWFT II's issuance of these securities, Great Western issued to GWFT II $309 million principal amount of its 8.206% subordinated deferrable interest notes, due 2027 (the "subordinated notes due 2027"). The sole assets of GWFT II are and will be the subordinated notes due 2027.
In December 1996, Ahmanson Trust I (the "capital trust"), a wholly-owned subsidiary of Ahmanson, issued $150 million of 8.36% Company-obligated mandatorily redeemable capital securities, Series A, of subsidiary trust holding solely Junior Subordinated Deferrable Interest Debentures of Ahmanson. In
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the capital trust's issuance of these securities, Ahmanson issued to the capital trust $155 million principal amount of its 8.36% subordinated notes, due December 2026 (the "subordinated notes due 2026"). The sole assets of the capital trust are and will be the subordinated notes due 2026.
In December 1995, Great Western Financial Trust I ("GWFT I"), a wholly-owned subsidiary of Great Western, issued $100 million of 8.25% Trust Originated Preferred Securities. In connection with GWFT I's issuance of these securities, Great Western issued to GWFT I $103 million principal amount of its 8.25% subordinated deferrable interest notes, due 2025 (the "subordinated notes due 2025"). The sole assets of GWFT I are and will be the subordinated notes due 2025.
Obligations of Great Western and Ahmanson under the above described arrangements were assumed by the Company. Washington Mutual's obligations under these and related agreements, taken together, constitute a full and unconditional guarantee by the Company of the obligations specified above.
The Company has a right to defer payment of interest on the debentures at any time or from time to time for a period not exceeding the extension period described in the table below with respect to each deferral period, provided that no extension period may extend beyond the stated maturity of the respective debentures. Distributions paid on the securities are recorded as interest expense in the Consolidated Statements of Income.
Financial data pertaining to trust preferred securities were as follows:
DECEMBER 31, 2000 AND 1999
-------------------------------------------------------------------------------------------
AGGREGATE
LIQUIDATION AGGREGATE AGGREGATE PER
AMOUNT OF LIQUIDATION PRINCIPAL STATED ANNUM
TRUST AMOUNT OF AMOUNT MATURITY INTEREST
PREFERRED COMMON OF OF RATE OF EXTENSION REDEMPTION
NAME OF TRUST SECURITIES SECURITIES NOTES NOTES NOTES PERIOD OPTION
------------- ----------- ----------- --------- -------- -------- --------------- ------------
(DOLLARS IN MILLIONS)
Great Western Financial Trust $100 $ 3 $103 2025 8.250% 20 consecutive On or after
I........................... quarters December 31,
2000
Great Western Financial Trust 300 9 309 2027 8.206 Ten consecutive On or after
II.......................... semi-annual February 1,
periods 2007
Washington Mutual Capital I... 400 12 412 2027 8.375 Ten consecutive On or after
semi-annual June 1, 2007
periods
Ahmanson Trust I.............. 150 5 155 2026 8.360 Ten consecutive On or after
semi-annual December 1,
periods 2026
---- --- ----
$950 $29 $979 8.306
==== === ====
|
At December 31, 2000 and 1999, the Company had unused lines of credit totaling $243 million and $793 million with the Federal Reserve Bank discount window.
At December 31, 2000, the Company had two revolving credit facilities with The Chase Manhattan Bank as administrative agent: a $1.20 billion 364-day facility and a $600 million four-year facility, which provide back-up for the Company's commercial paper programs. At December 31, 2000, the Company had $841 million available under these facilities, which represents the total amount of the two revolving credit facilities, net of the amount of commercial paper outstanding at year-end.
As of December 31, 2000, the Company had entered into eight letters of credit with the FHLBs of San Francisco and Seattle, for a total of $248 million. These letters of credit provide credit enhancement on housing revenue bonds and certain of the Company's private issue MBS.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12: INCOME TAXES
Income taxes (benefits) from continuing operations consisted of the following:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
Current:
Federal................................................ $ 524 $ 443 $ 866
State and local........................................ 99 34 183
Payments in lieu....................................... 34 34 35
------ ------ ------
657 511 1,084
Deferred:
Federal................................................ 435 397 (325)
State and local........................................ 42 156 (43)
Payments in lieu....................................... (49) 3 166
------ ------ ------
428 556 (202)
------ ------ ------
$1,085 $1,067 $ 882
====== ====== ======
|
Provisions of the Small Business Job Protection Act of 1996 (the "Job Protection Act") significantly altered the Company's tax bad debt deduction method and the circumstances that would require a tax bad debt reserve recapture. Prior to enactment of the Job Protection Act, savings institutions were permitted to compute their tax bad debt deduction through use of either the reserve method or the percentage of taxable income method. The Job Protection Act repealed both of these methods for large savings institutions and allows bad debt deductions based only on actual current losses. While repealing the reserve method for computing tax bad debt deductions, the Job Protection Act allows thrifts to retain their existing base year bad debt reserves but requires that reserves in excess of the balance at December 31, 1987 be recaptured into taxable income. The tax liability for this recapture is included in the accompanying Consolidated Financial Statements.
The base year reserve is recaptured into taxable income only in limited situations, such as in the event of certain excess distributions or complete liquidation. None of the limited circumstances requiring recapture are contemplated by the Company. The amount of the Company's tax bad debt reserves subject to recapture in these circumstances approximates $2.01 billion at December 31, 2000. Due to the remote nature of events that may trigger the recapture provisions, no tax liability has been established in the accompanying Consolidated Financial Statements.
During 1998, the Company completed a settlement with the Internal Revenue Service (the "Service") for Great Western for 1987 and 1986, and Washington Mutual for 1993 and 1992. During 1999, the Service completed its examination of Great Western for 1988 through 1992. The case has been referred to the Appeals Branch for review.
The Service is currently examining Ahmanson for 1994 through September 1998, Washington Mutual for 1994 through 1997, and Great Western for 1993 through 1997. The Service has completed its examination of Ahmanson for 1990 through 1993. All issues have been resolved except for one, which is under review by the Appeals Branch. The Service's National Office has issued an adverse ruling on this issue. Accordingly, the Company has not recorded any benefit with respect to this issue.
As of December 31, 2000, the Company's accrual for income taxes payable is sufficient to cover any expected liabilities arising from these examinations.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's net deferred tax asset (liability) were as follows:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN MILLIONS)
Deferred tax assets:
Net operating loss carryforwards.......................... $ 452 $ 504
Provision for loan and lease losses and foreclosed
assets................................................. 367 371
Unrealized losses on securities........................... 31 437
Merger costs.............................................. 164 172
Compensation differences.................................. 65 68
State and local taxes..................................... 30 70
Other..................................................... 80 56
------- -------
1,189 1,678
Payments in lieu............................................ (185) (139)
Valuation allowance......................................... (164) (239)
------- -------
Deferred tax asset, net of payments in lieu and valuation
allowance................................................. 840 1,300
Deferred tax liabilities:
Loan fees................................................. (479) (460)
Stock dividends from FHLBs................................ (500) (436)
Basis difference on premises and equipment................ (147) (147)
Gain on loan sales........................................ (320) (81)
Other..................................................... (218) (157)
------- -------
(1,664) (1,281)
------- -------
Net deferred tax (liability) asset.......................... $ (824) $ 19
======= =======
|
The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The valuation allowance of $164 million at December 31, 2000 and $239 million at December 31, 1999 relate primarily to net operating losses that are limited by Internal Revenue Code Section 382 as a result of the acquisition of Keystone Holdings, Inc. (the "Keystone Transaction").
As a result of the Keystone Transaction, the Company and certain of its affiliates are parties to an agreement (the "Assistance Agreement") with a predecessor of the Federal Savings and Loan Insurance Corporation ("FSLIC") Resolution Fund (the "FRF"), which generally provides that 75% of most of the federal tax savings and approximately 19.5% of most of the California tax savings (as computed in accordance with the Assistance Agreement), attributable to the Company's utilization of certain tax loss carryovers of New West Federal Savings and Loan Association, are to be paid by the Company to the FRF. These amounts are considered payments in lieu. The Assistance Agreement sets forth certain special adjustments to federal taxable income to arrive at "FSLIC taxable income," which is then offset by utilizable net operating losses to compute the benefit due to the FRF.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax net operating loss carryforwards due to expire under current law during the years indicated were as follows:
DECEMBER 31, 2000
------------------
FEDERAL STATE
-------- ------
(IN MILLIONS)
Expiring in:
2001...................................................... $ -- $402
2002...................................................... -- 536
2004...................................................... 316 --
2005...................................................... 668 --
2008...................................................... 16 --
------ ----
$1,000 $938
====== ====
|
Reconciliations between income taxes computed at statutory rates and income taxes included in the Consolidated Statements of Income were as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ---------- ------ ---------- ------ ----------
(DOLLARS IN MILLIONS)
Income taxes computed at statutory rates.... $1,044 35.00% $1,009 35.00% $829 35.00%
Tax effect of:
State income tax, net of federal tax
benefit................................. 93 3.12 122 4.24 95 4.03
Payments in lieu.......................... 46 1.54 34 1.18 202 8.51
Valuation allowance change from prior
year.................................... (75) (2.51) (45) (1.57) (258) (10.90)
Other..................................... (23) (0.78) (53) (1.85) 14 0.61
------ ------ ----
Income taxes included in the
Consolidated Statements of
Income........................... $1,085 36.37 $1,067 37.00 $882 37.25
====== ====== ====
|
NOTE 13: CONTINGENCIES
The Company 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 results of operations or financial condition.
As part of the administration and oversight of the Assistance Agreement and other agreements among American Savings Bank, F.A. ("ASB"), certain of its affiliates and the Federal Deposit Insurance Corporation ("FDIC"), the FDIC has a variety of review and audit rights, including the right to review and audit computations of payments in lieu of taxes.
In order to meet the needs of its customers, Washington Mutual issues direct-pay, standby and other letters of credit. The credit risk in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Washington Mutual holds collateral to support letters of credit when deemed necessary. At December 31, 2000, outstanding letters of credit issued by Washington Mutual totaled $327 million.
The Company is a party to goodwill litigation that may result in a gain. The ultimate outcome is uncertain and there can be no assurance that the Company will benefit financially from it.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: STOCKHOLDERS' EQUITY
Common Stock
Changes in common stock issued and outstanding were as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(NUMBER OF SHARES IN THOUSANDS)
Shares issued and outstanding, beginning of year...... 571,589 593,409 589,790
Common stock issued through employee stock plans...... 3,097 3,386 4,158
Common stock issued for acquisitions.................. -- 6,338 --
Common stock repurchased and retired.................. (34,830) (31,544) (539)
------- ------- -------
Shares issued and outstanding, end of year............ 539,856 571,589 593,409
======= ======= =======
|
Cash dividends paid per share were as follows(1):
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Fourth quarter........................................... $0.300 $0.260 $0.220
Third quarter............................................ 0.290 0.250 0.207
Second quarter........................................... 0.280 0.240 0.200
First quarter............................................ 0.270 0.230 0.193
|
Prior to their business combination with Washington Mutual, acquired companies paid total common cash dividends of $70 million in 1998. No common cash dividends were paid by acquired companies in 1999 or 2000.
In addition to being influenced by legal, regulatory and economic restrictions, WMI's ability to pay dividends is also predicated on the ability of its subsidiaries to declare and pay dividends to WMI. These subsidiaries are subject to legal, regulatory and debt covenant restrictions on their ability to pay dividends.
In October 2000, the 1994 Shareholder Rights Plan expired in accordance with its terms. On December 19, 2000, the Company's Board of Directors adopted a new Shareholder Rights Plan and declared a dividend of one right for each outstanding share of common stock to shareholders of record on January 4, 2001. The rights have certain anti-takeover effects. They are intended to discourage coercive or unfair takeover tactics and to encourage any potential acquirer to negotiate a price fair to all shareholders. The rights may cause substantial dilution to an acquiring party that attempts to acquire the Company on terms not approved by the Board of Directors, but they will not interfere with any friendly merger or other business combination. The plan was not adopted in response to any specific effort to acquire control of the Company.
Preferred Stock
There was no preferred stock (10,000,000 shares authorized) issued or outstanding at December 31, 2000 and 1999. The preferred stock previously outstanding was redeemed in 1998.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: EARNINGS PER SHARE
Information used to calculate EPS was as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net income
Net income................................... $ 1,899 $ 1,817 $ 1,487
Accumulated dividends on preferred stock..... -- -- (16)
------------ ------------ ------------
Net income attributable to common stock...... 1,899 1,817 1,471
Accumulated dividends on convertible
preferred stock............................ -- -- 9
------------ ------------ ------------
Diluted net income attributable to common
stock...................................... $ 1,899 $ 1,817 $ 1,480
============ ============ ============
Weighted average shares
Basic weighted average number of common
shares outstanding......................... 534,174,655 572,652,277 564,420,541
Dilutive effect of potential common shares... 2,288,408 1,900,754 14,141,764
------------ ------------ ------------
Diluted weighted average number of common
shares outstanding......................... 536,463,063 574,553,031 578,562,305
============ ============ ============
Net income per common share
Basic........................................ $ 3.55 $ 3.17 $ 2.61
Diluted...................................... 3.54 3.16 2.56
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Options to purchase an average of 7,182,297 shares of common stock at an average exercise price of $36.21 per share were outstanding during the year, but were not included in the computation of diluted EPS because the exercise price of the options was greater than the average market price of the common stock during the year.
Additionally, as part of the business combination with Keystone Holdings, Inc. (the parent of ASB) 12 million shares of common stock, with an assigned value of $27.74 per share, were issued to an escrow for the benefit of the general and limited partners of Keystone Holdings, Inc. and the FRF and their transferees. The conditions upon which these shares are contingently issuable are based on the outcome of certain litigation and not based on earnings or market price. At December 31, 2000, the contingencies were not met, and therefore, the contingently issuable shares were not included in the above computations.
On February 9, 2001, Washington Mutual, Inc. issued approximately 42,600,000 shares of common stock for the acquisition of Bank United Corp.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16: COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income and the related tax effect allocated to each component:
BEFORE TAX NET OF
AMOUNT TAX EFFECT TAX
---------- ---------- ----------
(IN MILLIONS)
1998
Unrealized gain on securities:
Net unrealized gains on securities available for
sale arising during the year.................. $ 85 $ 32 $ 53
Reclassification of net gains on securities
available for sale included in net income..... (18) (7) (11)
Amortization of market adjustment for MBS
transferred in 1997 from available-for-sale to
held-to-maturity.............................. (27) (10) (17)
------- ----- -----
Net unrealized gains............................... 40 15 25
------- ----- -----
Minimum pension liability adjustment............... (22) (9) (13)
------- ----- -----
Other comprehensive income......................... $ 18 $ 6 $ 12
======= ===== =====
1999
Unrealized loss on securities:
Net unrealized losses on securities available for
sale arising during the year.................. $(1,243) $(493) $(750)
Reclassification of net losses on securities
available for sale included in net income..... 9 3 6
Amortization of market adjustment for MBS
transferred in 1997 from available-for-sale to
held-to-maturity.............................. (17) (7) (10)
------- ----- -----
Net unrealized losses.............................. (1,251) (497) (754)
------- ----- -----
Minimum pension liability adjustment............... 10 4 6
------- ----- -----
Other comprehensive loss........................... $(1,241) $(493) $(748)
======= ===== =====
2000
Unrealized gain on securities:
Net unrealized gains on securities available for
sale arising during the year.................. $ 1,004 $ 384 $ 620
Reclassification of net losses on securities
available for sale included in net income..... 2 1 1
Amortization of market adjustment for MBS
transferred in 1997 from available-for-sale to
held-to-maturity.............................. (8) (3) (5)
------- ----- -----
Net unrealized gains............................... 998 382 616
------- ----- -----
Minimum pension liability adjustment............... 6 2 4
------- ----- -----
Other comprehensive income......................... $ 1,004 $ 384 $ 620
======= ===== =====
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: REGULATORY CAPITAL REQUIREMENTS
WMI is not subject to regulatory capital requirements. However, each of its subsidiary depository institutions is subject to various regulatory capital requirements. WMB is subject to FDIC capital requirements while WMBFA and WMBfsb are subject to Office of Thrift Supervision ("OTS") capital requirements.
The capital adequacy requirements are quantitative measures established by regulation that require WMBFA, WMB and WMBfsb to maintain minimum amounts and ratios of capital. The FDIC requires WMB to maintain minimum ratios of Tier 1 and total capital to risk-weighted assets as well as Tier 1 capital to average assets. The OTS requires WMBFA and WMBfsb to maintain minimum ratios of Tier 1 and total capital to risk-weighted assets, as well as Tier 1 capital to adjusted total assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") created a statutory framework that increased the importance of meeting applicable capital requirements. FDICIA established five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution's category depends upon where its capital levels are in relation to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital measure, and certain other factors. The federal banking agencies (including the FDIC and the OTS) have adopted regulations that implement this statutory framework. Under these regulations, an institution is treated as well capitalized if its ratio of total capital to risk-weighted assets is 10.00% or more, its ratio of Tier 1 capital to risk-weighted assets is 6.00% or more, its leverage capital ratio is 5.00% or more and it is not subject to any federal supervisory order or directive to meet a specific capital level.
Under these same regulations, an institution is treated as adequately capitalized if its ratio of total capital to risk-weighted assets is 8.00% or more, its ratio of Tier 1 capital to risk-weighted assets is 4.00% or more, its leverage capital ratio is 4.00% or more, and it is not subject to any federal supervisory order or directive to meet a specific capital level.
Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions, which become more extensive as an institution becomes more severely undercapitalized. Failure by any of the Company's depository institutions to comply with applicable capital requirements would, if unremedied, result in restrictions on its activities and lead to regulatory enforcement actions against such institutions including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels. FDICIA requires the federal banking regulators to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, FDIC or OTS approval of any regulatory application filed for their review may be dependent on compliance with capital requirements.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual regulatory capital ratios calculated for WMBFA, WMB and WMBfsb, along with the minimum capital amounts and ratios for the regulatory minimum requirement and the minimum amounts and ratios required to be categorized as well capitalized under the regulatory framework for prompt corrective action were as follows:
DECEMBER 31, 2000
---------------------------------------------------------
MINIMUM TO BE
CATEGORIZED AS WELL
REGULATORY CAPITALIZED UNDER
MINIMUM PROMPT CORRECTIVE
ACTUAL REQUIREMENT ACTION PROVISIONS
--------------- --------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- -------- -------
(DOLLARS IN MILLIONS)
WMBFA
Total capital to risk-weighted assets... $9,763 11.36% $6,873 8.00% $8,591 10.00%
Tier 1 capital to risk-weighted
assets................................ 8,942 10.40 3,436 4.00 5,155 6.00
Tier 1 capital to adjusted total assets
(leverage)............................ 8,942 5.81 6,158 4.00(1) 7,698 5.00
Tangible capital to tangible assets..... 8,941 5.81 2,309 1.50 n.a. n.a.
WMB
Total capital to risk-weighted assets... 2,241 11.24 1,595 8.00 1,994 10.00
Tier 1 capital to risk-weighted
assets................................ 2,023 10.15 798 4.00 1,196 6.00
Tier 1 capital to average assets
(leverage)............................ 2,023 5.83 1,388 4.00(1) 1,735 5.00
WMBfsb
Total capital to risk-weighted assets... 83 12.10 55 8.00 69 10.00
Tier 1 capital to risk-weighted
assets................................ 76 11.14 27 4.00 41 6.00
Tier 1 capital to adjusted total assets
(leverage)............................ 76 6.97 44 4.00(1) 55 5.00
Tangible capital to tangible assets..... 76 6.97 16 1.50 n.a. n.a.
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
---------------------------------------------------------
MINIMUM TO BE
CATEGORIZED AS WELL
REGULATORY CAPITALIZED UNDER
MINIMUM PROMPT CORRECTIVE
ACTUAL REQUIREMENT ACTION PROVISIONS
--------------- --------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- -------- -------
(DOLLARS IN MILLIONS)
WMBFA
Total capital to risk-weighted assets... $9,065 11.15% $6,503 8.00% $8,129 10.00%
Tier 1 capital to risk-weighted
assets................................ 8,091 9.95 3,252 4.00 4,877 6.00
Tier 1 capital to adjusted total assets
(leverage)............................ 8,091 5.53 5,856 4.00(1) 7,320 5.00
Tangible capital to tangible assets..... 8,089 5.53 2,196 1.50 n.a. n.a.
WMB
Total capital to risk-weighted assets... 2,103 10.90 1,543 8.00 1,929 10.00
Tier 1 capital to risk-weighted
assets................................ 1,963 10.18 772 4.00 1,157 6.00
Tier 1 capital to average assets
(leverage)............................ 1,963 5.67 1,385 4.00(1) 1,732 5.00
WMBfsb
Total capital to risk-weighted assets... 77 15.21 40 8.00 51 10.00
Tier 1 capital to risk-weighted
assets................................ 70 13.94 20 4.00 30 6.00
Tier 1 capital to adjusted total assets
(leverage)............................ 70 8.58 33 4.00(1) 41 5.00
Tangible capital to tangible assets..... 70 8.58 12 1.50 n.a. n.a.
|
Management believes that WMBFA, WMB and WMBfsb individually met all capital adequacy requirements, as of December 31, 2000, to which they were subject. Additionally, as of the most recent notifications from the FDIC (for WMB) and the OTS (for WMBFA and WMBfsb), the FDIC and OTS individually categorized WMBFA, WMB and WMBfsb as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 or leverage capital ratios as set forth in the table above. There are no conditions or events since those notifications that management believes have changed the well capitalized status of WMBFA, WMB and WMBfsb.
Federal law requires that the federal banking agencies' risk-based capital guidelines take into account various factors including interest rate risk, concentration of credit risk, risks associated with nontraditional activities, and the actual performance and expected risk of loss of multi-family mortgages. In 1994, the federal banking agencies jointly revised their capital standards to specify that concentration of credit and nontraditional activities are among the factors that the agencies will consider in evaluating capital adequacy. In that year, the OTS and FDIC amended their risk-based capital standards with respect to the risk weighting of loans made to finance the purchase or construction of multi-family residences. The OTS adopted final regulations adding an interest rate risk component to the risk-based capital requirements for savings associations (such as WMBFA and WMBfsb), although implementation of the regulation has been delayed. Management believes that the effect of including such an interest rate risk component in the calculation of risk-adjusted capital would not cause WMBFA or WMBfsb to cease to be well capitalized. In June 1996, the FDIC and certain other federal banking agencies (not including the OTS) issued a joint policy statement providing guidance on prudent interest rate risk management principles. The agencies stated that they would
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determine banks' interest rate risk on a case-by-case basis, and would not adopt a standardized measure or establish an explicit minimum capital charge for interest rate risk.
NOTE 18: STOCK OPTION PLANS, EMPLOYEE STOCK PURCHASE PLAN, AND RESTRICTED STOCK PLANS
On March 8, 1984, the Company's stockholders approved the adoption of the 1983 incentive stock option plan, providing for the award of incentive stock options or nonqualified stock options to certain officers of the Company at the discretion of the Board of Directors. On April 19, 1994, the Company's stockholders approved the adoption of the 1994 stock option plan (the "1994 Plan") in which the right to purchase common stock of WMI may be granted to officers, directors, consultants and advisers of the Company. The 1994 Plan is generally similar to the 1983 plan, which terminated according to its terms in 1993. The 1994 Plan does not affect any options granted under the 1983 plan.
Under the 1994 Plan, on the date of the grant, the exercise price of the option must at least equal the market value per share of WMI's common stock. The 1994 Plan provides for the granting of options for a maximum of 30 million common shares. During 2000, the Board of Directors approved an increase in the maximum number of common shares available for grant from 18 million to 30 million.
On September 16, 1997, the Company's Board of Directors approved the adoption of a broad-based stock option plan called "WAMU Shares" as part of the Company's effort to build a unified team and to appropriately compensate its employees. This plan provides for an award of nonqualified stock options to all eligible employees who were employed by the Company on September 1, 1997. Generally, full-time employees have an option to purchase 150 shares of WMI common stock, while part-time employees have an option to purchase 75 shares. Employees who were designated to receive options under the 1994 Plan were excluded. All grants were made using the fair market value of WMI's common stock on September 1, 1997, and all options vested on September 1, 1999. The WAMU Shares plan provides for the granting of options for a maximum of 3,300,000 common shares.
On December 15, 1998, the Company's Board of Directors approved the adoption of a broad-based stock option plan ("WAMU Shares II") to provide a performance incentive and encourage stock ownership by employees of the Company. This plan provides for an award of nonqualified stock options to all eligible employees who were employed by the Company on January 4, 1999. Full-time employees received an option to purchase 100 shares of WMI common stock, while part-time employees received an option to purchase 50 shares. Employees who were designated to receive options under the 1994 Plan were excluded. These employee stock options were in addition to the Company's previous broad-based stock option plan described above. Options under the WAMU Shares II plan were granted at the fair market value of WMI's common stock on December 14, 1998, and all options vested on January 4, 2001. The WAMU Shares II plan provides for the granting of options up to a maximum of 3,300,000 common shares.
Stock options under all stock plans were generally exercisable on a phased-in schedule over two to five years, depending upon the terms of the grant, and expire three to ten years from the grant date. Options to purchase 10,045,033 and 9,128,792 shares of common stock were fully exercisable at December 31, 2000 and 1999.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options granted, exercised, or forfeited were as follows:
WEIGHTED WEIGHTED AVERAGE
AVERAGE FAIR VALUE PER
NUMBER OF EXERCISE PRICE OF SHARE OF OPTIONS
OPTION SHARES OPTION SHARES AT DATE OF GRANT
------------- ----------------- ----------------
Balance, December 31, 1997...................... 13,491,363 25.46
Granted in 1998................................. 3,486,639 32.94 7.83
Exercised in 1998............................... (3,359,459) 13.93
Forfeited in 1998............................... (339,316) 34.52
----------
Balance, December 31, 1998...................... 13,279,227 30.11
Granted in 1999................................. 6,306,833 28.68 9.51
Exercised in 1999............................... (2,032,693) 14.58
Forfeited in 1999............................... (2,131,452) 37.12
Grants in connection with acquisitions.......... 1,592,783 13.42
----------
Balance, December 31, 1999...................... 17,014,698 28.94
Granted in 2000................................. 5,374,185 48.30 15.27
Exercised in 2000............................... (1,710,503) 31.64
Forfeited in 2000............................... (725,275) 32.91
----------
Balance, December 31, 2000...................... 19,953,105 34.95
==========
|
Financial data pertaining to outstanding stock options were as follows:
DECEMBER 31, 2000
---------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE NUMBER OF EXERCISE PRICE
RANGES OF NUMBER OF REMAINING EXERCISE PRICE OF EXERCISABLE OF EXERCISABLE
EXERCISE PRICES OPTION SHARES YEARS OPTION SHARES OPTION SHARES OPTION SHARES
--------------- ------------- --------- ----------------- ------------------ ------------------
$ 5.63 - $10.97 455,493 2.7 $ 9.80 455,493 $ 9.80
11.52 - 20.66 1,567,956 4.5 15.57 1,567,956 15.57
21.00 - 30.49 5,143,503 8.2 25.52 2,613,126 25.60
31.44 - 35.58 4,507,681 6.3 33.07 2,157,111 33.29
36.07 - 40.56 1,690,624 3.1 39.29 1,659,752 39.30
41.13 - 44.92 1,584,424 7.0 44.85 1,564,234 44.89
45.54 - 50.13 5,003,424 10.0 50.11 27,361 47.90
---------- ----------
19,953,105 34.95 10,045,033 30.30
========== ==========
|
Under the terms of the Company's Employee Stock Purchase Plan ("ESPP"), an employee may purchase WMI common stock at a 15% discount without paying brokerage fees or commissions on purchases. The Company pays for the program's administrative expenses. The plan is open to all employees who are at least 18 years old, have completed at least one year of service, and work at least 20 hours per week. Participation can be by either payroll deduction or lump sum payments with a maximum annual contribution of 10% of each employee's previous year's eligible cash compensation. Under the ESPP, dividends are automatically reinvested.
The Company adopted the disclosure requirements of SFAS No. 123, and will continue to measure its employee stock-based compensation arrangements under the provisions of the AICPA Accounting Principles Board Opinion 25. Accordingly, no compensation cost has been recognized for its stock option plans and its ESPP. Had compensation cost for the Company's compensation plans been determined consistent with SFAS
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, the Company's net income attributable to common stock and net income per common share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
Net income attributable to common stock
Basic:
As reported.................................... $1,899 $1,817 $1,471
Pro forma...................................... 1,880 1,803 1,446
Diluted:
As reported.................................... 1,899 1,817 1,480
Pro forma...................................... 1,880 1,803 1,455
Net income per common share
Basic:
As reported.................................... $ 3.55 $ 3.17 $ 2.61
Pro forma...................................... 3.52 3.15 2.56
Diluted:
As reported.................................... 3.54 3.16 2.56
Pro forma...................................... 3.50 3.14 2.52
|
The fair value of options granted under the Company's stock option plans was estimated on the date of grant using the Binomial option-pricing model with the following weighted average assumptions:
YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
-------------- -------------- -------
Annual dividend yield..................... 2.37% - 2.57% 2.24% - 2.45% 2.68%
Expected volatility....................... 30.46 - 34.26 27.51 - 31.61 27.71
Risk free interest rate................... 5.11 - 6.71 4.54 - 6.29 5.44
Granted options expected life............. 5 - 7.25 years 4 - 5 years 5 years
|
The Company maintains a restricted stock plan for the benefit of directors, key officers, loan officers and investment representatives. Under the plan, the Company granted 684,490, 474,893 and 203,904 shares of restricted stock in 2000, 1999 and 1998. Upon grant, shares are issued to a trustee and are released to recipients when the restrictions lapse. The restrictions are based upon either a continuous service or performance requirement. At the date of grant, unearned compensation is recorded as an offset to stockholders' equity and is amortized as compensation expense over the restricted period. The balance of unearned compensation related to these restricted shares as of December 31, 2000 was $23 million.
The total compensation expense recognized for the restricted shares was $21 million, $9 million and $9 million in 2000, 1999 and 1998. Restricted shares accrue dividends. All canceled or forfeited shares become available for future grants.
NOTE 19: EMPLOYEE BENEFITS PROGRAMS
Pension Plan
Washington Mutual maintains a noncontributory cash balance defined benefit pension plan (the "Pension Plan") for substantially all eligible employees. Benefits earned for each year of service are based primarily on the level of compensation in that year plus a stipulated rate of return on the benefit balance. It is the
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's policy to fund the Pension Plan on a current basis to the extent deductible under federal income tax regulations. The Pension Plan's assets consist primarily of mutual funds and equity securities.
Changes in the projected benefit obligation were as follows:
YEAR ENDED
DECEMBER 31,
--------------
2000 1999
----- -----
(IN MILLIONS)
Benefit obligation, beginning of year....................... $604 $681
Actuarial (gain) loss....................................... 67 (61)
Interest cost............................................... 51 45
Service cost................................................ 26 31
Benefits paid............................................... (53) (64)
Amendments.................................................. 16 (28)
---- ----
Benefit obligation, end of year............................. $711 $604
==== ====
|
Changes in Pension Plan assets were as follows:
YEAR ENDED
DECEMBER 31,
--------------
2000 1999
----- -----
(IN MILLIONS)
Fair value of assets, beginning of year..................... $786 $756
Actual return on assets..................................... (14) 94
Benefits paid............................................... (53) (64)
---- ----
Fair value of assets, end of year........................... $719 $786
==== ====
|
Reconciliations of funded status were as follows:
DECEMBER 31,
--------------
2000 1999
----- -----
(IN MILLIONS)
Funded status............................................... $ 8 $182
Unrecognized net (gain) loss................................ 82 (59)
Unamortized prior service cost.............................. (4) (24)
Remaining unamortized, unrecognized net asset............... (2) (2)
--- ----
Prepaid benefit cost........................................ $84 $ 97
=== ====
|
Net periodic expense for the Pension Plan was as follows:
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
Interest cost............................................... $51 $45 $42
Service cost................................................ 26 31 33
Expected return on assets................................... (61) (62) (62)
Amortization of prior service credit........................ (4) (5) (5)
Recognized net actuarial loss............................... -- 1 --
Curtailment gain............................................ -- (3) --
--- --- ---
Net periodic expense........................................ $12 $ 7 $ 8
=== === ===
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Weighted average assumptions used in accounting for the Pension Plan were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
Assumed discount rate....................................... 7.75% 7.75% 6.75%
Assumed rate of compensation increase....................... 6.00 5.15 4.83
Expected return on assets................................... 8.00 8.56 9.00
|
Nonqualified Defined Benefit Plans and Other Postretirement Benefit Plans
The Company, as successor to previously acquired companies has assumed responsibility for nonqualified, noncontributory unfunded postretirement benefit plans, including retirement restoration plans for certain employees, a number of supplemental retirement plans for certain officers, and multiple outside directors' retirement plans. Benefits under the retirement restoration plans are generally determined by the Company. Benefits under the supplemental retirement plans are generally based on years of service. Benefits under the outside directors' retirement plans generally are payable for a period equal to the participants' service on the Board of Directors, with a lifetime benefit payable to participants with 15 or more years of service.
The Company, as successor to previously acquired companies maintains unfunded defined benefit postretirement plans that make medical and life insurance coverage available to eligible retired employees and dependents. The expected cost of providing these benefits to retirees, their beneficiaries and covered dependents was accrued during the years each employee provided services.
Changes in the benefit obligation were as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
NONQUALIFIED OTHER NONQUALIFIED OTHER
DEFINED POSTRETIREMENT DEFINED POSTRETIREMENT
BENEFIT PLANS BENEFITS BENEFIT PLANS BENEFITS
------------- -------------- ------------- --------------
(IN MILLIONS)
Benefit obligation, beginning of
year................................. $99 $30 $104 $39
Interest cost.......................... 7 2 7 2
Actuarial (gain) loss.................. 1 (1) (2) (9)
Service cost........................... -- 1 -- 1
Benefits paid.......................... (9) (3) (10) (2)
Curtailment gain....................... -- -- -- (1)
--- --- ---- ---
Benefit obligation, end of year........ $98 $29 $ 99 $30
=== === ==== ===
|
For measurement of the net periodic cost of other postretirement benefit plans, a 5.75% annual increase in the medical card trend rate was assumed for 2000 and thereafter. The assumed discount rate was 7.75% for 2000 and 1999, and 6.75% for 1998.
Account Balance Plans
Savings Plans. The Company sponsors a retirement savings and investment plan (the "RSIP") for all eligible employees that allows participants to make contributions by salary deduction equal to 15% or less of their salary pursuant to Section 401(k) of the Internal Revenue Code. Employee contributions vest immediately. The Company's matching contributions and any profit sharing contributions made to employees vest based on years of service.
Company contributions to savings plans were $41 million, $39 million and $36 million in 2000, 1999 and 1998.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Account Balance Plans. The Company sponsors supplemental employee and executive retirement plans for the benefit of certain officers. The plans are designed to supplement the benefits that are accrued under the Pension Plans.
NOTE 20: INTEREST RATE RISK MANAGEMENT
From time to time, the following strategies may be used by the Company to reduce its exposure to interest rate risk: the origination and purchase of ARMs and the purchase of adjustable-rate MBS; the sale of fixed-rate SFR loan production or fixed-rate MBS; and the use of derivative instruments, such as interest rate exchange agreements, interest rate cap agreements, forward sales contracts, interest rate floors, and purchased puts.
The Company uses forward sales contracts to hedge its exposure to increasing interest rates with respect to fixed-rate loans and loan commitments which the Company intends to sell in the secondary market. Forward sales contracts are used to sell fixed-rate loans at a future date for a specified price. Gains or losses are recognized at the time the contracts mature and are recorded as a component of gain on sale of loans. As of December 31, 2000 and 1999, the Company had $2.36 billion and $635 million in forward sales contracts to hedge loan commitments, which were expected to close, and SFR loans, which were held for sale.
Interest rate exchange agreements, interest rate cap agreements, and forward sales contracts expose the Company to credit risk in the event of nonperformance by counterparties to such agreements. This risk consists primarily of the termination value of agreements where the Company is in a favorable position. The Company controls the credit risk associated with its various derivative agreements through counterparty credit review, counterparty exposure limits and monitoring procedures.
The Company's use of derivative instruments reduces the effect that changing interest rates may have on net interest income. The Company uses such instruments to reduce the volatility of net interest income over an interest rate cycle. The Company does not invest in leveraged derivative instruments. During 2000, the Company did terminate interest rate exchange agreements and interest rate cap agreements. However, during 1999, the Company did not terminate any such agreements.
Scheduled maturities of interest rate exchange agreements were as follows:
DECEMBER 31, 2000
---------------------------------------------------
NOTIONAL RECEIVE PAY CARRYING FAIR
AMOUNT RATE(1) RATE(1) VALUE VALUE
-------- ------- ------- -------- -----
(DOLLARS IN MILLIONS)
Designated against deposits and borrowings:
Due within one year.......................... $ 8,644 6.67% 6.29% $-- $(10)
After one but within two years............... 2,524 6.75 6.59 -- (24)
After two but within three years............. 478 6.36 6.02 -- (2)
After three years............................ 2,252 7.18 6.65 -- 130
------- --- ----
$13,898 6.76 6.39 $-- $ 94
======= === ====
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
-----------------------------------------------
NOTIONAL RECEIVE PAY CARRYING FAIR
AMOUNT RATE(1) RATE(1) VALUE VALUE
-------- ------- ------- -------- -----
(DOLLARS IN MILLIONS)
Designated against deposits and borrowings:
Due within one year.................................. $ 5,376 6.15% 5.40% $-- $33
After one but within two years....................... 2,756 6.01 5.37 -- 31
After two but within three years..................... 769 6.11 6.21 -- 9
After three years.................................... 1,502 6.59 6.17 -- 5
------- --- ---
$10,403 6.17 5.56 $-- $78
======= === ===
|
Scheduled maturities of interest rate cap agreements were as follows:
DECEMBER 31, 2000
-------------------------------------------------
SHORT-TERM
NOTIONAL STRIKE RECEIPT CARRYING FAIR
AMOUNT RATE RATE(1) VALUE VALUE
-------- ------ ---------- -------- -----
(DOLLARS IN MILLIONS)
Designated against deposits and borrowings:
Due within one year(2).............................. $7,502 6.01% 6.73% $ 6 $16
After one but within two years(3)................... 380 7.47 6.46 2 --
After two but within three years(4)................. 214 7.86 6.26 1 --
After three years(5)................................ 190 8.14 5.59 2 --
------ --- ---
$8,286 6.17 6.68 $11 $16
====== === ===
|
DECEMBER 31, 1999
-------------------------------------------------
SHORT-TERM
NOTIONAL STRIKE RECEIPT CARRYING FAIR
AMOUNT RATE RATE(1) VALUE VALUE
-------- ------ ---------- -------- -----
(DOLLARS IN MILLIONS)
Designated against deposits and borrowings:
Due within one year(2).............................. $ 2,640 5.88% 6.08% $ 1 $ 6
After one but within two years(3)................... 7,704 6.01 6.14 33 48
After two but within three years(4)................. 380 7.47 5.81 2 2
After three years(5)................................ 405 7.99 5.13 4 1
------- --- ---
$11,129 6.10 6.08 $40 $57
======= === ===
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial data pertaining to interest rate exchange agreements were as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- ------
(DOLLARS IN MILLIONS)
Weighted average net effective (benefit) cost, end of
year...................................................... (0.37)% (0.61)% 0.54%
Weighted average net effective (benefit) cost during the
year...................................................... (0.33) 0.15 0.37
Monthly average notional amount of interest rate exchange
agreements................................................ $14,340 $ 7,801 $3,042
Maximum notional amount of interest rate exchange agreements
at any month end.......................................... 15,634 10,403 3,824
Net cost included in interest income on available-for-sale
securities................................................ -- 2 2
Net cost included in interest expense on deposits........... 1 4 3
Net (benefit) cost included in interest expense on
borrowings................................................ (48) 6 6
|
Financial data pertaining to interest rate cap agreements were as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- ------
(IN MILLIONS)
Monthly average notional amount of interest rate cap
agreements................................................ $ 9,520 $ 7,657 $3,260
Maximum notional amount of interest rate cap agreements at
any month end............................................. 11,129 11,411 3,875
Net cost included in interest income on available-for-sale
securities................................................ -- -- 1
Net cost included in interest expense on deposits........... 2 3 5
Net cost included in interest expense on borrowings......... 27 14 1
|
Changes in interest rate exchange agreements and interest rate cap agreements were as follows:
YEAR ENDED DECEMBER 31, 2000
------------------------------
INTEREST RATE INTEREST RATE
EXCHANGE CAP
AGREEMENTS AGREEMENTS
------------- -------------
(IN MILLIONS)
Notional balance, beginning of year......................... $10,403 $11,129
Additions................................................... 9,771 --
Maturities.................................................. (5,476) (2,643)
Terminations................................................ (800) (200)
------- -------
Notional balance, end of year............................... $13,898 $ 8,286
======= =======
|
NOTE 21: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because an active secondary market does not exist for a portion of the Company's financial instruments, fair value estimates were based on management's judgment concerning future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. In addition, considerable judgment was required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value estimates were determined for existing balance sheet and off-balance sheet financial instruments, including derivative instruments, without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that were not considered financial instruments. Significant assets that were not considered financial instruments include premises and equipment, net tax assets, real estate held for investment, foreclosed assets and intangible assets. In addition, the value of the servicing rights for loans sold in which the MSR has not been capitalized was excluded from the valuation. Deposit intangibles were also excluded from the fair value estimates. Finally, the tax ramifications related to the realization of the unrealized gains and losses could have a significant effect on fair value estimates and have not been considered in any of the valuations.
Assets and liabilities whose carrying amounts approximate fair value include cash and cash equivalents, available-for-sale securities, investment in FHLBs, checking accounts, savings accounts and MMDAs, and federal funds purchased and commercial paper.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument as of December 31, 2000 and 1999:
Cash and cash equivalents -- The carrying amount represented fair value.
Available-for-sale securities -- Fair values were based on quoted market prices. If a quoted market price was not available, fair value was estimated using market prices for similar securities, as well as internal analysis.
Held-to-maturity securities -- Fair values were based on quoted market prices. If a quoted market price was not available, fair value was estimated using market prices for similar securities, as well as internal analysis.
Loans held for sale -- Fair values were derived from quoted market prices, internal estimates and pricing of similar instruments.
Loans held in portfolio -- Loans were priced using an option adjusted cash flow valuation methodology. Fair values were derived from quoted market prices, internal estimates and the pricing of similar instruments.
MSR -- The fair value of MSR was estimated using projected cash flows, adjusted for the effects of anticipated prepayments, using a market discount rate. The fair value estimates exclude the value of the servicing rights for loans sold in which the MSR has not been capitalized.
Investment in FHLBs -- The carrying amount represented fair value. FHLB stock does not have a readily determinable fair value and is required to be sold back at its par value.
Deposits -- The fair value of checking accounts, savings accounts and MMDAs was the amount payable on demand at the reporting date. For time deposit accounts, the fair value was determined using an option adjusted cash flow methodology. The discount rate was derived from the rate currently offered on alternate funding sources with similar maturities. Core deposit intangibles were not included in the valuation.
Federal funds purchased and commercial paper -- The value was determined using an option adjusted cash flow methodology. The discount rate was derived from the rate currently offered on similar borrowings.
Repurchase agreements -- These were valued using an option adjusted cash flow methodology. The discount rate was derived from the rate currently offered on similar borrowings. The fair value of embedded purchased floors and caps was determined using dealer quotations, when available. If a quoted market price was not available, fair value was estimated using an internal analysis based on the market prices of similar instruments.
Advances from FHLBs -- These were valued using an option adjusted cash flow methodology. The discount rate was derived from the rate currently offered on similar borrowings.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trust preferred securities -- Fair values were based on quoted market prices. If a quoted market price was not available, fair value was estimated using market prices for similar securities.
Other borrowings -- These were valued using an option adjusted cash flow methodology. The discount rate was derived from the rate currently offered on similar borrowings.
Derivative financial instruments -- The fair value for interest rate exchange agreements and interest rate cap agreements was determined using dealer quotations, when available. If a quoted market price was not available, fair value was estimated using an internal analysis based on the market prices of similar instruments. The market prices for similar instruments were used to value interest rate cap agreements.
Forward sales contracts designated against loans -- The fair value of forward sales contracts purchased as a hedge of fixed-rate commitments and commitments to fund real estate loans was estimated using current market prices adjusted for various risk factors and market volatility.
Off-balance sheet loan commitments -- The fair value of loan commitments was estimated based on current levels of interest rates versus the committed interest rates. The balance shown represents the differential between committed value and fair value.
The estimated fair value of the Company's financial instruments was as follows:
DECEMBER 31,
--------------------------------------------
2000 1999
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN MILLIONS)
FINANCIAL ASSETS:
Held-to-maturity securities................... $ 16,565 $ 16,486 $ 19,401 $ 19,037
Loans held for sale........................... 3,404 3,447 794 794
Loans held in portfolio....................... 118,612 117,689 112,704 112,094
MSR........................................... 1,017 1,125 643 825
FINANCIAL LIABILITIES:
Time deposits................................. 34,418 34,539 37,592 37,398
Repurchase agreements......................... 29,756 29,596 30,163 30,158
Advances from FHLBs........................... 57,855 57,951 57,094 57,065
Trust preferred securities.................... 943 888 941 898
Other borrowings.............................. 8,987 9,070 5,262 5,244
DERIVATIVE FINANCIAL INSTRUMENTS(1):
Interest rate exchange agreements:
Designated against deposits and
borrowings............................... -- 94 -- 78
Interest rate cap agreements:
Designated against deposits and
borrowings............................... 11 16 40 57
OTHER OFF-BALANCE SHEET INSTRUMENTS:
Forward sales contracts designated against
loans...................................... -- 8 -- 8
Off-balance sheet loan commitments............ -- 2 -- (3)
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22: FINANCIAL INFORMATION -- WMI
The following WMI (parent company only) financial information should be read in conjunction with the other Notes to Consolidated Financial Statements.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
INTEREST INCOME
Notes receivable from subsidiaries.......................... $ 34 $ 12 $ 36
Other interest income....................................... 1 14 2
------ ------ ------
Total interest income..................................... 35 26 38
INTEREST EXPENSE
Notes payable to subsidiaries............................... 49 49 55
Other borrowings............................................ 163 106 85
------ ------ ------
Total interest expense.................................... 212 155 140
------ ------ ------
Net interest expense...................................... (177) (129) (102)
Provision for loan and lease losses......................... 1 -- --
------ ------ ------
Net interest expense after provision...................... (178) (129) (102)
NONINTEREST INCOME
Other income................................................ 5 10 2
------ ------ ------
Total noninterest income.................................. 5 10 2
NONINTEREST EXPENSE
Compensation and benefits................................... 28 16 27
Transaction-related expense................................. -- 12 58
Other expense............................................... 34 19 13
------ ------ ------
Total noninterest expense................................. 62 47 98
------ ------ ------
Net loss before income tax benefit, dividends from
subsidiaries and equity in undistributed income of
subsidiaries........................................... (235) (166) (198)
Income tax benefit.......................................... 105 65 86
Dividends from subsidiaries................................. 784 1,140 849
Equity in undistributed earnings of subsidiaries............ 1,245 778 750
------ ------ ------
NET INCOME.................................................. $1,899 $1,817 $1,487
====== ====== ======
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------
2000 1999
------- -------
(IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ 388 $ 284
Available-for-sale securities............................... 6 5
Loans....................................................... 5 333
Accounts and notes receivable from subsidiaries............. 363 132
Investment in subsidiaries.................................. 12,479 10,614
Other assets................................................ 280 198
------- -------
Total assets.............................................. $13,521 $11,566
======= =======
LIABILITIES
Notes payable to subsidiaries............................... $ 567 $ 566
Other borrowings............................................ 2,400 1,804
Other liabilities........................................... 388 143
------- -------
Total liabilities......................................... 3,355 2,513
STOCKHOLDERS' EQUITY........................................ 10,166 9,053
------- -------
Total liabilities and stockholders' equity................ $13,521 $11,566
======= =======
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $1,899 $1,817 $1,487
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan and lease losses.................... 1 -- --
Increase in income taxes receivable.................... 65 80 15
Equity in undistributed earnings of subsidiaries....... (1,245) (778) (742)
(Increase) decrease in other assets.................... (147) 117 (85)
(Decrease) increase in other liabilities............... (134) 466 31
------ ------ ------
Net cash provided by operating activities............ 439 1,702 706
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on available-for-sale securities......... -- 4 1
Origination of loans, net of principal payments............. 327 (287) (32)
(Increase) decrease in notes receivable from subsidiaries... (232) 82 (45)
Investment in subsidiaries.................................. (404) (2,052) (892)
Dividends received from subsidiaries........................ 784 1,140 849
------ ------ ------
Net cash provided (used) by investing activities..... 475 (1,113) (119)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable to subsidiaries................. 1 (108) (4)
Proceeds from (repayments of) other borrowings.............. 596 846 (189)
Issuance of common stock through employee stock plans....... 88 84 81
Issuance of common stock to acquire Long Beach Mortgage..... -- 207 --
Redemption of preferred stock............................... -- -- (313)
Repurchase of common stock, net............................. (869) (1,082) (24)
Cash dividends paid......................................... (626) (570) (456)
------ ------ ------
Net cash used by financing activities................ (810) (623) (905)
------ ------ ------
Increase (decrease) in cash and cash equivalents..... 104 (34) (318)
Cash and cash equivalents, beginning of year......... 284 318 636
------ ------ ------
Cash and cash equivalents, end of year............... $ 388 $ 284 $ 318
====== ====== ======
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23: OPERATING SEGMENTS
Effective January 1, 2001, the Company realigned its business segments. Separately, the Company is in the process of enhancing its segment reporting process methodologies and allocations and will be reporting segment results under these new methodologies and as realigned beginning with the first quarter of 2001.
For the historical periods presented in these financial statements, the Company managed its business along five major operating segments: Consumer Banking, Mortgage Banking, Commercial Banking, Financial Services, and Consumer Finance. Although the Company did not consider the Treasury group to be an operating segment, it managed investments and interest rate risk. Generally, MBS that the Company purchased were allocated to Treasury.
Each line of business is managed by a member of the Executive Committee under the direction of the Chief Executive Officer. The Executive Committee, which is the senior decision making group of the Company, is comprised of nine members including the Chairman, President and Chief Executive Officer. Other Executive Committee members are responsible for managing the centralized support functions.
The financial performance of the business lines is measured by the Company's profitability reporting process, which utilizes various management accounting techniques to ensure that each business line's financial results reflect the underlying performance of that business. To better assess the profitability of its business lines, the Company generates segment results that include balances directly attributable to business line activities as well as balances that are allocated from traditionally undistributed units. In this way, management can better assess the fully burdened performance of a particular business line. Washington Mutual is constantly analyzing its line of business performance and developing better ways to measure profitability.
Consumer banking includes deposit products (with their related fee income) and all consumer loan products originated through its financial centers. These consumer loan products include second equity mortgage loans, lines of credit, manufactured housing loans, automobile, boat and recreational vehicle loans, and education loans. The principal activities conducted by mortgage banking are the origination of SFR and residential construction loans, and all loan servicing activities. Commercial banking offers a full range of commercial banking products and services, including commercial business loans, multi-family residential loans and loans secured by nonresidential real estate. Financial Services offers a wide range of investment products to the Company's customers, including mutual funds, variable and fixed annuities and general securities. Consumer Finance offers direct consumer installment loans and retail sales financing, and manages the Company's portfolio of purchased specialty mortgage finance loans.
Whenever feasible, revenues and expenses are directly assigned to business lines in evaluating their performance. Some of the loans originated by the Company's mortgage banking line of business are transferred to the consumer banking line of business at a transfer price that reflects the risk-adjusted value of such loans. Additionally, corporate overhead, centralized support costs, and other costs are allocated to each business line based on appropriate allocation methodologies.
The organizational structure of the Company and the allocation methodologies it employs result in business line financial results that are not necessarily comparable across companies. As such, Washington Mutual's business line performance may not be directly comparable with similar information from other financial institutions.
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial highlights by line of business were as follows:
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------------------------
CONSUMER MORTGAGE COMMERCIAL FINANCIAL CONSUMER TREASURY/
BANKING BANKING BANKING SERVICES FINANCE OTHER TOTAL
-------- -------- ---------- --------- -------- --------- --------
(IN MILLIONS)
Condensed income statement
Net interest income after provision for loan
and lease losses............................. $ 2,501 $ 741 $ 362 $ -- $ 354 $ 168 $ 4,126
Noninterest income............................. 1,036 431 34 371 141 (29) 1,984
Noninterest expense............................ 1,852 575 128 240 274 57 3,126
Income taxes................................... 606 215 98 49 88 29 1,085
------- ------- ------- ---- ------- ------- --------
Net income..................................... $ 1,079 $ 382 $ 170 $ 82 $ 133 $ 53 $ 1,899
======= ======= ======= ==== ======= ======= ========
|
DECEMBER 31, 2000
------------------------------------------------------------------------------
Total assets................................... $81,973 $54,984 $21,563 $131 $10,250 $25,815 $194,716
======= ======= ======= ==== ======= ======= ========
|
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------
CONSUMER MORTGAGE COMMERCIAL FINANCIAL CONSUMER TREASURY/
BANKING BANKING BANKING SERVICES FINANCE OTHER TOTAL
-------- -------- ---------- --------- -------- --------- --------
(IN MILLIONS)
Condensed income statement
Net interest income after provision for loan
and lease losses............................. $ 2,495 $ 796 $ 376 $ 1 $ 255 $ 362 $ 4,285
Noninterest income............................. 817 259 30 317 56 30 1,509
Transaction-related expense.................... 69 19 1 3 -- 4 96
Noninterest expense............................ 1,788 532 104 200 164 26 2,814
Income taxes................................... 535 185 111 45 58 133 1,067
------- ------- ------- ---- ------ ------- --------
Net income..................................... $ 920 $ 319 $ 190 $ 70 $ 89 $ 229 $ 1,817
======= ======= ======= ==== ====== ======= ========
|
DECEMBER 31, 1999
------------------------------------------------------------------------------
Total assets................................... $83,713 $46,373 $20,180 $124 $7,371 $28,753 $186,514
======= ======= ======= ==== ====== ======= ========
|
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------
CONSUMER MORTGAGE COMMERCIAL FINANCIAL CONSUMER TREASURY/
BANKING BANKING BANKING SERVICES FINANCE OTHER TOTAL
-------- -------- ---------- --------- -------- --------- --------
(IN MILLIONS)
Condensed income statement
Net interest income after provision for loan
and lease losses............................. $ 2,557 $ 833 $ 368 $ 2 $ 203 $ 167 $ 4,130
Noninterest income............................. 626 326 24 230 10 291 1,507
Transaction-related expense.................... 366 122 6 7 -- 7 508
Noninterest expense............................ 1,734 534 101 165 127 99 2,760
Income taxes................................... 401 186 106 25 34 130 882
------- ------- ------- ---- ------ ------- --------
Net income..................................... $ 682 $ 317 $ 179 $ 35 $ 52 $ 222 $ 1,487
======= ======= ======= ==== ====== ======= ========
|
DECEMBER 31, 1998
------------------------------------------------------------------------------
Total assets................................... $88,369 $36,105 $19,540 $115 $2,764 $18,600 $165,493
======= ======= ======= ==== ====== ======= ========
|
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Results of operations on a quarterly basis were as follows:
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Interest income......................................... $3,304 $3,362 $3,485 $3,632
Interest expense........................................ 2,220 2,270 2,451 2,531
------ ------ ------ ------
Net interest income..................................... 1,084 1,092 1,034 1,101
Provision for loan and lease losses..................... 41 44 47 53
Noninterest income...................................... 423 500 511 550
Noninterest expense..................................... 744 775 785 822
------ ------ ------ ------
Income before income taxes.............................. 722 773 713 776
Income taxes............................................ 264 282 260 279
------ ------ ------ ------
Net income.............................................. $ 458 $ 491 $ 453 $ 497
====== ====== ====== ======
Net income attributable to common stock................. $ 458 $ 491 $ 453 $ 497
====== ====== ====== ======
Net income per common share:
Basic................................................. $ 0.83 $ 0.92 $ 0.86 $ 0.94
Diluted............................................... 0.83 0.92 0.86 0.94
|
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Interest income......................................... $2,854 $2,960 $3,059 $3,189
Interest expense........................................ 1,727 1,811 1,939 2,133
------ ------ ------ ------
Net interest income..................................... 1,127 1,149 1,120 1,056
Provision for loan and lease losses..................... 41 43 41 42
Noninterest income...................................... 352 364 370 423
Noninterest expense..................................... 730 749 700 731
------ ------ ------ ------
Income before income taxes.............................. 708 721 749 706
Income taxes............................................ 264 268 279 256
------ ------ ------ ------
Net income.............................................. $ 444 $ 453 $ 470 $ 450
====== ====== ====== ======
Net income attributable to common stock................. $ 444 $ 453 $ 470 $ 450
====== ====== ====== ======
Net income per common share:
Basic................................................. $ 0.76 $ 0.78 $ 0.83 $ 0.80
Diluted............................................... 0.76 0.78 0.83 0.80
|
WASHINGTON MUTUAL, INC.
INDEX OF EXHIBITS
DESCRIPTION
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999. File No.
0-25188).
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Washington Mutual, Inc. creating a class of
preferred stock, Series RP (filed herewith).
3.3 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Washington Mutual, Inc. creating a class of
preferred stock, Series H (filed herewith).
3.4 Bylaws of the Company, as amended (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999. File No. 0-25188).
4.1 Rights Agreement dated December 20, 2000 between Registration and
Mellon Investor Services, L.L.C. (Incorporated by reference from
the Company's Current Report on Form 8-K filed January 8, 2001.
File No. 0-25188).
4.2 The registrant will furnish upon request copies of all instruments
defining the rights of holders of long-term debt instruments of
registrant and its consolidated subsidiaries.
10.1 Intentionally omitted.
10.2* Lease Agreement between Third and University Limited Partnership
and Washington Mutual Savings Bank, dated September 1, 1988.
10.3 Escrow Agreement, dated December 20, 1996, by and among the
Company, Keystone Holdings Partners, L.P., the Federal Deposit
Insurance Corporation as manager of the FSLIC Resolution Fund, and
The Bank of New York (Incorporated by reference to the Company's
Current Report on Form 8-K dated January 3, 1997. File No.
0-25188).
10.4 364-Day Credit Agreement by and among the Company, Washington
Mutual Finance Corporation, The Chase Manhattan Bank as
Administrative Agent and certain lenders (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000. File No. 0-25188).
10.5 Four-Year Credit Agreement by and among the Company, Washington
Mutual Finance Corporation (formerly known as Aristar, Inc.), The
Chase Manhattan Bank as Administrative Agent and certain lenders
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999. File No.
0-25188).
|
Management Contracts and Compensatory Plans and Arrangements (Exhibits
10.6-10.73)
10.6 Washington Mutual 1994 Stock Option Plan As Amended and Restated
as of February 15, 2000 (filed herewith).
10.6.1 First Amendment to the Washington Mutual 1994 Stock Option Plan
Amended and Restated as of February 15, 2000 (filed herewith).
10.7 Washington Mutual Restricted Stock Plan As Amended and Restated
as of January 18, 2000 (filed herewith).
10.7.1 Amendment to the Washington Mutual Restricted Stock Plan As
Amended and Restated as of January 18, 2000 (filed herewith).
10.7.2 Amendment to the Washington Mutual Restricted Stock Plan As
Amended and Restated as of January 18, 2000 (filed herewith).
10.8* Washington Mutual Employees' Stock Purchase Program.
10.8.1 Amendment to the Washington Mutual Employees' Stock Purchase Plan
(filed herewith).
10.8.2 Amendment to the Washington Mutual Employees' Stock Purchase Plan
(filed herewith).
10.8.3 Fourth Amendment to the Washington Mutual Employees' Stock
Purchase Program (filed as an exhibit to the Company's Current
Report on Form 8-K dated December 22, 1998. File No. 0-25188).
10.8.4 Third Amendment to the Washington Mutual Employees' Stock
Purchase Program (filed herewith).
10.8.5 Second Amendment to the Washington Mutual Employees' Stock
Purchase Program (filed herewith).
10.9 Washington Mutual, Inc. Retirement Savings and Investment Plan
Amended and Restated Effective September 30, 1998 (filed as an
exhibit to the Company's Current Report on Form 8-K dated December
22, 1998. File No. 0-25188).
10.9.1 Amendment to the Washington Mutual, Inc. Retirement Savings
and Investment Plan Amended and Restated Effective September 30,
1998 (filed herewith).
10.9.2 Amendment to the Washington Mutual, Inc. Retirement Savings and
Investment Plan Amended and Restated Effective September 30,
1998 (filed herewith).
10.9.3 Amendment to the Washington Mutual, Inc. Retirement Savings and
Investment Plan Amended and Restated Effective September 30,
1998 (filed herewith).
10.9.4 Amendment to the Washington Mutual, Inc. Retirement Savings and
Investment Plan Amended and Restated Effective September 30,
1998 (filed herewith).
10.10* Washington Mutual Employee Service Award Plan.
10.11*** Supplemental Employee's Retirement Plan for Salaried Employees of
Washington Mutual.
10.12*** Washington Mutual Supplemental Executive Retirement Accumulation
Plan.
10.13 Washington Mutual, Inc. Cash Balance Pension Plan Amended and
Restated Effective September 30, 1998 (filed herewith).
10.13.1 Amendment to the Washington Mutual, Inc. Cash Balance Pension Plan
Amended and Restated Effective September 30, 1998 (filed
herewith).
10.13.2 Amendment to the Washington Mutual, Inc. Cash Balance Pension Plan
Amended and Restated Effective September 30, 1998 (filed
herewith).
10.13.3 Amendment to the Washington Mutual, Inc. Cash Balance Pension Plan
Amended and Restated Effective September 30, 1998 (filed
herewith).
10.14 Washington Mutual Deferred Compensation Plan for Directors and
Certain Highly Compensated Employees Amended and Restated
Effective January 1, 2000 (filed as an exhibit to the Company's
Registration Statement on Form S-8. File No. 333-87675).
10.15 Washington Mutual Bonus and Incentive Plan for Executive Officers
and Senior Management As Amended and Restated Effective January
1, 1999 (filed herewith).
10.16** Employment Contract of Kerry K. Killinger.
10.17** Employment Contract for Executive Officers.
10.18 Form of Employment Contract for Senior Vice Presidents (filed as
an exhibit to the Washington Mutual, Inc. Annual Report on Form
10-K for the year ended December 31, 1998. File No. 0-25188).
10.19 The 1988 Stock Option and Incentive Plan (as amended effective
July 26, 1994) (filed as an exhibit to the Quarterly Report of
Great Western Financial Corporation ("Great Western"), on Form
10-Q for the quarter ended September 30, 1994. File No.
001-04075).
10.19.1 Amendment No. 1996-1 to the Great Western Financial Corporation
1988 Stock Option and Incentive Plan, effective December 10, 1996
(filed as an exhibit to Great Western's Annual Report on Form 10-K
for the year ended December 31, 1996. File No. 001-04075).
10.19.2 Form of Director Stock Option Agreement (filed as an exhibit to
Great Western's Registration Statement on Form S-8 Registration
No. 33-21469 pertaining to Great Western's 1988 Stock Option and
Incentive Plan).
10.19.3 Form of Director Stock Option Agreement effective January 3,
1994 (filed as an exhibit to Great Western's Annual Report on
Form 10-K for the year ended December 31, 1993. File No.
001-04075).
10.20 Great Western Financial Corporation Directors' Deferred
Compensation Plan (1992 Restatement) (filed as an exhibit to
Great Western's Annual Report on Form 10-K for the year ended
December 31, 1991. File No. 001-04075).
10.20.1 Amendment to Great Western Financial Corporation Directors'
Senior Officers' and basic Deferred Compensation Plans (1992
Restatement) (filed as an exhibit to Great Western's Annual
Report on Form 10-K for the year ended December 31, 1994
File No. 001-04075).
10.20.2 Amendment No. 2 to Directors' Deferred Compensation Plan 1992
Restatement (filed as an exhibit to Great Western's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996. File
No. 001-04075).
10.20.3 Amendment No. 1996-2 to Directors' Deferred Compensation Plan,
dated December 10, 1996 (filed as an exhibit to Great Western's
Annual Report on Form 10-K for the year ended December 31, 1996.
File No. 001-04075).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.21 Great Western Financial Corporation Umbrella Trust for Directors
(filed as an exhibit to Great Western's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989. File No. 001-04075).
10.21.1 Amendment No. 1996-1 to Umbrella Trust for Directors, dated
December 16, 1996 (filed as an exhibit to Great Western's Annual
Report on Form 10-K for the year ended December 31, 1996. File
No. 001-04075).
10.21.2 Omnibus Amendment 1995-1 to the Umbrella Trusts replacing the
Finance Committee of the Board of Directors with the Compensation
Committee of the Board of Directors as administrator of the plans
(filed as an exhibit to Great Western's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995. File No. 001-04075).
10.22 Restated Retirement Plan for Directors (filed as an exhibit to
Great Western's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993. File No. 001-04075).
10.23 Employee Home Loan Program (filed as an exhibit to Great
Western's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993. File No. 001-04075).
10.23.1 Amendment No. 1996-1 to Employee Home Loan Program, effective
December 10, 1996 (filed as an exhibit to Great Western's Annual
Report on Form 10-K for the year ended December 31, 1996. File No.
001-04075).
10.24 Omnibus Amendment 1997-1 amending the definition of change in
control in the Great Western Financial Corporation 1988 Stock
Option and Incentive Plan, as amended December 10, 1996, the Great
Western Financial Corporation Directors' Deferred Compensation
Plan (1992 Restatement), as amended December 10, 1996, the
Umbrella Trust for Directors as amended December 10, 1996, and the
Employee Home Loan Program (revised and restated as of April 27,
1993), as amended December 10, 1996 (filed as an exhibit to Great
Western's Annual Report on Form 10-K for the year ended December
31, 1996. File No. 001-04075).
10.25 H.F. Ahmanson & Company 1984 Stock Incentive Plan (filed as an
exhibit to Ahmanson's Annual Report on Form 10-K for the year
ended December 31, 1984. File No. 1-08930).
10.25.1 Amendment to H.F. Ahmanson & Company 1984 Stock Incentive Plan
(filed as an exhibit to Ahmanson's Annual Report on Form 10-K for
the year ended December 31, 1989. File No. 1-08930).
10.26 H.F. Ahmanson & Company 1993 Stock Incentive Plan as amended
(filed as an exhibit to Ahmanson's Annual Report on Form 10-K for
the year ended December 31, 1996. File No. 1-08930).
10.27 H.F. Ahmanson & Company 1998 Directors' Stock Incentive Plan, as
amended (filed as an exhibit to Ahmanson's Annual Report on Form
10-K for the year ended December 31, 1989. File No. 1-08930).
10.28 H.F. Ahmanson & Company 1996 Nonemployee Directors' Stock
Incentive Plan (filed as an exhibit to Ahmanson's Annual Report
on Form 10-K for the year ended December 31, 1995. File No.
1-08930).
10.29 1989 Contingent Deferred Compensation Plan of H.F. Ahmanson &
Company (filed as an exhibit to Ahmanson's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991. File No. 1-08930).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.29.1 First Amendment to 1989 Contingent Deferred Compensation Plan of
H.F. Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1995. File
No. 1-08930).
10.29.2 Second Amendment to 1989 Contingent Deferred Compensation Plan of
H.F. Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1996. File
No. 1-08930).
10.30 Elective Deferred Compensation Plan of H.F. Ahmanson & Company
(filed as an exhibit to Ahmanson's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991. File No. 1-08930).
10.30.1 First Amendment to Elective Deferred Compensation Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1995. File
No. 1-08930).
10.30.2 Second Amendment to Elective Deferred Compensation Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1996. File
No. 1-08930).
10.31 Capital Accumulation Plan of H.F. Ahmanson & Company (filed as an
exhibit to Ahmanson's Annual Report on Form 10-K for the year
ended December 31, 1996. File No. 1-08930).
10.31.1 First Amendment to Capital Accumulation Plan of H.F. Ahmanson &
Company (filed as an exhibit to Ahmanson's Annual Report on Form
10-K for the year ended December 31, 1996. File No. 1-08930).
10.32 Supplemental Executive Retirement Plan of H.F. Ahmanson &
Company, as amended and restated (filed as an exhibit to
Ahmanson's Annual Report on Form 10-K for the year ended December
31, 1995. File No. 1-08930).
10.32.1 First Amendment to Supplemental Executive Retirement Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1996. File No.
1-08930).
10.33 Senior Supplemental Executive Retirement Plan of H.F. Ahmanson
and Company, as amended and restated (filed as an exhibit to
Ahmanson's Annual Report on Form 10-K for the year ended December
31, 1995. File No. 1-08930).
10.34 Executive Life Insurance Plan of H.F. Ahmanson & Company (filed
as an exhibit to Ahmanson's Annual Report on Form 10-K for the
year ended December 31, 1989. File No. 1-08930).
10.34.1 First Amendment to Executive Life Insurance Plan of H.F. Ahmanson
& Company (filed as an exhibit to Ahmanson's Annual Report on
Form 10-K for the year ended December 31, 1995. File No. 1-08930).
10.34.2 Second Amendment to Executive Life Insurance Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1996. File No.
1-08930).
10.35 Senior Executive Life Insurance Plan of H.F. Ahmanson & Company,
as amended and restated (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1995. File
No. 1-08930).
10.36 H.F. Ahmanson & Company Supplemental Long Term Disability Plan
(filed as an exhibit to Ahmanson's Annual Report on Form 10-K for
the year ended December 31, 1989. File No. 1-08930).
10.37 Outside Directors' Elective Deferred Compensation Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991. File No.
1-08930).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.37.1 First Amendment to Outside Directors' Elective Deferred
Compensation Plan of H.F. Ahmanson & Company (filed as an exhibit
to Ahmanson's Annual Report on Form 10-K for the year ended
December 31, 1995. File No. 1-08930).
10.37.2 Second Amendment to Outside Directors' Elective Deferred
Compensation Plan of H.F. Ahmanson & Company (filed as an exhibit
to Ahmanson's Annual Report on Form 10-K for the year ended
December 31, 1996. File No. 1-08930).
10.38 Outside Directors' Capital Accumulation Plan of H.F. Ahmanson &
Company (filed as an exhibit to Ahmanson's Annual Report on Form
10-K for the year ended December 31, 1996. File No. 1-08930).
10.38.1 First Amendment to Outside Directors' Capital Accumulation Plan
of H.F. Ahmanson & Company (filed as an exhibit to Ahmanson's
Annual Report on Form 10-K for the year ended December 31, 1996.
File No. 1-08930).
10.39 Outside Director Retirement Plan of H.F. Ahmanson & Company, as
amended and restated (filed as an exhibit to Ahmanson's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991. File No.
1-08930).
10.39.1 First Amendment to Outside Director Retirement Plan of H.F.
Ahmanson & Company (filed as an exhibit to Ahmanson's Annual
Report on Form 10-K for the year ended December 31, 1995. File
No. 1-08930).
10.40 Amended Form of Indemnity Agreement between H.F. Ahmanson &
Company and directors and executive officers (filed as an exhibit
to Ahmanson's Annual Report on Form 10-K for the year ended
December 31, 1989. File No. 1-08930).
10.41 Board of Directors Retirement Plan of Coast (filed as an exhibit
to the Current Report of Coast Savings Financial Inc. ("Coast")
on Form 8-K dated September 1, 1989. File No. 1-10264).
10.42 Form of Post-Retirement Compensation Arrangement of Coast (filed
as an exhibit to Coast's Annual Report on Form 10-K for the year
ended December 31, 1989. File No. 1-10264).
10.43 Amended and Restated Executive Supplemental Retirement Plan of
Coast, dated February 28, 1996 (filed as an exhibit to Coast's
Annual Report on Form 10-K for the year ended December 31, 1995.
File No. 1-10264).
10.44 Long Beach Financial Corporation 1997 Stock Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to the Long Beach
Financial Corporation's Registration Statement on Form S-1,
Commission File No. 333-22013)
12.(a) Computation of Ratios of Earnings to Fixed Charges (filed herewith).
(b) Computation of Ratios of Earnings to Fixed Charges and Preferred
Dividends (filed herewith).
21. List of Subsidiaries of the Registrant (filed herewith).
23. Consent of Deloitte & Touche LLP (filed herewith).
--------------------
* Filed as an exhibit to the Company's Current Report on Form 8-K dated
November 29, 1994. File No. 0-25188.
** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. File No. 0-25188).
*** Filed as an exhibit to the Washington Mutual, Inc. Annual Report on Form
10-K for the year ended December 31, 1996. File No. 0-25188.
Exhibits followed by a parenthetical reference are incorporated by
reference herein from the documents described therein. Documents relating
to Ahmanson filed prior to May 1985 were filed by H.F. Ahmanson & Company,
a California corporation, Commission File No. 1-7108.
|
Exhibit 3.2
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
WASHINGTON MUTUAL, INC.
Pursuant to the provisions of RCW 23B.10 of the Washington Business Corporation Act, Washington Mutual, Inc., a Washington corporation (the "Corporation") hereby adopts the following articles of amendment to its restated articles of incorporation.
FIRST: The name of the Corporation is Washington Mutual, Inc.
SECOND: The Corporation hereby creates, from the 10,000,000 shares of preferred stock, no par value per share, authorized pursuant to Article II of the restated articles of incorporation of the Corporation, a series of preferred stock and hereby fixes the designation, powers, preferences, limitations, and relative rights of the shares of such series as follows:
Section 1. DESIGNATION, PAR VALUE AND AMOUNT. The shares of such series shall be designated as "Series RP Preferred Stock" (hereinafter referred to as "SERIES RP PREFERRED STOCK"), the shares of such series shall be with par value of $.01 per share, and the number of shares constituting such series shall be 700,000; PROVIDED, HOWEVER, that, if more than a total of 700,000 shares of Series RP Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of December 20, 2000, between the Corporation and Mellon Investor Services, L.L.C., as Rights Agent (as amended from time to time, the "RIGHTS AGREEMENT"), the Board of Directors of the Corporation shall direct by resolution or resolutions that a certificate be properly executed, acknowledged and filed providing for the total number of shares of Series RP Preferred Stock authorized to be issued to be increased (to the extent that the Articles of Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of the Rights.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
2.1 Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series RP Preferred Stock with respect to dividends, the holders of shares of Series RP Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of assets legally available for the purpose, quarterly dividends payable in cash on the first business day of March, June, September and December in each year (each such date being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series RP Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision
for adjustment set forth in Section 6.1, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock, par value $.01 per share, of the Corporation (the "COMMON STOCK") or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series RP Preferred Stock.
2.2 The Corporation shall declare a dividend or distribution on the Series RP Preferred Stock as provided in Section 2.1 above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); PROVIDED THAT, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series RP Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
2.3 Dividends shall begin to accrue and be cumulative on outstanding shares of Series RP Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series RP Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series RP Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series RP Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series RP Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 30 days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series RP Preferred Stock shall have the following voting rights:
3.1 Except as provided in Section 3.3 and subject to the provision for adjustment hereinafter set forth, each share of Series RP Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation.
3.2 Except as otherwise provided herein or by law, the holders of shares of Series RP Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
3.3 The following additional provisions shall apply with respect to the voting of shares of Series RP Preferred Stock:
3.3.1 If, on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, a default in preference dividends (as defined in Section 3.3.5 below) on the Series RP Preferred Stock shall exist, the holders of the Series RP Preferred Stock shall have the right, voting as a class as described in Section 3.3.2 below, to elect two directors (in addition to the directors elected by holders of Common Stock of the Corporation). Such right may be exercised (a) at any meeting of stockholders for the election of directors or (b) at a meeting of the holders of shares of Voting Preferred Stock (as hereinafter defined), called for the purpose in accordance with the Bylaws of the Corporation, until all such cumulative dividends (referred to above) shall have been paid in full or until non-cumulative dividends have been paid regularly for at least one year.
3.3.2 The right of the holders of Series RP Preferred Stock to elect two directors, as described above, shall be exercised as a class concurrently with the rights of holders of any other series of Preferred Stock upon which voting rights to elect such directors have been conferred and are then exercisable. The Series RP Preferred Stock and any additional series of Preferred Stock that the Corporation may issue and that may provide for the right to vote with the foregoing series of Preferred Stock are collectively referred to herein as "VOTING PREFERRED STOCK."
3.3.3 Each director elected by the holders of shares of
Voting Preferred Stock shall be referred to herein as a "PREFERRED DIRECTOR." A
Preferred Director shall continue to serve as such for a term of one year,
except that upon any termination of the right of all holders of Voting Preferred
Stock to vote as a class for Preferred Directors, the term of office of
Preferred Directors then serving shall terminate. Any Preferred Director may be
removed by, and shall not be removed except by, the vote of the holders of
record of a majority of the outstanding shares of Voting Preferred Stock then
entitled to vote for the election of directors, present (in person or by proxy)
and voting together as a single class (a) at a meeting of the stockholders, or
(b) at a meeting of the holders of shares of such Voting Preferred Stock, called
for the purpose in accordance with the Bylaws of the Corporation.
3.3.4 So long as a default in any preference dividends of the Series RP Preferred Stock shall exist or the holders of any other series of Voting Preferred Stock shall be entitled to elect Preferred Directors, (a) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (b)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (b) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote or written consent of the holders of a majority of the outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors, present (in person or by proxy) and voting together as a single class, at such time as the removal shall be effected. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever (x) no default in preference dividends on the Series RP Preferred Stock shall exist and (y) the holders of other series of Voting Preferred Stock shall no longer be entitled to elect such Preferred Directors, then the number of directors constituting the Board of Directors of the Corporation shall be reduced by two.
3.3.5 For purposes hereof, a "DEFAULT IN PREFERENCE DIVIDENDS" on the Series RP Preferred Stock shall be deemed to have occurred whenever the amount of cumulative and unpaid dividends on the Series RP Preferred Stock shall be equivalent to six full quarterly dividends or more (whether or not consecutive), and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all cumulative dividends on all shares of the Series RP Preferred Stock then outstanding shall have been paid through the last Quarterly Dividend Payment Date or until, but only until, non-cumulative dividends have been paid regularly for at least one year.
3.4 Except as set forth herein (or as otherwise required by applicable law), holders of Series RP Preferred Stock shall have no general or special voting rights and their consent shall not be required for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
4.1 Whenever quarterly dividends or other dividends or distributions payable on the Series RP Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series RP Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
4.1.1 declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series RP Preferred Stock;
4.1.2 declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series RP Preferred Stock, except dividends paid ratably on the Series RP Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
4.1.3 redeem or purchase or otherwise acquire for consideration (except as provided in Section 4.1.4 below) shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series RP Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series RP Preferred Stock;
4.1.4 redeem or purchase or otherwise acquire for consideration any shares of Series RP Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series RP Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
4.2 The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Section 4.1, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series RP Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, in any other Certificate of Amendment creating a series of Preferred Stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
6.1 Subject to the prior and superior rights of holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series RP Preferred Stock with respect to rights upon liquidation, dissolution or winding up (voluntary or otherwise), no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series RP Preferred Stock unless, prior thereto, the holders of shares of Series RP Preferred Stock shall have received per share an amount equal to the greater of 1,000 times $200.00 or 1,000 times the payment made per share of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "SERIES RP LIQUIDATION PREFERENCE"). Following the payment of the full amount of the Series RP Liquidation Preference, no additional distributions shall be made to the holders of shares of Series RP Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "CAPITAL ADJUSTMENT") equal to the quotient obtained by dividing (i) the Series RP Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in Section 6.3 to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii) being hereafter referred to as the "ADJUSTMENT NUMBER"). Following the payment of the full amount of the Series RP Liquidation Preference and the Capital Adjustment in respect of all outstanding shares of Series RP Preferred Stock and Common Stock, respectively, holders of Series RP Preferred Stock and holders of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.
6.2 In the event, however, that there are not sufficient assets available to permit payment in full of the Series RP Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series RP Preferred Stock, then such remaining assets shall be distributed ratably to the holders of Series RP Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Capital Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.
6.3 In the event the Corporation shall (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series RP Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number (as appropriately adjusted as set forth in Section 6.3 to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.
Section 8. NO REDEMPTION. The shares of Series RP Preferred Stock shall not be redeemable.
Section 9. RANKING. The Series RP Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such other series shall provide otherwise.
Section 10. AMENDMENT. The Articles of Incorporation of the Corporation shall not be further amended in any manner that would materially alter or change the powers, preferences or special rights of the Series RP Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series RP Preferred Stock, voting separately as a class.
Section 11. FRACTIONAL SHARES. Series RP Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series RP Preferred Stock.
THIRD: These Articles of Amendment were duly adopted on December 19, 2000.
FOURTH:These Articles of Amendment were duly adopted by the Board of Directors, pursuant to the provisions of RCW 23B.06.020 at a meeting of the Board on December 19, 2000. Shareholder approval is not required.
[Remainder of page intentionally left blank.]
Executed this __ day of ________, 2001.
WASHINGTON MUTUAL, INC.
Exhibit 3.3
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
WASHINGTON MUTUAL, INC.
Pursuant to the provisions of Chapter 23B.10 and Section 23B.06.020 of the Washington Business Corporation Act, WASHINGTON MUTUAL, INC., a Washington corporation, hereby adopts the following articles of amendment to its amended and restated articles of incorporation:
FIRST: The name of the corporation is: Washington Mutual, Inc.
SECOND:The rights, preferences, privileges, restrictions and other matters relating to the Series H Preferred Stock of the corporation are as follows:
1. DESIGNATION. The designation of this Series shall be Series H Preferred Stock (hereinafter referred to as this "Series"), and the number of shares constituting this Series shall be 2,000,000. Shares of this Series shall have a liquidation preference of $50.
2. DIVIDENDS. (a) The holders of shares of this Series shall be entitled to receive cash dividends, when, as and if declared by the Board of Directors, out of funds legally available for that purpose, at the rates set forth below in this Section 2. Dividends on the shares of this Series shall be payable, when, as and if declared by the Board of Directors, quarterly in arrears on February 16, May 16, August 16 and November 16 of each year (each, a "Dividend Payment Date"), commencing on the Initial Dividend Payment Date. The "Initial Dividend Payment Date" shall mean the first Dividend Payment Date following the effective date of the merger (the "Merger") of Bank United Corp. with and into the Company, or if any such date is not a Business Day (as defined below), the next succeeding Business Day. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Company on the applicable Record Date, as shall be fixed by the Board of Directors; provided, however, that holders of shares of this Series called for redemption on a Redemption Date falling between the record date associated with a Dividend Payment Date and such Dividend Payment Date shall receive the applicable dividend payment, together with all other accumulated and unpaid dividends on such date as shall be fixed for redemption. Dividends on the shares of this Series shall accumulate and be cumulative from the date of original issuance. "Business Day" shall mean any day other than a Saturday or Sunday or a day on which banking institutions in New York City are authorized or required by law or executive order to remain closed.
(b) For each quarterly dividend period (each, a "Dividend Period") from the Initial Dividend Payment Date, through and including the Dividend Period ending August 16, 2002, dividends payable on the shares of this Series shall be payable at a rate per annum of the liquidation preference thereof equal to 7.25% (the "Initial Rate Period"). For each Dividend Period after the Initial Rate Period, dividends payable on the shares of this Series shall be payable at a rate per annum of the liquidation preference thereof equal to the Reset Rate (as defined below). The amount of dividends per share for each Dividend Period shall be computed by dividing the applicable rate for such Dividend Period by four and applying the resulting rate to the liquidation preference per share of this Series. Each Dividend Period (other than the Initial Dividend Period, defined below) shall commence on a Dividend Payment Date and shall end on and include the day next preceding the next Dividend Payment Date. The "Initial Dividend Period" shall mean the period commencing on the effective date of the Merger and ending on the Initial Dividend Payment Date.
(c) Dividends payable on this Series for any period greater or less than a full Dividend Period, other than the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period less than one month, the actual number of days elapsed in the period. In connection with the Merger, the shares of Bank United Corp.'s Series B Preferred Stock (the "Predecessor Shares") shall be converted into shares of this Series. Prior to the completion of the Merger, the board of directors of Bank United Corp. declared a dividend on the Predecessor Shares payable on the Initial Dividend Payment Date. As successor to Bank United Corp., the Company will pay on the Initial Dividend Payment Date the dividend declared but not paid on the Predecessor Shares; PROVIDED that in no event shall a holder of this Series be entitled to a dividend on the Initial Dividend Payment Date that is greater than such holder would have been entitled to on the Initial Dividend Payment Date had the Merger not been completed and the Predecessor Shares not been converted into shares of this Series.
(d) No full dividends shall be declared or paid or set apart for payment on the Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends on the shares of this Series for all full Dividend Periods ending on or prior to the date of such dividends on such other series of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other series of Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other series of Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of this Series and such other Preferred Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears.
(e) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (d) of this Section 2) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Company ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to this Series as to dividends and upon liquidation), unless, in each case, full cumulative dividends on all outstanding shares of this Series for all full Dividend Periods ending on or prior to the date of such other dividend, distribution, redemption, purchase or other acquisition, shall have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set aside for such payment.
3. REMARKETING. (a) The dividend rate on this Series shall be reset to the Reset Rate on the Purchase Contract Settlement Date (as defined below). The Company shall request, not later than 15 nor more than 30 calendar days prior to the Remarketing Date (as defined below), that the Depositary (as defined below) notify the Holders of shares of this Series and the holders of Corporate PIES of the Remarketing and of the procedures that must be followed if a Holder of Corporate PIES wishes to make a cash settlement of its obligation to purchase Common Stock of the Company pursuant to the Purchase Contract Agreement.
(b) Not later than 5:00 p.m., New York City time, on the seventh Business Day preceding the Purchase Contract Settlement Date, each Holder may elect to have the shares of this Series held by such Holder remarketed in the Remarketing. Holders of Corporate PIES that do not give notice of their intention to make a cash settlement of the purchase contract component of their Corporate PIES prior to such time in the manner specified in the Purchase Contract Agreement, or that give such notice but fail to deliver cash prior to 11:00 a.m., New York City time, on or prior to the fifth Business Day preceding the Purchase Contract Settlement Date, shall be deemed to have consented to the disposition of the shares of this Series that are a component of their Corporate PIES in the Remarketing. Holders of the shares of this Series that are not a component of Corporate PIES wishing to have their shares of this Series remarketed shall give to the Purchase Contract Agent notice of their election prior to 11:00 a.m., New York City time on such fifth Business Day. Any such notice shall be irrevocable and may not be conditioned upon the level at which the Reset Rate is established in the Remarketing. Promptly after 11:00 a.m., New York City time, on such fifth Business Day, the Purchase Contract Agent, based on the notices received by it prior to such time (including notices from the Purchase Contract Agent as to purchase contracts for which cash settlement has been elected and cash received), shall notify the Remarketing Agent of the number of shares of this Series to be tendered for purchase in the Remarketing.
(c) If any Holder of shares of this Series does not give a notice of its intention to make a cash settlement or gives such notice but fails to deliver cash as described in Section 3(b) above, or gives a notice of election to have shares of this Series that are not a component of Corporate PIES remarketed, then the shares of this Series of such Holder shall be deemed tendered for purchase in the Remarketing, notwithstanding any failure by such Holder to deliver or properly deliver such shares to the Remarketing Agent for purchase.
(d) The right of each Holder to have shares of this Series tendered for purchase shall be limited to the extent that (i) the Remarketing Agent conducts a remarketing pursuant to the terms of the Remarketing Agreement, (ii) the shares of this Series tendered have not been called for redemption, (iii) the Remarketing Agent is able to find a purchaser or purchasers for the tendered shares of this Series and (iv) such purchaser or purchasers deliver the purchase price therefor to the Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use commercially reasonable efforts to remarket, at a price equal to 100.50% of the aggregate liquidation preference thereof, the shares of this Series tendered or deemed tendered for purchase.
(f) If, as a result of the efforts described in Section 3(e), the Remarketing Agent determines that it will be able to remarket all of the shares of this Series tendered or deemed tendered for purchase at a price of 100.50% of the aggregate liquidation preference of such shares prior to 4:00 p.m., New York City time, on the Remarketing Date, the Remarketing Agent shall determine the Reset Rate, which shall be the rate per annum (rounded to the nearest one-thousandth (0.001) of one percent per annum) that the Remarketing Agent determines, in its sole judgment, to be the lowest rate per annum that will enable it to remarket all of the shares of this Series tendered or deemed tendered for Remarketing.
(g) If none of the Holders of the shares of this Series or the holders of the Corporate PIES elects to have shares of this Series remarketed in the Remarketing, the Reset Rate shall be the rate determined by the Remarketing Agent, in its sole discretion, as the rate that would have been established had a Remarketing of all the shares of this Series been held on the Remarketing Date.
(h) If, by 4:00 p.m., New York City time, on the Remarketing Date, the Remarketing Agent is unable to remarket all of the Preferred Securities tendered or deemed tendered for purchase, a "Failed Remarketing" shall be deemed to have occurred and the Remarketing Agent shall so advise by telephone the Depositary and the Company. In the event of a Failed Remarketing, the Reset Rate shall equal (1) the "AA" Composite Commercial Paper Rate (as defined below), plus (2) the Applicable Margin (as defined below).
(i) By approximately 4:30 p.m., New York City time, on the Remarketing Date, provided that there has not been a Failed Remarketing, the Remarketing Agent shall advise, by telephone (i) the Depositary and the Company of the Reset Rate determined in the Remarketing and the number of shares of this Series sold in the Remarketing,(ii) each purchaser (or the Depositary Participant thereof) of the Reset Rate and the number of shares of this Series such purchaser is to purchase and (iii) each purchaser to give instructions to its Depositary Participant to pay the purchase price on the Purchase Contract Settlement Date in same day funds against delivery of the shares of this Series purchased through the facilities of the Depositary.
(j) In accordance with the Depositary's normal procedures, on the Purchase Contract Settlement Date, the transactions described above with respect to each Preferred Security tendered for purchase and sold in the Remarketing shall be executed through the Depositary, and the accounts of the respective Depositary Participants shall be debited and credited and such shares of this Series delivered by book-entry as necessary to effect purchases and sales of such shares of this Series. The Depositary shall make payment in accordance with its normal procedures.
(k) If any Holder of shares of this Series selling shares of this Series in the Remarketing fails to deliver such shares, the Depositary Participant of such selling holder and of any other Person that was to have purchased shares of this Series in the Remarketing may deliver to any such other Person a number of shares of this Series that is less than the number of shares of this Series that otherwise was to be purchased by such Person. In such event, the number of shares of this Series to be so delivered shall be determined by such Depositary Participant, and delivery of such lesser number of shares of this Series shall constitute good delivery.
(l) Under the Remarketing Agreement, the Company shall be liable for, and shall pay, any and all costs and expenses incurred in connection with the Remarketing.
(m) The tender and settlement procedures set in this Section 3, including provisions for payment by purchasers of the shares of this Series in the Remarketing, shall be subject to modification to the extent required by the Depositary or if the book-entry system is no longer available for the shares of this Series at the time of the Remarketing, to facilitate the tendering and remarketing of the shares of this Series in certificated form. In addition, the Remarketing Agent may modify the settlement procedures set forth herein in order to facilitate the settlement process.
(n) Definitions:
"'AA' Composite Commercial Paper Rate" on any date shall mean (i) the interest equivalent of the 60-day rate on commercial paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or the equivalent of such rating by S&P or the equivalent of such rating by S&P or another rating agency, as made available on a discount basis or otherwise by the Federal Reserve Board for the business day immediately preceding such date or (ii) if the Federal Reserve Board does not make available any such rate, then the arithmetic average of those rates, as quoted on a discount basis or otherwise, by the Commercial Paper Dealers to the Remarketing Agent for the close of business on the Business Day next preceding such date. If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Commercial Paper Dealers and any substitute commercial paper dealer or substitute commercial paper dealers selected by the Remarketing Agent or, if the Remarketing Agent does not select any such substitute commercial paper dealer or substitute commercial paper dealers, by the remaining Commercial Paper Dealer or Commercial Paper Dealers.
"Applicable Margin" shall mean the spread determined as set forth below, based on the prevailing rating of the Remarketed shares of this Series in effect at the close of business on the Business Day immediately preceding the date of a Failed Remarketing:
Prevailing Rating Spread AA/"aa" 3.00% A/"a" 4.00% BBB/"baa" 5.00% Below BBB/"baa" 7.00% |
For purposes of this definition, the "prevailing rating" of the Remarketed shares of this Series shall be:
(i) AA/ aa if such shares have a credit rating of AA- or better by S&P and "aa3" or better by Moody's or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected by the Remarketing Agent;
(ii) if not under clause (i) above, then A/ a if the Remarketed Securities have a credit rating of A- or better by S&P and "a3" or better by Moody's or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected by the Remarketing Agent;
(iii) if not under clauses (i) or (ii) above, then BBB/ "baa" if the Remarketed Securities have a credit rating of BBB- or better by S&P and "baa3" or better by Moody's or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected by the Remarketing Agent; or
(iv) if not under clauses (i) - (iii) above, then below BBB/ "baa."
"Certificate" shall mean a Corporate PIES Certificate.
"Commercial Paper Dealers" shall mean Lehman Commercial Paper Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their affiliates or successors, if such affiliates or successors are commercial paper dealers.
"Common Stock" shall mean the Common Stock, no par value, of the Company.
"Corporate PIES" shall mean a stock purchase unit consisting of (A) a stock purchase contract under which (i) the holder of the unit will purchase from the Company, for $50.00 in cash, a certain number of shares of common stock of the Company and (ii) the Company will pay such holder contract adjustment payments and (B) beneficial ownership of a shares of this Series.
"Corporate PIES Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Corporate PIES specified on such certificate.
"Depositary" shall mean, with respect to shares of this Series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as depositary for such shares, and initially shall be The Depository Trust Company.
"Depositary Participant" shall mean a member of, or participant in, the Depositary.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.
"Global Certificate" means a Certificate that evidences all or part of the shares of this Series and is registered in the name of a clearing agency or a nominee thereof.
"Global Security" shall mean a global Series H Preferred Stock Certificate registered in the name of a Depositary or its nominee.
"Holder" shall mean any holder of shares of this Series.
"Moody's" shall mean Moody's Investors Service, Inc.
"Purchase Contract Agent" shall mean the purchase contract agent under the Purchase Contract Agreement, including successor purchase contract agents.
"Purchase Contract Agreement" shall mean the Purchase Contract Agreement dated as of August 10, 1999 between the Company (through its predecessor entity, Bank United Corp.) and Bank One N.A. (under its prior name, The First National Bank of Chicago), as Purchase Contract Agent.
"Purchase Contract Settlement Date" shall mean August 16, 2002.
"Record Date" for dividends on the shares of this Series on any Payment Date shall mean, as to any Global Certificate, the Business Day next preceding such Payment Date, and as to any other Certificate, 15 Business Days prior to such Payment Date.
"Remarketing Agent" shall mean the remarketing agent selected by the Company, including any successor remarketing agents selected by the Company.
"Remarketing Date" shall mean the third Business Day preceding the Purchase Contract Settlement Date.
"Reset Rate" shall mean the distribution rate per annum that results from the Remarketing pursuant this Section 3.
"S&P" shall mean Standard & Poor's Ratings Services, a division of McGraw-Hill Corporation.
4. REDEMPTION. (a) Optional Redemption. The shares of this Series are not redeemable prior to October 16, 2002. The Company, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, on or after October 16, 2002 at a redemption price of $50 per share plus accrued and unpaid cumulative dividends thereon (whether or not declared) to the date fixed for redemption.
(b) Mandatory Redemption. The Company shall redeem, from any source of funds legally available therefor, all issued and outstanding shares of this Series, in whole and not in part, on August 16, 2004, at a redemption price of $50 per share plus accrued and unpaid cumulative dividends thereon (whether or not declared) to the date fixed for redemption.
(c) Redemption Procedures.
(i) In the event that, pursuant to paragraph (a) above, fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable, provided that such method satisfies any applicable requirements of any securities exchange on which this Series is listed.
(ii) In the event the Company shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 or more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Company. Each such notice
shall state: (a) the redemption date; (b) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (c) the redemption price; (d) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (e) that dividends on the shares to be redeemed shall cease to accrue on the redemption date.
(iii) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Company in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Company (except the right to receive from the Company the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so by the Company at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a without cost to the holder thereof.
(iv) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
(v) Notwithstanding the foregoing provisions of this Section 4, if full cumulative dividends on all outstanding shares of this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Company shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series.
5. CONVERSION. The holders of shares of this Series shall not have any rights to convert such shares into shares of any other class or series of capital stock of the Company.
6. LIQUIDATION RIGHTS. (a) Upon the voluntary or involuntary dissolution, liquidation or winding up of the Company, the holders of the shares of this Series shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to this Series upon liquidation, the amount of $50 per share, plus accrued and unpaid cumulative dividends (whether or not declared) to the date of the liquidating distribution.
(b) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section 6, the holders of this Series as such shall have no right or claim to any of the remaining assets of the Company.
(c) If, upon any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the amounts payable with respect to the shares of this Series and any other shares of stock of the Company ranking as to any such distribution on a parity with the shares of this Series are not paid in full, the holders of the shares of this Series and of such other shares shall share ratably in any such distribution of assets of the Company in proportion to the full respective distributions to which they are entitled.
(d) Neither the sale of all or substantially all the property or
business of the Company, nor the merger or consolidation of the Company into or
with any other corporation or the merger or consolidation of any other
corporation into or with the Company, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section 6.
7. RANKING. For purposes of this resolution, any stock of any class or classes of the Company shall be deemed to rank:
(a) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, in preference or priority to the holders of shares of this Series;
(b) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series (and whether or not such dividends shall accumulate), if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and
(c) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such class or classes.
(d) The shares of each of the other series of preferred stock of the Company shall rank on a parity with the shares of this Series.
8. VOTING RIGHTS. The holders of the shares of this Series shall have the following voting rights:
(a) Each share of this Series will have the right to vote, with each share of this Series having 0.10 vote, in connection with matters submitted generally to the holders of the common stock and other capital stock of the Company entitled to vote in respect of matters submitted to the stockholders of the Company generally. For these purposes, the holders of the shares of this Series and the holders of the common stock and such other capital stock of the Company, so entitled to vote, shall vote as a single class.
(b) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the approval of the holders of at least two-thirds of the then-outstanding shares of this Series, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be required for authorizing, effecting or validating any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Amended and Restated Articles of Incorporation of the Company or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designations or any similar document relating to any series of Preferred Stock) that adversely affect the powers, preferences, privileges or rights of this Series; provided, however, that the creation and issuance of any other class or series of preferred stock, or any increase in the number of authorized shares of any Preferred Stock of any other class or series, in each case ranking on a parity with or junior to this Series with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Company shall not be deemed to adversely affect such powers, preferences or other special rights.
(c) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the approval of the holders of at least
two-thirds of all of the then-outstanding shares of this Series and all other
series of preferred stock ranking on a parity with shares of this Series, either
as to dividends or upon liquidation, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of
shares of this Series and such other series of Preferred Stock shall vote
together as a single class without regard to series, shall be necessary for
authorizing, effecting or validating (i) the creation, authorization or issuance
of, (ii) the reclassification of any authorized stock of the Company into, or
(iii) the creation, authorization or issuance of any obligation or security
convertible into or evidencing the right to purchase, any additional class or
series of stock ranking prior to this Series, either as to dividends or upon
liquidation.
(d) (i) If at any time dividends on this Series shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time as all accrued and unpaid dividends for all previous dividend periods and for the current dividend period on all shares of this Series then outstanding shall have been declared and paid or set apart for payment. During each default period, the holders of shares of this Series and other shares of Preferred Stock on which dividends are in arrears and as to which similar voting rights have been conferred, voting as a class, irrespective of series, shall have the right to elect two Directors to the Board of Directors of the Company.
(ii) During any default period, such voting right of the holders of this Series may be exercised by written consent, at a special meeting called pursuant to Section 7(d)(iii) hereof or at any annual meeting of stockholders. The absence of a quorum of the holders of Common Stock at any such special or annual meeting shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two Directors or, if such right is exercised at an annual meeting, to elect two Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided. Any Director elected by a vote of the holders of Preferred Stock may be removed from office, with or without cause, only by the affirmative vote of the requisite percentage of holders of Preferred Stock required to elect Directors as specified in this Section 8(d).
(iii) Unless the holders of Preferred Stock, during an existing default period, shall have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, on which dividends are in arrears and as to which similar voting rights have been conferred, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman, a Vice Chairman or the Secretary of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Section 7(d)(iii) shall be given to each holder of record of Preferred Stock entitled to vote thereat by mailing a copy of such notice to him at his last address as the same appears on the books of the Company on such record date, not more than 45 days prior to the date of such notice, as the Board of Directors may fix for this purpose. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or, in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series, entitled to vote thereat.
(iv) In any default period the holders of Common Stock, and other
classes of stock of the Company if applicable, shall continue to
be entitled to elect the whole number of Directors constituting
the Board of Directors until the holders of Preferred Stock,
voting as a class, shall have exercised their right to elect two
Directors, after the exercise of which right (A) the Directors so
elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such
holders or until the expiration of the default period, and (B)
any vacancy on the Board of Directors may (except as provided in
Section 8(d)(ii) hereof) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have
become vacant. References in this Section 8(d) to Directors
elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as
provided in clause (B) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (A) the
right of the holders of Preferred Stock as a class to elect
Directors shall cease, (B) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate, and
(C) the number of Directors shall be such number as may be
provided for in the Amended and Restated Articles of
Incorporation or Bylaws of the Company or by resolution of the
Board of Directors, irrespective of any increase made pursuant to
the provisions of Section 8(d)(ii) hereof (such number being
subject, however, to change thereafter in any manner provided by
law or in the Amended and Restated Articles of Incorporation or
Bylaws of the Company). Any vacancies on the Board of Directors
effected by the provisions of clauses (B) and (C) in the
preceding sentence may be filled by a majority of the remaining
Directors.
(e) Except as set forth herein or required by applicable law, holders of shares of this Series shall have no voting rights and their consent shall not be required for taking any corporate action.
THIRD: These amendments do not provide for an exchange, reclassification or cancellation of any issued shares.
FOURTH:The foregoing amendments to the amended and restated articles of incorporation were adopted by the Board of Directors of Washington Mutual, Inc. on October 17, 2000. SHAREHOLDER ACTION WAS NOT REQUIRED.
EXECUTED this 8th day of February, 2001.
WASHINGTON MUTUAL, INC.
EXHIBIT 10.6
WASHINGTON MUTUAL
1994 STOCK OPTION PLAN
AS AMENDED AND RESTATED AS OF FEBRUARY 15, 2000
WASHINGTON MUTUAL AMENDED AND RESTATED
1994 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS
1.1 Affiliate......................................................... 1
1.2 Agreement......................................................... 1
1.3 Board............................................................. 1
1.4 Code. The Internal Revenue Code of 1986, as amended.............. 1
1.5 Committee......................................................... 1
1.6 Company........................................................... 1
1.7 Date of Exercise.................................................. 1
1.8 Exchange Act...................................................... 1
1.9 Fair Market Value................................................. 1
1.10 Incentive Option.................................................. 1
1.11 Nonqualified Option............................................... 1
1.12 Option............................................................ 2
1.13 Participant....................................................... 2
1.14 Plan.............................................................. 2
1.15 Stock............................................................. 2
1.16 Ten Percent Shareholder........................................... 2
ARTICLE 2. PURPOSE OF PLAN
ARTICLE 3. ADMINISTRATION
3.1 Administration of Plan............................................ 3
3.2 Authority to Grant Options........................................ 3
3.3 Discretionary Authority of Committee.............................. 3
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation..................................................... 4
4.2 Limitations on Grants............................................. 4
4.3 Limitation on Incentive Options................................... 5
4.4 Ten Percent Limitation on Ownership............................... 5
4.5 Annual Grants to Nonemployee Board Members........................ 5
ARTICLE 5. STOCK SUBJECT TO PLAN
5.1 Maximum Number of Shares.......................................... 5
5.2 Forfeitures....................................................... 6
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ARTICLE 6. EXERCISE OF OPTIONS
6.1 Exercise Price.................................................... 6
6.2 Commencement of Right to Exercise................................. 6
6.3 Maximum Exercise Period........................................... 6
6.4 Early Termination of Right to Exercise............................ 6
6.5 Transferability................................................... 6
ARTICLE 7. METHOD OF EXERCISE
7.1 Exercise.......................................................... 7
7.2 Payment........................................................... 7
7.3 Federal Withholding Tax Requirements.............................. 7
7.4 Shareholder Rights................................................ 7
ARTICLE 8. ADJUSTMENT UPON CORPORATE CHANGES
8.1 Adjustments to Shares............................................. 7
8.2 Substitution of Options on Merger or Acquisition.................. 8
8.3 Effect of Certain Transactions.................................... 8
8.4 No Preemptive Rights.............................................. 8
8.5 Fractional Shares................................................. 9
ARTICLE 9. COMPLIANCE WITH LAW AND APPROVAL
OF REGULATORY BODIES
9.1 General........................................................... 9
9.2 Representations by Participants................................... 9
ARTICLE 10. GENERAL PROVISIONS
10.1 Effect on Employment.............................................. 10
10.2 Unfunded Plan..................................................... 10
10.3 Rules of Construction............................................. 10
10.4 Governing Law..................................................... 10
10.5 Compliance With Section 16 of the Exchange Act.................... 10
10.6 Amendment......................................................... 10
10.7 Time to Grant Incentive Options................................... 10
10.8 Effective Date of Plan............................................ 11
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WASHINGTON MUTUAL AMENDED AND RESTATED
1994 STOCK OPTION PLAN
ARTICLE 1. DEFINITIONS
1.1 AFFILIATE. A "parent corporation," as defined in section 424(e) of the Code, or "subsidiary corporation," as defined in section 424(f) of the Code, of the Company.
1.2 AGREEMENT. A written agreement (including any amendment or supplement thereto) between the Company or Affiliate and a Participant specifying the terms and conditions of an Option granted to such Participant.
1.3 BOARD. The board of directors of the Company.
1.4 CODE. THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
1.5 COMMITTEE. A committee with at least as many members as required by Rule 16b-3 of the Exchange Act who are members of the Board.
1.6 COMPANY. Washington Mutual, Inc., successor to Washington Mutual Savings Bank as Plan sponsor, and its successors.
1.7 DATE OF EXERCISE. The later of the date that the Participant delivers a written notice of exercise to the Company and the date that the Option exercise price is received by the Company.
1.8 EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
1.9 FAIR MARKET VALUE. On any given date, the applicable description below:
(a) The closing price of the Stock as traded on the National Association of Securities Dealers National Market System, as published in THE NEW YORK TIMES or THE WALL STREET JOURNAL, on the business day immediately preceding the date as of which Fair Market Value is being determined.
(b) If the Stock is not traded as described in subparagraph
(a), Fair Market Value shall be the value determined in good faith by
the Committee or the Board.
1.10 INCENTIVE OPTION. An Option that is intended to qualify as an "incentive stock option" within the meaning of section 422 of the Code. An Incentive Option shall not be invalid for failure to qualify under section 422 of the Code, but shall be treated as a Nonqualified Option.
1.11 NONQUALIFIED OPTION. An Option that is not an Incentive Option.
1.12 OPTION. The right that is granted hereunder to a Participant to purchase from the Company a stated number of shares of Stock at the price set forth in an Agreement. As used herein, an Option includes both Incentive Options and Nonqualified Options.
1.13 PARTICIPANT. A person who is awarded Options hereunder. All employees, consultants and advisors of the Company or of an Affiliate are eligible to become Participants. Members of the Board who are not employees of the Company or its Affiliates are also eligible to become Participants to the extent that they receive Options pursuant to grants specifically called for by the terms of this Plan.
1.14 PLAN. The Washington Mutual Amended and Restated 1994 Stock Option Plan, as embodied herein and as amended from time to time, and including the Washington Mutual 1994 Stock Option Plan, which is the predecessor version of this Plan.
1.15 STOCK. The common stock of the Company.
1.16 TEN PERCENT SHAREHOLDER. An individual who owns more than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate at the time he or she is granted an Option. For the purpose of determining if an individual is a Ten Percent Shareholder, he or she shall be deemed to own any voting stock owned (directly or indirectly) by or for his or her brothers and sisters (whether by whole or half blood), spouse, ancestors or lineal descendants and shall be considered to own proportionately any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust of which such individual is a shareholder, partner or beneficiary.
ARTICLE 2. PURPOSE OF PLAN
The purpose of the Plan is to advance the interests of the Company, to provide a performance incentive and to align the interests of the Participants with the interests of the Company, its Affiliates, and its shareholders through increased stock ownership by the Participants. It is intended that Participants may acquire or increase their proprietary interests in the Company, that Participant employees will be encouraged to remain in the employ of the Company or of its Affiliates, and that Participant consultants, advisors and board members will be encouraged to maintain their relationships with the Company or its Affiliates. The proceeds received by the Company from the sale of Stock pursuant to this Plan may be used for general corporate purposes.
The Plan was originally established and maintained by Washington Mutual Savings Bank as the Washington Mutual 1994 Stock Option Plan (the "Original Plan"). By action of the respective boards of directors of Washington Mutual Savings Bank and the Company, the Company became the sponsor of the Original Plan, effective November 29, 1994, at which time common stock of the Company was substituted for common stock of Washington Mutual Savings Bank. The Original Plan was previously approved by the shareholders of Washington Mutual Savings Bank, the prior sponsor of the Original Plan. The Company amended and
restated the Original Plan, effective as of February 17, 1998, and adopted several amendments subsequent to such amendment and restatement.
The Plan was further amended on January 18 and February 15, 2000, subject to shareholder approval.
The Board approved this restatement of the Plan to incorporate all such amendments.
ARTICLE 3. ADMINISTRATION
3.1 ADMINISTRATION OF PLAN. The Plan shall be administered by the Committee. The Committee shall have complete authority to (i) interpret all provisions of this Plan; (ii) prescribe the form of any Agreement; (iii) adopt, amend, and rescind rules for Plan administration; and (iv) make all determinations it deems advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. Any decision made or action taken by the Committee to administer the Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or Option. The Company shall bear all expenses of Plan administration.
3.2 AUTHORITY TO GRANT OPTIONS. The Committee shall have authority to grant Options upon such terms the Committee deems appropriate and that are not inconsistent with the provisions of this Plan. Such terms may include conditions on the exercise of all or any part of an Option.
3.3 DISCRETIONARY AUTHORITY OF COMMITTEE. The Committee shall have full discretionary power, subject to, and within the limits of, Articles 4, 5 and 6 of the Plan:
(a) To determine from time to time who of the eligible persons shall be granted Options, and the time or times when, and the number of shares for which, an Option or Options shall be granted to such persons.
(b) To determine whether to grant Incentive Options, Nonqualified Options, or both to eligible persons pursuant to the provisions of the Plan.
(c) To prescribe the other terms and provisions (which need not be identical) of each Option granted under the Plan to eligible persons.
(d) To modify or amend any term or provision of any Option granted under the Plan, provided that the consent of the holder thereof must be obtained for any modification or amendment that reduces the benefits to the holder of the Option.
(e) To construe and interpret the Plan and Options granted hereunder (including the Agreements), and to establish, amend, and revoke rules and regulations for administration. The Committee, in the exercise of this power, may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, or in any Agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. In exercising this power the Committee may retain counsel at the expense of the Company. All decisions and determinations by the Committee in exercising this power shall be final and binding upon the Company and the Participants.
(f) To determine the duration and purposes of leaves of absence which may be granted to a Participant without constituting a termination of his or her employment for purposes of the Plan or an Agreement.
(g) To accelerate the time at which an Option may be exercised, or otherwise modify the terms of an Option in a manner favorable to the Participant.
(h) Subject to the maximum exercise period provided in
Section 6.3, to extend the time within which any Participant must
exercise any Option, in whole or in part.
(i) Notwithstanding Section 6.3, to extend the exercise
period of an Option beyond the maximum exercise period provided in
Section 6.3, in whole or in part, if the Committee determines that a
Participant will be unable to exercise such Option within the maximum
exercise period on account of an unforeseeable hardship.
(j) To authorize any person to execute on behalf of the f= Company any instrument required to effectuate the grant of an Option previously granted hereunder.
(k) To interpret the Plan and make any determinations that are necessary or desirable in the administration of the Plan.
(l) To exercise such powers and to make all other determinations deemed necessary or expedient to promote the best interests of the Company with respect to the Plan.
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 PARTICIPATION. The Committee may from time to time designate persons to whom Options are to be granted from among those who are eligible to become Participants. Such designation shall specify the number of shares of Stock subject to each Option. All Options granted under this Plan shall be evidenced by Agreements which shall designate such Option as either an Incentive Option or Nonqualified Option, and which shall be subject to applicable provisions of this Plan or such other provisions as the Committee may adopt that are not inconsistent with Articles 4, 5 and 6 of the Plan.
4.2 LIMITATIONS ON GRANTS. A nonemployee Board member is not eligible to receive a grant of Options except as provided in Section 4.5. A person who is not an employee of the Company or an Affiliate is not eligible to receive an Incentive Option. The maximum number of
shares of Stock with respect to which Options may be granted to any Participant in any calendar year under the Plan is one and one-half million (1,500,000) shares.
4.3 LIMITATION ON INCENTIVE OPTIONS. To the extent that the aggregate Fair Market Value of Stock with respect to which Incentive Options are exercisable for the first time by a Participant during any calendar year (under all incentive stock option plans of the Company and its Affiliates) exceeds $100,000 (the Fair Market Value being determined as of the date each Option was granted), such Options shall be treated as Nonqualified Options. This provision shall be applied by taking Incentive Options into account in the order in which they were granted.
4.4 TEN PERCENT LIMITATION ON OWNERSHIP. Unless requisite approvals are obtained from the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or other regulatory entities, no person shall be eligible to receive or exercise any option which, if exercised, would result in his or her holding beneficially or of record in excess of 10% of the outstanding voting stock of the Company.
4.5 ANNUAL GRANTS TO NONEMPLOYEE BOARD MEMBERS.
(a) GRANT DATE. Nonqualified Options shall be granted automatically each year to each individual who, on the third Tuesday of February of each year, through February 1999, and the third Tuesday of December each year, beginning in December 1999 (the "Eligibility Date"), is a member of the Board and is not an employee of the Company or its Affiliates.
(b) NUMBER OF SHARES; EXERCISE PRICE. On each Eligibility Date, each nonemployee Board member described in Section 4.5(a) shall be granted a Nonqualified Option to acquire 4,000 shares of Stock. The exercise price for such Nonqualified Options shall be the Fair Market Value of Stock on the respective Eligibility Dates.
(c) EXERCISABILITY. For purposes of determining the dates on which Options can be exercised, each Nonqualified Option awarded under this Section 4.5 shall be fully exercisable on the earlier to occur, if at all, of (1) (i) for Options granted on a third Tuesday in February, the third Tuesday in February after the year that the option was granted, provided that the individual is still a member of the Board, and (ii) for Options granted on a third Tuesday in December, the third Tuesday in December after the year in which the option was granted, provided that the individual is still a member of the Board, or (2) the date of the individual's mandatory retirement from the Board (as defined in the Company's bylaws).
ARTICLE 5. STOCK SUBJECT TO PLAN
5.1 MAXIMUM NUMBER OF SHARES. The maximum aggregate number of shares of Stock that may be issued pursuant to the exercise of Options under this Plan (including the predecessor of this Plan, the Original Plan) is thirty million (30,000,000) shares, subject to adjustments as provided in Article 8.
5.2 FORFEITURES. Except as provided in the next sentence, if any Option granted hereunder expires, terminates or is canceled without having been exercised in full, the unpurchased shares subject thereto shall not again be available for issuance under this Plan. The foregoing shall not apply to Options that expire before the expiration of their maximum exercise period in connection with a Participant ceasing to be an employee, director, consultant or advisor of the Company or its Affiliates.
ARTICLE 6. EXERCISE OF OPTIONS
6.1 EXERCISE PRICE. The exercise price of an Option shall be not less than 100% of the Fair Market Value of a share of Stock on the date the Option is granted. In the case of a Ten Percent Shareholder, however, the exercise price of an Incentive Option shall not be less than 110% of the Fair Market Value of a share of Stock on the date the Option is granted. If the exercise price of an Option is changed after the date it is granted, such change shall be deemed to be a termination of the existing Option and the issuance of a new Option.
6.2 COMMENCEMENT OF RIGHT TO EXERCISE. An Option shall first become exercisable on the date of grant if not otherwise specified; as may otherwise be specified by the Committee (in the Agreement or otherwise); or as may be specified in connection with a change in control under a properly authorized employment agreement between the Participant and the Company or an Affiliate.
6.3 MAXIMUM EXERCISE PERIOD. The maximum period in which an Option may be exercised shall be determined by the Committee on the date of grant except that no Option shall be exercisable after the expiration of 10 years (five years in the case of Incentive Options granted to a Ten Percent Shareholder) from the date it was granted. The terms of any Option may provide that it is exercisable for a shorter period.
6.4 EARLY TERMINATION OF RIGHT TO EXERCISE. Unless otherwise specified by the Committee (in the Agreement or otherwise), and except as otherwise specified in connection with a change in control under a properly authorized employment agreement between the Participant and the Company or an Affiliate, if the Participant for any reason ceases to be an employee, consultant, advisor or director of the Company or an Affiliate, and the Participant does not thereupon become an employee, consultant, advisor or director of the Company or an Affiliate, the Participant shall have the right for 90 days after termination of the relationship to exercise only the portion of the Participant's Options that had become exercisable by the date of the termination, and thereafter the Options shall terminate and cease to be exercisable.
6.5 TRANSFERABILITY. Any Incentive Option granted under this Plan shall be transferable only by will or by the laws of descent and distribution and may be exercised only by the Participant to whom it was granted, unless he or she is deceased. Any Nonqualified Option granted under this Plan shall be transferable only (a) by will or by the laws of descent and distribution, or (b) to the extent not prohibited by the Committee, to Immediate Family Members, partnerships in which the only partners are Immediate Family Members, or trusts
established solely for the benefit of Immediate Family Members. "Immediate Family Members" are the grandparents, parents, aunts, uncles, spouse, brothers, sisters, cousins, children, nieces, nephews, grandchildren and great-grandchildren, and corresponding step relations, of the Participant who holds the Nonqualified Option. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation or liability of such Participant.
ARTICLE 7. METHOD OF EXERCISE
7.1 EXERCISE. An Option granted hereunder shall be deemed to have been exercised on the Date of Exercise. Subject to the provisions of Articles 6 and 9 and any contrary provisions in the Agreement, an Option may be exercised in whole or in part at such times and in compliance with such requirements as the Committee shall determine.
7.2 PAYMENT. Unless otherwise provided by the Agreement, payment of the Option price shall be made in cash or, unless prohibited by the Committee, Stock that was acquired prior to the exercise of the Option, other consideration acceptable to the Committee, or a combination thereof. As long as the Stock is registered under the Exchange Act, and to the extent permitted by applicable laws and regulations (including, but not limited to, federal tax and securities laws and regulations) and not prohibited by the Committee, an Option may also be exercised by delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price in compliance with Regulation T (12 C.F.R. Part 220).
7.3 FEDERAL WITHHOLDING TAX REQUIREMENTS. Upon exercise of a Nonqualified Option by a Participant who was an employee of the Company or an Affiliate when the Option was issued, the Participant shall, upon notification of the amount due and prior to or concurrently with the delivery of the certificates representing the shares, pay to the Company amounts necessary to satisfy applicable federal, state and local withholding tax requirements or shall otherwise make arrangements satisfactory to the Company for such requirements. The Participant shall likewise pay or make arrangements for any withholding tax requirements that may apply or become applicable to any other exercise of Options or disposition of Stock acquired by the exercise of Options. Further, the Company or its Affiliate shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to any Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the exercise of Options or disposition of Stock acquired by the exercise of Options.
7.4 SHAREHOLDER RIGHTS. No Participant shall have any rights as a stockholder with respect to shares subject to his or her Option prior to the Date of Exercise of such Option.
ARTICLE 8. ADJUSTMENT UPON CORPORATE CHANGES
8.1 ADJUSTMENTS TO SHARES. The maximum number and kind of shares of Stock with respect to which Options hereunder may be granted and which are the subject of outstanding
Options shall be adjusted by way of increase or decrease as the Committee determines (in its sole discretion) to be appropriate, in the event that:
(a) the Company effects one or more stock dividends, stock splits, reverse stock splits, subdivisions, consolidations or other similar events;
(b) the Company or an Affiliate engages in a transaction to which section 424(a) of the Code applies; or
(c) there occurs any other event which in the judgment of the Committee necessitates such action.
Provided, however, that if an event described in paragraph (a) or (b) above occurs, the Committee shall make adjustments to the limits on Options specified in Section 4.2, to the limitation on aggregate awards of Options under Section 5.1, and to the number of options to be awarded under Section 4.5 that are proportionate to the modifications of the Stock that are on account of such corporate changes.
8.2 SUBSTITUTION OF OPTIONS ON MERGER OR ACQUISITION. The Committee may grant Options in substitution for stock awards, stock options, stock appreciation rights or similar awards held by an individual who becomes an employee of the Company or an Affiliate in connection with a transaction to which section 424(a) of the Code applies. The terms of such substituted Options shall be determined by the Committee in its sole discretion, subject only to the limitations of Article 5.
8.3 EFFECT OF CERTAIN TRANSACTIONS. Upon a merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation of the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for their shares of Stock, any Option granted hereunder shall terminate, provided that the Participant shall have the right immediately prior to any such merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to exercise his or her Options in whole or in part whether or not the vesting requirements set forth in any Agreement have been satisfied, unless the Committee elects to convert all Options hereunder into options to purchase stock of an acquiring corporation. If the Committee so elects to convert the Options, the amount and price of such converted options shall be determined by adjusting the amount and price of the Options granted hereunder in the same proportion as used for determining the number of shares of stock of the acquiring corporation the holders of the Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization, and the vesting schedule set forth in the Agreement shall continue to apply to the converted options. Nothing in this Section 8.3 or elsewhere in the Plan shall authorize the Committee to take any action contrary to any provision regarding vesting of Options that is contained in any Agreement or employment agreement if the action would reduce the benefits to the Participant, unless the Participant consents to the action.
8.4 NO PREEMPTIVE RIGHTS. The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Options.
8.5 FRACTIONAL SHARES. Only whole shares of Stock may be acquired through the exercise of an Option. The Company will return to the Participant any amount tendered in the exercise of an Option remaining after the maximum number of whole shares have been purchased.
ARTICLE 9. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
9.1 GENERAL. No Option shall be exercisable, no Stock shall be issued, no certificates for shares of Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all federal and state laws and regulations (including, without limitation, withholding tax requirements), federal and state securities laws and regulations and the rules of all national securities exchanges or self-regulatory organizations on which the Company's shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any certificate issued to evidence shares of Stock for which an Option is exercised may bear such legends and statements as the Committee upon advice of counsel may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Stock shall be issued, no certificate for shares shall be delivered and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Committee may deem advisable from any regulatory bodies having jurisdiction over such matters.
9.2 REPRESENTATIONS BY PARTICIPANTS. As a condition to the exercise of an Option, the Company may require a Participant to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares, if, in the opinion of counsel for the Company, such representation is required by any relevant provision of the laws referred to in Section 9.1. At the option of the Company, a stop transfer order against any shares of Stock may be placed on the official stock books and records of the Company, and a legend indicating that the Stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided (concurred in by counsel for the Company) and stating that such transfer is not in violation of any applicable law or regulation may be stamped on the stock certificate in order to assure exemption from registration. The Committee may also require such other action or agreement by the Participants as may from time to time be necessary to comply with the federal and state securities laws. This provision shall not obligate the Company or any Affiliate to undertake registration of Options or Stock hereunder.
ARTICLE 10. GENERAL PROVISIONS
10.1 EFFECT ON EMPLOYMENT. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment of any employee at any time with or without assigning a reason therefor.
10.2 UNFUNDED PLAN. The Plan shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon contractual obligations that may be created hereunder. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.
10.3 RULES OF CONSTRUCTION. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The masculine gender when used herein refers to both masculine and feminine. The reference to any statute, regulation or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.
10.4 GOVERNING LAW. The laws of the State of Washington shall apply to all matters arising under this Plan, to the extent that federal law does not apply.
10.5 COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of this Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee.
10.6 AMENDMENT. The Committee may amend or terminate this Plan at any time; provided, however, an amendment that would have a material adverse effect on the rights of a Participant under an outstanding Option is not valid with respect to such Option without the Participant's consent, except as necessary for Incentive Options to maintain qualification under the Code. Provided further that the shareholders of the Company must approve any amendment that increases either the aggregate number of shares of Stock that may be issued pursuant to the exercise of Options granted under the Plan or the maximum number of shares with respect to which any Participant may be granted Options in any calendar year (other than any such increase made pursuant to Article 8), or that changes the employees (or class of employees) eligible to receive Options.
10.7 TIME TO GRANT INCENTIVE OPTIONS. No Incentive Option may be granted under this Amended and Restated Stock Option Plan more than ten years after the date following December 21, 1999 on which this Amended and Restated 1994 Stock Option Plan is approved by shareholders as provided in Section 10.8. Incentive Options granted before the expiration of that ten year period shall remain valid in accordance with their terms and the terms of this Plan. Any Option purportedly granted under this Plan as an Incentive Option after the expiration of that ten
year period shall be treated as a Nonqualified Option but shall otherwise remain valid in accordance with its terms and the terms of this Plan.
10.8 EFFECTIVE DATE OF PLAN. This version of the Amended and Restated 1994 Stock Option Plan is subject to the condition subsequent that certain amendments embodied therein are approved by shareholders holding a majority of the Company's outstanding voting stock present or represented by proxy and entitled to vote at the Company's next annual shareholders' meeting, which is duly held, that occurs after February 15, 2000, the date that the Board adopted such amendments subject to shareholder approval. If such shareholder approval is not given, this version of the Amended and Restated 1994 Stock Option Plan shall be of no force or effect and the prior version of the Amended and Restated Plan, as amended prior to January 18, 2000, shall continue to govern.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on this the __________ day of _______________, 2000, but to be effective on February 15, 2000.
WASHINGTON MUTUAL, INC.
Its: Senior Vice President
EXHIBIT 10.6.1
WASHINGTON MUTUAL
FIRST AMENDMENT TO
1994 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF FEBRUARY 15, 2000
Section 6.4 of the Washington Mutual, Inc. 1994 Stock Option Plan, Amended and Restated as of February 15, 2000 is hereby amended in its entirety to read as follows, effective October 17, 2000:
6.4 EARLY TERMINATION OF RIGHT TO EXERCISE. Unless otherwise specified by the Committee (in the Agreement or otherwise), and except as otherwise specified in connection with a change in control under a properly authorized employment agreement between the Participant and the Company or an Affiliate, if the Participant for any reason ceases to be an employee, consultant, advisor or director of the Company or an Affiliate, and the Participant does not thereupon become an employee, consultant, advisor or director of the Company or an Affiliate, the Participant shall have the right, until the earliest to occur of the last day of the Option term and
(a) 90 days after termination of the relationship for reasons other than approved retirement as an employee or director of the Company or an Affiliate;
(b) five years after termination of the relationship by reason of approved retirement after attaining age 55 with ten year's service as an employee of the Company or an Affiliate; and
(c) five years after termination of the relationship by reason of approved retirement after attaining age 55 with five year's service as a director of the Company or an Affiliate,
to exercise only the portion of the Participant's Options that had become exercisable by the date of the termination, and thereafter the Options shall terminate and cease to be exercisable. Notwithstanding the foregoing, if the relationship terminates by reason of the Participant's approved retirement as an employee of the Company or an Affiliate after attaining age 65 (or, if the Participant retires as a director of the Company or an Affiliate after attaining age 72), and the Participant does not thereupon become an employee or director of the Company or an Affiliate, all of the Participant's Options shall become fully vested and exercisable for the applicable period set forth above.
IN WITNESS WHEREOF, Washington Mutual, Inc. has caused this First Amendment to be duly executed on the 6th day of March, 2001.
WASHINGTON MUTUAL, INC.
By: /s/ William L. Lynch Its: Secretary |
EXHIBIT 10.7
WASHINGTON MUTUAL
RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED AS OF JANUARY 18, 2000
WASHINGTON MUTUAL RESTRICTED STOCK PLAN
TABLE OF CONTENTS
Page
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ARTICLE 1. PURPOSE OF THE PLAN
ARTICLE 2. DEFINITIONS
2.1 Affiliate......................................................... 1
2.2 Agreement......................................................... 1
2.3 Award............................................................. 1
2.4 Board............................................................. 1
2.5 Code.............................................................. 2
2.6 Committee......................................................... 2
2.7 Company........................................................... 2
2.8 Exchange Act...................................................... 2
2.9 Grant Date........................................................ 2
2.10 Participant....................................................... 2
2.11 Plan.............................................................. 2
2.12 Restricted Stock.................................................. 2
2.13 Stock............................................................. 2
2.14 Unrestricted Stock................................................ 2
ARTICLE 3. ADMINISTRATION
3.1 Administration of Plan............................................ 2
3.2 Authority to Grant Awards......................................... 2
3.3 Participants' Accounts............................................ 3
3.4 Transfer of Unrestricted Stock.................................... 3
3.5 Discretionary Authority of Committee.............................. 4
3.6 Persons Subject to Section 162(m)................................. 5
3.7 Shareholder Rights................................................ 5
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation..................................................... 5
4.2 Limitations on Grants............................................. 5
ARTICLE 5. STOCK SUBJECT TO PLAN
5.1 Maximum Number of Shares.......................................... 5
ARTICLE 6. RESTRICTIONS AND FORFEITURES
6.1 General Restrictions.............................................. 6
6.2 Termination of Employment......................................... 6
6.3 Retirement........................................................ 6
6.4 Lapse of Restrictions - General................................... 6
6.5 Employee Status................................................... 7
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6.6 Performance-Based Grants.......................................... 7
6.7 Surrender of Restricted Stock..................................... 9
ARTICLE 7. ADJUSTMENT UPON CORPORATE CHANGES
7.1 Adjustments to Shares............................................. 9
7.2 Substitution of Awards on Merger or Acquisition................... 10
7.3 Effect of Certain Transactions.................................... 10
7.4 No Preemptive Rights.............................................. 11
ARTICLE 8. COMPLIANCE WITH LAW AND APPROVAL
OF REGULATORY BODIES
8.1 General........................................................... 11
8.2 Representations by Participants................................... 11
ARTICLE 9. TAXES
9.1 Immediate Taxation................................................ 11
9.2 Deferred Taxation................................................. 11
ARTICLE 10. GENERAL PROVISIONS
10.1 Effect on Employment.............................................. 12
10.2 Unfunded Plan..................................................... 12
10.3 Rules of Construction............................................. 12
10.4 Governing Law..................................................... 12
10.5 Compliance With Section 16 of the Exchange Act.................... 12
10.6 Amendment......................................................... 12
10.7 Effective Date of Plan............................................ 12
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WASHINGTON MUTUAL RESTRICTED STOCK PLAN
As Amended and Restated as of January 18, 2000
ARTICLE 1. PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company, to provide a performance incentive and to align the interests of the Participants with the interests of the Company, its Affiliates and its shareholders through increased stock ownership by the Participants. It is intended that Participants may acquire or increase their proprietary interests in the Company and that Participant employees will be encouraged to remain in the employ of the Company or of its Affiliates.
The Plan was established January 1, 1986 as the WM Financial, Inc. Restricted Stock Plan. Washington Mutual Savings Bank, the prior Plan sponsor, amended the Plan by a First Amendment, effective as of July 1, 1987, a Second Amendment, effective as of March 31, 1988, a Third Amendment, effective as of June 30, 1991, a Fourth Amendment, effective as of June 18, 1991, and a Fifth Amendment, effective as of October 20, 1992.
By action of the respective boards of directors of Washington Mutual Savings Bank and the Company, the Company became the sponsor of the Plan, effective November 29, 1994, after which the Company adopted an amendment and restatement of the Plan, effective November 29, 1994, that incorporated all material provisions of the Plan prior to such date and amended the Plan in certain respects.
The Company amended and restated the Plan, effective February 18, 1997, and amended the Amended and Restated Plan twice in 1999. Finally, the Plan was amended by action of the Board of Directors on January 18, 2000, subject to approval by the shareholders of the Company.
The Board approved this restatement of the Plan to incorporate all such amendments.
ARTICLE 2. DEFINITIONS
2.1 AFFILIATE. A "parent corporation," as defined in section 424(e) of the Code, or "subsidiary corporation," as defined in section 424(f) of the Code, of the Company.
2.2 AGREEMENT. A written agreement (including any amendment or supplement thereto) between the Company or an Affiliate and a Participant specifying the terms and conditions of an Award granted to such Participant.
2.3 AWARD. An award under the Plan that is expressed as a stated number of whole shares of Restricted Stock. An Award shall be subject to the terms of an Agreement.
2.4 BOARD. The board of directors of the Company.
2.5 CODE. The Internal Revenue Code of 1986, as amended.
2.6 COMMITTEE. A committee composed of two or more members of the Board who are not officers or employees of the Company or an Affiliate, who are otherwise qualified as Non-Employee Directors as defined under Rule 16b-3(i) of the Exchange Act, and who qualify as outside directors as defined in Section 162(m) of the Code.
2.7 COMPANY. Washington Mutual, Inc., successor to Washington Mutual Savings Bank as Plan sponsor, and its successors.
2.8 EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
2.9 GRANT DATE. The date that an Award of Restricted Stock is granted to a Participant hereunder.
2.10 PARTICIPANT. A person who is awarded Restricted Stock hereunder. Members of the Board, and employees, consultants and advisors of the Company or of an Affiliate, are the only persons who are eligible to be Participants.
2.11 PLAN. The Washington Mutual Restricted Stock Plan, as embodied herein and as amended from time to time, and including all predecessor versions of this Plan.
2.12 RESTRICTED STOCK. Stock that is awarded subject to restrictions hereunder and has not become Unrestricted Stock in accordance with Article 6.
2.13 STOCK. The common stock of the Company.
2.14 UNRESTRICTED STOCK. Shares of Stock granted under this Plan that are no longer subject to restrictions that constitute a substantial risk of forfeiture, in accordance with Article 6.
ARTICLE 3. ADMINISTRATION
3.1 ADMINISTRATION OF PLAN. The Plan shall be administered by the Committee. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. Any decision made or action taken by the Committee to administer the Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or Award. The Company shall bear all expenses of Plan administration.
3.2 AUTHORITY TO GRANT AWARDS. The Committee shall have authority to grant Awards upon such terms as the Committee deems appropriate and that are not inconsistent with the provisions of Articles 4 and 5 of this Plan. Such terms may include restrictions on the transfer of all or any portion of the Stock granted under an Award.
3.3 PARTICIPANTS' ACCOUNTS. The Committee shall establish and maintain adequate records to disclose the Participants and their respective Awards, the restrictions thereon, the stock certificates related thereto, any dividends or distributions payable or paid thereon, any votes taken with respect thereto, and such other matters as may be relevant to the proper administration of this Plan.
(a) DIVIDENDS AND DISTRIBUTIONS. All cash dividends and other cash distributions paid in respect of Restricted Stock shall be credited to the account of the Participant and invested in Stock pursuant to the Company's general dividend reinvestment program for shareholders of the Company. All such amounts and their proceeds shall be subject to the same restrictions on the same basis as the underlying Restricted Stock and shall be treated as Restricted Stock for all purposes under this Plan.
(b) FORFEITURES. Upon the occurrence of a forfeiture hereunder, all shares of Restricted Stock subject to the Award (including any Restricted Stock purchased with dividends paid on the underlying Restricted Stock) shall be retained by the Company.
3.4 TRANSFER OF UNRESTRICTED STOCK. The Company shall generally transfer Unrestricted Stock to the Participant at an administratively feasible time after the lapse of restrictions hereunder on an Award of Restricted Stock. Any fractional shares of Unrestricted Stock shall be paid to the Participant in cash.
(a) TERMINATION OF EMPLOYMENT. Upon the termination of employment for any reason of a Participant who is an employee of the Company or an Affiliate (including upon the Participant's death), or upon such a Participant's retirement or permanent and total disability, the Company shall deliver to the Participant (or his personal representative) all Unrestricted Stock held for his account.
(b) DEATH OF PARTICIPANT. Each Participant shall have the right, at any time, to designate any person or persons as his beneficiary or beneficiaries (both principal as well as contingent) to whom all amounts that are otherwise due hereunder after termination of employment shall be paid upon his death. Each beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form acceptable to the Committee.
(1) If the Participant is married as of the date of filing a beneficiary designation and names a principal beneficiary other than his spouse, such designation shall not be effective unless the spouse consents to the beneficiary designation in writing, witnessed by a notary public.
(2) The filing of a new beneficiary designation form as provided herein shall cancel all beneficiary designations previously filed. Any finalized divorce or marriage (other than a common law marriage) of a Participant subsequent to the date of filing a beneficiary designation form, which divorce or marriage is communicated to the Committee in writing, shall revoke any prior designation. As
used herein "divorce" includes a dissolution of a marriage or an annulment of a marriage.
(3) If all designated beneficiaries predecease a Participant or die prior to complete distribution, the Committee shall make distributions to the Participant's personal representative or executor. If a Participant fails to designate a beneficiary as provided above, the Committee shall make distributions to the Participant's personal representative or executor.
3.5 DISCRETIONARY AUTHORITY OF COMMITTEE. The Committee shall have full discretionary power, subject to, and within the limits of, Articles 4 and 5 of the Plan:
(a) To determine from time to time who of the eligible persons shall be granted Awards, and the time or times when, and the number of shares for which, an Award or Awards shall be granted to such persons.
(b) To prescribe the other terms and provisions (which need not be identical) of each Award granted under the Plan to eligible persons.
(c) To modify or amend any term or provision of any Award granted under the Plan (including without limitation in the ways described in Sections 3.5 (f), (g) and (h) below), provided that the consent of the holder thereof must be obtained for any modification or amendment that reduces the benefits to the holder of the Award.
(d) To construe and interpret the Plan and Awards granted hereunder, and to establish, amend, and revoke rules and regulations for administration. The Committee, in the exercise of this power, may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any Award or Agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. In exercising this power the Committee may retain counsel at the expense of the Company. All decisions and determinations by the Committee in exercising this power shall be final and binding upon the Company and the Participants.
(e) To determine the duration and purposes of leaves of absence which may be granted to a Participant without constituting a termination of his or her employment for purposes of the Plan or an Agreement.
(f) To accelerate the time at which the restrictions on Restricted Stock granted under an Award will lapse, or otherwise modify the restrictions on Restricted Stock in a manner favorable to the Participant.
(g) To determine, for any group or class of Participants, that restrictions on Restricted Stock shall lapse upon specified events occurring upon or after a change in control of the Company or an Affiliate, subject to such terms and limitations as the Committee may determine.
(h) To waive or modify the application of Section 6.2 (forfeiture of Restricted Stock upon termination of employment) as to any Award, in whole or in part.
(i) To authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Award previously granted hereunder.
(j) To interpret the Plan and make any determinations that are necessary or desirable in the administration of the Plan.
(k) To exercise such powers and to make all other determinations deemed necessary or expedient to promote the best interests of the Company with respect to the Plan.
3.6 PERSONS SUBJECT TO SECTION 162(M). Notwithstanding anything in the Plan to the contrary, the Committee, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of certain provisions of the Plan by Participants who are officers subject to Section 162(m) of the Code, without so restricting, limiting or conditioning the Plan with respect to other Participants.
3.7 SHAREHOLDER RIGHTS. Except as provided in Section 6.1, each Participant shall have, with respect to Restricted Stock, all the rights of a shareholder of Stock including the right to vote the shares.
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 PARTICIPATION. The Committee may from time to time designate persons to whom Awards are to be granted from among those who are eligible to become Participants. Such designation shall specify the number of shares of Restricted Stock subject to each Award. All Awards granted under this Plan shall be evidenced by Agreements which shall be subject to applicable provisions of this Plan or such other provisions as the Committee may adopt that are not inconsistent with the Plan.
4.2 LIMITATIONS ON GRANTS. Awards may be granted only to persons who are eligible to be Participants. The maximum number of shares of Stock with respect to which Awards may be granted to any Participant in any calendar year under the Plan is 225,000.
ARTICLE 5. STOCK SUBJECT TO PLAN
5.1 MAXIMUM NUMBER OF SHARES. The maximum aggregate number of shares of Stock that may be issued pursuant to Awards under this Plan (including all predecessors of this Plan) is two million seventy-five thousand one hundred twenty-two (2,075,122) shares, subject to adjustments as provided in Article 7 made after January 18, 2000.
ARTICLE 6. RESTRICTIONS AND FORFEITURES
6.1 GENERAL RESTRICTIONS. A Participant shall not be permitted (i) to sell, transfer, pledge (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or assign shares of Restricted Stock awarded (or purchased through dividend or distribution reinvestment) under the Plan, (ii) to receive payment of any dividends or distributions made in respect of Restricted Stock, or (iii) to receive a stock certificate representing Restricted Stock, until, in each case, the restrictions stated in the Participant's Agreement lapse.
6.2 TERMINATION OF EMPLOYMENT. Upon the termination of employment for any reason of a Participant who is an employee of the Company or an Affiliate before the Participant has attained age 60 (including termination because of the death or permanent disability of the Participant), all Restricted Stock shall be forfeited without compensation to the Participant, unless otherwise determined by the Committee.
6.3 RETIREMENT. In the event of a Participant's retirement from the Company and its Affiliates or a Participant's death or permanent disability after the Participant has attained age 60, all remaining restrictions on such Participant's Restricted Stock that relate solely to the Participant's length of service with the Company or an Affiliate shall automatically be waived. Restrictions not related solely to the Participant's length of service with the Company or an Affiliate (such as restrictions tied to the performance of the Company) shall remain in effect unless otherwise determined by the Committee.
6.4 LAPSE OF RESTRICTIONS - GENERAL. Each Award of Restricted Stock granted to a Participant shall become Unrestricted Stock according to the terms established by the Committee and specified in the Participant's Agreement. The Committee is authorized but not required to subject an Award to the restrictions described in Schedule A or Schedule B below by setting forth this determination in the Participant's Agreement.
SCHEDULE A
YEARS OF CONTINUED EMPLOYMENT PERCENTAGE UNRESTRICTED
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
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SCHEDULE B
YEARS OF CONTINUED EMPLOYMENT PERCENTAGE UNRESTRICTED
Less than 3 0%
3 but less than 4 33.33%
4 but less than 5 66.67%
5 or more 100%
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For purposes of Schedules A and B, unless otherwise determined by the Committee and stated in the relevant Agreement, a Year of Continued Employment shall be credited to a Participant with respect to each Award on each March 31, beginning in the calendar year that follows the Grant Date of an Award, provided that the Participant has been continuously employed by the Company or one of its Affiliates since the Grant Date of the Award.
The lapse of restrictions on Restricted Stock (including, if applicable, the number of Years of Continued Employment) shall be calculated separately with respect to each Award granted to a Participant.
6.5 EMPLOYEE STATUS. As provided in Section 3.5(e), the Committee shall determine the extent to which a leave of absence for military or government service, illness, temporary disability, or other reasons shall be treated as termination or interruption of employment for purposes of determining questions of forfeiture and Years of Employment for purposes of the lapse of restrictions on Restricted Stock.
6.6 PERFORMANCE-BASED GRANTS. The Committee may provide in any Award for the restrictions on Restricted Stock to lapse upon the Company's attainment of performance-based goals established by the Committee. Any such Award may, but need not be, granted under and pursuant to the terms of this Section 6.6. In addition, the Committee may determine that any performance-based Award granted by the Committee before the adoption of this Amended and Restated Plan shall be treated as if granted under this Section 6.6, provided that the Award is modified so as to comply with the terms of this Section 6.6.
(a) INTENT TO QUALIFY UNDER SECTION 162(M). This Section 6.6 is intended to qualify the Awards granted under it as performance-based compensation under Section 162(m) of the Code. All Awards granted pursuant to this Section 6.6 shall be construed in a manner consistent with that intent.
(b) SHAREHOLDER APPROVAL. As to Awards granted under this
Section 6.6, no Restricted Stock may become Unrestricted Stock until
after the material terms of the performance goals set out below are
disclosed to and approved by the Company's shareholders. To the extent
necessary for Awards under this Section 6.6 to qualify as
performance-based compensation under Section 162(m) of the Code under
then applicable law, the material terms of the performance goals shall
be disclosed to and reapproved by the shareholders no later than the
first shareholder meeting that occurs in
the fifth year following the year in which shareholders previously approved the performance goals.
(c) BUSINESS CRITERIA ON WHICH PERFORMANCE GOALS SHALL BE BASED. The lapse of restrictions on Awards granted under this Section 6.6 shall be based on the Company's attainment of performance goals based on one or more of the following business criteria:
Return on average common equity.
Return on average equity.
Efficiency ratio (other expense as a percentage of other income plus net interest income), either before or after amortization of intangible assets (goodwill).
Net operating expense (other income less other expense), either before or after amortization of intangible assets (goodwill).
Earnings per diluted share of common stock.
Operating earnings (earnings before transaction-related expense) per diluted share of common stock, either before or after amortization of intangible assets (goodwill).
Return on average assets.
Ratio of nonperforming assets to total assets.
Return on an investment in an affiliate.
These business criteria shall be construed consistent with the use of the same terms in Washington Mutual's published financial statements. All business criteria other than earnings per diluted share of common stock shall exclude transaction-related expense unless otherwise determined by the Compensation Committee in selecting the business criteria for a particular Award pursuant to Section 6.6(d) below. In selecting any business criteria other than earnings per diluted share of common stock, the Compensation Committee may elect, pursuant to Section 6.6(d) below, to exclude amortization of intangible assets (goodwill), or to exclude depreciation and amortization.
(d) ESTABLISHING PERFORMANCE GOALS. The Compensation Committee shall establish, for each Award granted under this Section 6.6: (i) the measurement period(s) to which the performance goals will be applied, (ii) the specific business criterion or criteria, or combination thereof, that will be used; (iii) the specific performance targets that will be used for the selected business criterion or criteria; (iv) any special adjustments that will be applied in calculating whether the performance targets have been met to factor out extraordinary items, and (v) the formula for calculating the lapse of restrictions in relation to the performance targets. These determinations shall be set out
in the Agreement for each Award. Except as otherwise permitted under
Section 162(m) of the Code, each Award under this Section 6.6 shall be
granted no later than 90 days after the start of any applicable
measurement period, on or before the date that 25 percent of each
applicable measurement period has elapsed, and while the outcome is
substantially uncertain.
(e) DETERMINATION OF ATTAINMENT OF PERFORMANCE GOALS. The Committee shall determine, pursuant to the performance goals and other elements established pursuant to Section 6.6(d) above, whether the criteria for the lapse of restrictions have been satisfied. The Committee's determinations shall be final and binding on all Participants. These determinations must be certified in writing before Stock is transferred to the Participant. This requirement may be satisfied by a writing that sets out the determinations made by the Committee that is signed on behalf of the Committee by the Committee's secretary.
(f) LAPSE OF RESTRICTIONS UPON DEATH, DISABILITY OR CHANGE
OF OWNERSHIP OR CONTROL. Notwithstanding the other terms of this Section
6.6, the performance-related criteria for the lapse of restrictions on
an Award made under this Section 6.6: (i) may lapse (A) as provided in
Section 7.3, or (B) upon a participant's disability or upon a change of
ownership or control, to the extent so provided in any Agreement,
employment agreement or action of the Committee, and (ii) shall lapse
upon the Participant's death.
(g) OTHER RESTRICTIONS. In addition to the performance goals described above, the Committee may determine to subject any Award granted under this Section 6.6 to other, additional restrictions, including restrictions requiring the Participant to remain in the employ of the Company or an Affiliate for specified lengths of time.
6.7 SURRENDER OF RESTRICTED STOCK. A Participant who also is a participant in the Washington Mutual, Inc. Deferred Compensation Plan for Directors and Certain Highly Compensated Employees (the "DCP") may surrender to the Company all or a portion of an Award pursuant to the terms and provisions of the DCP relating to surrender of restricted stock in return for a contribution credit under the DCP.
ARTICLE 7. ADJUSTMENT UPON CORPORATE CHANGES
7.1 ADJUSTMENTS TO SHARES. The maximum number and kind of shares of Stock with respect to which Awards hereunder may be granted and which are the subject of outstanding Awards shall be adjusted by way of increase or decrease as the Committee determines (in its sole discretion) to be appropriate, in the event that:
(a) the Company effects one or more stock dividends, stock splits, reverse stock splits, subdivisions, consolidations or other similar events;
(b) the Company or an Affiliate engages in a transaction to which section 424 of the Code applies; or
(c) there occurs any other event which in the judgment of the Committee necessitates such action.
Provided, however, that if an event described in paragraph (a) or (b) above occurs, the Committee shall make adjustments to the limits on Awards specified in Section 4.2 and in the limitation on aggregate Awards under Section 5.1 that are proportionate to the modifications of the Stock that are on account of such corporate changes.
7.2 SUBSTITUTION OF AWARDS ON MERGER OR ACQUISITION. The Committee may grant Awards in substitution for stock awards, stock options, stock appreciation rights or similar awards held by an individual who becomes an employee of the Company or an Affiliate in connection with a transaction to which section 424(a) of the Code applies. The terms of such substituted Awards shall be determined by the Committee in its sole discretion, subject only to the limitations of Article 5.
7.3 EFFECT OF CERTAIN TRANSACTIONS. Upon a merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation of the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for their shares of Stock (an "Event"), restrictions on any Award of Restricted Stock granted hereunder shall lapse, whether or not the requirements for lapse of restrictions set forth in any Agreement have been satisfied, unless otherwise specifically stated in the Agreement. The foregoing notwithstanding, an Event shall not cause restrictions related solely to the Participant's length of service with the Company or any Affiliate to lapse on any Awards that the Committee elects, before the Event, to convert into restricted stock of an acquiring corporation. If the Committee so elects to convert the Awards, the number of shares of such converted restricted stock shall be determined by adjusting the amount and price of the Awards granted hereunder in the same proportion as used for determining the number of shares of stock of the acquiring corporation the holders of the Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization, and the schedule for lapse of restrictions set forth in the Agreement shall continue to apply to the converted restricted stock. Nothing in this Section 7.3 or elsewhere in the Plan shall authorize the Committee to take any action contrary to any provision regarding lapse of restrictions that is contained in any Agreement or employment agreement if the action would reduce the benefits to the Participant, unless the Participant consents to the action.
7.4 NO PREEMPTIVE RIGHTS. The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards.
ARTICLE 8. COMPLIANCE WITH LAW AND APPROVAL OF
REGULATORY BODIES
8.1 GENERAL. No Award shall be granted, no Stock shall be issued, and no certificates for shares of Stock shall be delivered under this Plan except in compliance with all federal and state laws and regulations (including, without limitation, withholding tax requirements), federal and state securities laws and regulations and the rules of all national securities exchanges or self-regulatory organizations on which the Company's shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any certificate issued to evidence shares of Stock awarded hereunder may bear such legends and statements as the Committee upon advice of counsel may deem advisable to assure compliance with federal and state laws and regulations. No Award shall be granted, no Stock shall be issued, and no certificate for shares shall be delivered under this Plan until the Company has obtained such consent or approval as the Committee may deem advisable from any regulatory bodies having jurisdiction over such matters.
8.2 REPRESENTATIONS BY PARTICIPANTS. As a condition to receiving an Award, the Company may require a Participant to represent and warrant at the time of any such award that the shares are being held only for investment and without any present intention to sell or distribute such shares, if, in the opinion of counsel for the Company, such representation is required by any relevant provision of the laws referred to in Section 8.1. At the option of the Company, a stop transfer order against any shares of Stock may be placed on the official stock books and records of the Company, and a legend indicating that the Stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided (concurred in by counsel for the Company) and stating that such transfer is not in violation of any applicable law or regulation may be stamped on the stock certificate in order to assure exemption from registration. The Committee may also require such other action or agreement by the Participants as may from time to time be necessary to comply with the federal and state securities laws. This provision shall not obligate the Company or any Affiliate to undertake registration of Stock hereunder.
ARTICLE 9. TAXES
9.1 IMMEDIATE TAXATION. If an employee elects, pursuant to Section 83(b) of the Code, to include in gross income for federal income tax purposes an amount equal to the fair market value of Restricted Stock subject to an Award, the employee shall make arrangements satisfactory to the Company to pay to the Company or its Affiliate any federal, state or local taxes required to be withheld with respect to such Stock. If an employee who makes such an election fails to pay the necessary amounts to the Company or its Affiliate, the Company or its Affiliate shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the employee any taxes of any kind required by law to be withheld with respect to the Stock covered by the Award.
9.2 DEFERRED TAXATION. If an election under Section 83(b) of the Code has not been made, then at the time Restricted Stock becomes Unrestricted Stock, the Participant shall, upon notification of the amount due and prior to or concurrently with the delivery of the certificates representing the shares of Stock to which the Participant is entitled hereunder, pay to the Company or its Affiliate amounts necessary to satisfy applicable federal, state and local
withholding tax requirements or shall otherwise make arrangements satisfactory to the Company for such requirements. The Company or its Affiliate shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the employee any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock becoming Unrestricted Stock.
ARTICLE 10. GENERAL PROVISIONS
10.1 EFFECT ON EMPLOYMENT. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment of any employee at any time with or without assigning a reason therefor.
10.2 UNFUNDED PLAN. The Plan shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon contractual obligations that may be created hereunder. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.
10.3 RULES OF CONSTRUCTION. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The masculine gender when used herein refers to both masculine and feminine. The reference to any statute, regulation or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.
10.4 GOVERNING LAW. The laws of the State of Washington shall apply to all matters arising under this Plan, to the extent that federal law does not apply.
10.5 COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of this Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee.
10.6 AMENDMENT. The Committee may amend or terminate this Plan at any time; provided, however, an amendment that would have a material adverse effect on the rights of a Participant under an outstanding Award is not valid with respect to such Award without the Participant's consent. Provided further that the shareholders of the Company must approve any amendment that changes the number of shares in the aggregate which may be issued pursuant to Awards granted under the Plan or the maximum number of shares with respect to which any Participant may be granted Awards in any calendar year, except pursuant to Article 7.
10.7 EFFECTIVE DATE OF PLAN. No Award under the terms of the Plan as amended and restated as of January 18, 2000, will be effective unless and until the amendments approved by
the Board on January 18, 2000, are approved by shareholders holding a majority of the Company's outstanding voting stock present or represented by proxy and entitled to vote at the Company's next annual shareholders' meeting, which is duly held, that occurs after January 18, 2000, the date that the Board authorized the Company to adopt the amendments to the Plan which are being submitted to the shareholders in such annual shareholders meeting. If such amendments are not so approved by the shareholders of the Company, then this version of the Plan shall be of no force or effect and the Plan as amended and restated as of February 18, 1997, and amended prior to January 18, 2000, shall continue to govern.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on this the __________ day of _____________, 2000, but to be effective on January 18, 2000.
WASHINGTON MUTUAL, INC.
Its: Senior Vice President
EXHIBIT 10.7.1
AMENDMENT TO THE
WASHINGTON MUTUAL
RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED AS OF JANUARY 18, 2000
THIS AMENDMENT to the Washington Mutual Restricted Stock Plan As Amended and Restated as of January 18, 2000 (the "Plan") is made by Washington Mutual, Inc. (the "Company") on this ____ day of _______________:
RECITALS
WHEREAS, Washington Mutual, Inc. (the "Company") maintains the Plan for the benefit of eligible employees; and
WHEREAS, the Company desires to amend the Plan to add additional business criteria on which performance goals may be based, to provide that performance goals shall exclude transaction-related expense unless otherwise determined by the Compensation Committee in selecting performance goals, and to make certain other clarifying changes; and
WHEREAS, pursuant to Section 10.6 of the Plan the Directors' Compensation and Stock Option Committee of the Company is authorized to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Sections 6.6(c) and (d) of the Plan be, and they hereby are, amended and restated in their entirety, effective January 18, 2000, to read as set forth below, subject to shareholder approval:
(c) BUSINESS CRITERIA ON WHICH PERFORMANCE GOALS SHALL BE BASED. The lapse of restrictions on Awards granted under this Section 6.6 shall be based on the Company's attainment of performance goals based on one or more of the following business criteria:
Return on average common equity.
Return on average equity.
Efficiency ratio (other expense as a percentage of other income plus net interest income), either before or after amortization of intangible assets (goodwill).
Net operating expense (other income less other expense), either before or after amortization of intangible assets (goodwill).
Earnings per diluted share of common stock.
Operating earnings (earnings before transaction-related expense) per diluted share of common stock, either before or after amortization of intangible assets (goodwill).
Operating earnings per diluted share of common stock before depreciation and amortization.
Return on average assets.
Ratio of nonperforming assets to total assets.
These business criteria shall be construed consistent with the use of the same terms in Washington Mutual's published financial statements. All business criteria other than earnings per diluted share of common stock shall exclude transaction-related expense unless otherwise determined by the Compensation Committee in selecting the business criteria for a particular Award pursuant to Section 6.6(d) below. In selecting any business criteria other than earnings per diluted share of common stock, the Compensation Committee may elect, pursuant to Section 6.6(d) below, to exclude amortization of intangible assets (goodwill), or to exclude depreciation and amortization.
(d) ESTABLISHING PERFORMANCE GOALS. The Compensation Committee
shall establish, for each Award granted under this Section 6.6: (i) the
measurement period(s) to which the performance goals will be applied,
(ii) the specific business criterion or criteria, or combination
thereof, that will be used; (iii) the specific performance targets that
will be used for the selected business criterion or criteria; (iv) any
special adjustments that will be applied in calculating whether the
performance targets have been met to factor out extraordinary items, and
(v) the formula for calculating the lapse of restrictions in relation to
the performance targets. These determinations shall be set out in the
Agreement for each Award. Except as otherwise permitted under Section
162(m) of the Code, each Award under this Section 6.6 shall be granted
no later than 90 days after the start of any applicable measurement
period, on or before the date that 25 percent of each applicable
measurement period has elapsed, and while the outcome is substantially
uncertain.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.7.2
AMENDMENT TO THE
WASHINGTON MUTUAL
RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED AS OF JANUARY 18, 2000
THIS AMENDMENT to the Washington Mutual Restricted Stock Plan As Amended and Restated as of January 18, 2000 (the "Plan") is made by Washington Mutual, Inc. (the "Company") on this ____ day of _______________:
RECITALS
WHEREAS, Washington Mutual, Inc. (the "Company") maintains the Plan for the benefit of eligible employees; and
WHEREAS, the Company maintains the Washington Mutual, Inc. Deferred Compensation Plan for Directors and Certain Highly Compensated Employees (the "Deferred Compensation Plan"); and
WHEREAS, the Company has approved amendments to the Deferred Compensation Plan to provide a contribution credit under that plan in an amount equal to the value of restricted stock issued under the Restricted Stock Plan surrendered to the Company; and
WHEREAS, the Directors' Compensation and Stock Option Committee has amended the Restricted Stock Plan to authorize the surrender of restricted stock to the Company in return for a contribution credit under the Deferred Compensation Plan; and
WHEREAS, the Board of Directors desires to ratify such amendment;
NOW, THEREFORE, the Plan is hereby amended as follows:
Article 6 of the Plan is hereby amended by the addition of the following new Section 6.7:
6.7 SURRENDER OF RESTRICTED STOCK. A Participant who also is a participant in the Washington Mutual, Inc. Deferred Compensation Plan for Directors and Certain Highly Compensated Employees (the "DCP") may surrender to the Company all or a portion of an Award pursuant to the terms and provisions of the DCP relating to surrender of restricted stock in return for a contribution credit under the DCP.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.8.1
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
EMPLOYEES' STOCK PURCHASE PLAN
THIS AMENDMENT is made to the Washington Mutual, Inc. Employees' Stock Purchase Plan (the "Plan") by Washington Mutual, Inc. (the "Company") on this ____ day of ________, 2001.
RECITALS:
WHEREAS, the Company has agreed to acquire Bank United Corp. ("Bank United") and certain subsidiaries of PNC Bank, National Association (the "PNC Companies"); and
WHEREAS, the Company agreed to provide certain past service credit for purposes of eligibility to participate in the Plan to employees of Bank United or the PNC Companies who are hired in connection the acquisition of Bank United and the PNC Companies; and
WHEREAS, the Board of Directors of the Company (the "Board"), upon the recommendation of the Directors' Compensation and Stock Option Committee (the "Committee"), may amend the Plan at any time pursuant to Section 9.1 of the Plan; and
WHEREAS, the Committee has recommended that the Board adopt the amendments to the Plan set forth herein;
NOW, THEREFORE, the Plan is hereby amended as set forth below:
1. Effective as of the closing of the acquisition of the PNC Companies,
Section 2.1(e) of the Plan is amended by the addition of the following
sentence:
For purposes of this Section 2.1(e), an Employee who was an employee of PNC Bank, National Association ("PNC"), immediately before becoming an Employee and who was hired by the Company in connection with its acquisition of certain subsidiaries of PNC shall be deemed to have been an employee of the Company for up to 12 months of employment with PNC.
2. Effective as of the closing of the acquisition of Bank United,
Section 2.1(e) of the Plan is amended by the addition of the following
sentence:
For purposes of this Section 2.1(e), an Employee who was an employee of Bank United Corp. ("Bank United") immediately before becoming an Employee and who was hired by the Company in connection with its acquisition of Bank United shall, as of May 1, 2001, be deemed to have been an employee of the Company for up to 12 months of employment with Bank United.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.8.2
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
EMPLOYEES' STOCK PURCHASE PLAN
THIS AMENDMENT is made to the Washington Mutual, Inc. Employees' Stock Purchase Plan (the "Plan") by Washington Mutual, Inc. (the "Company") on this ____ day of October, 1999.
RECITALS:
WHEREAS, the Company, through its subsidiary, Aristar, Inc. ("Aristar"), has agreed to acquire certain assets of Peoples Security Finance Company, Inc. ("Peoples"); and
WHEREAS, Peoples employees hired by Aristar in connection with such acquisition generally will be offered participation in employee benefit plans of the Company; and
WHEREAS, the Company desires to amend the Plan to provide certain service credit thereunder for purposes of eligibility to participate in the Plan to employees of an Employer who are former employees of Peoples and who are hired in connection with Aristar's acquisition of assets of Peoples; and
WHEREAS, the Board of Directors of the Company (the "Board"), upon the recommendation of the Directors' Compensation and Stock Option Committee (the "Committee"), may amend the Plan at any time pursuant to Section 9.1 of the Plan; and
WHEREAS, the Committee has recommended that the Board adopt the amendments to the Plan set forth herein;
NOW, THEREFORE, effective January 1, 2000, Section 2.1(e) of the Plan is hereby amended by the addition of a new sentence at the end thereof to read as follows:
For purposes of this Section 2.1(e), an Employee who was an employee of Peoples Security Finance Company, Inc. ("Peoples") immediately before becoming an Employee and who was hired by the Company in connection with its purchase of certain assets of Peoples shall be deemed to have been an employee of the Company for up to 12 months of employment with Peoples.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.8.4
THIRD AMENDMENT TO THE
WASHINGTON MUTUAL SAVINGS BANK
EMPLOYEES' STOCK PURCHASE PROGRAM
THIS AMENDMENT is made to the Washington Mutual Savings Bank Employees' Stock Purchase Program (the "Plan") on this ______ day of ________________, 1994.
RECITALS:
WHEREAS, Washington Mutual Savings Bank established the Plan, effective April 1, 1990, and in connection with a corporate reorganization, Washington Mutual, Inc. (the "Company") has become the sponsor of the Plan as successor to Washington Mutual Savings Bank, and the common stock of the Company will be offered to participants in the Plan in lieu of the common stock of Washington Mutual Savings Bank;
WHEREAS, the Company desires to amend the Plan to reflect the change in the Plan sponsor and other changes related to the corporate reorganization;
WHEREAS, the Company has determined that such amendment is permitted under the Plan without authorization by the shareholders of the Company and that the amendment will not result in a modification to the Plan or any options available under the Plan described in section 424(h) of the Internal Revenue Code of 1986;
NOW, THEREFORE, the Plan is hereby amended, effective November 29, 1994, as follows:
1. The term "Washington Mutual Savings Bank" in the Plan shall be replaced with the term "Washington Mutual, Inc." in each place that it appears.
2. The terms "WMSB" and "the Bank" in the Plan shall be replaced with the term "the Company" in each place that either appears.
3. The name of the Plan is changed to the "Washington Mutual Employees' Stock Purchase Program."
4. The phrase "who has attained the greater of age 18 or the age of majority in his or her state of residence," is deleted from Section 2.1(e) of the Plan.
5. Section 2.1(k) of the Plan shall be restated in its entirety as follows:
(k) "STOCK" means the common stock of the Company, no par value.
IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed on the date first written above.
WASHINGTON MUTUAL, INC.
EXHIBIT 10.8.5
SECOND AMENDMENT TO THE
WASHINGTON MUTUAL SAVINGS BANK
EMPLOYEES' STOCK PURCHASE PROGRAM
THIS AMENDMENT, hereby made by Washington Mutual Savings Bank (the "Bank"),
WITNESSETH:
WHEREAS, the Bank previously established an Employees' Stock Purchase Program (the "Plan") effective April 1, 1990, and subsequently amended the Plan effective June 30, 1991; and
WHEREAS, the Bank desires to provide for compliance with the amendment to Securities Exchange Commission Rule 16b-3 effective May 1, 1991;
NOW, THEREFORE, effective June 30, 1992, a new Section 5.7 shall be added to read in its entirety as follows:
5.7 PARTICIPATION BY EXECUTIVE OFFICERS.
(a) DEFINITIONS. As used herein, the term "Executive Officers" shall refer to persons subject to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act").
(b) SECTION 16 COMPLIANCE. With respect to Executive Officers, transactions under this plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be determined null and void, to the extent permitted by law and deemed advisable by the Committee.
(c) TRANSACTION RESTRICTIONS.
(i) An Executive Officer making a withdrawal from the Plan must either cease further purchases in the Plan for six months from the date of such withdrawal or must hold such withdrawn stock for at least six months before selling it.
(ii) Any Executive Officer who ceases participation in the Plan may not resume participation for at least six months. Any election by an Executive Officer to decrease his/her level of participation in the Plan to a nominal amount constitutes a cessation of participation in the Plan and such Executive Officer may NOT
thereafter participate, at any level, in the Plan for at least six months from the date such person decreased his/her level of participation to a nominal amount.
IN WITNESS WHEREOF, this amendment has been executed this ____ day of ____________, 19___.
WASHINGTON MUTUAL SAVINGS BANK
EXHIBIT 10.9.1
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
THIS AMENDMENT to the Washington Mutual, Inc. Retirement Savings and Investment Plan (the "RSIP") is made by Washington Mutual, Inc. (the "Company") on this ______ day of January 2001.
RECITALS:
WHEREAS, the Company maintains the RSIP for the benefit of its eligible employees;
WHEREAS, the Company has acquired Bank United Corp. ("Bank United") and certain subsidiaries of PNC Bank, National Association (the "PNC Companies");
WHEREAS, the Company has agreed to provide the former employees of Bank United and the PNC Companies who continue employment with the Company upon the closing of the Company's acquisitions of Bank United and the PNC Companies, respectively, with certain credits for eligibility and vesting service under the RSIP;
WHEREAS, the Company desires to amend the RSIP to provide for such credits; and
WHEREAS, the Company may amend the RSIP at any time pursuant to Article XVI thereof;
NOW, THEREFORE, Section 2.52 of the RSIP is hereby amended by the addition of new paragraphs (24) and (25) to read as follows:
(24) Employees who were employed by Bank United Corp. or one of its affiliates at the time that it was acquired by the Company or by one of its affiliates shall, after April 30, 2001, be credited with Service for service with Bank United Corp.
(25) Employees who were employed by a subsidiary of PNC Bank, National Association ("PNC"), as of the date in 2001 when such subsidiary was acquired by the Company and who were employed by the Company upon the closing of such acquisitions shall be credited with Service for service with PNC.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.9.2
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
THIS AMENDMENT to the Washington Mutual, Inc. Retirement Savings and Investment Plan (the "RSIP") is made by Washington Mutual, Inc. (the "Company") on this __ day of __________, 2000.
WHEREAS, the Company maintains the RSIP for the benefit of its eligible employees;
WHEREAS, the Company desires to amend certain provisions of the RSIP regarding eligibility and contributions;
WHEREAS, the Company may amend the RSIP at any time pursuant to Article XVI thereof; and
WHEREAS, the Directors' Compensation and Stock Option Committee of the Board of Directors of the Company approved the amendment in its meeting on October 17, 2000;
NOW, THEREFORE, effective January 1, 2001, the Plan is amended as set forth below:
1. The second sentence of Section 3.1(a) is amended in its entirety to read as follows:
Each other Eligible Employee may become a Participant in the Plan on the beginning of the month which coincides with or immediately follows the date upon which he is employed by the Company.
2. Section 4.1(b) is amended in its entirety to read as follows:
MATCHING CONTRIBUTIONS. For any Participant who has completed 12 months of Service, a matching contribution by the Employer, in its sole and absolute discretion, that is subject to the limitations of Section 4.5 and that does not exceed 100% of the Salary Deferral Contributions elected by a Participant pursuant to Section 5.1(a) in any Plan Year and made after the Participant has completed 12 months of Service.
3. The term "15%," which appears in the second sentence of Section 5.1(a)(2), is replaced by the term "19%."
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first above written.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.9.3
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
AMENDED AND RESTATED EFFECTIVE SEPTEMBER 30, 1998
THIS AMENDMENT to the Washington Mutual, Inc. Retirement Savings and Investment Plan (the "RSIP") is made by Washington Mutual, Inc. (the "Company") on this 19th day of October, 1999.
RECITALS:
WHEREAS, the Company, through its subsidiary, Aristar, Inc. ("Aristar"), has agreed to acquire certain assets of Peoples Security Finance Company, Inc. ("Peoples"); and
WHEREAS, Peoples employees hired by Aristar in connection with such acquisition generally will be offered participation in employee benefit plans of the Company; and
WHEREAS, the Company desires to amend the RSIP to provide service credit thereunder for purposes of eligibility to participate in the RSIP to employees of an Employer who are former employees of Peoples and who are hired in connection with Aristar's acquisition of assets of Peoples; and
WHEREAS, the Company may amend the RSIP at any time pursuant to Article XVI thereof;
NOW, THEREFORE, effective January 1, 2000, Section 2.52(b) of the RSIP is hereby amended by the addition of a new paragraph 6 to read as follows:
(6) Employees who were hired by the Company in connection with its purchase of assets of Peoples Security Finance Company, Inc. ("Peoples") and who were employed by Peoples or one of its affiliates immediately prior to such hire shall be credited with Service for up to one year of service performed with Peoples or its affiliates.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.9.4
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
RETIREMENT SAVINGS AND INVESTMENT PLAN
AMENDED AND RESTATED EFFECTIVE SEPTEMBER 30, 1998
THIS AMENDMENT to the Washington Mutual, Inc. Retirement Savings and Investment Plan (the "RSIP") is made by Washington Mutual, Inc. (the "Company") on this 21st day of December, 1999.
RECITALS:
WHEREAS, the Company maintains the RSIP for the benefit of its eligible employees;
WHEREAS, the Company has merged with H. F. Ahmanson & Company ("Ahmanson");
WHEREAS, the Ahmanson Advantage Account (the "Ahmanson Plan") has been merged into the RSIP;
WHEREAS, the Company desires to amend the RSIP to provide for (i) participation therein of former Ahmanson employees hired by the Company, (ii) the preservation of certain features of the Ahmanson Plan, (iii) the clarification of the matching contribution provisions, and (iv) other minor clarifications or changes to reflect statutory amendments; and
WHEREAS, the Company may amend the RSIP at any time pursuant to Article XVI thereof;
NOW, THEREFORE, the RSIP is hereby amended as follows:
1. Section 2.13 is restated in its entirety to read as set forth below:
2.13 COMPENSATION.
(a) SCOPE OF PROVISION. Compensation as defined in this
Section 2.13 shall apply for purposes of determining:
(1) The identity of Highly Compensated Employees;
(2) The limitation on Annual Additions;
(3) The Actual Deferral Percentage;
(4) The Actual Matching Percentage; and
(5) The Top Heavy Plan provisions.
(b) INCLUSIONS. A Participant's Compensation consists of the Participant's wages, salaries, fees for personal services,
commissions, production incentive compensation, bonuses and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with an Employer as an Employee and to the extent that the amounts are includible in gross income.
(c) EXCLUSIONS. A Participant's Compensation does not include:
(1) Severance Pay;
(2) Moving expenses;
(3) Long-term disability insurance payments;
(4) Nonqualified deferred compensation;
(5) Compensatory time;
(6) Fringe benefits or amounts attributable to any employee benefit plan which are not already excluded under (1)-(5) above;
(7) Employer contributions (i) to a plan of deferred compensation to the extent such contributions are not included in the gross income of the Participant for the taxable year in which contributed; or (ii) on behalf of the Participant to a simplified employee pension plan to the extent such contributions are deductible under the Code;
(8) Any distributions from a plan of deferred compensation whether or not such distributions are includible in the gross income of the Participant when distributed (except for amounts received from an unfunded, nonqualified plan in the year such amounts are includible in the Employee's gross income);
(9) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option;
(10) Amounts not otherwise described in this section 2.13(c) that receive special tax benefits; and
(11) Contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of a 403(b) annuity contract, regardless of whether the contributions are excludible from the gross income of the Participant.
(d) ADDITIONAL COMPUTATION RULES REGARDING DETERMINATION
OF THE LIMITATION ON ANNUAL ADDITIONS. For purposes of
determining the limitations on Annual Additions, (i) amounts
realized from the exercise of a nonqualified stock option or
when restricted stock (or property) becomes freely transferable
or no longer subject to a substantial risk of forfeiture, and
(ii) Compensation, as defined herein, taken into account for a
Limitation
Year, is the Compensation actually paid or made available to the Participant during such year, as well as amounts not included in taxable income by reason of sections 125 or 402(e)(3) of the Code.
(e) ADDITIONAL COMPUTATION RULES REGARDING DETERMINATION
OF IDENTITY OF HIGHLY COMPENSATED EMPLOYEES, THE ACTUAL DEFERRAL
PERCENTAGE, THE ACTUAL MATCHING PERCENTAGE AND THE TOP HEAVY
PROVISIONS. For the purposes of determining the identity of
Highly Compensated Employees, the Actual Deferral Percentage,
the Actual Matching Percentage and the Top Heavy Plan
provisions, Compensation shall also include any amounts excluded
from gross income of an Employee under sections 125, 402(e)(3),
402(h)(1)(B), or 403(b) of the Code.
(f) STATUTORY LIMITS. Effective for Plan Years beginning before January 1, 1994, Compensation for all purposes in excess of $200,000 (as adjusted at the same time and the same manner as under section 415(d) of the Code) shall be disregarded. Effective for Plan Years beginning on or after January 1, 1994, Compensation for all purposes in excess of $150,000 (adjusted as provided in section 401(a)(17)(B) of the Code) shall be disregarded.
2. Section 2.41 of the RSIP is amended by a new paragraph (27), to read as set forth below:
(27) Eligible Employees who are credited with Service for service with H. F. Ahmanson & Company or its affiliates may first enter the Plan on July 1, 1999.
3. Section 3.3(a) is amended in its entirety to read as set forth below:
(a) If he was a Participant prior to his separation from Service, the Plan Entry Date which is coincident with or which next follows the day on which he performs his first Hour of service as a result of his return to Service, or
4. Section 4.1(b) is amended by the addition of the following new paragraph at the end of the existing provision:
The foregoing notwithstanding, the Matching Contribution shall be made on behalf of each eligible Participant who is making Salary Deferral Contributions at a rate of less than 3 percent of such Participant's Considered Compensation in the percentage specified by the Employer. The Matching Contribution made on behalf of each eligible Participant who is making Salary Deferral
Contributions at a rate of 3 percent or more of such Participant's Considered Compensation shall be bifurcated as follows:
(1) At the time periodic Matching Contributions are made during the year, such Participant shall receive a Matching Contribution in the amount specified with respect to a Salary Deferral Contribution equal to 3 percent of the Participant's Considered Compensation; and
(2) As of the end of the year, any such Participant who is actively employed as of the last day of the year shall receive Matching Contributions with respect to his or her Salary Deferral Contributions in excess of 3 percent of his or her Considered Compensation, in the percentage specified by the Employer, to the extent such Matching Contributions do not exceed the applicable limitation of the Plan and the Code.
3. Section 7.5 of the Plan is amended by the addition of new paragraph
(h) to read as set forth below:
(h) Each Employee who has an account under the Plan attributable to such Employee's participation in a defined contribution plan maintained by H. F. Ahmanson & Company or its affiliates shall be vested in such account according to the following schedule:
(1) Ahmanson Advantage Account - Company Matching Account:
Years of Vesting Service Percent Vested
------------------------ --------------
1 0%
2 40%
3 60%
4 80%
5 100%
|
(2) Coast Match Account: 100% Vested
(3) HSB/Coast Rollover Account: 100% Vested
The foregoing notwithstanding, each former employee of H. F. Ahmanson & Company or who terminated employment with H. F. Ahmanson & Company or the Company between March 17, 1998, and March 31, 2000 shall be fully vested in any account maintained on behalf of such former employee under the Plan as a result of the merger of the Ahmanson Advantage Account into the Plan.
4. Effective January 1, 2000, Section 8.1(d) is amended by the addition of new subparagraph (6), to read as set forth below:
(6) An active Employee who commenced receipt of his or
her Vested Accrued Benefit pursuant to a superseded
definition of Required Commencement Date, but whose
Required Commencement Date pursuant to the version of
Section 2.49 in effect as of January 1, 2000 has not
occurred, may suspend distribution of his or her Vested
Accrued Benefit until a subsequent Required Commencement
Date. Any Employee's election to suspend distribution of
a Vested Accrued Benefit pursuant to this Section
8.1(d)(6) must be made pursuant to a one-time
irrevocable election which is executed and will take
effect during such Employee's active employment with the
Company and satisfies such other rules and procedures as
the Administration Committee shall require.
5. Article IX is amended by addition of a new Section 9.8, to read as set forth below:
9.8 ACCOUNTS RELATING TO BOWERY SAVINGS PLAN. Amounts maintained in accounts under the Plan attributable to rollover accounts maintained under the Bowery Savings Plan may be withdrawn by Employees in accordance with the provisions with respect to inservice withdrawals of such accounts contained in the Bowery Savings Plan as in effect on December 31, 1998.
6. Section 1 of Appendix A is amended by removing the word "and" at the end of subsection c, by replacing the period at the end of subsection d with "; and", and by the addition of a new subsection e, to read as set forth below:
e. H.F. Ahmanson & Company.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EXHIBIT 10.13
WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
Amended and Restated Effective September 30, 1998
WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
TABLE OF CONTENTS
Page No.
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ARTICLE 1. INTRODUCTION................................................................................................3
1.1 Effective Date of Plan............................................................................3
1.2 Preservation of Minimum Benefits..................................................................3
1.3 PFB Plan and GW Plan Benefits.....................................................................3
1.4 Transition Relief.................................................................................3
ARTICLE 2. DEFINITIONS.................................................................................................4
2.1 Account...........................................................................................4
2.2 Accrued Benefit...................................................................................4
2.3 Actuarial Equivalent..............................................................................4
2.4 Administration Committee or Committee.............................................................4
2.4A. Allocation Date...................................................................................5
2.5 Alternate Payee...................................................................................5
2.6 Annuity Starting Date.............................................................................5
2.7 Assumed Interest Credit...........................................................................5
2.8 Beneficiary.......................................................................................5
2.9 Board.............................................................................................5
2.10 Break in Service..................................................................................5
2.11 Code..............................................................................................6
2.12 Company...........................................................................................6
2.13 Compensation......................................................................................6
2.13A Daily Interest Credit.............................................................................6
2.14 Disability........................................................................................6
2.15 Early Retirement Date.............................................................................6
2.16 Eligibility Computation Period....................................................................7
2.17 Eligibility Service...............................................................................7
2.18 Eligible Employee.................................................................................7
2.19 Eligible Spouse...................................................................................7
2.20 Employee..........................................................................................7
2.21 Employer..........................................................................................7
2.22 ERISA.............................................................................................7
2.23 Hour of Service...................................................................................7
2.24 Leave of Absence..................................................................................9
2.25 Limitation Year..................................................................................10
2.25A Normal Retirement Age............................................................................10
2.26 Normal Retirement Benefit........................................................................10
2.26A Normal Retirement Date...........................................................................10
2.27 Parental Leave...................................................................................10
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2.28 Participant......................................................................................10
2.29 Plan.............................................................................................10
2.30 Plan Entry Date..................................................................................10
2.31 Plan Year........................................................................................12
2.32 Prior Plans......................................................................................12
2.33 Qualified Domestic Relations Order...............................................................12
2.34 Re-Employed Employee.............................................................................13
2.35 Related Employer.................................................................................14
2.36 Required Commencement Date.......................................................................14
2.37 Service..........................................................................................14
2.38 Trust............................................................................................17
2.39 Trust Agreement..................................................................................17
2.40 Trustee,.........................................................................................17
2.41 Valuation Date...................................................................................17
2.42 Vested Accrued Benefit...........................................................................17
2.43 Vested Account...................................................................................17
2.44 Year of Benefit Service..........................................................................17
2.45 Year of Vesting Service..........................................................................17
ARTICLE 3. PARTICIPATION..............................................................................................19
3.1 Eligibility......................................................................................19
3.2 Eligibility Service..............................................................................19
3.3 Participation -Re-Employed Employees.............................................................19
3.4 Transfer Of Employment Between Employers.........................................................20
3.5 Events Affecting Participation...................................................................20
3.6 Change Of Employment Status......................................................................20
ARTICLE 4. CONTRIBUTIONS..............................................................................................21
4.1 Funding Policy and Employer Contributions........................................................21
4.2 Return of Contributions..........................................................................21
4.3 Participant Contributions........................................................................21
ARTICLE 5. AMOUNT OF BENEFITS.........................................................................................22
5.1 Account Credits..................................................................................22
5.2 Normal Retirement Benefits.......................................................................23
5.3 Benefits Prior to Normal Retirement..............................................................24
5.4 Special Early Retirement Benefits................................................................24
5.5 Pre-Retirement Distribution Benefits.............................................................25
5.6 Nonduplication of Benefits.......................................................................25
5.7 Maximum Benefit Limitation.......................................................................25
5.8 Protection of Benefit Accruals...................................................................28
ARTICLE 6. ELIGIBILITY FOR BENEFITS...................................................................................29
6.1 Normal Retirement................................................................................29
6.2 Early Retirement.................................................................................29
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6.3 Disability.......................................................................................29
6.4 Death............................................................................................29
6.5 Termination of Service Prior to Normal Retirement Date...........................................29
6.6 Forfeiture Occurs and Restoration of Non-Vested Accrued Benefit..................................30
6.7 Termination or Partial Termination...............................................................31
ARTICLE 7. TIME AND METHOD OF PAYMENT OF BENEFITS.....................................................................32
7.1 Time of Payment..................................................................................32
7.2 Method of Payment................................................................................34
7.3 Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity................35
7.4 Involuntary Cash-Out and Elective Payments.......................................................37
7.5 Pacific First Bank Plan Forms of Payment.........................................................37
7.6 Great Western Retirement Plan Forms of Payment...................................................38
ARTICLE 8. TOP-HEAVY PROVISIONS.......................................................................................39
8.1 General Rule.....................................................................................39
8.2 Top-Heavy Plan...................................................................................39
8.3 Definitions......................................................................................39
8.4 Requirements Applicable if Plan is Top-Heavy.....................................................40
ARTICLE 9. EMPLOYER ADMINISTRATIVE PROVISIONS.........................................................................42
9.1 Appointment......................................................................................42
9.2 Term.............................................................................................42
9.3 Compensation.....................................................................................42
9.4 Powers of the Administration Committee...........................................................42
9.5 Investment Powers................................................................................43
9.6 Manner of Action.................................................................................44
9.7 Authorized Representative........................................................................44
9.8 Exclusive Benefit................................................................................44
9.9 Interested Member................................................................................44
9.10 Qualified Domestic Relations Orders..............................................................44
9.11 Payment in the Event of Legal Disability.........................................................45
9.12 Payments Only from Trust.........................................................................45
9.13 Unclaimed Benefits Procedure.....................................................................45
ARTICLE 10. PARTICIPANT ADMINISTRATIVE PROVISIONS.....................................................................47
10.1 Beneficiary Designation..........................................................................47
10.2 No Beneficiary Designation.......................................................................47
10.3 Personal Data to Administration Committee........................................................47
10.4 Address for Notification.........................................................................47
10.5 Place of Payment and Proof of Continued Eligibility..............................................47
10.6 Alienation.......................................................................................48
10.7 Litigation Against the Trust.....................................................................48
10.8 Information Available............................................................................48
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10.9 Beneficiary's Right to Information...............................................................48
10.10 Claims Procedure.................................................................................48
10.11 Appeal Procedure for Denial of Benefits..........................................................49
10.12 No Rights Implied................................................................................50
ARTICLE 11. FIDUCIARY DUTIES..........................................................................................51
11.1 Fiduciaries......................................................................................51
11.2 Allocation of Responsibilities...................................................................51
11.3 Procedures for Delegation and Allocation of Responsibilities.....................................52
11.4 Allocation of Fiduciary Liability................................................................52
ARTICLE 12. AMENDMENT, MERGER AND TERMINATION.........................................................................54
12.1 Amendment........................................................................................54
12.2 Termination......................................................................................54
12.3 Amendment Procedures.............................................................................55
12.4 Procedure on Termination.........................................................................55
12.5 Notice of Change in Terms........................................................................55
12.6 Merger Or Consolidation..........................................................................56
12.7 Limitation Concerning 25 Highest Paid Employees..................................................56
ARTICLE 13. THE TRUST.................................................................................................58
13.1 Purpose of the Trust.............................................................................58
13.2 Appointment of Trustee...........................................................................58
13.3 Exclusive Benefit of Participants................................................................58
13.4 Benefits Supported Only By the Trust.............................................................58
13.5 Rights to Trust Assets...........................................................................58
ARTICLE 14. MISCELLANEOUS.............................................................................................59
14.1 Execution of Receipts and Releases...............................................................59
14.2 No Guarantee of Interests........................................................................59
14.3 Payment of Expenses..............................................................................59
14.4 Employer Records.................................................................................59
14.5 Interpretations and Adjustments..................................................................59
14.6 Uniform Rules....................................................................................59
14.7 Evidence.........................................................................................59
14.8 Severability.....................................................................................59
14.9 Notice...........................................................................................60
14.10 Waiver of Notice.................................................................................60
14.11 Successors.......................................................................................60
14.12 Headings.........................................................................................60
14.13 Governing Law....................................................................................60
ARTICLE 15. EMPLOYER PARTICIPATION....................................................................................61
15.1 Adoption by Employer.............................................................................61
15.2 Withdrawal by Employer...........................................................................61
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15.3 Adoption Contingent Upon Initial and Continued Qualification.....................................61
15.4 No Joint Venture Implied.........................................................................62
ARTICLE 16. SPECIAL SECTION 401(a)(17) PROVISIONS.....................................................................63
16.1 Fresh Start Rule - Option 3 (Formula With Extended Wear-Away)....................................63
16.2 Adjusted Frozen Accrued Benefit for Section 401(a)(17) Employees.................................63
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WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
As Amended and Restated
Effective September 30, 1998
PREAMBLE
Washington Mutual Savings Bank, predecessor to Washington Mutual Bank, established the Retirement Plan for Employees of Washington Mutual Savings Bank (the "Plan") effective January 1, 1944. The Plan was amended at various times and restated in its entirety, effective January 1, 1976. The Plan was further amended effective January 1, 1976, January 1, 1978, January 1, 1979, January 1, 1980, March 1, 1980, August 17, 1982, August 16, 1983, and December 30, 1983.
Effective January 1, 1985, the Plan was again amended and restated in its entirety to consolidate prior amendments and to comply with the requirements of the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984. The Plan was again amended and restated on January 1, 1987, to rename it as the Washington Mutual Savings Bank Cash Balance Pension Plan and to modify the benefit accrual and other features of the Plan to be a "cash balance" defined benefit plan. The rights of any employee who terminated prior to January 1, 1987, shall be determined in accordance with the provisions of the Plan in effect on the date the individual's employment terminated.
The accrued benefits of participants in the Plan who continued to participate in the Plan on January 1, 1987, were converted to a "cash balance" formula according to the provisions of the Plan as restated at that time. Thus, the accrued benefits of participants who are active or terminate employment after December 31, 1986, is expressed in the form of a cash balance, effective January 1, 1987.
Effective January 1, 1988, the Plan was amended to provide credit for purposes of eligibility and vesting hereunder for certain service with Columbia Federal Savings Bank, Shoreline Savings Bank, and IPC Pension Services Company, Inc. of Alaska, and to exclude from coverage certain employees of First Federal Savings Bank of Idaho, Dollar Dry Dock Savings Bank of New York, and individuals covered under Financial Institutions Retirement Fund. The Plan was again amended, effective January 1, 1988, to extend coverage under the Plan to employees of certain affiliated employers of the Company.
The Plan was again amended effective March 1, 1989, to provide for coverage under the Plan for certain employees who had been participants in the Financial Institutions Retirement Fund. Effective May 31, 1989, the Company amended the Plan to adopt the Model Amendments from Internal Revenue Service Notice 88-131 in order to retain the maximum flexibility necessary to amend the Plan to conform with the Tax Reform Act of 1986 within the remedial amendment period therefor.
On January 5, 1990, the Internal Revenue Service issued a favorable letter of determination as to the tax-qualified status of the form of the Plan, as amended January 1, 1987, under the provisions of the Tax Reform Act of 1986 and other laws, notices, rulings and regulations that were effective prior to January 1, 1989.
Effective May 31, 1990, the Company amended the Plan to provide credit for service performed by certain employees with Old Stone Bank. The Company again amended the Plan, effective July 31, 1991, to provide credit for service performed by certain employees with Vancouver Federal Savings Bank. The Company again amended the Plan, effective January 1, 1992, to provide credit for service performed by certain employees with Sound Savings and Loan Association. The Company again amended the Plan, effective April 1, 1992, to provide credit for service performed by certain employees with Great Northwest Bank.
Effective January 1, 1994, the Company amended the Plan to modify the "assumed interest credit" amount that is credited to the accrued benefit of Plan participants as hypothetical interest. The Plan was last amended on March 31, 1994, to provide for the merger of the Pension Plan for Employees of Pacific First Bank into this Plan and to extend certain benefits, rights and features to active participants therein who became participants in the Plan on April 1, 1994.
Due to corporate mergers and acquisitions engaged in by Employers hereunder, the Plan has from time to time been merged with the tax-qualified defined benefit plans formerly sponsored by certain entities. As described in the definition of the term "Service," credit for service with certain acquired or merged entities has been extended under the Plan to employees that have become Participants. This Plan has been amended at various times by board resolution or otherwise to merge with such tax-qualified defined benefit plans and to provide credit for prior service, and such events are described in this amendment and restatement.
Effective November 30, 1994, Washington Mutual, Inc. (the "Company") became the corporate parent of Washington Mutual Bank, the successor to Washington Mutual Savings Bank. In addition, the Company became the corporate sponsor of the Plan. The Company amended the Plan, effective November 30, 1994, to rename it as the Washington Mutual, Inc. Cash Balance Pension Plan and to reflect certain other changes in the corporate structure of the Company and its subsidiaries. The Company further amended the Plan to comply with the Tax Reform Act of 1986, the Unemployment Compensation Amendments of 1992, the Omnibus Budget Reconciliation Act of 1993, and related laws and regulations. As permitted under the remedial amendment period under section 401(b) of the Code, certain provisions of the most recent prior amendment and restatement were effective January 1, 1989, as necessary to comply with the provisions the Code on such date.
Subsequent to the most recent prior amendment and restatement, the Plan has been amended to reflect certain corporate transactions.
The Company now hereby amends and restates the Plan effective September 30, 1998, (except as otherwise specifically provided herein), to reflect amendments to the Plan since the most recent restatement, reflect statutory revisions, and effect of the changes.
In consideration of the foregoing, the Plan is hereby amended and restated as follows, to be generally effective as of the dates recited above:
ARTICLE 1.
INTRODUCTION
1.1 EFFECTIVE DATE OF PLAN. This amendment and restatement of the Plan is generally to be effective as of September 30, 1998, except as otherwise indicated herein or required by the Tax Reform Act of 1986 or subsequent legislation.
1.2 PRESERVATION OF MINIMUM BENEFITS. The Accrued Benefit of an Employee participating in this Plan prior to this amendment and restatement shall not be less than what he would have received hereunder prior to the effective date of this amendment and restatement. Moreover, the Accrued Benefit of an Employee who participated in a pension plan that was merged into this Plan, including the Columbia Federal Savings Bank Pension Plan, the Pension Plan for Employees of Pacific First Bank (the "PFB Plan") and the Great Western Retirement Plan (the "GW Plan"), (collectively, the "Prior Plans") at the time such plan was merged into this Plan shall not be less than such Employee's accrued benefit under such Prior Plan immediately prior to its merger herein.
1.3 PFB PLAN AND GW PLAN BENEFITS. Notwithstanding the benefits generally provided under this Plan, special rules apply to certain individuals who participated in the PFB Plan or the GW Plan and were entitled to receive benefits thereunder at the time it was merged into the Plan. These special rules are embodied in various provisions of the Plan, including Sections 7.5 and 7.6.
1.4 TRANSITION RELIEF. The Plan and certain of the Prior Plans adopted amendments to obtain transitional relief during the remedial amendment period for complying with the Tax Reform Act of 1986 as set forth in Revenue Procedures and other rulings of general applicability published by the Internal Revenue Service ("IRS"). The Plan shall have the transition provisions and remedial amendment period as in effect for the Plan and the Prior Plans, including but not limited to, the Model Amendments, IRS Notice 88-131, as modified by Revenue Procedures published by the IRS subsequent to IRS Notice 88-131.
ARTICLE 2.
DEFINITIONS
For the purpose of this Plan, the following definitions shall apply unless the context requires otherwise. Words used in the masculine gender shall apply to the feminine, where applicable, and wherever the context of the Plan dictates, the plural shall be read as the singular and the singular as the plural. The words "Article" or "Section" in this Plan shall refer to an Article or Section of this Plan unless specifically stated otherwise. Compounds of the word "here," such as "herein" and "hereof" shall be construed to refer to another provision of this Plan, unless otherwise specified or required by the context. It is the intention of the Employer that the Plan be qualified under the provisions of the Code and ERISA and that all its provisions shall be construed to that result.
In determining the time within which an event or action is to take place for purposes of the Plan, no fraction of a day shall be considered, and any act, the performance of which would fall on a Saturday, Sunday, holiday or other non-business day, may be performed on the next following business day.
2.1 ACCOUNT. A hypothetical account maintained for each Participant to which amounts are credited pursuant to Section 5.1(a). At any point in time, the current value of a Participant's Account is the sum of all credited amounts through that date without regard to any interest adjustments for periods after that date. At any point in time, the value of a Participant's Account "as of Normal Retirement Age" is equal to the sum of the current value of the Account (as defined in the preceding sentence) plus Assumed Interest Credits (as provided for under Section 5.1(d), through September 30, 1998, and under Section 5.1(f) on and after October 1, 1998) through the Participant's Normal Retirement Age with no requirement that the Participant perform future service.
2.2 ACCRUED BENEFIT. At any point in time, a Participant's Accrued Benefit is a single life annuity commencing at Normal Retirement Age that is the Actuarial Equivalent of the Participant's Account as of Normal Retirement Age as defined in Section 2.1.
2.3 ACTUARIAL EQUIVALENT. A benefit of equivalent value expected to be received under different forms of payment and/or commencing at different points in time based on the following:
(a) Effective October 1, 1995, an interest rate equal to the Assumed Interest Credit under Section 2.7.
(b) The Applicable Mortality Table as defined under Code section 417(e).
2.4 ADMINISTRATION COMMITTEE OR COMMITTEE. The committee specified under
Section 9.1, as from time to time constituted, to be the administrator of the
Plan within the meaning of section 3(16)(A) of ERISA. If a Committee is not
appointed, the Company shall be the Committee.
2.4A ALLOCATION DATE. The last day of each pay period.
2.5 ALTERNATE PAYEE. Any spouse, former spouse, child, or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant.
2.6 ANNUITY STARTING DATE. The first day of the first period for which an amount is payable as an annuity, or in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred that entitle an individual to such benefit.
2.7 ASSUMED INTEREST CREDIT. For Plan Years beginning January 1, 1987, through January 1, 1993, 7.5% unless changed by Board authorization and Plan amendment prior to the first day of the Plan Year for which the change in rate is effective. For Plan Years beginning on and after January 1, 1994, 4%; unless changed by Board authorization and Plan amendment prior to the first day of the Plan Year for which the change in rate is effective. Pursuant to Board authorization, an additional interest credit of 3.5% is in effect for the Plan Year beginning on January 1, 1994, for a total interest credit of 7.5%. Pursuant to Board authorization, an additional interest credit of 3.625% is in effect for the Plan Year beginning on January 1, 1995, for a total interest credit 7.625%. This annual rate shall apply to Accounts on a prorated basis for the period from January 1, 1995, through September 30, 1995. Effective October 1, 1995, the Assumed Interest Credit for a Plan Year shall be the yield on 30-Year Treasury Constant Maturities, determined for each Plan Year on the basis of the rate in effect for December of the prior year. This annual rate shall be applied to Accounts on a prorated basis for the period from October 1, 1995, through December 31, 1995. Effective January 1, 1999, the Assumed Interest Credit for each Plan Year shall be the average annual rate of interest on 30-Year Treasury Constant Maturities as reported by the Federal Reserve Board for business days in November of the Prior Plan Year.
2.8 BENEFICIARY. Any person or fiduciary designated by a Participant who is or may become entitled to a benefit under the Plan following the death of the Participant; provided, that in the case of a married Participant, the Participant's Beneficiary shall be the Participant's surviving spouse unless the Participant's spouse (i) consents in writing to the designation of another party as Beneficiary of all or a part of the benefit to which the Participant may become entitled under the Plan, (ii) such election designates a Beneficiary (or a form of benefits) which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the Participant without any requirement of further spousal consent), (iii) the spouse's consent acknowledges the effect of such election, and (iv) such consent is witnessed by a notary public or a member of the Administration Committee. Such spousal consent shall not be required if it is established to the satisfaction of the Administration Committee that such consent cannot be obtained because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by regulations. Any consent by a spouse hereunder shall be effective only with respect to that spouse.
2.9 BOARD. The Board of Directors of the Company.
2.10 BREAK IN SERVICE. A Plan Year during which an Employee or Participant does not complete more than 500 Hours of Service, determined as of the end of the Plan Year.
2.11 CODE. The Internal Revenue Code of 1986, as amended.
2.12 COMPANY. Washington Mutual Savings Bank until November 30, 1994; Washington Mutual, Inc., beginning November 30, 1994, and its successors and assigns.
2.13 COMPENSATION. The Employee's base pay (including amounts attributable to shift differentials and overtime pay) for services rendered to the Employer, determined prior to any pre-tax contributions under either a "qualified cash or deferred arrangement" (as defined under section 401(k) of the Code) maintained by an Employer or a "cafeteria plan" (as defined under section 125 of the Code) maintained by an Employer and earned during the period he is a Participant. Base pay shall include commissions, production incentive compensation and bonuses, but shall not include severance pay, moving expenses, long-term disability insurance payments, nonqualified deferred compensation, compensatory time, and any other fringe benefits or amounts attributable to any other employee benefit plan.
Effective for Plan Years beginning on and after January 1, 1989, Compensation in excess of $200,000, indexed as provided under section 401(a)(17) of the Code, shall be excluded with respect to the Accrued Benefit after January 1, 1989. Notwithstanding the preceding sentence, however, effective January 1, 1994, Compensation shall be limited for Plan purposes to $150,000, as adjusted pursuant to section 401(a)(17) of the Code and taking advantage of any grandfather rules relating to this limitation. Also, see Article XVI for a description of the section 401(a)(17) rules (including the fresh start alternative) applicable to the Plan.
In determining the Compensation limit under section 401(a)(17) of the Code, if any individual is a member of the family of a 5% owner or of a highly compensated employee (as defined in section 414(q) of the Code) in the group consisting of the ten highly compensated employees paid the greatest Compensation during the Plan Year, then (i) such individual shall not be considered a separate employee, and (ii) any Compensation paid to such individual and any Employer or Employee contributions made on behalf of such individual shall be treated as if it were paid to or on behalf of the 5% owner or highly compensated employee. For purposes of the immediately preceding sentence, the term "family" means, with respect to any Employee, only the spouse of the Employee and any lineal descendants of the Employee who have not attained age 19 before the close of the Plan Year.
2.13A DAILY INTEREST CREDIT. The Daily Interest Credit shall be the Assumed Interest Credit compounded daily based on the number of days within the Plan Year.
2.14 DISABILITY. A Participant is Disabled when the Committee determines, in its sole and absolute discretion, that the Participant has become totally and permanently disabled and unable to perform his usual duties for the Employer, as determined by a medical examiner satisfactory to the Committee. The Committee may instead rely on the determination of Disability by the Social Security Administration.
2.15 EARLY RETIREMENT DATE. The later of a Participant's 55th birthday or the date on which he has completed at least one Year of Service.
2.16 ELIGIBILITY COMPUTATION PERIOD. The twelve-month period beginning with an Eligible Employee's Employment Commencement Date, and each anniversary thereof.
2.17 ELIGIBILITY SERVICE. The period of Service of an Employee which is used to determine the Employee's eligibility to participate herein, determined in accordance with the provisions of Section 3.2.
2.18 ELIGIBLE EMPLOYEE. Any Employee of the Employer who is not covered by a collective bargaining agreement; except that an Employer may designate any other classification of Employees as eligible to participate in this Plan in connection with such Employer's adoption of this Plan pursuant to the terms of Article XV. Effective January 1, 1987, individuals who are both Employees and are employed by an entity that is not an Employer or a Related Employer and who are not directly compensated by an Employer shall not be Eligible Employees (e.g., Employees of Murphey Favre, Inc. who are also employed by and located in any office of First Federal Savings Bank of Idaho or Dollar Dry Dock Saving Bank of New York).
2.19 ELIGIBLE SPOUSE. A Participant's legal spouse at the time of his Annuity Starting Date.
2.20 EMPLOYEE. An employee of an Employer. In addition, the term "Employee" shall mean any leased employee (within the meaning of section 414(n)(2) of the Code) that section 414(n) of the Code requires the Employer to treat as an employee, but only to the extent coverage of such leased employee is necessary to maintain the qualification of the Plan. However, a person who is a nonresident alien who receives no earned income (within the meaning of section 911(d)(2) of the Code from the Employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3) of the Code) shall not be considered an Employee.
2.21 EMPLOYER. The Company, Washington Mutual Bank, Washington Mutual Bank FSB, Washington Mutual Bank, FA, Washington Mutual Insurance Services, WM Funds Distributors, Inc., Aristar Management Inc., WM Advisors, Inc., WM Fund Services, Inc., California Reconveyance Co., WM Financial Services, Inc., WM Shareholder Services, Inc., and any Related Employer which has adopted the Plan pursuant to the terms of Article .
2.22 ERISA. The Employee Retirement Income Security Act of 1974, as amended.
2.23 HOUR OF SERVICE. Each hour for which the Employee or Participant is either directly or indirectly paid or entitled to payment by an Employer or a Related Employer for the performance of duties or for reasons (such as vacation, holiday, sickness, incapacity, layoff, jury duty, military duty, or leave of absence) other than for the performance of duties (irrespective of whether the employment relationship has terminated), and each hour for which back pay, irrespective of mitigation of damages, has been awarded to the Employee or Participant or agreed to by an Employer. The number of Hours of Service to be credited to an Employee or Participant because of his being entitled to payment for reasons other than for the performance of duties shall be determined in accordance with section 2530.200b-2(b) of the Department of
Labor Regulations. Notwithstanding the preceding sentence, not more than 501 Hours of Service shall be credited to any Employee or Participant during any computation period for any single, continuous period during which the Employee or Participant performs no duties. In addition, an hour of service performed for a Related Employer during the time that (i) the Related Employer is a Related Employer and (ii) any other Related Employer maintains or adopts the Plan, that if performed for an Employer would be an Hour of Service, and any hour with respect to such a Related Employer that would be an Hour of Service if it were creditable pursuant to this Section with respect to an Employer shall be considered an Hour of Service performed for the Employer.
(a) The Administration Committee shall credit Hours of Service with respect to any Employee or Participant in the following manner:
(1) Hours of Service for which an Employee or Participant is either directly or indirectly paid or entitled to payment by an Employer for the performance of duties shall be credited for the Plan Year in which the Employee performs the duties.
(2) Hours of Service for which an Employee or Participant is either directly or indirectly paid or entitled to payment by an Employer for reasons (such as vacation, holiday, sickness, incapacity, layoff, jury duty, military duty, or leave of absence) other than for the performance of duties shall be credited as follows:
(A) If payment for such Hours of Service is calculated on the basis of units of time (such as hours, days, weeks, or months), such Hours of Service shall be credited to the Plan Year(s) in which the period during which no duties are performed occurs, beginning with the first unit of time to which the payment relates.
(B) If payment for such Hours of Service is not calculated on the basis of units of time, such Hours of Service shall be credited to the Plan Year in which the period during which no duties are performed occurs, or, if the period during which no duties are performed extends beyond one Plan Year, such Hours of Service shall be allocated between not more than the first two Plan Years on any reasonable basis which is consistently applied.
(3) Hours of Service for which back pay has been awarded to an Employee or Participant or agreed to by an Employer shall be credited for the Plan Year(s) in which the award or the agreement pertains rather than for the Plan Year in which the award, agreement, or payment is made.
(b) The Committee shall determine Hours of Service from records of hours worked and hours for which payment is made or due according to each Hour of Service actually completed by an Employee. However, in the event that actual Hours of Service cannot be determined from the Employer's records, the Employee shall be credited with Hours of Service pursuant to the elapsed time method specified in Treasury Regulation Section 1.410(a)-7.
(c) Solely for purposes of determining whether an Employee or Participant has incurred a Break in Service under Section 3.2, an Employee or Participant shall be credited
with eight hours for each day (to a maximum of 40 hours per week) that the Employee or Participant is on any unpaid Leave of Absence. In no event shall hours credited under the preceding sentence be counted as Hours of Service for purposes of computing a Participant's Vested Accrued Benefit or for purposes of determining whether a Participant is eligible to accrue a benefit for a Plan Year. In addition, an Employee or Participant who incurs a Parental Absence shall be treated as an Employee or Participant on an unpaid Leave of Absence for purposes of the first sentence of this paragraph; provided, however, that Hours of Service credited to an Employee or Participant as a result of a Parental Absence shall be credited only in the Plan Year in which such Parental Absence commences unless such Employee or Participant would not have incurred a Break in Service during such Plan Year without being credited with Hours of Service for such Parental Absence, in which case such Hours of Service shall be credited for the Plan Year immediately following the Plan Year in which the Parental Absence commences. The Hours of Service to be credited in connection with such Parental Absence shall be the Hours of Service that otherwise would normally have been credited to the Employee or Participant but for such absence or, in any case in which the Administration Committee is unable to determine the number of Hours of Service that would otherwise normally have been credited to such Employee or Participant, eight Hours of Service per day of absence, provided that the total number of hours so treated as Hours of Service for any period of Parental Absence shall not exceed 501 Hours of Service.
2.24 LEAVE OF ABSENCE. Any period of absence from the active employment of an Employer specifically granted to the Employee in writing in accordance with a uniform policy, consistently applied, or military service under circumstance in which the Employee has reemployment rights under Federal law, subject to the following conditions:
(a) Absence from the active Service of the Employer by reason of Leave of Absence granted by the Employer because of accident, illness, or military service or for any other reason granted by the Employer on the basis of a uniform policy applied without discrimination will not terminate an Employee's Service, provided he returns to the active employment of the Employer at or prior to the expiration of his leave, or, if not specified therein, within the period of time which accords with the Employer's policy with respect to permitted absences.
(b) Absence from the active Service of the Employer because of engagement in military service under circumstances in which the Employee has reemployment rights under Federal law will be considered a Leave of Absence granted by the Employer and will not terminate the Service of an Employee if he returns to the active employment of the Employer within 90 days from and after discharge or separation from such engagement or, if later, within the period of time during which he has re-employment rights under any applicable Federal law.
(c) If any such Employee who is on Leave of Absence pursuant to paragraphs (a) or (b) above does not return to the active Service of the Employer at or prior to the expiration of his Leave of Absence, his Service will be considered terminated as of the date on which his Leave of Absence began; provided, however, that if such Employee is prevented from his timely return to the active employment of the Employer because of his permanent
disability or his death, he shall be treated under the Plan as though he returned to active Service immediately preceding the date of his permanent disability or his death.
2.25 LIMITATION YEAR. The 12 consecutive month period beginning on January 1 and ending on December 31.
2.25A NORMAL RETIREMENT AGE. Age 65.
2.26 NORMAL RETIREMENT BENEFIT. The sum of amounts credited to the Participant's Account pursuant to Section 5.1 as of his Normal Retirement Age. The amount of the Normal Retirement Benefit as of any date prior to Normal Retirement Age shall be determined by calculating the amount credited to a Participant's Account, plus interest credit adjustments from the date of determination until the Participant's Normal Retirement Age; provided that the rate of interest credit adjustments for all periods until the Participant's Normal Retirement Age is the rate of the Assumed Interest Credit in effect for the Plan Year for which the determination is being made.
2.26A NORMAL RETIREMENT DATE. A Participant's 65th birthday.
2.27 PARENTAL LEAVE. A period commencing on or after January 1, 1985, in which the Employee is absent from work immediately following his or her active employment because of the Employee's pregnancy, the birth of the Employee's child, or the placement of a child with the Employee in connection with the adoption of that child by the Employee, or for purposes of caring for that child for a period beginning immediately following that birth or placement.
2.28 PARTICIPANT. Any person included in the participation of the Plan, as provided in Article III, including Participants who are former Employees.
2.29 PLAN. The Washington Mutual, Inc. Cash Balance Pension Plan, as embodied herein and as amended from time to time.
2.30 PLAN ENTRY DATE. Each January 1, April 1, July 1, and October 1.
(a) However, the Plan Entry Date on which the following Eligible Employees may first enter the Plan shall be the dates specified below:
(1) Eligible Employees who were employed by Somers, Grove & Co., Inc. at the time it was acquired by WM Financial, Inc. may first enter the Plan January 1, 1987.
(2) Eligible Employees who are credited with Service for service with IPC Pension Services Company, Inc. of Alaska may first enter the Plan on July 1, 1988.
(3) Eligible Employees who are credited with Service for service with Columbia Federal Savings Bank may first enter the Plan on October 1, 1988.
(4) Eligible Employees who are credited with Service for service with Shoreline Federal Savings Bank may first enter the Plan on March 1, 1989.
(5) Eligible Employees who are credited with Service for service with Benefit Service Corporation (Tacoma) may first enter the Plan on January 1, 1991.
(6) Former employees of Old Stone Bank who are entitled hereunder to be credited with Service for service performed for Old Stone Bank may first enter the Plan on July 1, 1991.
(7) Eligible Employees who were employed by Frontier Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on June 22, 1990, may first enter the Plan on July 1, 1991.
(8) Eligible Employees who were employed by Williamsburg Federal Savings Bank at the time it was acquired by Washington Mutual, a Federal Savings Bank on October 1, 1990, may first enter the Plan on October 1, 1991.
(9) Eligible Employees who are credited with Service for service with Vancouver Federal Savings and Loan may first enter the Plan on October 1, 1991.
(10) Eligible Employees who are credited with Service for service with Sound Savings and Loan may first enter the Plan on January 1, 1992.
(11) Eligible Employees who are credited with Service for service with Great Northwest Bank may first enter the Plan on April 1, 1992.
(12) Eligible Employees who were employed by Crossland Federal Savings Bank at the time it was acquired by Washington Mutual, a Federal Savings Bank on November 9, 1991, may first enter the Plan on January 1, 1993.
(13) Eligible Employees who were employed by World Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on March 6, 1992, may first enter the Plan on April 1, 1993.
(14) Eligible Employees who are credited with Service for service with Pioneer Savings Bank may first enter the Plan on April 1, 1993.
(15) Eligible Employees who are credited with Service for service with Pacific First Financial Corporation, Pacific First Bank, a Federal Savings Bank or their affiliates ("Pacific First") may first enter the Plan on April 1, 1994.
(16) Eligible Employees who were employed by Great Western Bank at the time it was acquired by Pacific First may first enter the Plan on May 1, 1993.
(17) Eligible Employees who are credited with Service for service with Summit Savings and Loan may first enter the Plan on January 1, 1995.
(18) Eligible Employees who are credited with Service for service with Olympus Savings Bank may first enter the Plan on May 1, 1995.
(19) Eligible Employees who are credited with Service for service with Enterprise Bank may first enter the Plan on January 1, 1996.
(20) Eligible Employees who are credited with Service for service performed with Western Bank may first enter the Plan on February 1, 1996.
(21) Eligible Employees who are credited with Service for service with Utah Federal Savings Bank may first enter the Plan on January 1, 1997.
(22) Eligible Employees who are credited with Service for service with United Western Financial Group, Inc. or its affiliates may first enter the Plan on April 1, 1997.
(23) Eligible Employees who were employed by American Savings Bank, F.A. at the time it was acquired by the Company may first enter the Plan on January 1, 1998.
(24) Eligible Employees who were credited with Service for service with Great Western Financial Corporation may first enter the Plan on January 1, 1998.
2.31 PLAN YEAR. The 12 consecutive month period beginning on January 1 and ending on December 31 of each year.
2.32 PRIOR PLANS. The plans for which this Plan is a successor plan due to merger of such Prior Plan into this Plan, including the Pension Plan for Employees of Pacific First Bank and the Great Western Retirement Plan.
2.33 QUALIFIED DOMESTIC RELATIONS ORDER. An order entered on or after January 1, 1985, that creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to a Participant under the Plan, does not require the Plan to provide any type or form of benefit, or any option, not otherwise provided under the Plan, does not require the Plan to provide increased benefits (determined on the basis of actuarial value), does not require the payment of benefits to an Alternate Payee that are required to be paid to another Alternate Payee under another order previously determined to be a Qualified Domestic Relations Order, and that has the following characteristics:
(a) A judgment, decree, or order (including one that approves a property settlement agreement) that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant and is
rendered under a state (within the meaning of section 7701(a)(10) of the Code) domestic relations law (including a community property law).
(b) The order must clearly specify:
(1) the name and last known mailing address (if any) of the Participant and the name and mailing address of each Alternate Payee covered by the order;
(2) the amount or percentage of the Participant's benefits to be paid by the Plan to each such Alternate Payee, or the manner in which such amount or percentage is to be determined;
(3) the number of payments or payment period to which such order applies; and
(4) specifically specifies that it is applicable with respect to this Plan.
(c) In the case of any payment before a Participant has separated from Service, an order will not be treated as failing to be a Qualified Domestic Relations Order solely because such order requires the payment of benefits be made to an Alternate Payee:
(1) in the case of any payment before a Participant has separated from Service, on or after the date on which the Participant is entitled to a distribution under the Plan or on or after the later of the date the Participant attains age 50 or the earliest date on which the Participant could begin receiving benefits under the Plan if the Participant separated from Service,
(2) as if the Participant had retired on the date on which payment is to commence under such order (taking into account only the present value of benefits actually accrued as of such date), and
(3) in any form in which such benefits may be paid under the Plan to the Participant (other than in the form of a joint and survivor annuity with respect to the Alternate Payee and his or her subsequent spouse).
(d) In addition, the Administration Committee shall treat any order entered prior to January 1, 1985, as a Qualified Domestic Relations Order if the Committee is paying benefits pursuant to such order on such date, and the Committee may treat any other order entered prior to January 1, 1985, as a Qualified Domestic Relations Order even if such order does not satisfy the requirements of this Section.
2.34 RE-EMPLOYED EMPLOYEE. An Employee who (i) previously separated from Service or service with a Related Employer with a nonforfeitable interest in his Accrued Benefit or (ii) previously separated from Service or service with a Related Employer without a nonforfeitable interest in his Accrued Benefit but who resumes Service or service with a Related Employer before his number of consecutive Breaks in Service equals or exceeds the greater of
five or his number of Years of Vesting Service prior to his separation from Service or separation from service with a Related Employer.
2.35 RELATED EMPLOYER. Any business entity that is, along with an
Employer, (i) a member of a controlled group of corporations (as defined by
section 414(b) of the Code, with such section being modified, for purposes of
Section 5.6, in accordance with section 415(h) of the Code), (ii) a member of a
group of trades or businesses (whether or not incorporated) that are under
common control (as defined bisection 414(c) of the Code, with such section being
modified, for purposes of Section 5.6, in accordance with section 415(h) of the
Code), (iii) a member of an affiliated service group (as defined by section
414(m) of the Code), or (iv) any other entity described by Treasury Regulations
promulgated under section 414(o) of the Code.
2.36 REQUIRED COMMENCEMENT DATE. The April 1st of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the employee retires. However, for a Participant who is a 5% owner (as defined in section 416(d) of the Code) with respect to the Plan Year ending in the calendar year in which the employee attains age 70 1/2, the Required Commencement Date shall be April 1st of the calendar year following the calendar year in which the employee attains 70 1/2.
2.37 SERVICE. Any period of time the Employee is employed by an Employer, including any period the Employee is on Leave of Absence authorized by the Employer under a uniform, nondiscriminatory policy applicable to all Employees. The Plan shall treat service of an Employee with a predecessor or Related Employer as Service with an Employer to the extent required by section 414(a) of the Code.
(a) For all purposes other than determining Years of Benefit Service, Service shall also include the following:
(1) Each Eligible Employee who was an employee with Somers, Grove & Co., Inc. on December 31, 1986, and at the time it was acquired by WM Financial, Inc. shall be credited with Service for years of service with Somers, Grove & Co., Inc.
(2) Employees who were employed by Shoreline Federal Savings Bank at the time it was acquired by Washington Mutual, a Federal Savings Bank on May 2, 1988, shall be credited with up to five years of Service for service performed with Shoreline Federal Savings Bank.
(3) Employees who were employed by Columbia Federal Savings Bank at the time it was acquired by Washington Mutual, a Federal Savings Bank on May 2, 1988, shall be credited with up to five years of Service for service performed with Columbia Federal Savings Bank.
(4) Employees who were employed by IPC Pension Services, Inc. Corporation of Alaska at the time it was acquired by WM Financial, Inc. on May 17, 1988, shall be credited with up to five years of Service for service performed with IPC Pension Services, Inc. of Alaska.
(5) Employees who were employed by Benefit Service Corporation (Tacoma) at the time it was acquired by WM Financial, Inc. shall be credited with up to five years of Service for service performed with Benefit Service Corporation (Tacoma).
(6) Former employees of Old Stone Bank (i) employed in a "regular" position as defined by the Company (or the prior sponsor of the Plan) as of May 31, 1990, or (ii) originally employed in a "temporary" position as defined by the Company (or the prior sponsor of the Plan) as of May 31, 1990, and subsequently transferred to a "regular" position with the Company (or the prior sponsor of the Plan) shall be credited with Service for years of service with Old Stone Bank (or its predecessor) upon completion of one Year of Eligibility Service measured from May 31, 1990.
(7) Employees who were employed by Vancouver Federal Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on August 1, 1991, shall be credited with up to five years of Service for service performed with Vancouver Federal Savings and Loan.
(8) Employees who were employed by Sound Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on January 1, 1992, shall be credited with up to five years of Service for service performed with Sound Savings and Loan.
(9) Employees who were employed by Great Northwest Bank at the time it was acquired by Washington Mutual, a Federal Savings Bank on April 1, 1992, shall be credited with up to five years of Service for service performed with Great Northwest Bank.
(10) Employees who were employed by Pioneer Savings Bank at the time it was acquired by Washington Mutual Savings Bank on March 1, 1993, shall be credited with up to five years of Service for service performed with Pioneer Savings Bank.
(11) Employees who were employed by Pacific First Financial Corporation, Pacific First Bank, a Federal Savings Bank or their affiliates (collectively, "Pacific First") and became Employees in connection with the acquisition of Pacific First by Washington Mutual, a Federal Savings Bank on April 1, 1993, and are Employees on April 1, 1994, shall be credited with up to five years of Service for service performed with Pacific First.
(12) Employees who were employed by Great Western Bank at the time it was acquired by Pacific First shall be credited with up to five years of Service for service performed with Great Western Bank.
(13) Employees who were employed by Summit Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on November 15, 1994, and who are employed by an Employer on November 15, 1995, shall be credited with up to five years of Service for service performed with Summit Savings and Loan that is in addition to Service credited pursuant to paragraph (b)(4) of this Section.
(14) Employees who were employed by Olympus Savings Bank at the time it was acquired by Washington Mutual Federal Savings Bank on April 28, 1995, and who are employed by an Employer on April 29, 1996, shall be credited with up to five years of Service for service performed with Olympus Savings Bank.
(15) Employees who were employed by Enterprise Bank at the time it was acquired by the Company on August 29, 1995, and who continue to be employed by an Employer thereafter, shall be credited with up to six years of Service for service performed with Enterprise Bank.
(16) Employees who were employed by Western Bank at the time it was acquired by the Company on January 31, 1996, shall be credited with Service for service performed with Western Bank.
(17) Employees who were employed by Utah Federal Savings Bank at the time it was acquired by the Company or by its affiliate shall be credited with Service for service performed with Utah Federal Savings Bank.
(18) Employees who were employed by United Western Financial Group, Inc. at the time it was acquired by the Company or by its affiliate shall be credited with Service for service performed with United Western Financial Group, Inc. or its affiliates.
(19) Employees who were employed by American Savings Bank, F.A. at the time it was acquired by the Company shall not be credited for Service for any service with American Savings Bank, F.A.
(20) Employees who were employed by Great Western Financial Corporation at the time it was acquired by the Company shall be credited with Service for service performed with Great Western Financial Corporation.
(21) Employees hired by the Company on or after July 21, 1998 and who were employed by H. F. Ahmanson and Company or one of its affiliates immediately prior to such hire shall be credited with Service for service performed with H. F. Ahmanson Company or its affiliates.
(b) Solely for purposes of determining eligibility for participation under Article III, credit for Service shall be given as follows:
(1) Service shall include service with IPC Pension Services Company, Inc. of Alaska, effective January 1, 1988.
(2) Service shall include service with Shoreline Savings Bank, effective January 1, 1988.
(3) Former employees of Old Stone Bank employed with the Washington Mutual Savings Bank in a "regular" position (as defined by the Company) as of
May 31, 1990, will be credited with Service for service performed with Old Stone Bank (or its predecessor). Former employees of Old Stone Bank employed with Washington Mutual Savings Bank in a "temporary" position (as defined by the Company) as of May 31, 1990, will be credited with Service for service performed with Old Stone Bank (or its predecessor) as of the date such employee transfers to a "regular" position with the Employer.
(4) Employees who were employed by Summit Savings and Loan at the time it was acquired by Washington Mutual, a Federal Savings Bank on November 15, 1994, shall be credited with up to five years of Service for service performed with Summit Savings and Loan.
2.38 TRUST. The trust related to the Plan, as it may be amended from time to time, to hold, administer, and invest the contributions made under the Plan, and all property of every kind held or acquired by the Trustee under the Trust Agreement.
2.39 TRUST AGREEMENT. The instrument executed by the Company and the Trustee, as amended from time to time, fixing the rights and liabilities of each with respect to holding and administering the Trust for the purposes of the Plan.
2.40 TRUSTEE, The trustee, trustees, or any successor trustee, appointed by the proper officers of the Company, acting at any time under the terms of the Trust Agreement, as amended from time to time.
2.41 VALUATION DATE. The last day of the Plan Year. The Committee may also designate any additional date as a special Valuation Date.
2.42 VESTED ACCRUED BENEFIT. The percentage of a Participant's Accrued Benefit to which he becomes entitled upon an event of distribution hereunder, determined in accordance with Article VI.
2.43 VESTED ACCOUNT. The percentage of a Participant's Account to which he becomes entitled upon an event of distribution hereunder, determined in accordance with Article VI.
2.44 YEAR OF BENEFIT SERVICE. A Plan Year during which a Participant who is an Employee (i) is credited with 1,000 Hours of Service, (ii) dies, (iii) becomes Disabled, (iv) retires from employment after his Normal Retirement Date, or (v) retires from employment after his Early Retirement Date.
2.45 YEAR OF VESTING SERVICE. Any Plan Year during which a Participant completes at least 1,000 Hours of Service with the Employer or a Related Employer.
(a) In the case of an Employee who separates from Service and who resumes employment with the Employer, but not as a Re-Employed Employee, Years of Vesting Service prior to his resumption of employment shall be disregarded.
(b) If a Participant incurs five consecutive Breaks in Service, Years of Vesting Service after such Breaks in Service shall not increase the Participant's nonforfeitable percentage in his Accrued Benefit that accrued prior to such five consecutive Breaks in Service.
ARTICLE 3.
PARTICIPATION
3.1 ELIGIBILITY.
(a) General. Each Eligible Employee who was a Participant in the Plan on the effective date of this amendment and restatement shall continue to be a Participant hereunder. Each other Eligible Employee may become a Participant in the Plan on the Plan Entry Date (if employed on that date) that coincides with or immediately follows the date upon which he completes one year of Eligibility Service.
(b) Other Employees. Each Eligible Employee who (i) was an employee
with Somers, Grove & Co., Inc., on December 31, 1986, and who had at least six
months of service (as that term is defined in the former Somers, Grove & Co.,
Inc. 401(k) Savings Plan) on that date, or (ii) was a participant in said former
401(k) Plan of Somers, Grove & Co., Inc. on December 31, 1986, shall become a
Participant on January 1, 1987.
3.2 ELIGIBILITY SERVICE.
(a) GENERAL. For purposes of determining an Employee's eligibility to participate in the Plan, except as provided in Section 3.2(b) below, an Employee shall be credited with one year of Eligibility Service at the end of an Eligibility Computation Period in which he completes 1,000 Hours of Service with the Employer or a Related Employer, provided that he remains an Eligible Employee on the Plan Entry Date that is coincident with or follows such Eligibility Computation Period.
(b) AFTER SEPARATION FROM SERVICE. In the case of an Employee who separates from Service and who resumes Service, but not as a Re-Employed Employee, years or months of Eligibility Service credited to such Employee for Service performed prior to his resumption of Service shall be disregarded. For purposes of this Section, in the case of an Employee who separates from Service and who resumes Service, but not as a Re-Employed Employee, Employment Commencement Date shall mean the date on which an Employee first performs an Hour of Service for the Employer following the close of the last Plan Year in which the Employee incurred a Break in Service.
3.3 PARTICIPATION - RE-EMPLOYED EMPLOYEES. In general, an Employee whose Service terminates and who is subsequently re-employed shall commence participation in accordance with the provisions of Sections 3.1 and 3.2. However, a Re-Employed Employee who is an Eligible Employee shall re-enter the Plan as a Participant:
(a) If he was a Participant prior to his separation from Service, the day he performs his first Hour of Service as a result of his return to Service, or
(b) If he was not a Participant prior to his separation from Service, on the later of (1) the first Plan Entry Date after he has completed the requisite Eligibility Service specified
in Section 3.1 (counting any Service previously credited under Section 3.2(a) and not subsequently disregarded under Section 3.2(b), taking into account, where relevant, any prior Service, or (2) his reemployment commencement date.
3.4 TRANSFER OF EMPLOYMENT BETWEEN EMPLOYERS. If a Participant enters directly into the employ of another Employer, he or she shall continue his or her participation hereunder. Such Participant shall receive credit for his or her aggregate service with all Employers, but employment by two or more Employers during the same period of time shall not result in the duplication of any such Service during a single period of time.
3.5 EVENTS AFFECTING PARTICIPATION. An Employee's participation in the Plan shall end when he or she is no longer employed by an Employer unless he or she is entitled to either an immediate or a deferred pension under the Plan, in which case participation shall continue. Participation shall also continue while on approved leave of absence but no Service shall be earned for such period, except as otherwise specifically provided in the Plan.
3.6 CHANGE OF EMPLOYMENT STATUS. In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the service requirements and would have otherwise previously become a Participant.
ARTICLE 4.
CONTRIBUTIONS
4.1 FUNDING POLICY AND EMPLOYER CONTRIBUTIONS. The Administration Committee shall establish a funding policy for the Plan. Each Employer shall contribute to the Trust, in such manner and at such times as established by the Administration Committee, such amount as shall be necessary to satisfy such funding policy and to keep the Trust actuarially sound. All expenses that arise in connection with the administration of the Plan, including but not limited to premium payments to the Pension Benefit Guaranty Corporation, shall be paid out of the Trust to the extent the same are not paid by the Employers. Any forfeitures shall be used to reduce the Employers' contributions otherwise payable and to defray administrative expenses.
4.2 RETURN OF CONTRIBUTIONS.
(a) If all or part of an Employer's deductions under Section 404 of the Code for contributions to the Plan are disallowed by the Internal Revenue Service, the portion of the contributions to which that disallowance applies shall be returned to the Employer without interest, but reduced by any investment loss attributable to those contributions. The return shall be made within one year after the date of the disallowance of deduction.
(b) An Employer may recover without interest the amount of its contributions to the Plan made on account of a mistake of fact, reduced by any investment loss attributable to those contributions, if recovery is made within one year after the date of those contributions.
4.3 PARTICIPANT CONTRIBUTIONS. No Participant contributions are required or permitted.
ARTICLE 5.
AMOUNT OF BENEFITS
5.1 ACCOUNT CREDITS. Subject to the limitations in Section 5.7, Accounts shall be credited with the following amounts:
(a) The Account of each Employee who was a Participant as of December 31, 1986, and who continues to participate in the Plan as amended and restated on and after January 1, 1987, shall be credited with a beginning pension credit, which is the conversion of such Employee's accrued benefits hereunder on December 31, 1986, to the present value lump sum thereof.
(1) Such conversion shall be based on the 1984-UP Mortality Table with an interest rate equal to the Pension Benefit Guaranty Corporation immediate and deferred annuity rates in effect for plan termination as of December 31, 1986.
(2) In calculating the beginning pension credit, the effect of a Participant's primary Social Security benefit, which is determined assuming that his compensation will continue until age 65 at the same rate as in effect at the time of his termination of employment with an Employer, shall be modified as appropriate according to the actual salary history that may be provided to the Administration Committee by the Participant. Each such Participant may elect for the Social Security offset of his benefit to be computed under the Plan's benefit formula on the basis of the Participant's actual salary history instead of estimated compensation.
(b) The Account of each Employee who participated in a Prior Plan and who continues to participate in the Plan after both December 31, 1986, and the date the Prior Plan is merged into this Plan shall be credited with a beginning pension credit based on the actuarial conversion factors applied by the Administration Committee at the time of the merger of the Prior Plan.
(c) The Account of each Participant who is credited with a Year of Benefit Service for a Plan Year beginning on or after January 1, 1987, shall be credited with the following amounts for the Plan Year:
(1) For Plan Years beginning prior to January 1, 1995, 3% of his Compensation for the Plan Year. For Plan Years beginning on or after January 1, 1995, each Participant's Account shall be credited with a percentage of his Compensation for the Plan Year, determined by the Participant's Years of Benefit Service, as follows:
YEARS OF PERCENT OF
BENEFIT SERVICE COMPENSATION
--------------- ------------
Less than 5 2.5%
5, but less than 10 3.0%
10 or more 4.0%
|
However, the percentage of Compensation credited under this paragraph for Participants who began participation in the Plan prior to January 1, 1995, and have fewer than five Years of Benefit Service shall be 3.0%.
(2) The amount credited under paragraph (1) multiplied by one-half of the Assumed Interest Credit in effect for the Plan Year.
(d) The sum of the Assumed Interest Credit multiplied by the Account balance at the beginning of each Plan Year.
(e) For accounts merged for former Great Western Bank employees as of July 1, 1998, the amounts credited to accounts as detailed in Section 5.1(c)(2) and 5.1(d) shall be superseded by daily interest crediting. The amount credited to accounts each day shall be the Account value as of the preceding day multiplied by a rate equal to the Daily Interest Credit in effect for the Plan Year.
(f) Commencing October 1, 1998, the amounts credited in Section 5.1(c) and 5.1(d) shall be superseded by the following credits. Each Participant who is paid Compensation during a payroll period shall be credited with a percentage of his Compensation for the payroll period as of the Allocation Date, determined by the Participant's Years of Benefit Service, as follows:
YEARS OF PERCENT OF
BENEFIT SERVICE COMPENSATION
--------------- ------------
Less than 5 2.5%
5, but less than 10 3.0%
10 or more 4.0%
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However, the percentage of Compensation credited under this paragraph for Participants who began participation in the Plan prior to January 1, 1995, and have fewer than five Years of Benefit Service shall be 3.0%. For the 1998 Plan Year, in no event shall a Participant receive credits to his Account in a percent lower that would have been credited to his account under the provision in effect prior to October 1, 1998. Each Account shall also be credited with daily interest crediting. The amount credited to accounts each day shall be the Account value as of the preceding day multiplied by a rate equal to the Daily Interest Credit in effect for the Plan Year.
5.2 NORMAL RETIREMENT BENEFITS. For Plan Years beginning on or after January 1, 1987, any Participant who retires on his Normal Retirement Date may elect to receive his Vested
Accrued Benefit on that date. For Plan Years beginning prior to January 1, 1987, Plan benefits shall be determined according to the provisions of the Plan in effect in the year of his retirement or termination from Service.
5.3 BENEFITS PRIOR TO NORMAL RETIREMENT. Any Participant who terminates Service in Plan Years beginning on or after January 1, 1987, but prior to his Normal Retirement Date, shall be entitled to receive his Vested Accrued Benefit at his Normal Retirement Date. In addition, at the election of the Participant and subject to the available forms and restrictions of Section 7.2, a distribution can be made to the participant as early as the Annuity Starting Date following termination of employment by submitting a written notice to the Administration Committee at least 30 days prior to his Annuity Starting Date. The single life annuity benefit payable to the Participant shall be determined as follows:
(a) For distributions commencing on or after October 1, 1995, the Actuarial Equivalent of the Participant's Vested Account value; provided that this will not result in a decrease in the Participant's benefit as of September 30, 1995.
(b) For distributions commencing prior to October 1, 1995, the participant's Accrued Benefit shall be reduced at a rate of 4% for each year (or fraction thereof) that the Annuity Starting Date precedes age 65.
5.4 SPECIAL EARLY RETIREMENT BENEFITS. An "Eligible Participant" who terminates employment prior to age 65, but after attaining age 55 and accumulating ten Years of Vesting Service, may elect to begin receiving his monthly vested Normal Retirement Benefit as of the Annuity Starting date following the attainment of age 55 and accumulation of ten Years of Vesting Service by filing a written notice with the Administration Committee at least 30 days prior to his Annuity Starting Date.
(a) An Eligible Participant's special early retirement benefit shall be equal to:
(1) The monthly Normal Retirement Benefit computed under
Section 5.2 with no actuarial reduction if such payment commences no earlier
than age 62.
(2) If the early retirement benefit computed under this
Section commences at an age earlier than 62, then such Participant's early
retirement benefit shall be reduced at a rate of 4% per year (or a fraction
thereof) that the Annuity Starting precedes age 62.
(b) For purposes of this Section, an "Eligible Participant" is (i) any employee of Washington Mutual Savings Bank or Washington Mutual Insurance Services as of December 31, 1986, who is or would have been eligible as a Participant under the Plan on such date and who continues as a Participant thereafter.
(c) Notwithstanding the provisions of this Section, effective October 1, 1995, the special early retirement benefit is eliminated with respect to future increases in Accrued Benefits. Unless otherwise provided herein, each "Eligible Participant's" special early
retirement benefit will be the GREATER of (1) or (2) below (determined consistently with the fresh start option with extended wear-away described in Treas. Reg. Section 1.401(a)(4)-13(c)(4)):
(1) The Participant's Accrued Benefit determined without regard to the special early retirement benefit described in this Section, as applied to the Participant's total Years of Benefit Service taken into account under the Plan for the purposes of benefit accruals; OR
(2) The sum of:
(A) The Participant's Accrued Benefit as of September 30, 1995, including the value of the special early retirement benefit, (determined by reference to factors described in the "Early Retirement" Appendix to the Plan) frozen in accordance with Treas. Reg. Section 1.401(a)(4)-13, and
(B) The Participant's Accrued Benefit, determined without respect to the special early retirement benefit, attributable to Benefit Service on and after October 1, 1995.
5.5 PRE-RETIREMENT DISTRIBUTION BENEFITS. A Participant (or an "Eligible Participant" under Section 5.4 who is not eligible for the special early retirement benefit thereunder) may elect to begin receiving his monthly vested Normal Retirement Benefit as of the Annuity Starting Date following termination of employment by filing a written notice to the Administration Committee at least 30 days prior to his Annuity Starting Date. Such Participant's monthly benefit shall be equal to the monthly Normal Retirement Benefit at age 65, reduced at a rate of 4% per year (or a fraction thereof) that the annuity Starting date precedes age 65.
The foregoing notwithstanding, the provisions of this Section 5.5 shall be prospectively eliminated effective October 1, 1995. On and after October 1, 1995, the value of the pre-retirement distribution benefit, if any, shall be calculated in a manner similar to that set forth in Section 5.4(c).
5.6 NONDUPLICATION OF BENEFITS. The benefits described in this Article
are alternative benefits provided under the Plan, and the benefit under each
Section hereof shall not be duplicated by the Participant's qualification for
benefits under any other Section of this Article. In the event any part or all
of a Participant's benefit is distributed to him and such Participant at any
time thereafter resumes employment with the Employer, the subsequent benefit
payable to such Participant shall be offset by the benefit attributable to such
prior distribution.
5.7 MAXIMUM BENEFIT LIMITATION.
(a) BASIC LIMITATION. Subject to the adjustments hereinafter set forth, and in accordance with the provisions of section 415 of the Code, the maximum annual benefit on a straight life annuity basis accrued by, and payable to, a Participant shall not exceed the lesser of:
(1) $90,000; or
(2) 100% of the Participant's average earnings for the 3 consecutive calendar years during which he or she participated in the Plan and received the greatest aggregate earnings from his or her Employer.
(b) ADJUSTMENTS TO THE LIMITATION. The limitation on the maximum benefit set forth in (a) shall be adjusted as follows:
(1) COST OF LIVING. The earnings limitation prescribed under
(a)(1) hereof shall be adjusted annually for increases in the cost of living,
effective as of January 1 of each year, commencing January 1, 1988, with respect
to Participants who have retired or whose service has otherwise terminated, in
accordance with regulations issued by the Secretary of the Treasury pursuant to
the provisions of section 415(d) of the Code.
(2) ANCILLARY BENEFITS. The limitation prescribed in (a) shall be actuarially adjusted in accordance with regulations issued by the Secretary of the Treasury pursuant to the provisions of section 415(b) of the Code to reflect forms of payment other than a life annuity; provided, however, that for purposes of this Paragraph, the value of any qualified joint and survivor annuity, to the extent it exceeds the sum of a straight life annuity beginning on the same date and any post-retirement death benefits which would be payable even if the annuity was not in the form of a joint and survivor annuity, the value of any ancillary benefits not directly related to retirement income benefits, and the value of any benefits attributable to post-retirement cost of living increases (to the extent that such increases are in accordance with Paragraph (1) hereof), shall not be taken into account. The interest rate assumption used in adjusting any benefit hereunder shall be 5% or, if greater, the rate used in the Plan to determine the Actuarial Equivalent of the particular form of benefit paid.
(3) PAYMENT PRIOR TO SOCIAL SECURITY RETIREMENT AGE. In the event the Participant reaches his or her Annuity Starting Date before Social Security Retirement Age, the dollar limitation prescribed by (a)(1) shall be adjusted so that it is the Actuarial Equivalent of an annual benefit of $90,000, multiplied by the Adjustment Factor (as defined below in Section 5.7(l)), as prescribed by the Secretary of the Treasury under section 415 of the Code, which is incorporated herein by this reference, beginning at the Social Security Retirement Age. The adjustment provided for in the preceding sentence shall be made in such manner as the Secretary of the Treasury may prescribe which is consistent with the reduction for old-age insurance benefits commencing before the Social Security Retirement Age under the Social Security Act.
(4) PAYMENT AFTER SOCIAL SECURITY RETIREMENT AGE. In the event the Participant reaches his or her Annuity Starting Date after his or her Social Security Retirement Age, the dollar limitation prescribed by (a)(1) shall be adjusted so that it is the Actuarial Equivalent of a benefit of $90,000 beginning at the Social Security Retirement Age, multiplied by the Adjustment Factor as provided by the Secretary of the Treasury, based on the lesser of the interest rate assumption under the Plan or on an assumption of 5% per year.
(c) BENEFITS NOT IN EXCESS OF $10,000. The limitation of (a) hereof shall not apply to any Participant who has not at any time participated in a qualified defined contribution
plan maintained by an Employer if his or her total annual retirement benefit computed in accordance with (a) and (b) is not in excess of $10,000 in any year; provided, however, that if a Participant has completed less than 10 years of service with an Employer, the $10,000 limitation shall be adjusted by multiplying such amount by a fraction, the numerator of which is the Participant's number of years of service (or parts thereof), and the denominator of which is ten.
(d) LESS THAN 10 YEARS OF SERVICE. If a Participant has completed less than 10 years of service with an Employer, the earnings limitation prescribed under Section (a)(2) and the dollar amount in (c) hereof shall be adjusted by multiplying such amount by a fraction, the numerator of which is the Participant's number of years of service (or part thereof), and the denominator of which is ten.
(e) LESS THAN 10 YEARS OF PARTICIPATION. If a Participant has completed less than 10 years of participation, the Participant's accrued benefit shall not exceed the dollar limitation prescribed under (a)(1) hereof as adjusted by multiplying such amount by a fraction, the numerator of which is the Participant's number of years (or part thereof) of participation in the Plan, and the denominator of which is ten.
(f) LIMITATION FOR PARTICIPANTS IN A COMBINATION OF PLANS. In the case of a Participant who participates in this Plan and a qualified defined contribution plan maintained by an Employer, the sum of the defined contribution plan fraction (as defined in section 415(e)(3) of the Code which is incorporated herein by this reference) and the defined benefit plan fraction (as defined in section 415(e)(2) of the Code which is incorporated herein by this reference) in any year shall not exceed 1.0. Notwithstanding the foregoing, this Section 5.7(f) shall be inapplicable for any limitation year beginning on or after January 1, 1999.
(g) PRECLUSION OF EXCESS BENEFITS. In the event that the benefits payable hereunder in any year would, but for this Section 5.7, be in excess of the maximum annual benefit permissible under (a) through (e) hereof, the benefits otherwise payable in such year shall be reduced or frozen to an amount equal to the maximum annual benefit applicable to such year. If the combination limitation prescribed under (f) would, but for this Section 5.7, be exceeded in any year then, prior to making any adjustment in the defined contribution plan, the benefit payable hereunder shall be reduced or frozen to the extent necessary to meet the limitation in the particular year.
(h) AGGREGATION OF PLANS. For purposes of this Section, all qualified defined benefit plans maintained by an Employer shall be treated as a single plan, and all qualified defined contribution plans maintained by an Employer shall be treated as a single plan.
(i) EMPLOYER. For purposes of this Section, the term "Employer" shall include any Related Employer.
(j) EARNINGS. For purposes of this Section, the term "earnings" with respect to any Participant shall mean the Participant's compensation as determined under section 415(c)(3) of the Code.
(k) PROTECTION OF CURRENT ACCRUED BENEFIT. If the current accrued benefit of an individual who was a Participant of a Prior Plan as of the first day of the limitation year (the calendar year) beginning on January 1, 1987, exceeds the benefit limitations under section 415(b) of the Code (as modified by this Section 5.7), then for purposes of sections 415(b) and (e) of the Code, the dollar limitation set forth in (a)(1) above with respect to such individual shall be equal to the current accrued benefit. For purposes of the preceding sentence, "current accrued benefit" means a Participant's accrued benefit under the Plan or a Prior Plan, determined as if the Participant had separated from service as of the close of the last limitation year beginning before January 1, 1987, when expressed as an annual benefit within the meaning of section 415(b)(2) of the Code. In determining the amount of a Participant's current accrued benefit, the following shall be disregarded:
(1) any change in the terms and conditions of a Prior Plan after May 5, 1986; and
(2) any cost of living adjustment occurring after May 5, 1986.
(l) ADJUSTMENT FACTOR. For purposes of this Section, the term "Adjustment Factor" shall mean the cost of living adjustment factor prescribed by the Secretary of the Treasury under section 415(d) of the Code for years beginning after December 31, 1987, applied to such items and in such manner as the Secretary of the Treasury shall prescribe.
5.8 PROTECTION OF BENEFIT ACCRUALS. In no event shall any Participant who is employed by an Employer on January 1, 1989, have an Accrued Benefit less than the Accrued Benefit on December 31, 1988, including timing and form of such benefit. The Accrued Benefit for all Participants who were employed on January 1, 1989, and who thereafter terminated employment or retired shall be recomputed, and the recomputed Pension amount shall begin to be paid to such retired Participants whose Pension is in pay status, as soon as administratively practical.
ARTICLE 6.
ELIGIBILITY FOR BENEFITS
6.1 NORMAL RETIREMENT. A Participant who retires on or after his Normal Retirement date shall be entitled to receive a 100% Vested Accrued Benefit. A Participant who remains in the Service of the Employer after his Normal Retirement Date shall continue to accrue benefits hereunder until the date of his actual retirement. Upon termination of Service, the Administration Committee shall direct the Trustee to make payment of the full value of the Participant's Accrued Benefit to him at such times and in such manner as provided in Article VII hereof. The value of the Participant's Accrued Benefit shall be determined as of the Valuation Date prior to or coincident with the date of distribution.
6.2 EARLY RETIREMENT. Each Participant who has one Year of Service and has attained the age 55 while employed shall become 100% vested in his Accrued Benefit. A Participant who has attained his Early Retirement Date may elect to remain in the Service of the Employer and continue to accrue benefits hereunder until the date of his actual retirement; provided, however, that attainment of his Normal Retirement Date shall not increase the portion of his Accrued Benefit that is otherwise vested under the provisions of this Article. Upon termination of Service, the Administration Committee shall direct the Trustee to make payment of the full value of the Participant's Accrued Benefit to him at such times and in such manner as provided in Article VII hereof. The value of the Participant's Accrued Benefit shall be determined as of the Valuation Date prior to or coincident with the date of distribution.
6.3 DISABILITY. A Participant who becomes Disabled shall be fully vested in his Accrued Benefit, determined as of the Valuation Date coincident with or immediately preceding the date of distribution.
6.4 DEATH. Upon the death of a Participant, he shall become fully vested in his Accrued Benefit, determined as of the Valuation Date coincident with or immediately preceding the date of distribution.
6.5 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT DATE. The value of a Participant's Accrued Benefit shall be determined as of the Valuation Date coincident with or immediately preceding the date payment of the Accrued Benefit commences. Except as provided in Section 6.6, a Participant's nonforfeitable right to a percentage of his Accrued Benefit upon termination of Service for any reason before his Normal Retirement Date (except death or Disability) shall be based upon his Years of Vesting Service in accordance with the following schedule:
YEARS OF PERCENT VESTING SERVICE VESTED --------------- ------- Less than 2 0% 2 25% 3 50% 4 75% 5 or more 100% |
Provided, however, that if a Participant or Former Participant has engaged in "dishonesty", the determination of his Vested Accrued Benefit shall not be made in accordance with the above schedule. Instead, his Accrued Benefit shall become fully vested only after he has completed five Years of Vesting Service. If he terminates prior to completing five Years of Vesting Service, his Accrued Benefit derived from Employer Contributions shall be treated as a Forfeiture. For purposes of this Section, "dishonesty" means that the Participant has engaged in acts of fraud, embezzlement, theft or any other crime of moral turpitude or has otherwise been dishonest in his relationship with the Employer (without necessity of formal criminal proceedings being initiated against him) and his employment terminated by either discharge or resignation, as determined by the Administration Committee. This provision shall be applicable effective January 1, 1996, to any Employee who has been credited with fewer than three Years of Vesting Service as of December 31, 1995, or who first becomes employed by an Employer on or after January 1, 1996.
The foregoing notwithstanding, the nonforfeitable right of a Participant to any portion of the Participant's Account which was merged into the Plan upon the merger of the Great Western Retirement Plan into the Plan shall be based upon the following schedule:
YEARS OF PERCENT VESTING SERVICE VESTED --------------- ------- Less than 5 0% 5 or more 100% |
6.6 FORFEITURE OCCURS AND RESTORATION OF NON-VESTED ACCRUED BENEFIT.
(a) FORFEITURE OCCURS. A Forfeiture of a Participant's Accrued Benefit shall occur as of the earlier of (i) in the case where the Participant does not receive a distribution of his entire Vested Accrued Benefit (or receives it after the close of the second Plan Year following his termination of Service), on the last day of the Plan Year in which the Participant first incurs five consecutive Breaks in Service as the result of the termination of his Service or (ii) immediately upon receipt of his distribution if the Participant receives a distribution of his entire Vested Accrued Benefit (including a deemed cash out of $0) as the result of his termination of Service (provided such distribution, if any, is made not later than the close of the second Plan Year following the Participant's termination of Service). If only one of the events identified in the preceding sentence occurs, the event that occurs shall be deemed the first to
occur. The Committee shall determine a Participant's Forfeiture, if any, solely by reference to the vesting schedule of Section 6.5.
(b) RESTORATION OF NON-VESTED ACCRUED BENEFIT. If an Eligible Employee incurs a Forfeiture by reason of Section 6.5(a)(ii) and returns to Service prior to incurring five consecutive Breaks in Service, he may elect to have the amount of the Forfeiture restored upon becoming a Participant. The Participant may exercise this option by repaying in full the benefit previously received, with interest thereon at the maximum rate determined in accordance with section 411(c)(2)(C) of the Code, compounded annually from the date of receipt, prior to the earlier of (1) the Plan's termination, or (2) the lapse of five years following the Participant's reemployment by the Employer or a Related Employer (provided that the Participant must be an Employee at the time of repayment). If the Participant received a deemed cash-out of $0, he shall be deemed to have repaid the distribution upon reemployment. The Committee shall give timely notice to any rehired Employee, if such Employee is eligible to make a repayment, of his right to make such repayment before the expiration of the periods of the occurrence of the events specified above, and such notice shall also include an explanation of the consequences of not making such repayment.
6.7 TERMINATION OR PARTIAL TERMINATION. Notwithstanding any other provision in this Plan, in the event of a termination or partial termination of the Plan, all affected Participants shall have a fully vested interest in their Accrued Benefit determined as of the date of such event. The value of the Accrued Benefit shall be determined on the date the Accrued Benefit becomes fully vested, as if such date was the Valuation Date for the Limitation Year in which the termination or partial termination occurs. The Committee shall interpret and administer this Section in accord with the intent and scope of the Treasury regulations promulgated under section 411(d)(3) of the Code.
ARTICLE 7.
TIME AND METHOD OF PAYMENT OF BENEFITS
7.1 TIME OF PAYMENT.
(a) RETIREMENT. In the event of early or normal retirement, within the meaning of Section 6.1 hereof, payment of a Participant's Vested Accrued Benefit shall commence as soon as administratively feasible after the Valuation Date that coincides with or next follows the date that the Participant terminates Service, unless the Participant elects to defer payment (subject to the restrictions of 7.4).
(b) DEATH OR DISABILITY. In the event of death or Disability, except in the case of a distribution deferred pursuant to Section 7.4, payment of the Participant's Vested Accrued Benefit shall commence as soon as administratively feasible after the Valuation Date that coincides with or next follows death or the determination by the Administration Committee that the Participant is Disabled. Notwithstanding these provisions, in the event of the death of a Participant in which his spouse is named as his Beneficiary, payment shall commence at such time as requested by said spouse in accordance with Section 7.4(b), or, in the event of Disability, the time REQUESTED by the Participant.
(c) OTHER TERMINATION OF SERVICE. Upon a Participant's termination of Service for any reason other than retirement, Disability, or death, the Trustee shall generally hold the Participant's Vested Accrued Benefit in Trust until the Participant's Normal Retirement Date, at which time the Trustee shall commence distribution of the Participant's Vested Accrued Benefit in accordance with the provisions of Section 7.1(a). However, a Participant may obtain earlier distribution of his Vested Accrued Benefit in accordance with Section 7.4.
(d) LIMITATION ON TIME OF PAYMENT. Notwithstanding any contrary
provisions in the Plan, and unless the Participant otherwise elects, the Trustee
shall commence distribution of the Participant's Vested Accrued Benefit not
later than 60 days after the close of the Plan Year in which the latest occurs:
(i) the Participant's Normal Retirement age; (ii) the tenth anniversary of the
year in which the Participant commenced participation in the Plan; and (iii) the
date the Participant terminates Service with his Employer.
(1) Notwithstanding the provisions above to the contrary, the Vested Accrued Benefit of each Participant (i) shall be distributed to such Participant not later than the Required Commencement Date or (ii) shall be distributed, commencing not later than the Required Commencement Date, in accordance with Treasury regulations, over the life of such Participant or over the lives of such Participant and his Beneficiary (or over a period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and his Beneficiary). If distributions under the Plan have commenced with respect to a Participant and the Participant dies before his entire interest has been distributed to him but after his Required Commencement Date (except in the case of certain annuities under Prop. Treas. Reg. Section 1.401(a)(9)-1 B-5(b), or its successor, in which case the Participant could have died before or after his Required Commencement Date), the remaining portion of such interest
shall be distributed at least as rapidly as such interest would have been distributed to him under the method of distribution in effect under the immediately preceding sentence at the Participant's death.
(2) If the Participant dies before the distribution of his interest has commenced in accordance with (ii) of the first sentence of the above paragraph, or, except as provided above, if distribution of the Participant's interest has commenced but the Participant dies prior to his Required Commencement Date, then, except as provided below, his entire interest shall be distributed to his Beneficiary by December 31 of the calendar year which contains the fifth anniversary of the date of the Participant's death. Notwithstanding the preceding sentence, unless the designated Beneficiary elects to receive payments under the preceding sentence, if any portion of the Participant's interest is payable to (or for the benefit of) a designated Beneficiary, then such portion shall be distributed in accordance with Treasury regulations over the life of such designated Beneficiary or over a period not extending beyond the life expectancy of such Beneficiary, commencing not later than December 31 of the calendar year immediately following the calendar year in which the Participant died. Notwithstanding the required commencement date in the preceding sentence, if the designated Beneficiary is the surviving spouse of the Participant, the deceased Participant's interest shall be distributed or commence to be distributed to such surviving spouse on or before the later of the following: (1) December 31 of the calendar year immediately following the calendar year in which the Participant died, and (2) December 31 of the calendar year in which the Participant would have attained age 70 1/2. However, if the surviving spouse dies before the distributions to such spouse commence (or before such distributions are deemed to commence under Prop. Treas. Reg. Section 1.401(a)(9)-1, C-6, or its successor), the distribution of the interest of the deceased Participant shall be made over such period, and shall begin at such time, as would be required under the above rules, as if the surviving spouse were the Participant. In applying this rule, the date of death of the surviving spouse shall be substituted for the date of death of the Participant. However, in such case, the special surviving spouse death distribution rules are not available to the surviving spouse of the deceased Participant's surviving spouse. For purposes of this Section, except in the case of a life annuity, the life expectancy of the Participant and his spouse may be redetermined but not more frequently than annually. In addition, pursuant to regulations prescribed by the Secretary of the Treasury, any amount paid to a child of the Participant shall be treated as if it had been paid to the surviving spouse of the Participant if such amount will become payable to the surviving spouse upon such child's attainment of majority (or other designated event permitted under regulations prescribed by the Secretary of the Treasury). For the purposes of this paragraph, the term "Beneficiary" shall only include individuals. Notwithstanding the foregoing provisions of this paragraph, nothing in this paragraph shall permit any Participant or Beneficiary to elect any form of distribution not otherwise expressly permitted under this Plan; but rather, the Committee may at any time modify any form of the distribution elected by a Participant or Beneficiary to ensure compliance with this paragraph.
(3) In addition to the above rules, any payments payable to the Participant or his Beneficiary must also satisfy the minimum incidental death benefit rules of the Treasury regulations promulgated under section 401(a)(9) of the Code. Payments in the form of a life annuity for the life of the Participant, or payments in the form of a qualified joint and
survivor annuity for the joint lives of the Participant and his spouse, shall automatically satisfy these rules.
(4) Rules that are similar to the above rules shall apply in the case that benefits are provided through an annuity contract.
(5) Notwithstanding any other provision herein to the contrary, distributions hereunder will be made in accordance with the Treasury Regulations promulgated under section 401(a)(9) of the Code, including Treas. Reg. Section 1.401(a)(9)-2, including any grandfather or transitional rules thereunder. Furthermore, any provisions contained herein which reflect section 401(a)(9) of the Code shall override any distribution options in the Plan inconsistent therewith.
7.2 METHOD OF PAYMENT. The Trustee, in accord with the direction of the
Administration Committee, shall make payment of the Participant's benefit in
accordance with this section at the time of distribution. Except as provided in
Section 7.5 for certain former participants in the Pension Plan for Employees
for Pacific First Bank or in Section 7.6 for certain former participants in the
Great Western Retirement Plan, benefits will be paid in the form of an annuity
described in Section 7.3, unless the Participant makes an election pursuant to
Section 7.3 of one of the following forms of payment:
(a) This Section 7.2(a) applies to distributions made on or after January 1, 1993. Notwithstanding any contrary provision of the Plan that would otherwise limit a distributee's election under this Section 7.2(a), a distributee may elect at the time and in the manner prescribed by the Administration Committee to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The terms used in this Section 7.2(a) are defined as follows:
(1) ELIGIBLE ROLLOVER DISTRIBUTION. Any distribution of all or any portion of the Participant's Vested Account value as of the date of distribution, except that it does not include:
(A) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint expectancy) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more.
(B) Any distribution to the extent it is required under section 401(a)(9) of the Code.
(C) The portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities).
(2) ELIGIBLE RETIREMENT PLAN.
(A) An individual retirement account described in section 408(a) of the Code.
(B) An individual retirement annuity described in section 408(b) of the Code.
(C) An annuity plan described in section 403(a) of the Code.
(D) A qualified trust described in section 401(a) of the Code that accepts the distributee's eligible rollover distribution.
(E) However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.
(3) DISTRIBUTEE. A Participant of Former Participant, his surviving spouse, or his spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order.
(4) DIRECT ROLLOVER. A payment by the Plan to the eligible retirement plan specified by the distributee.
(b) By payment in a single lump sum payment equal to the greater of:
(1) the Actuarial Equivalent of the Participant's Vested Accrued Benefit as of the date the distribution commences, determined in accordance with section 417(e) of the Code based on the interest rate and Applicable Mortality Table described in Section 2.3 (Actuarial Equivalent); or
(2) the Participant's Vested Account value as of the date the distribution commences.
7.3 QUALIFIED JOINT AND SURVIVOR ANNUITY AND QUALIFIED PRERETIREMENT
SURVIVOR ANNUITY. A Qualified Joint and Survivor Annuity (herein so called) is
(i) an annuity for the life of the Participant with a survivor annuity for the
life of the Eligible Spouse equal to 50% of the amount of the annuity which is
payable during the joint lives of the Participant and his Eligible Spouse, and
which is the Actuarial Equivalent of the Participant's Vested Account value as
of the date of distribution, or (ii) if the Participant does not have an
Eligible Spouse on his Annuity Starting Date, a single life annuity equal to the
Actuarial Equivalent of the Participant's Vested Account value as of the date of
distribution. Alternatively, a Participant may elect to receive a 100% Joint and
Survivor Annuity (herein so called) with a survivor annuity for the life of the
Eligible Spouse equal to 100% of the amount of the annuity which is payable
during the joint lives of the Participant and his Eligible Spouse, and which is
the Actuarial Equivalent of the Participant's Vested Account value as of the
date of distribution.
If the Participant dies before his Annuity Starting Date, the Participant's Vested Account value shall be paid in the form of a Qualified Preretirement Survivor Annuity to his surviving Eligible Spouse. A Qualified Preretirement Survivor Annuity (herein so called) is an annuity for the life of the surviving Eligible Spouse that is the Actuarial Equivalent of the Vested Account value of the Participant as of the date of his death.
(a) A Participant may elect at any time during the application election period to waive the Qualified Joint and Survivor Annuity in favor of a single life annuity, or one of the optional forms given in Section 7.2, and may revoke such election at any time during the applicable election period, provided that, for the election to be effective:
(1) The Participant's Eligible Spouse must consent in writing to such election, such Eligible Spouse's consent must acknowledge the effect of such election, and her signature must be witnessed by a Plan representative or notary public (or it must be established to the satisfaction of a Plan representative that the consent may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe).
(2) The Plan must provide to each Participant, within a reasonable period of time before the Annuity Starting Date and also within the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35, a written explanation of:
(A) The terms and conditions of the Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity.
(B) The Participant's right to make, and the effect of, an election to waive or modify the Joint and Survivor Annuity payment method, and the right to make, and the effect of, a revocation of such payment method.
(C) The rights of the Participant's Eligible Spouse under a Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity.
In the case of a Participant who terminates employment before age 32, in lieu of providing the foregoing written explanation during the period between the Participant's age 32 and 35 as provided above, the written explanation shall be provided within one year after such termination. In the case of an Employee who becomes a Participant after age 32, in lieu of providing the foregoing written explanation during the period between the Participant's age 32 and 35 as provided above, the explanation shall be provided by the end of the three year period beginning with the first day of the Plan year in which the Employee becomes a Participant.
(b) For purposes of this Section, the "applicable election period" is the 90 day period ending on the Annuity Starting Date.
(c) In the case of a married Participant who elects a life annuity form of benefits and dies prior to his Annuity Starting Date, such that the Participant's surviving Eligible Spouse shall receive a Qualified Preretirement Survivor Annuity pursuant to this Section, the Eligible Spouse may elect in writing to waive such survivor annuity in favor of a single lump-sum payment equal to the lump-sum amount as of the Participant's date of death calculated according to Section 7.2(b).
7.4 INVOLUNTARY CASH-OUT AND ELECTIVE PAYMENTS. Notwithstanding the provisions of this Article, if a Participant's Vested Account value does not exceed $5,000 at the time he would be eligible to receive a distribution due to termination of Service (adjusted for any prior distributions), the Administration Committee shall direct the Trustee to distribute the Participant's Vested Account value (including a deemed distribution of $0.00) to the Participant or his Beneficiary in a lump sum as soon as administratively feasible following the Valuation Date that coincides with or next follows the Participant's termination of Service. If value of the Participant's Vested Account value exceeds $5,000 (adjusted for any prior distributions), a Plan distribution generally may not occur before the Participant's Normal Retirement Date (except in the case of death) unless he files a written request with the Committee for the payment of his Vested Account value.
(a) A Participant may receive a distribution of his Vested Account value that exceeds $5,000 (adjusted for any prior distributions) by filing a request with the Committee for payment to be made as soon as administratively feasible after the Valuation Date following the Committee's receipt of said request. In connection with such request, the Committee shall provide the Participant with written notice of his right to consent to such distribution, as required under the Code, no more than 90 days prior to the date the distribution is made.
(b) Upon the Participant's death after termination of Service, payment of his Vested Account value shall be made in accordance with Section 7.1(b).
7.5 PACIFIC FIRST BANK PLAN FORMS OF PAYMENT. Notwithstanding the methods of payment generally available to Participants hereunder, certain individuals who were participants in the Pension Plan for Employees of Pacific First Bank (the "PFB Plan") at the time it was merged into this Plan are subject to the following restrictions and protections.
(a) All individuals who are inactive participants in the PFB Plan on March 31, 1994, but have not yet begun to receive benefits thereunder, may only elect to receive payment of benefits in a form available under the PFB Plan on March 31, 1994.
(b) All individuals who have begun to receive benefits under the PFB Plan on or before March 31, 1994, shall continue to receive benefits under the terms of the PFB Plan on March 31, 1994.
(c) All benefits and forms of benefits provided in the PFB Plan that are required to be protected under section 411(d)(6) of the Code shall be maintained under the Plan with respect to benefits accrued under the PFB Plan prior to April 1, 1994.
(d) Benefits payable under the Plan to individuals who were participants under the PFB Plan shall be the greater of (i) a Participant's beginning benefit stated under the Plan on April 1, 1994, plus benefits accrued under the Plan on and after April 1, 1994, and (ii) the normal retirement benefit payable under the PFB Plan prior to April 1, 1994, or its equivalent as paid in the form elected by the participant under the Plan.
7.6 GREAT WESTERN RETIREMENT PLAN FORMS OF PAYMENT. Notwithstanding the methods of payments generally available to participants hereunder, certain individuals who were participants in the Great Western Retirement Plan at the time it was merged into this Plan are subject to the following restrictions and protections.
(a) All individuals who are inactive participants in the Great Western Retirement Plan at the time the Great Western Retirement Plan is merged into the Plan (the "Merger Date") but have not yet begun to receive benefits thereunder, may only elect to receive benefit payments in a form available under the Great Western Retirement Plan as of the Merger Date of such merger.
(b) All individuals who have begun to receive benefits under the Great Western Retirement Plan before the Merger Date shall continue to receive benefits under the terms of the Great Western Retirement Plan as in effect immediately prior to the Merger Date.
(c) All benefits and forms of benefits provided in the Great Western Retirement Plan that are required to be protected under section 411(d)(6) of the Code shall be maintained under the Plan with respect to participants who are employed by the Company as of the Merger Date and have a benefit under the Plan attributable to the merger of the Great Western Retirement Plan with the Plan
(d) Benefits payable under the Plan to individuals who were participants under the Great Western Retirement Plan shall be the greater of (i) a Participant's beginning benefit stated under the Plan as of the Merger Date plus benefits accrued under the Plan subsequent to the Merger Date, and (ii) the normal retirement benefit payable under the Great Western Retirement Plan immediately prior to the Merger Date (or its equivalent as paid in the form elected by the Participant under the Plan).
ARTICLE 8.
TOP-HEAVY PROVISIONS
8.1 GENERAL RULE. The Plan shall meet the requirements of this Article in the event that the Plan is or becomes a Top-Heavy Plan.
8.2 TOP-HEAVY PLAN.
(a) BASIC DEFINITION. Subject to the aggregation rules set forth in Paragraph (b), the Plan shall be considered a Top-Heavy Plan pursuant to Section 416(g) of the Code in any Plan Year if, as of the Determination Date, the present value of the cumulative Accrued Benefits of all Key Employees of the Employer exceeds sixty percent of the present value of the cumulative Accrued Benefits of all of the Employees of the Employer as of such Date, taking into account in computing the ratio any distributions made during the five consecutive Plan Year period ending on the Determination Date. For purposes of making such determination, the Accrued Benefit of an Employee other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of section 411(b)(1)(C) of the Code. Notwithstanding the foregoing, former Key Employees and any Employee who has not performed services for the Employer during the five consecutive Plan Year period ending on the Determination Date, shall be excluded from the above ratio. For purposes of the above ratio, the present value of a Key Employee's Accrued Benefit shall be counted only once each Plan Year, notwithstanding the fact that an individual may be considered a Key Employee for more than one reason in any Plan Year.
(b) AGGREGATION WITH OTHER PLANS. For purposes of determining whether the Plan is a Top-Heavy Plan and for purposes of meeting the requirements of this Article 14, the Plan shall be aggregated with other qualified plans in a Required Aggregation Group and may be aggregated with other qualified plans in a Permissive Aggregation Group. If such Required Aggregation Group is Top-Heavy, this Plan shall be considered a Top-Heavy Plan. If such Permissive Aggregation Group is not Top-Heavy, this Plan shall not be a Top-Heavy Plan.
8.3 DEFINITIONS. For purpose of determining whether the Plan is Top-Heavy, the following definitions shall be applicable:
(a) DETERMINATION AND VALUATION DATES. The term "Determination Date" shall mean, in the case of any Plan Year, the last day of the preceding Plan Year. In the case of the first Plan Year of the Plan, the term "Determination Date" shall mean the last day of such Plan Year. The amount of an individual's Accrued Benefit and the present value thereof shall be determined as of the Valuation Date. The term "Valuation Date" means the valuation date for minimum funding purposes under the Plan which is within the twelve-month period ending on the Determination Date, regardless of whether a valuation for minimum funding purposes is performed that year.
(b) KEY EMPLOYEE. The term "Key Employee" shall mean an individual described in section 416(i) of the Code which is incorporated herein by this reference.
(c) NON-KEY EMPLOYEE. The term "Non-Key Employee" shall mean any Employee who is not a Key Employee.
(d) BENEFICIARY. Whenever the term "Key Employee," "former Key Employee," or "Non-Key Employee" is used herein, it includes the beneficiary or beneficiaries of such individual. If an individual is a Key Employee by reason of the foregoing sentence as well as a Key Employee in his own right, both the present value of his or her inherited Accrued Benefit and the present value of his or her own Accrued Benefit will be considered his or her Accrued Benefit for purposes of determining whether the Plan is a Top-Heavy Plan.
(e) COMPENSATION. The term "Compensation" in this Article shall mean compensation as defined in section 416(i)(1)(D) of the Code.
(f) REQUIRED AGGREGATION GROUP. The term "Required Aggregation Group" shall mean all other qualified defined benefit and defined contribution plans maintained by the Employer in which a Key Employee participates, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code.
(g) PERMISSIVE AGGREGATION GROUP. The term "Permissive Aggregation Group" shall mean all other qualified defined benefit and defined contribution plans maintained by the Employer that meet the requirements of sections 401(a)(4) and 410 of the Code when considered with a Required Aggregation Group.
(h) EMPLOYER. For purposes of determining whether the Plan is a
Top-Heavy Plan, the term "Employer" shall mean the Company and any entity
required to be aggregated with the Company pursuant to section 414(b), (c), or
(m) of the Code; provided that for purposes of section 416(i)(1)(A) of the Code,
ownership percentages shall be determined separately with respect to each entity
that would otherwise be aggregated under section 414(b), (c), or (m) of the
Code.
8.4 REQUIREMENTS APPLICABLE IF PLAN IS TOP-HEAVY. In the event the Plan is determined to be Top-Heavy for any Plan Year, the following requirements shall be applicable.
(a) MINIMUM BENEFITS. The minimum Accrued Benefit derived from Employer contributions to be provided under this Section for each Non-Key Employee who is a Participant during a Top-Heavy Plan Year shall equal the product of (1) the Participant's Compensation averaged over the five consecutive Limitation Years (or actual number of Limitation Years, if less) which produce the highest average and (2) the lesser of (i) 2% multiplied by Year of Benefit Service or (ii) 20%.
For purposes of providing the minimum benefit under section 416 of the Code, a Non-Key Employee who is not a Participant solely because his Compensation is below a stated
amount will be considered to be a Participant. Furthermore, such minimum benefit shall be provided regardless of whether such Non-Key Employee is employed on a specified date.
For purposes of this Section:
(1) Year of Benefit Service for any Plan Year during which the Plan was not a Top-Heavy Plan shall be disregarded; and
(2) Compensation for any Limitation Year ending in a Plan Year in which the Participant failed to complete a Year of Benefit Service shall be disregarded.
A Non-Key Employee who is covered under this Plan and under a qualified defined contribution plan maintained by an Employer shall not be entitled to the minimum allocation under the defined contribution plan but shall receive the Top-Heavy minimum benefit under this Plan.
(b) TOP-HEAVY VESTING SCHEDULE. For a Plan Year in which the Plan is Top-Heavy, the vested percentage of a Participant's Accrued Benefit shall be determined according to the following schedule:
Years of Vested
Vesting Service Percentage
--------------- ----------
1 0%
2 25%
3 50%
4 75%
5 or more 100%
|
(c) LIMITATIONS OF ANNUAL ADDITIONS AND BENEFITS. For purposes of computing the defined benefit plan fraction and defined contribution plan fraction as set forth in sections 415(e)(2)(b) and 415(e)(3)(b) of the Code, the dollar limitations on benefits and annual additions applicable to a limitation year shall be multiplied by 1.0 rather than by 1.25.
ARTICLE 9.
EMPLOYER ADMINISTRATIVE PROVISIONS
9.1 APPOINTMENT. The Company May appoint an Administration Committee to administer the Plan and direct Plan investments. The Company may appoint more than one committee for such purposes. In the absence of such appointments, the Company shall function as the Committee.
9.2 TERM. Each member of each Committee shall serve until his successor is appointed. Any member of the Committee may be removed by the Company, with or without cause, which shall have the power to fill any vacancy which may occur. A member may resign upon written notice to the Company.
9.3 COMPENSATION. The members of the Committee shall serve without compensation for services as such, but the Company shall pay all expenses of the members of the Committee, including the expenses for any bond required under section 412 of ERISA. To the extent such expenses are not paid by the Company, they shall be paid by the Trustee from the Trust.
9.4 POWERS OF THE ADMINISTRATION COMMITTEE. The Committee shall have the following powers and duties:
(a) To direct the administration of the Plan in accordance with the provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for the administration of the Plan provided the rules are not inconsistent with the terms of the Plan;
(c) To interpret the provisions of the Plan and determine all questions with respect to rights of Employees, Participants, and Beneficiaries under the Plan, including but not limited to rights of eligibility of an Employee to participate in the Plan, the value of a Participant's Accrued Benefit, and the Vested Accrued Benefit of each Participant.
(d) To interpret and enforce the terms of the Plan and the rules and regulations it adopts;
(e) To direct the Trustee with respect to the crediting and distribution of the Trust and all other matters within its discretion as provided in the Trust Agreement;
(f) To direct the Trustee to transfer assets to another trust which constitutes a qualified trust under section 401(a) of the Code and to accept transfers of assets from other trusts which constitute qualified trusts under sections 401(a) and 501(a) of the Code;
(g) To review and render decisions with respect to a claim for, (or denial of a claim for) a benefit under the Plan;
(h) To furnish the Employer with information which the Employer may require for tax or other purposes;
(i) To engage the service of counsel (who may, if appropriate, be counsel for the Employer) and agents whom it may deem advisable to assist it with the performance of its duties;
(j) To prescribe procedures to be followed by distributees in obtaining benefits;
(k) To receive from the Employer and from Employees such information as shall be necessary for the proper administration of the Plan;
(l) To receive and review reports of the financial condition and of the receipts and disbursements of the Trust from the Trustee;
(m) To maintain, or cause to be maintained, separate Accounts in the name of each Participant to reflect the Participant's Accrued Benefit under the Plan;
(n) To select a secretary, who need not be a member of the Committee; and
(o) To interpret and construe the Plan.
The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. Nonetheless, the Committee shall have absolute discretion in the exercise of its powers in this Plan. All exercises of power by the Committee hereunder shall be final, conclusive and binding on all interested parties, unless found by a court of competent jurisdiction, in a final judgment that is no longer subject to review or appeal, to be arbitrary and capricious.
9.5 INVESTMENT POWERS. As specified in the Trust Agreement, the Administration Committee shall also have the following powers and duties with respect to the investment of the Trust:
(a) To direct the Trustee in the investment, reinvestment, and disposition of the Trust, including the investment of up to 10% of the Trust in "qualifying employer securities" (as defined in section 407(d)(5) of ERISA).
(b) To receive and review reports of the financial condition and of the receipts and disbursements of the Trust from the Trustee;
(c) To furnish the Employer with information which the Employer may require for tax or other purposes;
(d) To engage the services of an investment manager or managers (as defined in section 3(38) of ERISA), each of whom shall have full power and authority to manage, acquire or dispose (or direct the Trustee with respect to acquisition or disposition) of any Plan asset under its control; and
(e) To interpret and construe the Plan with respect to the investment, reinvestment, and disposition of Plan assets.
9.6 MANNER OF ACTION. The decision of a majority of the members of the Administration Committee appointed and qualified shall control. In case of a vacancy in the membership of the Committee, the remaining members may exercise any and all of the powers, authorities, duties, and discretion conferred upon the Committee. The Committee may, but need not, call or hold formal meetings. Any decisions made or action taken pursuant to written approval of a majority of the then members shall be sufficient. The Committee shall maintain adequate records of its decisions.
9.7 AUTHORIZED REPRESENTATIVE. The Committee may authorize any one of its members, or its secretary, to sign on its behalf any notices, directions, applications, certificates, consents, approvals, waivers, letters, or other documents. The Committee must evidence this authority by an instrument signed by all its respective members and filed with the Trustee.
9.8 EXCLUSIVE BENEFIT. The Committee shall administer the Plan for the exclusive benefit of the Participants and their Beneficiaries.
9.9 INTERESTED MEMBER. No member of the Committee may decide or determine any matter concerning the distribution, nature, or method of settlement of his own benefits under the Plan unless there is only one person acting alone in the capacity as the Committee.
9.10 QUALIFIED DOMESTIC RELATIONS ORDERS. The Administration Committee shall establish reasonable procedures for determining the existence of a Qualified Domestic Relations Order and to administer distributions under the same. In the event that the Committee receives a written order that purports to be a Qualified Domestic Relations Order, the following procedures shall apply:
(a) The Committee shall promptly notify the appropriate Participant and any purported Alternate Payee of the receipt of such order and the Committee's procedures for determining whether such order is a Qualified Domestic Relations Order.
(b) During any period in which it is being determined (by the Committee, by a court of competent jurisdiction, or otherwise) if an order is a Qualified Domestic Relations Order, the Committee shall separately account for the amounts (the "segregated amounts") which would have been payable to the Alternate Payee during such period if the order is determined to be a Qualified Domestic Relations Order.
(c) If the order (or modification thereof) is determined to be a Qualified Domestic Relations Order within 18 months, the Committee shall direct the Trustee to pay the
"segregated amounts" to the Alternate Payee in the form elected by the Alternate Payee under the Plan.
(d) If, within the aforesaid 18 month period, it is determined that the order is not a Qualified Domestic Relations Order, or if such determination has not been made, the Committee shall pay the "segregated amounts" to the person(s) who would have been entitled to such amounts if there had been no such order.
(e) Any determination that a order is a Qualified Domestic Relations Order which is made after the close of the aforesaid 18 month period shall be applied prospectively only.
9.11 PAYMENT IN THE EVENT OF LEGAL DISABILITY. Payments to any Participant, Former Participant, or Beneficiary shall be made to the recipient entitled thereto in person or upon his personal receipt, in form satisfactory to the Committee, except when the recipient entitled thereto shall be under a legal disability, or, in the sole judgment of the Committee, shall otherwise be unable to apply such payment in furtherance of his own interest and advantage. The Committee may, in such event, in its sole discretion, direct all or any portion of such payments to be made in any one or more of the following ways:
(a) To such person directly;
(b) To the guardian of his person or his estate;
(c) To a relative or friend of such person, to be expended for his benefit; or
(d) To a custodian for such person under any Uniform Gifts to Minors Act.
The decision of the Committee, in each case, will be final, binding, and conclusive upon all persons ever interested hereunder. The Committee shall not be obliged to see to the proper application or expenditure of any payment so made. Any payment made pursuant to the power herein conferred upon the Committee shall operate as a complete discharge of all obligations of the Trustee and the Committee, to the extent of the distributions so made.
9.12 PAYMENTS ONLY FROM TRUST. All benefits of the Plan shall be payable solely from the Trust and neither the Employer, Committee, nor Trustee shall have any liability or responsibility therefor except as expressly provided herein.
9.13 UNCLAIMED BENEFITS PROCEDURE. Neither the Trustee nor the Administration Committee shall be obliged to search for or ascertain the whereabouts of any Participant or Beneficiary. The Committee, by certified or registered mail addressed to his last known address of record with the Committee or the Employer, shall notify any Participant or Beneficiary that he is entitled to a distribution under this Plan, and the notice shall state the provisions of this Section. If (i) the Participant's vested Accrued Benefit is (a) $5,000 or less or (b) greater than $5,000 and he has attained his Normal Retirement Date, and (ii) the Participant or Beneficiary fails to claim his benefits or make his whereabouts known in writing to the Committee within the
earlier of (i) the date that is immediately prior to three years (adjusted according to the abandonment period of the escheat laws of the applicable state) after the date of notification, or (ii) the date the Participant attains the Required Commencement Date, the Plan benefit of such Participant or Beneficiary will be treated as follows (to the extent otherwise permitted under ERISA or the Code):
(a) If the whereabouts of the Participant is unknown but the whereabouts of the Participant's Beneficiary then is known to the Committee, the Committee may direct the Trustee to make distribution to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary then is unknown to the Committee, but the whereabouts of one or more relatives by adoption, blood, or marriage of the Participant is known to the Committee, the Committee may direct the Trustee to distribute the Participant's benefits to any one or more of such relatives and in such proportions as the Committee determines.
(c) If the Committee does not know the whereabouts of any of the above persons within the time limits prescribed above, then the benefit shall be treated as a Forfeiture hereunder, provided that the benefit shall be reinstated in the event that the Participant or Beneficiary ever makes a claim therefor. Either upon or prior to the occurrence of the Forfeiture under this Section, the Committee may then notify the Social Security Administration or the Internal Revenue Service Disclosure Staff of the Participant's (or Beneficiary's) failure to claim the distribution to which he is entitled. The Committee may request the Social Security Administration or the Internal Revenue Service Disclosure Staff to notify the Participant (or Beneficiary) in accordance with the procedures it has established for this Purpose.
(d) While payment is pending, the Committee may direct the Trustee to hold the Participant's benefits in a segregated account invested at the discretion of the Committee. However, after a Forfeiture has occurred under this Section, a Participant or Beneficiary who seeks a reinstatement of the forfeited amount shall only be entitled to the minimum return required by law (which may be 0%). The segregated account shall be entitled to all income it earns and shall bear all expense and loss it incurs. Any payment made pursuant to this provision shall operate as a complete discharge of all obligations of the Trustee and the Committee, to the extent of the distributions so made.
ARTICLE 10.
PARTICIPANT ADMINISTRATIVE PROVISIONS
10.1 BENEFICIARY DESIGNATION. Subject to the limitations of Section 2.8 each Participant may from time to time designate, in writing, a Beneficiary to whom the Trustee shall pay his Accrued Benefit in the Trust in the event of his death. The Administration Committee shall prescribe the form for the written designation of Beneficiary and, upon the Participant's filing the form with the Committee, it shall revoke all designations filed prior to that date by the same Participant. A Participant may designate multiple and/or contingent Beneficiaries.
10.2 NO BENEFICIARY DESIGNATION. Subject to the limitations of Section 2.8, if a Participant fails to name a Beneficiary in accord with Section 10.1, or if the Beneficiary named by a Participant predeceases him, the Beneficiary shall be, first, his spouse at the time of his death, or if he has no surviving spouse, then to his surviving children (including adopted children) in equal shares, or if the Participant has no surviving children, then to his surviving parents in equal shares, or if the Participant has no surviving parents, then to his estate. If the Participant dies after distributions have commenced hereunder but before a complete distribution of his Vested Accrued Benefit, then the Trustee shall pay the such Accrued Benefit in a lump sum to the legal representative of the estate of the last to die of the Participant and his Beneficiary. The Committee, in its sole discretion, shall direct the Trustee as to whom the Trustee shall make payment under this Section.
10.3 PERSONAL DATA TO ADMINISTRATION COMMITTEE. Each Participant and Beneficiary must furnish to the Committee evidence, data, or information as the Committee considers necessary or desirable for the purpose of administering the Plan. The provisions of this Plan are effective for the benefit of each Participant upon the condition precedent that each Participant will promptly furnish full, true, and complete evidence, data, and information when requested by the Committee, provided the Committee shall advise each Participant of the effect of his failure to comply with its request.
10.4 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a deceased Participant shall file with the Committee, in writing, his post office address, and each subsequent change of such post office address. Any payment or distribution hereunder, and any communication addressed to a Participant or his Beneficiary, at the last address filed with the Committee, or if no address has been filed, then the last address indicated on the records of the Employer shall be deemed to have been delivered to the Participant or his Beneficiary on the date that such distribution or communication is deposited in the United States Mail, postage prepaid.
10.5 PLACE OF PAYMENT AND PROOF OF CONTINUED ELIGIBILITY. Any check representing payment hereunder and any communication addressed to an Employee, a former Employee, a retired Employee, or Beneficiary at his last address filed with the Committee, or if no such address has been filed, then at his last address as indicated on the records of the Employer, shall be deemed to have been delivered to such person on the date on which such check or communication is deposited in the United States mail. If the Committee, for any reason, is in
doubt as to whether benefit payments are being received by the person entitled thereto, it shall, by registered mail addressed to the person concerned, at his address last known to the Committee, notify such person that all unmailed and future retirement income payments shall be henceforth withheld until he provides the Committee with evidence of his continued life and his proper mailing address.
10.6 ALIENATION. Except as provided under a Qualified Domestic Relations Order, no benefit payable under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary prior to actually being received by the person entitled to the benefit under the terms of the Plan. The Trust shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any person entitled to benefits hereunder, except to the extent that under a Qualified Domestic Relations Order the Trustee is required to pay a portion of a Participant's Accrued Benefit to an Alternate Payee. In the event an Employer or the Trustee receives written notice of an adverse claim to a benefit distributable to a Participant, Former Participant or Beneficiary, the Trustee may suspend payment(s) of such benefit until such matter is resolved to the satisfaction of the Trustee.
10.7 LITIGATION AGAINST THE TRUST. If any legal action filed against the Trustee, an Employer, or the Committee, or against any member or members of the Committee or the Employer, by or on behalf of any Participant or Beneficiary, results adversely to the Participant or to the Beneficiary, the Trustee shall reimburse the Employer, the Committee and its members, or the Employer, all costs and fees expended by it or them by surcharging all costs and fees against the sums payable under the Plan to the Participant or to the Beneficiary, but only to the extent a court of competent jurisdiction specifically authorizes and directs any such surcharges and only to the extent permitted under section 401(a)(13) of the Code.
10.8 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan and Trust, contract, or any other instrument under which the Plan was established or is operated. The Committee will maintain all of the items listed in this Section in its office, or in such other place or places as it may designate from time to time in order to comply with the regulations issued under ERISA, for examination during reasonable business hours. Upon the written request of a Participant or Beneficiary the Committee shall furnish him with a copy of any item listed in this Section. The Committee may make a reasonable charge to the requesting person for the copy so furnished.
10.9 BENEFICIARY'S RIGHT TO INFORMATION. A beneficiary's right to (and the Committee's or a Trustee's duty to provide to the Beneficiary) information or data concerning the Plan shall not arise until he first becomes entitled to receive a benefit under the Plan.
10.10 CLAIMS PROCEDURE. Prior to or upon becoming entitled to receive a benefit hereunder, a Participant or Beneficiary shall file a claim for such benefit with the Committee at the time and in the manner prescribed thereby. However, subject to the restrictions of Section 7.4, the Committee may direct the Trustee to commence payment of a Participant's or Beneficiary's
benefits hereunder without requiring the filing of a claim therefor, if the Committee has knowledge of such Participant's or Beneficiary's whereabouts.
10.11 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall provide adequate notice in writing to any Participant or to any Beneficiary ("Claimant") whose claim for benefits under the Plan the Committee has denied. Such notice must be sent within 90 days of the date the claim is received by the Committee unless special circumstances require an extension of time for processing the claim. Such extension shall not exceed 90 days and no extension shall be allowed unless, within the initial 90 day period, the claimant is sent an extension notice indicating the special circumstances requiring the extension and specifying a date by which the Committee expects to render its decision. The Committee's notice of denial to the Claimant shall set forth:
(a) The specific reason or reasons for the denial;
(b) Specific references to pertinent Plan provisions on which the Committee based its denial;
(c) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed;
(d) A statement that the Claimant may:
(1) Request a review upon written application to the Committee;
(2) Review pertinent Plan documents;
(3) Submit issues and comments in writing; and
(e) That any appeal the Claimant wishes to make of the adverse determination must be in writing to the Committee within 60 days after receipt of the Committee's notice of denial of benefits. The Committee's notice must further advise the Claimant that his failure to appeal the action to the Committee in writing within the 60 day period will render the Committee's determination final, binding, and conclusive.
If the Claimant should appeal to the Committee, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The Committee shall re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Committee shall advise the Claimant in writing of its decision on his appeal, the specific reasons for the decision, and the specific Plan provisions on which the decision is based. The notice of the decision shall be given within 60 days of the Claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the 60 day period infeasible, but in no event shall the Committee render a decision regarding the denial of a claim for benefits later than 120 days after its receipt of a request for review. If an extension of time for
review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the date the extension period commences.
The Committee's notice of denial of benefits shall identify the name of each member of the Committee and the name and address of the Committee member to whom the Claimant may forward his appeal.
10.12 NO RIGHTS IMPLIED. Nothing contained in this Plan, or with respect to the establishment of the Trust, or any modification or amendment to the Plan or Trust, or in the creation of any Account, or the payment of any benefit, shall give any Employee, Participant, or any Beneficiary any right to continue employment, any legal or equitable right against an Employer, or Employee of the Employer, or against the Trustee, or its agents or employees, except as expressly provided by the Plan, the Trust or ERISA.
ARTICLE 11.
FIDUCIARY DUTIES
11.1 FIDUCIARIES. The "Fiduciaries" of the Plan shall consist of the following:
(a) The Administration Committee;
(b) The Trustee; and
(c) Such other person or persons that are designated to carry out fiduciary responsibilities hereunder.
Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. A Fiduciary may employ one or more persons to render advice with regard to any responsibility such Fiduciary has under the Plan.
11.2 ALLOCATION OF RESPONSIBILITIES. The powers and responsibilities of the Fiduciaries are hereby allocated as indicated below:
(a) Company. The Company shall be responsible for all functions assigned or reserved to it under the Plan and Trust Agreement. Any authority assigned or reserved to the Company under the Plan and Trust Agreement shall be exercised by resolution of the appropriate representatives of the Company, or action by a delegate thereof.
(b) Administration Committee. The Committee shall have the responsibility and authority to control (i) the operation and administration of the Plan, and (ii) the investment of the Trust in accordance with the terms of the Plan and Trust Agreement, except with respect to duties and responsibilities specifically allocated to other fiduciaries. The Committee shall have the authority to issue written directions to the Trustee to the extent provided in the Trust Agreement. The Trustee shall follow the Committee's directions unless it is clear that the actions to be taken under those directions would be violations of applicable fiduciary standards or would be contrary to the terms of the Plan or Trust Agreement.
(c) Trustee. The Trustee shall have the duties and responsibilities set out in the Trust Agreement, subject, however, to direction by the Committee as set out in the Trust Agreement.
(d) Allocations. Powers and responsibilities may be allocated to other Fiduciaries in accordance with Section 11.3 hereof, or as otherwise provided herein or in the Trust Agreement.
This Article is intended to allocate to each Fiduciary the individual responsibility for the prudent execution of the functions assigned to it, and none of such responsibilities or any other responsibility shall be shared by two or more of such Fiduciaries unless such sharing shall be provided by a specified provision of the Plan or Trust Agreement.
11.3 PROCEDURES FOR DELEGATION AND ALLOCATION OF RESPONSIBILITIES. Fiduciary responsibilities may be allocated as follows:
(a) The Committee may specifically allocate responsibilities to a specified member or members of the Committee, or to a subcommittee.
(b) The Committee may designate a person or persons other than a Fiduciary to carry out fiduciary responsibilities under the Plan (this authority shall not cause any person or persons employed to perform ministerial acts and services for the Plan to be deemed fiduciaries of the Plan).
(c) The Committee may appoint an Investment Manager or managers to manage (including the power to acquire and dispose of) the assets of the Plan (or a portion thereof).
(d) If at any time there be more than one Trustee serving under the Trust Agreement, such Trustees may allocate specific responsibilities, obligations, or duties among themselves in such manner as they shall agree.
Any allocation of responsibilities pursuant to this Section shall be made by filing a written notice thereof with the Committee specifically designating the person or persons to whom such responsibilities or duties are allocated and specifically setting out the particular duties and responsibilities with respect to which the allocation or designation is made.
11.4 ALLOCATION OF FIDUCIARY LIABILITY.
(a) Co-Trustees. In the event that there are two or more Trustees serving under the Trust Agreement, each should use reasonable care to prevent a Co-Trustee from committing a breach of fiduciary responsibility and they shall jointly manage and control assets of the Plan, except that in the event of an allocation of responsibilities, obligations, or duties, a Trustee to whom such responsibilities, obligations, or duties have not been allocated shall not be liable to any person by reason of this Section, either individually or as a Trustee, for any loss resulting to the Plan arising from the acts or omissions on the part of the Trustee to whom such responsibilities, obligations, or duties have been allocated.
(b) Liability Where Allocation is in Effect. To the extent that
fiduciary responsibilities are specifically allocated by a Fiduciary, or
pursuant to the express terms hereof, to any person or persons, then such
Fiduciary shall not be liable for any act or omission of such person in carrying
out such responsibility except to the extent that the Fiduciary violated this
Article (i) with respect to such allocation or designation, (ii) with respect to
the establishment or implementation of the procedure for making such an
allocation or designation, (iii) in continuing the allocation or designation, or
(iv) the Fiduciary would otherwise be liable in accordance with this Section
11.4.
(c) No Responsibility for Employer Action. Neither the Trustee nor the Committee shall have any obligation nor responsibility with respect to any action required by the Plan to be taken by the Employer, any Participant or Eligible Employee, nor for the failure of any of the above persons to act or make any payment or contribution, or to otherwise provide any benefit contemplated under this Plan.
(d) No Duty to Inquire. Neither the Trustee nor the Committee shall have any obligation to inquire into or be responsible for any action or failure to act on the part of the others.
(e) Liability of Trustee Where Investment Manager Appointed. If an Investment Manager has been appointed pursuant to Section 11.3 hereof, then neither the Trustee nor the Committee shall be liable for the acts or omissions of such Investment Manager, or be under any obligation to invest or otherwise manage any assets of the Plan which are subject to the management of such Investment Manager.
(f) Successor Fiduciary. No Fiduciary shall be liable with respect to any breach of fiduciary duty if such breach was committed before he became a Fiduciary or after he ceased to be a Fiduciary.
ARTICLE 12.
AMENDMENT, MERGER AND TERMINATION
12.1 AMENDMENT. The Company reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan. However, no amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan, before the satisfaction of all liabilities with respect to them. No amendment shall be made which has the effect of decreasing the Accrued Benefit of any Participant or of reducing the nonforfeitable percentage of the Accrued Benefit of a Participant below the nonforfeitable percentage computed under the Plan as in effect on the date on which the amendment is adopted or, if later, the date on which the amendment becomes effective.
If the vesting schedule of this Plan is amended, any Participant who has completed at least three Years of Vesting Service may elect to have his Accrued Benefit computed under the Plan without regard to such amendment by notifying the Administration Committee in writing during the election period hereinafter described. The election period shall begin on the date such amendment is adopted and shall end no earlier than the latest of the following dates:
(a) The date which is 60 days after the day such amendment is adopted;
(b) The date which is 60 days after the day such amendment becomes effective; or
(c) The date which is 60 days after the day the Participant is given written notice of such amendment by the Retirement Committee.
Any election made pursuant to this Section shall be irrevocable. The Administration Committee shall, as soon as practicable, forward a true copy of any amendment to the vesting schedule to each affected Participant, together with an explanation of the effect of the amendment, the appropriate form upon which the Participant may make an election to remain under the vesting schedule provided under the Plan prior to the amendment, and notice of the time within which the Participant must make an election to remain under the prior vesting schedule.
12.2 TERMINATION. The Company may terminate the Plan for any reason at any time. In case of termination of the Plan, the rights of Participants to the benefits accrued under the Plan shall be nonforfeitable. The funds of the Plan shall be used for the exclusive benefit of persons entitled to benefits under the Plan as of the date of termination, except as provided in Section 10.2; however, all assets remaining in the Trust after the satisfaction of all rights accrued under the Plan with respect to benefits accrued to the date of Plan termination, and after termination expenses, shall be returned to the Employer, subject to applicable law. The Administration Committee shall determine on the basis of an actuarial valuation the share of the funds of the Plan allocable to each person entitled to benefits under the Plan in accordance with
section 4044 of ERISA, or corresponding provision of any applicable law in effect at the time. In the event of a partial termination of the Plan, the provisions of this Section shall be applicable to the Participants affected by that partial termination.
12.3 AMENDMENT PROCEDURES. Pursuant to section 402(b)(3) of ERISA, the Company must comply with the following procedures before an amendment to the Plan is effective.
(a) The Company may modify or terminate the Plan only by a written amendment that is authorized by the Company.
(b) The Company's authorization of the amendment must be evidenced by any of the following: (i) a resolution of the Board; (ii) ratification of the amendment by a resolution of the Board; or (iii) with respect to any amendment necessary or appropriate to comply with relevant law, a resolution of the Administration Committee.
(c) Notice of an amendment that terminates the Plan must be provided to the Trustee.
(d) The Company need not provide notice of the amendment to Plan participants or employees, except as may be required by section 204(h) of ERISA.
12.4 PROCEDURE ON TERMINATION. In the event of termination of the Plan or permanent discontinuance of Employer Contributions, the Employer shall cause any unallocated assets to be allocated to Participant Accounts in the manner specified in the Treasury regulations promulgated under section 411 of the Code. Moreover, the Company shall, in its sole discretion, authorize any one of the following procedures:
(a) Continue Plan. To continue the Plan in operation in all respects until the Trustee has distributed all benefits under the Plan, except that no further persons shall become Participants, no further Employer Contributions shall be made, all Accounts shall be fully vested, and no further payments shall be made except in distribution of the Trust and payment of administration expenses; or
(b) Liquidate Plan. Subject to the limitations contained herein, to wind up and liquidate the Plan and Trust and distribute the assets thereof, after deduction of all expenses, to the Participants, former Participants, and Beneficiaries in accordance with their respective Accounts as then constituted. If the Employer makes no election before termination, then this subsection (b) will govern distribution of the Trust.
12.5 NOTICE OF CHANGE IN TERMS. The Administration Committee, within the time prescribed by ERISA and applicable regulations, shall furnish all Participants and Beneficiaries a summary descriptive of any material amendment to the Plan or notice of discontinuance of contributions or termination of the Plan and all other information required by ERISA to be furnished without charge.
12.6 MERGER OR CONSOLIDATION. The Plan may not be merged or consolidated with, and its assets or liabilities may not be transferred to, any other plan unless each person entitled to benefits under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated.
12.7 LIMITATION CONCERNING 25 HIGHEST PAID EMPLOYEES.
(a) The provisions of this Section shall apply to any Participant who is one of the 25 highest paid Employees of the Employer on any "Commencement Date" and whose anticipated annual Pension provided under the Plan at Normal Retirement Date exceeds $1,500. "Commencement Date," for purposes of this Section, shall mean the effective date of the Plan or the effective date of any amendment to the Plan which increases Plan benefits. If the Plan is terminated during the first 10 years after a "Commencement Date," the amount of the Pension provided under the Plan for any one of the Participants to whom this Section applies shall not be greater than the amount of Pension that can be provided by the largest of the following amounts:
(1) The Employers' contributions (or funds attributable to those contributions) which would have been applied to provide the Pension if the Plan as in effect on the date before that "Commencement Date" had been continued without change;
(2) $20,000;
(3) The sum of (A) the Employers' contributions (or funds attributable to those contributions) which would have been applied to provide benefits for the Employee if the Plan had been terminated on the day before that "Commencement Date," plus (b) an amount computed by multiplying the smaller of $10,000 or 20 percent of the average annual remuneration of that Employee during the last five years of service, by the number of years since that "Commencement Date"; or
(4) The present value of the maximum benefit guaranteed by the Pension Benefit Guaranty Corporation (PBGC), as described in section 4022(b)(3)(b) of ERISA, determined on the basis of the actuarial assumptions promulgated by the PBGC applicable as of the date of termination of the Plan or the date Pension payments commence, whichever is earlier.
(b) If, during the first 10 years after a "Commencement Date," any Participant to whom this Section applies elects to receive a lump sum payment in lieu of his or her Pension, he or she shall agree to repay to the Plan any portion of his or her Pension subject to the provisions of this Section, and shall provide adequate security to guarantee that repayment. Any excess reserves arising by application of the provisions of Paragraph (a) above shall be used and applied as provided in the Plan for the benefit of the other persons entitled to benefits under the Plan. However, if sufficient funds are available to provide in full for the Pensions accrued for all other persons entitled to benefits under the Plan to the date of termination of the Plan, those excess reserves shall first be used and applied to provide the accrued Pensions of the Participants whose Pensions have been restricted by operation of the provisions of this Section.
(c) If it should subsequently be determined by statute, court
decision acquiesced in by the Commissioner of Internal Revenue, or ruling by the
Commissioner of Internal Revenue, that the provisions of this Section are no
longer necessary for the Plan to remain tax-qualified under the Code, this
Section shall be ineffective without the necessity of further amendment to the
Plan.
ARTICLE 13.
THE TRUST
13.1 PURPOSE OF THE TRUST. A Trust has been created and will be maintained for the purposes of the Plan, and the assets thereof shall be invested in accordance with the terms of the Trust Agreement. All contributions will be paid into the Trust, and all benefits under the Plan will be paid from the Trust.
13.2 APPOINTMENT OF TRUSTEE. Trustee(s) shall be appointed by the Company to administer the Trust. The Trustee's obligations, duties, and responsibilities shall be governed solely by the terms of the Trust Agreement.
13.3 EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to Sections 4.2 and 12.2, the Trust will be used and applied only in accordance with the provisions of the Plan to provide the benefits thereof, and no part of the corpus or income of the Trust shall be used for or diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries and with respect to expenses of administration.
13.4 BENEFITS SUPPORTED ONLY BY THE TRUST. Any person having any claim under the Plan will look solely to the assets of the Trust for satisfaction.
13.5 RIGHTS TO TRUST ASSETS. No Employee shall have any right to, or interest in, any assets of the Trust upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee out of the assets of the Trust. Except as otherwise may be provided under Title IV of ERISA, all payments of benefits as provided for in this Plan shall be made solely out of the assets of the Trust and none of the Fiduciaries shall be liable therefor in any manner.
ARTICLE 14.
MISCELLANEOUS
14.1 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any Participant, or to his legal representative or Beneficiary, in accordance with the provisions of the Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Plan and Trust. The Administration Committee may require such Participant, legal representative, or Beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as it shall determine.
14.2 NO GUARANTEE OF INTERESTS. Neither the Trustee, the Administration Committee, nor the Company guarantee the Trust from loss or depreciation. The Company does not guarantee the payment of any money which may be or becomes due to any person from the Trust. The liability of the Committee and the Trustee to make any payment from the Trust is limited to the then available assets of the Trust.
14.3 PAYMENT OF EXPENSES. Except as provided below, all expenses incident to the administration and protection of the Plan and Trust, including but not limited to legal, accounting, and Trustee fees, may be paid by the Employer, or, in the absence of such payments (which are not obligatory), shall be paid from the Trust, and until paid, shall constitute a first and prior claim and lien against the Trust. However, any and all expenses relating to settlor functions that arise from the creation, design or termination of the Plan must be paid by the Employer and may not be paid from the Trust.
14.4 EMPLOYER RECORDS. Records of an Employer as to an Employee's or Participant's period of employment, termination of employment and the reason therefor, leaves of absence, reemployment, and Compensation will be conclusive on all persons, unless determined to be incorrect.
14.5 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law, an interpretation of the Plan and a decision on any matter within a Fiduciary's discretion made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the person responsible shall make such adjustment on account thereof as he considers equitable and practicable.
14.6 UNIFORM RULES. In the administration of the Plan, uniform rules will be applied to all Participants similarly situated.
14.7 EVIDENCE. Evidence required of anyone under the Plan may be by certificate, affidavit, document, or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
14.8 SEVERABILITY. In the event any provision of the Plan shall be held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the
Plan, but shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein.
14.9 NOTICE. Any notice required to be given herein by the Trustee, an Employer, or the Administration Committee, shall be deemed delivered, when (a) personally delivered, or (b) placed in the United States mails, in an envelope addressed to the last known address of the person to whom the notice is given.
14.10 WAIVER OF NOTICE. Any person entitled to notice under the Plan may waive the notice.
14.11 SUCCESSORS. The Plan shall be binding upon all persons entitled to benefits under the Plan, their respective heirs and legal representatives, upon each Employer, its successors and assigns, and upon the Trustee, the Administration Committee, and their successors.
14.12 HEADINGS. The titles and headings of Articles and Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
14.13 GOVERNING LAW. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Washington except to the extent Washington law is preempted by federal law.
ARTICLE 15.
EMPLOYER PARTICIPATION
15.1 ADOPTION BY EMPLOYER. Subject to the further provisions of this Article, any entity which is a member of the same controlled group of corporations or trades or businesses under common control (as defined in sections 414(b) or 414(c) of the Code) as the Company, now in existence or hereafter formed or acquired, or is approved by the Company, and which is otherwise legally eligible, may, with the consent and approval of the Board, by formal resolution or decision of its own board of directors, adopt the Plan and the Trust and, if deemed necessary by the Company, execute an Adoption Agreement, for all or any classification of its employees. Such adoption shall be effectuated and evidenced by a formal resolution of the Board consenting to and containing or incorporating by reference such formal resolution or decision of the adopting corporation. The adoption resolution or decision shall become, as to such adopting corporation and its employees, a part of the Plan as then or subsequently amended. It shall not be necessary for the adopting corporation to sign or execute the Plan document, but, if deemed necessary by the Company, such corporation must complete and execute an Adoption Agreement. The effective date of the Plan for any such adopting corporation shall be that stated in the resolution or decision of adoption of the adopting corporation, and from and after such effective date, the adopting corporation shall assume all the rights, obligations and liabilities of an Employer hereunder. The administrative powers and control of the Company, as now or hereafter provided in the Plan, including the Company's sole right of amendment of the Plan and Trust and of appointment and removal of the Administration Committee, and Trustee, together with their successors, shall not be diminished by reason of the participation of any such adopting corporation in the Plan and Trust.
15.2 WITHDRAWAL BY EMPLOYER. Any Employer by action of its board of directors and notice to the Company and the Trustee, may withdraw from the Plan and Trust at any time without affecting other Employers not withdrawing, by complying with the provisions of the Plan. Termination of the Plan as it relates to an Employer upon its withdrawal shall be governed by the provisions of Article XIII. A withdrawing Employer may arrange for the continuation by itself or its successor of this Plan and Trust in separate form for its own Employees with such amendments, if any, as it may deem proper, or it may arrange for continuation of the Plan and Trust by merger with an existing plan and trust qualified under sections 401(a) and 501(a) of the Code and transfer of such portion of the Trust assets as the Committee determines are allocable to the Employer and its employees who are Participants. The Company may in its absolute discretion, by resolution of its Board, terminate an Employer's participation at any time when (1) the Employer ceases to be a member of the Company's controlled group of corporations, (2) in the Company's judgment such Employer fails or refuses to discharge its obligations under the Plan following such prior notice and opportunity to cure as may be appropriate under the circumstances, or (3) in the Company's judgment, such Employer should not be allowed to continue to participate.
15.3 ADOPTION CONTINGENT UPON INITIAL AND CONTINUED QUALIFICATION. The adoption of the Plan and Trust by a corporation as provided in Section 15.1 is made contingent and subject to the condition precedent that the adopting corporation meets all the statutory requirements for
qualified plans under the Code for its Employees. The adopting corporation may, or at the request of the Company shall, request an initial letter of determination from the appropriate District Director of Internal Revenue to the effect that the Plan and Trust, as herein set forth or as amended with respect to the adopting corporation, satisfy the requirements of the applicable federal statutes for tax qualification purposes for such adopting corporation and its employees. In the event the Plan or the Trust in its operation becomes disqualified for any reason as to such adopting corporation and its employees, the portion of the Trust allocable to them shall be segregated as soon as is administratively feasible, pending either (1) the prompt requalification of the Plan and Trust as to such corporation and its employees to the satisfaction of the Internal Revenue Service, so as not to affect the continued qualified status of the Plan and Trust as to all other Employees, or (2) as provided in Section 15.2 above, the prompt withdrawal of such corporation from this Plan and Trust and a continuation by itself or its successor of a plan and a trust separately from this Plan and Trust, or by merger with another existing qualified plan and trust with a transfer of its said segregated portion of Trust assets, or (3) the prompt termination of the Plan and Trust as to itself and its employees.
15.4 NO JOINT VENTURE IMPLIED. The adoption of the Plan by any Employer shall not create a joint venture or partnership relation between it and any other Employer. Any rights, duties, liabilities and obligations assumed or incurred hereunder by any Employer, or imposed upon any Employer by the provisions of the Plan, shall relate to and affect such Employer alone.
ARTICLE 16.
SPECIAL SECTION 401(A)(17) PROVISIONS
16.1 FRESH START RULE - OPTION 3 (FORMULA WITH EXTENDED WEAR-AWAY). Unless otherwise provided under the Plan, each "Section 401(a)(17) Participant's" (as defined below) Accrued Benefit under this Plan will be the greater of the Accrued Benefit determined for the individual under (a) or (b) below:
(a) The Participant's Accrued Benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Participant's total Years of Benefit Service taken into account under the Plan for the purposes of benefit accruals; or
(b) The sum of:
(1) the Participant's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Treas. Reg. Section 1.401(a)(4)-13, and
(2) The Participant's Accrued Benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Participant's Years of Benefit Service credited to the Participant for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals.
A "Section 401(a)(17) Participant" means a Participant whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000.
16.2 ADJUSTED FROZEN ACCRUED BENEFIT FOR SECTION 401(A)(17) EMPLOYEES.
If this Plan satisfies the requirements of Treas. Reg. Section 1.401(a)(4)-13(d)
for a fresh-start as of the last day of the last Plan Year beginning before
January 1, 1994, then, notwithstanding any other provisions of the Plan, any
Section 401(a)(17) Participant's Accrued Benefit, frozen in accordance with
Treas. Reg. Section 1.401(a)(4)-13 as of a fresh-start date, is adjusted to
reflect increases in the Participant's compensation after the fresh-start date.
However, this adjustment may be made only if the adjustment will not cause the
Plan to fail to satisfy the consistency requirement of Treas. Reg. Section
1.401(a)(4)-13(c), as modified by Prop. Treas. Reg. Section 1.401(a)(17)-1(e)
(or the similar provisions in the final such regulations).
In determining a Section 401(a)(17) Participant's Accrued Benefit in any
Plan Year beginning on or after January 1, 1994, the portion of the
Participant's frozen Accrued Benefit attributable to Plan Years beginning before
January 1, 1994, will be determined in accordance with Method A for "Statutory
Section 401(a)(17) Participants" and Method B for "Section 401(a)(17)
Participants" other than Statutory Section 401(a)(17) Participants.
A "Statutory Section 401(a)(17) Participant" means a Participant whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1989, that exceeded $200,000.
A "Section 401(a)(17) Participant" means a Participant whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000.
Method A (Statutory Section 401(a)(17) Participants):
Step 1: Determine each Statutory Section 401(a)(17) Participant's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1989, frozen in accordance with Treas. Reg. Section 1.401(a)(4)-13.
Step 2: Adjust the amount in step 1 up through the last day of the last Plan Year beginning before the first Plan Year beginning on or after January 1, 1994, under the method provided under the Plan for increasing the amount in step 1 to take into account increases in compensation in Plan Years beginning on or after January 1, 1989. However, if the Plan does not provide for such increases, the amount in step 2 shall be equal to the amount in step 1.
Step 3: Determine the Statutory Section 401(a)(17) Participant's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Treas. Reg. Section 1.401(a)(4)-13.
Step 4: Subtract the amount determined in step 2 from the amount determined in step 3.
Step 5: Adjust the amount in step 4 by multiplying it by the following fraction (not less than 1). The numerator of the fraction is the Statutory Section 401(a)(17) Participant's average compensation determined for the current year (as limited by Section 401(a)(17) of the Code), using the same definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994. The denominator of the fraction is the Participant's average compensation for the last day of the last Plan Year beginning before January 1, 1994, using the definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994.
Step 6: Adjust the amount in step 1 by multiplying it by the following fraction (not less than 1). The numerator of the fraction is the Statutory Section 401(a)(17) Participant's average compensation for the current year (as limited by Section 401(a)(17) of the Code), using the same definition of compensation and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1989. The denominator of the fraction is the Participant's average
compensation for the last day of the last Plan Year beginning before January 1, 1989, using the definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1989.
Step 7: Add the amounts determined in step 5, and the greater of steps 6 or 2.
Method B (Section 401(a)(17) Participants other than Statutory Section
401(a)(17) Participants):
Step 1: Determine the Accrued Benefit of each Section 401(a)(17) Participant other than Statutory Section 401(a)(17) Participants as of the last day of the Plan Year beginning before January 1, 1994, frozen in accordance with Treas. Reg. Section 1.401(a)(4)-13.
Step 2: Adjust the amount in step 1 by multiplying it by the
following fraction (not less than 1). The numerator of the
fraction is the average compensation of the Section 401(a)(17)
Participant who is not a Statutory Section 401(a)(17)
Participant determined for the current year (as limited by
Section 401(a)(17) of the Code), using the same definition and
compensation formula in effect as of the last day of the last
Plan Year beginning before January 1, 1994. The denominator of
the fraction is the Participant's average compensation for the
last day of the last Plan Year beginning before January 1, 1994,
using the definition and compensation formula in effect as of
the last day of the last Plan Year beginning before January 1,
1994.
EXECUTION PAGE
IN WITNESS WHEREOF, the Company has caused this restated Plan to be adopted on this the 30th day of September, 1998.
WASHINGTON MUTUAL, INC.
By:________________________________
Its:_______________________________
EARLY RETIREMENT APPENDIX
In order to determine the special early retirement benefit, the Participant's account value as of September 30, 1995 is multiplied by the following factor based upon the Participant's age at the time of distribution:
AGE FACTOR --- ------ 55 20% 56 19% 57 18% 58 17% 59 16% 60 15% 61 14% 62 13% 63 9% 64 5% 65 0% |
EXHIBIT 10.13.1
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
THIS AMENDMENT is made to the Washington Mutual, Inc. Cash Balance Pension Plan (the "Plan") by Washington Mutual, Inc. (the "Company") on this ______ day of October, 1999.
RECITALS:
WHEREAS, the Company, through its subsidiary, Aristar, Inc. ("Aristar"), has agreed to acquire certain assets of Peoples Security Finance Company, Inc. ("Peoples"); and
WHEREAS, Peoples employees hired by Aristar in connection with such acquisition generally will be offered participation in employee benefit plans of the Company; and
WHEREAS, the Company desires to amend the Plan to provide service credit thereunder for purposes of eligibility to participate in the Plan to employees of an Employer who are former employees of Peoples and who are hired in connection with Aristar's acquisition of assets of Peoples; and
WHEREAS, the Company may amend the Plan at any time pursuant to
Section 12.1;
NOW, THEREFORE, effective January 1, 2000, Section 2.37(b) of the Plan is hereby amended by the addition of new paragraph 5 to read as follows:
(5) Employees who were hired by the Company in connection with its purchase of the assets of Peoples Security Finance Company, Inc. ("Peoples") and who were employed by Peoples or one of its affiliates immediately prior to such hire shall be credited with Service for up to one year of service performed with Peoples or its affiliates.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
EXHIBIT 10.13.2
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
THIS AMENDMENT is made to the Washington Mutual, Inc. Cash Balance Pension Plan (the "Plan") by Washington Mutual, Inc. (the "Company") on this ______ day of January 2001.
RECITALS:
WHEREAS, the Company maintains the Plan for the benefit of its eligible employees; and
WHEREAS, the Company has acquired Bank United Corp. ("Bank United") and certain subsidiaries of PNC Bank, National Association (the "PNC Companies"); and
WHEREAS, the Company has agreed to provide the former employees of Bank United and the PNC Companies who continue employment with the Company upon the closing of the Company's acquisitions of Bank United and the PNC Companies, respectively, with certain credits for eligibility, vesting and, with respect to former employees of Bank United, benefit service; and
WHEREAS, the Company desires to amend the Plan to provide for such credits; and
WHEREAS, the Company may amend the Plan at any time pursuant to
Section 12.1;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2.30(a) is amended by the addition of a new Paragraphs (26) and (27), to read as set forth below:
(26) Eligible Employees who were credited with Service for service with PNC Bank, National Association, may first enter the Plan on the day after the "PNC Closing Date", as such term is defined in Section 2.37.
(27) Eligible Employees who were credited with Service for service with Bank United Corp. may first enter the Plan on May 1, 2001.
2. Section 2.37(a) is amended by the addition of a new paragraph (22), to read as set forth below:
(23) Employees who were employed by PNC Bank, National Association, as of the date in 2001 of the closing of the Company's acquisition of several subsidiaries of PNC Bank, National Association (the "PNC Closing Date") and who are employed by the Company upon the closing of such acquisitions shall be credited with Service for Service performed with PNC Bank, National Association.
(24) Employees who were employed by Bank United Corp. as of the date in 2001 of the closing of the Company's acquisition of Bank United Corp. and who are employed by the Company upon such closing shall, after April 30, 2001, be credited with Service for service performed with Bank United Corp.
3. Section 2.37 is amended by the addition of a new subsection (c) to read as set forth below:
(c) After April 30, 2001, Employees who are credited with Service pursuant to Section 2.37(a)(24) shall have their service with Bank United credited as Years of Benefit Service for purposes of this Plan.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
EXHIBIT 10.13.3
AMENDMENT TO THE
WASHINGTON MUTUAL, INC.
CASH BALANCE PENSION PLAN
THIS AMENDMENT is made to the Washington Mutual, Inc. Cash Balance Pension Plan (the "Plan") by Washington Mutual, Inc. (the "Company") on this ______ day of December, 1999.
RECITALS:
WHEREAS, the Company maintains the Plan for the benefit of its eligible employees; and
WHEREAS, the Company has merged with H. F. Ahmanson & Company; and
WHEREAS, the H. F. Ahmanson Retirement Plan (the "Ahmanson Plan") has been merged into the Plan; and
WHEREAS, the Board of Directors of the Company approved certain enhanced credits to the Plan; and
WHEREAS, the Company desires to amend the Plan to contain the provisions required to accommodate the service and benefits resulting from the merger of the Ahmanson Plan into the Plan, and to provide for the enhanced credits approved by the Board; and
WHEREAS, the Company may amend the Plan at any time pursuant to Section 12.1;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2.30(a) is amended by the addition of a new Paragraph (25), to read as set forth below:
(25) Special Plan Entry Dates for Eligible Employees who became Employees in connection with the Company's merger with H. F. Ahmanson & Company are provided in Appendix 1.
2. Section 2.37(a) is amended by the addition of a new paragraph (22), to read as set forth below:
(22) Additional rules applicable to Service credit for service performed on behalf of H. F. Ahmanson & Company and its affiliates are provided in Appendix 1.
3. Article 5 is amended effective January 1, 2000 by the addition of new
Section 5.1(g) to read as set forth below:
(g) Commencing January 1, 2000, the amounts credited in
Section 5.1(f) shall be superseded by the following credits.
Each Participant who is paid Compensation during a payroll
period shall be credited with a percentage of his Compensation
for the payroll period as of the Allocation Date, determined by
the Participant's Years of Benefit Service, as follows:
Years of Percent of
Benefit Service Compensation
--------------- ------------
Less than 5 2.5%
5, but less than 10 3.0%
10, but less than 15 4.0%
15, but less than 20 5.0%
20 or more 6.0%
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However, the percentage of Compensation credited under this paragraph for Participants who began participation in the Plan prior to January 1, 1995, and have fewer than five Years of Benefit Service shall be 3.0%. Each Account shall also be credited with daily interest crediting. The amount credited to Accounts each day shall be the Account value as of the preceding day multiplied by a rate equal to the Daily Interest Credit in effect for the Plan Year.
4. The current Appendix with respect to the Early Retirement factors shall be redesignated Appendix 2, and any references to such Appendix in the text of the Plan shall be changed to read "Appendix 2".
5. The Plan is hereby amended by a new Appendix 1, to read as set forth on the attached Exhibit A-1.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the Company, has executed this amendment on the day and year first written above.
WASHINGTON MUTUAL, INC.
EXHIBIT 10.15
WASHINGTON MUTUAL
BONUS AND INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
As Amended and Restated Effective January 1, 1999
The Directors' Compensation and Stock Option Committee (the "Compensation Committee") of Washington Mutual, Inc. ("Washington Mutual") hereby adopts this bonus and incentive plan, effective for bonus periods beginning on or after January 1, 1999, subject to shareholder approval as described in Section 3.
1. PURPOSE. The purpose of this plan is to provide performance-based incentive compensation in the form of cash bonuses to executive officers and senior management of Washington Mutual and its affiliates. This plan is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code ("Section 162(m)").
2. ADMINISTRATION. This plan has been established by, and shall be administered by, the Compensation Committee. The Compensation Committee is composed solely of 2 or more outside directors as defined in Section 162(m) and, therefore, qualifies as an independent compensation committee under Section 162(m).
3. SHAREHOLDER APPROVAL. This plan shall be effective if, and only
if, Washington Mutual's shareholders, by a majority of the votes cast, approve
the material terms of the performance goals in this plan, specifically, the
employees eligible to receive bonuses under this plan; the business criteria on
which the performance goals may be based; and the maximum amount of compensation
that may be paid to any employee under this plan in any year. No bonuses will be
paid under this plan until after this approval is obtained. To the extent
necessary for this plan to qualify as performance-based compensation under
Section 162(m) or its successor under then applicable law, these material terms
of the performance goals shall be disclosed to and reapproved by the
shareholders no later than the first shareholder meeting that occurs in the
fifth year following the year in which shareholders previously approved the
performance goals.
4. PARTICIPANTS. For each bonus measurement period (which may but need not be a calendar year), the Compensation Committee will choose, in its sole discretion, those eligible employees who will participate in this bonus plan during that measurement period and will be eligible to receive a bonus under this plan for that measurement period.
(a) ELIGIBLE EMPLOYEES. All members of senior management of Washington Mutual and its affiliates are eligible to participate in this plan. For purposes of this bonus plan, senior management is defined as any officer with the rank of Senior Vice President or above of Washington Mutual, Inc., of any affiliate and of any established division within an affiliate.
(b) EMPLOYMENT CRITERIA. In general, to participate in this
plan an eligible employee must be continuously employed by Washington Mutual or
an affiliate for the entire measurement period. The foregoing notwithstanding:
(i) if an otherwise eligible employee joins Washington Mutual or an affiliate
during the measurement period, the Compensation Committee may, in its
discretion, add the employee to this plan for the partial measurement period,
and (ii) if the employment of an otherwise eligible employee ends before the end
of the measurement period because of death, disability, voluntary termination of
employment upon or after attaining age 62, or termination of employment upon or
after a Change in Control (as that term is defined in the employee's Employment
Agreement), the employee shall be paid a pro-rata portion of the bonus, if any,
that otherwise would have been payable under this plan. If a participant is on
unpaid leave status for any portion of the measurement period, the Compensation
Committee, in its discretion, may reduce the participant's bonus on a pro-rata
basis.
All determinations related to eligibility or the pro-ration of any bonus shall be made by the Compensation Committee pursuant to the above terms, and those determinations shall be final and binding on all employees.
5. BUSINESS CRITERIA ON WHICH PERFORMANCE GOALS SHALL BE BASED. The payment of bonuses under this plan shall be based on Washington Mutual's attainment of performance goals based on one or more of the following business criteria:
Return on average common equity.
Return on average equity.
Efficiency ratio (other expense as a percentage of other income plus net interest income), either before or after amortization of intangible assets (goodwill).
Net operating expense (other income less other expense), either before or after amortization of intangible assets (goodwill).
Earnings per diluted share of common stock.
Operating earnings (earnings before transaction-related expense) per diluted share of common stock, either before or after amortization of intangible assets (goodwill).
Return on average assets.
Ratio of nonperforming assets to total assets.
These business criteria shall be construed consistent with the use of the same terms in Washington Mutual's published financial statements. All business criteria other than earnings per diluted share of common stock shall exclude transaction-related expense unless otherwise determined by the Compensation Committee in selecting the business
criteria for a particular bonus measurement period pursuant to Section 6 below. In selecting any business criteria other than earnings per diluted share of common stock, the Compensation Committee may elect, pursuant to Section 6 below, to exclude amortization of intangible assets (goodwill), or to exclude depreciation and amortization.
6. ESTABLISHING PERFORMANCE GOALS. The Compensation Committee shall establish, for each bonus measurement period: (a) the length of the bonus measurement period, (b) the specific business criterion or criteria, or combination thereof, that will be used; (c) the specific performance targets that will be used for the selected business criterion or criteria; (d) any special adjustments that will be applied in calculating whether the performance targets have been met to factor out extraordinary items, (e) the formula for calculating bonuses in relation to the performance targets; (f) the eligible employees who will participate in the bonus plan for that measurement period; and (g) if applicable, the target bonus amounts for each participant for the measurement period. The Compensation Committee shall make these determinations in writing no later than 90 days after the start of each measurement period, on or before 25 percent of the measurement period has elapsed, and while the outcome is substantially uncertain. Bonus payments to any one participant in any one calendar year under this plan shall not exceed $5,000,000.
Unless otherwise specified by the Compensation Committee in its written determinations establishing the bonus criteria for the particular bonus measurement period, if Washington Mutual or its affiliates consummate one or more acquisitions during the bonus measurement period that, individually or in the aggregate, constitute a Triggering Acquisition, the bonus measurement period shall end early, on the last day of the calendar quarter immediately before the consummation of the first acquisition that constitutes a Triggering Acquisition (either individually or when aggregated with prior acquisitions during the bonus measurement period), and pro-rated bonuses shall be paid based on the degree of attainment of the performance goals during the shortened bonus measurement period. For purposes of this paragraph, a Triggering Acquisition means an acquisition (or combination of acquisitions) in which the acquired entity's operating earnings (earnings before transaction-related expense) for the four quarters completed immediately before consummation of the acquisition is equal to 10% or more of the pro-forma operating earnings for the same four quarters for the combination of Washington Mutual and its affiliates and the acquired entity. (If either Washington Mutual and its affiliates or the entity being acquired had consummated other acquisitions during the four quarters in question, the calculation described in the prior sentence shall be done using pro-forma earnings for each combined entity.)
If an employee joins Washington Mutual or an affiliate during the measurement period and becomes an eligible employee pursuant to Paragraph 4(b), and if the employee is a "covered employee" within the meaning of Section 162(m) (because the employee is the chief executive officer or is among the 4 highest compensated officers for the year other than the chief executive officer), then to the extent necessary for this plan to qualify as performance-based compensation under Section 162(m) or its successor under then applicable law, all relevant elements of the performance goals established pursuant to paragraph 6 of this plan for that employee must be established on or before the date on
which 25% of the time from the commencement of employment to the end of the measurement period has elapsed and the outcome under the performance goals for the measurement period must be substantially uncertain at the time those elements are established.
7. DETERMINATION OF ATTAINMENT OF PERFORMANCE GOALS. The Compensation Committee shall determine, pursuant to the performance goals and other elements established pursuant to section 6 of this plan, the bonus amounts to be paid to each employee for each measurement period. The Compensation Committee's determinations shall be final and binding on all participants. These determinations must be certified in writing before bonuses are paid, which requirement may be satisfied by approved minutes of the Compensation Committee meeting setting out the determinations made. The Compensation Committee shall NOT have discretion to increase the amount of the bonus that would otherwise be due upon attainment of the goals established pursuant to paragraph 6 of this plan to any employee who is a "covered employee" within the meaning of Section 162(m) if increasing the bonus would cause the bonus or any part thereof to not be deductible under the Internal Revenue Code.
8. AMENDMENTS. The Compensation Committee may not amend or terminate this plan so as to increase, reduce or eliminate bonuses payable under this plan for any given measurement period retroactively, that is, on any date later than 90 days after the start of the measurement period. The Compensation Committee may amend or terminate this plan at any time on a prospective basis and/or in any fashion that does not increase, reduce or eliminate bonuses retroactively. The foregoing notwithstanding, the Compensation Committee shall not have the power to amend this plan in any fashion that would cause the plan to fail to qualify as performance-based compensation with respect to any "covered employee" as defined under Section 162(m) or its successor. Without limiting the generality of the foregoing, to the extent it would cause this plan to fail to qualify as performance-based compensation with respect to any "covered employee" as defined under Section 162(m) or its successor under then applicable law, the Compensation Committee shall not have the power to change the material terms of the performance goals unless (i) the modified performance goals are established by the Compensation Committee no later than 90 days after the start of the applicable measurement period, on or before 25 percent of the measurement period has elapsed, and while the outcome is substantially uncertain and (ii) no bonuses are paid under the modified performance goals until after the material terms of the modified performance goals are disclosed to and approved by Washington Mutual's shareholders.
9. EFFECTIVENESS; PRIOR PLANS SUPERSEDED. Upon shareholder approval as described in Section 3, this plan shall be effective for bonus periods beginning on or after January 1, 1999, and shall replace and supersede the Bonus and Incentive Plan for Executive and Senior Management adopted effective January 1, 1996.
Executed effective as of January 1, 1999.
DIRECTORS' COMPENSATION & STOCK OPTION COMMITTEE
EXHIBIT 12 (a)
WASHINGTON MUTUAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
----------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
------- ------- ------- ------- -------
EARNINGS, INCLUDING INTEREST ON
DEPOSITS(1):
Income before income tax expense $ 2,984 $2,884 $ 2,369 $ 1,538 $ 591
Fixed charges 9,538 7,674 6,990 6,349 6,086
------- ------- ------- ------- -------
$12,522 $10,558 $ 9,359 $ 7,887 $ 6,677
======= ======= ======= ======= =======
Fixed charges(1):
Interest expense $ 9,472 $ 7,610 $ 6,929 $ 6,287 $ 6,027
Estimated interest component of
net rental expense 66 64 61 62 59
------- ------- ------- ------- -------
$ 9,538 $ 7,674 $ 6,990 $ 6,349 $ 6,086
======= ======= ======= ======= =======
Ratio of earnings to fixed charges(2) 1.31 1.38 1.34 1.24 1.10
======= ======= ======= ======= =======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 2,984 $ 2,884 $ 2,369 $ 1,538 $ 591
Fixed charges 6,248 4,504 3,402 2,703 2,322
------- ------- ------- ------- -------
$ 9,232 $ 7,388 $ 5,771 $ 4,241 $ 2,913
======= ======= ======= ======= =======
Fixed charges:
Interest expense $ 9,472 $ 7,610 $ 6,929 $ 6,287 $ 6,027
Less interest on deposits 3,290 3,170 3,588 3,646 3,764
Estimated interest component of
net rental expense 66 64 61 62 59
------- ------- ------- ------- -------
$ 6,248 $ 4,504 $ 3,402 $ 2,703 $ 2,322
======= ======= ======= ======= =======
Ratio of earnings to fixed charges(2) 1.48 1.64 1.70 1.57 1.25
======= ======= ======= ======= =======
-------------------
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and Exchange Commission
Regulations. However, management believes that fixed charge ratios are not meaningful measures for the
business of the Company because of two factors. First, even if there were no change in net income, the
ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely,
they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if
there were no change in net income, the ratios would decline if interest income and interest expense
increase by the same amount due to an increase in the level of interest rates or, conversely, they would
increase if interest income and interest expense decrease by the same amount due to a decrease in the
level of interest rates.
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EXHIBIT 12 (b)
WASHINGTON MUTUAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
Year Ended December 31,
-------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
------- ------- ------- ------- -------
EARNINGS, INCLUDING INTEREST ON DEPOSITS(1):
Income before income tax expense $ 2,984 $2,884 $ 2,369 $ 1,538 $ 591
Fixed charges 9,538 7,674 6,990 6,349 6,086
------- ------- ------- ------- -------
$12,522 $10,558 $ 9,359 $ 7,887 $ 6,677
======= ======= ======= ======= =======
Preferred dividend requirement - - - 20 55
Ratio of income before income tax expense to net
income 1.57 1.59 1.59 1.74 1.57
------- ------- ------- ------- -------
Preferred dividends (2) - - - $ 35 $ 86
------- ------- ------- ------- -------
Fixed charges (1):
Interest expense $ 9,472 $ 7,610 $ 6,929 $ 6,287 $ 6,027
Estimated interest component of net rental
expense 66 64 61 62 59
------- ------- ------- ------- -------
9,538 7,674 6,990 6,349 6,086
------- ------- ------- ------- -------
Fixed charges and preferred dividends $ 9,538 $ 7,674 $ 6,990 $ 6,384 $ 6,172
======= ======= ======= ======= =======
Ratio of earnings to fixed charges and preferred
dividend(3) 1.31 1.38 1.34 1.24 1.08
======= ======= ======= ======= =======
EARNING, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 2,984 $ 2,884 $ 2,369 $ 1,538 $ 591
Fixed charges 6,248 4,504 3,402 2,703 2,322
------- ------- ------- ------- -------
$ 9,232 $ 7,388 $ 5,771 $ 4,241 $ 2,913
Preferred dividends (2) - - - 35 86
------- ------- ------- ------- -------
Fixed charges:
Interest expense $ 9,472 $ 7,610 $ 6,929 $ 6,287 $ 6,027
Less interest on deposits 3,290 3,170 3,588 3,646 3,764
Estimated interest component of net
rental expense 66 64 61 62 59
------- ------- ------- ------- -------
6,248 4,504 3,402 2,703 2,322
------- ------- ------- ------- -------
Fixed charges and preferred dividends $ 6,248 $ 4,504 $ 3,402 $ 2,738 $ 2,408
======= ======= ======= ======= =======
Ratio of earnings to fixed charges and preferred
dividends(3) 1.48 1.64 1.70 1.55 1.21
======= ======= ======= ======= =======
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax earning that would be
required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and Exchange Commission
Regulations. However, management believes that fixed charge ratios are not meaningful measures for the
business of the Company because of two factors. First, even if there were no change in net income, the
ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely,
they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if
there were no change in net income, the ratios would decline if interest income and interest expense
increase by the same amount due to an increase in the level of interest rates or, conversely, they would
increase if interest income and interest expense decrease by the same amount due to a decrease in the
level of interest rates.
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EXHIBIT 21
WASHINGTON MUTUAL, INC.
SUBSIDIARY LISTING
WASHINGTON MUTUAL BANK
Chartered under the laws of the state of Washington
DBA: Washington Mutual Bank
WM Business Bank
Western Bank
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NEW AMERICAN CAPITAL, INC., a Delaware corporation
WASHINGTON MUTUAL BANK, FA
DBA: Washington Mutual Bank, FA
Alta Residential Mortgage, Inc.
ARMT, Inc.
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Federally-chartered under the laws of the United States
Exhibit 23
We consent to the incorporation by reference in Post-Effective Amendments No. 1 on Form S-8 to Registration Statement Nos. 333-23221, 333-52785, 333-81221 and 333-47308 on Form S-4 of Washington Mutual, Inc.; Registration Statement Nos. 33-86840, 333-69503, and 333-87675 on Form S-8 of Washington Mutual, Inc.; and Registration Statement Nos. 333-37685 and 333-31144 on Form S-3 of Washington Mutual, Inc. of our report dated February 23, 2001, appearing in the Annual Report of Form 10-K of Washington Mutual, Inc. for the year ended December 31, 2000.
Seattle, Washington
March 19, 2001