Exhibit 99.1

 

 

January 20, 2004

FOR IMMEDIATE RELEASE

 

 

Washington Mutual Announces Fourth Quarter 2003 and Year-End Earnings

Board of Directors Increases Cash Dividend

 

SEATTLE —Washington Mutual, Inc. (NYSE: WM) today announced 2003 annual earnings of $3.88 billion, or $4.21 per diluted share versus $3.86 billion, or $4.02 per diluted share in 2002, an increase of 5 percent on a per share basis.  Reflecting the slowdown in the mortgage market in the second half of the year, the company announced fourth quarter 2003 earnings of $842 million, or 93 cents per diluted share as compared with $941 million, or $1.00 per diluted share for the same period in the previous year.

The company closed the sale of its consumer finance subsidiary, Washington Mutual Finance, on January 9, 2004. All financial information reflects Washington Mutual Finance as a discontinued operation.

Highlights of the year and fourth quarter included:

•                   A net increase of 808,000 retail checking accounts during the year including 183,000 during the fourth quarter, bringing the company’s total to more than 8 million accounts;

•                   Record depositor and other retail banking fees of $1.82 billion for the year, an increase of $184 million from $1.63 billion in 2002, reflecting the company’s strong organic growth. For the fourth quarter of 2003 those fees totaled $472 million, up from $449 million for the same period one year ago;

•                   The opening of 260 new retail banking stores in 2003 including 101 in the fourth quarter increased the total number of retail banking stores nationwide to 1,776. As part of the company’s continued strategy to overlay its retail banking operations in select metropolitan markets, the company plans to open approximately 250 new retail banking stores in 2004;

•                   At year end, the average mature retail banking household maintained 5.59 products and services with the company, up from 5.28 at year-end 2002;

•                   Record home loan volume of $384.18 billion for 2003 increased $104.73 billion from $279.45 billion in 2002; and the fourth quarter’s volume of $57.53 billion, which reflected a slowdown in the mortgage market, was down $42.28 billion from $99.81 billion in the fourth quarter of 2002;

 

—more—

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 2

•                   Strong home equity loans and lines of credit volume was a record $29.64 billion in 2003, an increase of $14.39 billion from $15.25 billion in 2002;

•                   Multi-family lending volume was a record $8.07 billion in 2003, an increase of $2.23 billion from $5.84 billion in 2002;

•                   Improved credit quality was reflected in a decline in nonperforming assets (NPAs) as a percentage of total assets to 0.70 percent as of December 31, 2003 from 0.93 percent as of December 31, 2002;

•                   In late December 2003, the company sold its franchise lending portfolio resulting in a net recovery of reserves of $82 million;

•                   Improved credit quality and continued favorable economic conditions in conjunction with proactive management of NPAs led to an additional recovery of $120 million of reserves in the period;

•                   During 2003, the company repurchased 65.9 million shares of its common stock at an average price of $40.93, of which 28.7 million shares were repurchased during the fourth quarter at an average price of $44.14;

•                   At 42 cents, the dividend declared this quarter reflects a 45 percent increase over the dividend declared in first quarter of 2003.

 

“The fourth quarter of 2003 brought to a close a successful year in which we continued to profitably expand our key businesses nationally and enhance the value of our franchise,” said Kerry Killinger, the company’s chairman, president and CEO. “We continued to see marked improvement in our credit position as the year progressed as well. While 2003 was a solid year for our company, rising interest rates for mortgages in the second half of the year placed pressure on our business results.  Our management team is meeting the challenge head on, as reflected in the $180 million of technology write-downs and severance charges taken during the fourth quarter, and we expect our efforts to reduce costs will contribute to our results in 2004.”

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 3

 

BOARD OF DIRECTORS INCREASES CASH DIVIDEND

Based on the company’s continued strong operating fundamentals and financial performance, Washington Mutual’s Board of Directors declared a cash dividend of 42 cents per share on the company’s common stock, up from 41 cents per share in the previous quarter.  Dividends on the common stock are payable on February 13, 2004 to shareholders of record as of January 30, 2004.

 

FOURTH-QUARTER AND YEAR-END RESULTS

Net Interest Income

Net interest income was $1.74 billion in the fourth quarter of 2003, a decline of $166 million from third quarter 2003 net interest income of $1.91 billion.  This decrease was largely the result of the continuing contraction of the net interest margin and a decline in loans held for sale.

The net interest margin in the fourth quarter declined to 2.90 percent, a reduction of 17 basis points from the third quarter of 2003. The lower margin was driven primarily by the sale of certain available for sale securities in the third quarter of this year and the continued downward repricing of loans held in portfolio, as well as significantly lower levels of noninterest-bearing custodial and escrow deposit balances resulting from the slowing mortgage refinance market.

For 2003, net interest income was $7.63 billion, a decrease of $500 million from $8.13 billion in 2002.  This decrease was attributable to a 30 basis point decline in the net interest margin year-over-year.

 

Noninterest Income

Total home loan mortgage banking income, net of risk management activities, was $2.28 billion for 2003 up from $1.76 billion in 2002. Fourth quarter 2003 income of $581 million increased from $356 million in the fourth quarter of 2002.

Home loan mortgage banking income reflected a net recovery on the MSR asset that resulted from higher interest rates at the end of the year. The slowdown in the mortgage market and operational issues experienced by the company in the third quarter led to a decrease in the gain from mortgage loans, net of risk management activities, to $1.06 billion in 2003 from $1.25 billion in 2002.  For the fourth quarter 2003, net gain from mortgage loans decreased to $71 million from $311 million in the fourth quarter of 2002.

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 4

 

Continued strong consumer preference for Washington Mutual’s products and personal service, plus the opening of 260 new retail banking stores in 2003, led to a net increase of 808,000 retail checking accounts year-over-year.  This increase contributed to the record level of depositor and other retail banking fees of $1.82 billion for the year, an increase of $184 million, or 11 percent, from $1.63 billion for 2002. For the quarter, depositor and other retail banking fees totaled $472 million, an increase from $449 million from the same period one year ago.

 

Lending

For the year, record total loan volume of $432.25 billion represented an increase of 40 percent from $309.42 billion in 2002.  Fourth quarter 2003 volume of $69.90 billion reflected the industry-wide 50 percent reduction in quarterly mortgage originations.  Fourth quarter volume was down 36 percent from $108.49 billion in the fourth quarter of 2002.

Record home loan volume of $384.18 billion for 2003 represented an increase from $279.45 billion in 2002.  Fourth quarter volume of $57.53 billion was down from $99.81 billion in the fourth quarter of 2002.

Even though the market remains predominantly a fixed-rate market, the company is beginning to see a shift toward adjustable-rate mortgages (ARMs).  During the fourth quarter of 2003, home loan ARMs represented 55 percent of the company’s home loan application volume, compared with 38 percent in the third quarter of 2003.

The company’s cross-selling efforts led to record home equity loans and lines of credit volume of $29.64 billion in 2003, an increase of 94 percent from $15.25 billion in 2002; and the fourth quarter’s volume of $7.92 billion was up 68 percent from $4.72 billion in the fourth quarter of 2002.

The company’s multi-family business continued its expansion efforts, opening new offices in Washington, D.C.; Boston, Mass.; and Miami, Fla. in 2003.  For the year, multi-family lending volume was a record $8.07 billion, up 38 percent from $5.84 billion in 2002; and the fourth quarter’s volume remained strong at $1.65 billion.

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 5

 

Cost Leadership Initiatives

For the year, noninterest expense totaled $7.41 billion, as compared with $6.19 billion for 2002.  Noninterest expense totaled $2.10 billion for the fourth quarter of 2003, compared with $1.81 billion for the third quarter of 2003, reflecting excess capacity in the company’s home lending operations.  For the fourth quarter, the company’s efficiency ratio was 65.51 percent as compared with 52.13 percent for the third quarter of 2003.  For the year the efficiency ratio was 54.96 percent compared with 49.12 percent in 2002.

In December, the company announced its cost leadership initiative to cut approximately $1 billion from its annualized fourth-quarter 2003 noninterest expense run rate by June 2005.  As an important step to achieving this initiative, the company incurred technology write-downs and severance charges totaling $180 million, which were included in noninterest expense and contributed to a higher efficiency ratio in the fourth quarter and for the year.

 “We have a rigorous process in place and our management team is focused on reducing our cost base with the goal of becoming an industry leader in efficiency,” Killinger said. “We are pleased with the initial results of our efforts but we know there is more work to do.  However, given the momentum that we have, our management team is confident that we will achieve our stated reduction targets.”

As previously announced, the company eliminated the equivalent of 4,500 full-time positions in its home lending support operations during the last four months of 2003.  The majority of this total reflected reductions in non-employee temporary and contract personnel and decreased overtime.  Washington Mutual also anticipates a reduction of 2,900 full-time equivalent personnel in the first quarter of 2004. Additional efficiencies will be accomplished by completing the previously delayed integration of Washington Mutual’s mortgage acquisitions from 2001 and 2002, as well as cost-saving initiatives in other parts of the organization.

Killinger added that while the company is reducing employment in its administrative and support functions, it continues to add to its sales force nationally.

 

Credit Quality

With the improving economy, the credit quality of Washington Mutual’s loan portfolio improved as the year progressed, and the company continued to take advantage of market opportunities to reduce specific credit risk exposures.

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 6

 

Specifically, as of December 31, 2003, nonperforming assets (NPAs) as a percentage of total assets were 0.70 percent versus 0.93 percent as of December 31, 2002. Total NPAs were down $546 million to $1.94 billion at December 31, 2003, as compared with $2.48 billion at December 31, 2002.

In late December, the company sold its franchise lending portfolio resulting in a net recovery of reserves of $82 million.  Given its improved credit profile and improved economic conditions, the company recognized an additional recovery of reserves for loan and lease losses of $120 million during the fourth quarter, resulting in a total reserve recovery of $202 million.  This compares with a provision of $67 million for the same period in the previous year.

Net charge offs for the fourth quarter were $97 million, but included a one-time charge off of $39 million that resulted from the sale of the franchise lending portfolio.  Charge offs for the third quarter 2003 were $74 million. The allowance for loan and lease losses was $1.25 billion at December 31, 2003.

“With the actions we took in this and recent quarters, total NPAs have declined to a level below where they stood at the end of the quarter following September 11, 2001,” said Jim Vanasek, chief credit officer.  “Today, our reserve coverage remains strong and is appropriate for the current risk profile of our loan portfolio.”

 

Balance Sheet and Capital Management

Washington Mutual’s total assets increased $6.95 billion to $275.18 billion at December 31, 2003 from $268.23 billion at year-end 2002.

At December 31, 2003, total deposits were $153.18 billion, down from $155.52 billion at the end of 2002.  However, total deposits, excluding custodial, escrow and wholesale deposits, increased $9.72 billion for the year, up from 2002’s total of $125.36 billion.

Loans held in portfolio increased to $175.64 billion as of December 31, 2003, an increase of $31.77 billion from $143.87 billion in 2002, reflecting the company’s emphasis on originating ARM loans for its balance sheet as well as growth in its home equity and lines of credit, and multi-family lending portfolios. Partially offsetting this increase, the company saw loans held for sale decline $18.44 billion from $38.78 billion in 2002 to $20.34 billion in 2003, reflecting the decline in refinancing activity.

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 7

 

Washington Mutual continues to manage its capital position by repurchasing shares of its stock.  During the fourth quarter, the company repurchased 28.7 million shares of its common stock at an average price of $44.14.  For the year, it repurchased 65.9 million shares at an average price of $40.93.

Stockholders’ equity stood at $19.74 billion, or 7 percent of total assets at December 31, 2003.  In addition, capital ratios of the company’s banking subsidiaries continued to exceed the federal regulatory requirements for classification as “well-capitalized” institutions, the highest regulatory standard.

 

Outlook

“As we enter 2004, we have brought added focus to driving efficiencies throughout the organization while continuing to invest in growth initiatives in our consumer and commercial businesses,” Killinger said. “We expect the results of these efforts to position us well for the future and to enhance long-term shareholder value.”

 

Company Updates

•                                      Washington Mutual was recognized for the second straight year by Fortune Magazine as one of the nation’s “Best Companies to Work For.”

•                                      Washington Mutual recently took top honors as “Best Retail Bank — Americas” in the Lafferty International Retail Banking Awards.

•                                      The company opened 30 retail banking stores in the Chicago area in the fourth quarter, bringing the total in that market to 90.

•                                      As part of Washington Mutual’s efforts with Earvin “Magic” Johnson, chairman and CEO of Johnson Development Corporation, to open home loan centers throughout the nation’s underserved communities, the company opened new home loan centers in Harlem, New York; Washington D.C.; and Atlanta, Georgia in 2003.

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 8

 

About Washington Mutual

With a history dating back to 1889, Washington Mutual is a retailer of financial services that provides a diversified line of products and services to consumers and commercial clients. At December 31, 2003, Washington Mutual and its subsidiaries had assets of $275.18 billion. Washington Mutual currently operates more than 2,400 consumer banking, mortgage lending, commercial banking, consumer finance and financial services offices throughout the nation. Washington Mutual’s press releases are available at www.wamunewsroom.com.

Webcast information: Investors may listen to Washington Mutual’s year-end and fourth-quarter earnings conference call on January 21, 2004, at 10:30 a.m. EST at www.wamu.com/ir or by dialing 1-877-546-1566. The passcode “WaMu” is required to access the call.  International callers may dial 1-773-756-4626.  A recording of the conference call will be available at 1 p.m. EST on Wednesday, January 21 through 11:59 p.m. EST on Friday, January 30.  The recorded message will be available at 1-800-348-3285.  Callers from outside the United States may dial 1-402-220-9675. A transcript of the prepared remarks will be on the company’s web site for 30 days following the call.

 

Forward Looking Statement

Our Form 10-K and other documents that we file with the Securities and Exchange Commission contain 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:

 

•                   General business and economic conditions may significantly affect our earnings;

•                   If we are unable to effectively manage the volatility of our mortgage banking business, our earnings could be adversely affected;

 

 

Fourth Quarter 2003 and Year-End Earnings, Page 9

 

•                   Many of our interest rate and MSR risk management strategies depend on trading in mortgage-related financial instruments in the secondary market.  If periods of illiquidity develop in these markets, our ability to effectively implement our risk management strategies could be adversely affected;

•                   If we are unable to effectively implement our business operations technology solutions, our earnings and financial condition could be adversely affected;

•                   If we are unable to fully realize the operational and systems efficiencies and revenue enhancements sought to be achieved from our recently announced business segment realignment, our earnings could be adversely affected;

•                   The financial services industry is highly competitive; and

•                   Changes in the regulation of financial services companies and government-sponsored enterprises could adversely affect our business.

 

# # #

 

Media Contact:		Alan Gulick
		(206) 377-3637
		alan.gulick@wamu.net
Investor Contacts:		JoAnn DeGrande
		(206) 461-3186
		joann.degrande@wamu.net
		Ruthanne King
		(206) 461-6421
		ruthanne.king@wamu.net

 

Exhibit 99.2

 

WM - 1

Washington Mutual, Inc.

Consolidated Statements of Income

(dollars in millions, except per share data)

(unaudited)

 

		Quarter Ended									Year Ended
		Dec. 31, 2003			Sept. 30, 2003			Dec. 31, 2002			Dec. 31, 2003			Dec. 31, 2002
Interest Income
Loans held for sale		$	439		$	684		$	591		$	2,483		$	1,917
Loans held in portfolio		1,969			1,848			2,076			7,686			8,675
Available-for-sale securities		353			401			546			1,738			2,951
Other interest and dividend income		38			65			68			256			312
Total interest income		2,799			2,998			3,281			12,163			13,855
Interest Expense
Deposits		491			538			672			2,165			2,661
Borrowings		565			551			728			2,369			3,065
Total interest expense		1,056			1,089			1,400			4,534			5,726
Net interest income		1,743			1,909			1,881			7,629			8,129
Provision (reversal of reserve) for loan and lease losses		(202		)	76			67			42			404
Net interest income after provision for loan and lease losses		1,945			1,833			1,814			7,587			7,725
Noninterest Income
Home loan mortgage banking income (expense):
Loan servicing fees		524			542			628			2,273			2,237
Amortization of mortgage servicing rights		(604		)	(665		)	(920		)	(3,269		)	(2,616		)
Mortgage servicing rights recovery (impairment)		615			368			(308		)	712			(3,219		)
Revaluation gain (loss) from derivatives		(306		)	(172		)	(19		)	338			2,517
Net settlement income from certain interest-rate swaps		190			130			158			543			382
Gain (loss) from mortgage loans		63			(204		)	439			1,250			1,375
Other home loan mortgage banking income (expense), net		110			146			(29		)	127			31
Total home loan mortgage banking income (expense)		592			145			(51		)	1,974			707
Depositor and other retail banking fees		472			471			449			1,818			1,634
Securities fees and commissions		103			103			90			395			362
Insurance income		49			45			39			188			155
Portfolio loan related income		96			116			123			439			349
Gain (loss) from other available-for-sale securities		(13		)	557			574			676			768
Gain (loss) on extinguishment of securities sold under agreements to repurchase		—			7			(11		)	(129		)	282
Other income		166			120			38			489			212
Total noninterest income		1,465			1,564			1,251			5,850			4,469
Noninterest Expense
Compensation and benefits		877			837			734			3,304			2,813
Occupancy and equipment		569			352			290			1,592			1,136
Telecommunications and outsourced information services		125			150			111			554			507
Depositor and other retail banking losses		49			50			51			201			204
Amortization of other intangible assets		15			15			16			61			67
Advertising and promotion		88			51			55			278			234
Professional fees		78			69			45			267			201
Other expense		300			286			301			1,151			1,026
Total noninterest expense		2,101			1,810			1,603			7,408			6,188
Income from continuing operations before income taxes		1,309			1,587			1,462			6,029			6,006
Income taxes		488			588			551			2,236			2,217
Income from continuing operations, net of taxes		821			999			911			3,793			3,789
Discontinued Operations
Income from discontinued operations		34			38			47			137			113
Income taxes		13			14			17			50			41
Income from discontinued operations, net of taxes		21			24			30			87			72
Net Income		$	842		$	1,023		$	941		$	3,880		$	3,861
Net Income Attributable to Common Stock		$	842		$	1,023		$	941		$	3,880		$	3,856
Basic earnings per common share:
Income from continuing operations		$	0.93		$	1.11		$	0.99		$	4.20		$	4.01
Income from discontinued operations, net		0.02			0.03			0.03			0.09			0.08
Net income		0.95			1.14			1.02			4.29			4.09
Diluted earnings per common share:
Income from continuing operations		$	0.91		$	1.09		$	0.97		$	4.12		$	3.94
Income from discontinued operations, net		0.02			0.02			0.03			0.09			0.08
Net income		0.93			1.11			1.00			4.21			4.02
Dividends declared per common share		0.41			0.40			0.28			1.40			1.06
Basic weighted average number of common shares outstanding (in thousands)		883,539			899,579			926,210			903,666			943,905
Diluted weighted average number of common shares outstanding (in thousands)		904,840			918,372			939,991			921,757			960,152

 

WM - 2

Washington Mutual, Inc.

Consolidated Statements of Financial Condition

(dollars in millions, except per share data)

(unaudited)

 

		Dec. 31, 2003			Sept. 30, 2003			Dec.  31, 2002
Assets
Cash and cash equivalents		$	7,018		$	5,744		$	7,084
Federal funds sold and securities purchased under resale agreements Available-for-sale securities, total amortized cost of $36,858, $36,792 and $42,528:		19			12			2,015
Mortgage-backed securities		10,695			14,352			28,375
Investment securities		26,012			22,705			15,530
Loans held for sale		20,343			35,493			38,782
Loans held in portfolio		175,644			160,556			143,869
Allowance for loan and lease losses		(1,250		)	(1,549		)	(1,503		)
Total loans held in portfolio, net of allowance for loan and lease losses		174,394			159,007			142,366
Investment in Federal Home Loan Banks		3,462			3,429			3,703
Mortgage servicing rights		6,354			5,870			5,341
Goodwill		6,196			6,196			6,213
Assets of discontinued operations		4,184			4,138			3,864
Other assets		16,501			29,685			14,952
Total assets		$	275,178		$	286,631		$	268,225
Liabilities
Deposits:
Noninterest-bearing deposits		$	29,968		$	39,197		$	37,515
Interest-bearing deposits		123,213			124,944			118,001
Total deposits		153,181			164,141			155,516
Federal funds purchased and commercial paper		2,011			3,113			507
Securities sold under agreements to repurchase		28,333			20,468			16,717
Advances from Federal Home Loan Banks		48,330			43,743			51,265
Other borrowings		15,483			12,584			14,712
Liabilities of discontinued operations		3,578			3,554			3,330
Other liabilities		4,520			18,587			6,117
Total liabilities		255,436			266,190			248,164
Stockholders’ equity		19,742			20,441			20,061
Total liabilities and stockholders’ equity		$	275,178		$	286,631		$	268,225
Common shares outstanding at end of period (in thousands) (1)		880,986			913,854			944,047
Book value per common share (2)		$	22.56		$	22.77		$	21.66
Tangible book value per common share (2)		15.58			15.94			14.98
Full-time equivalent employees at end of period (3)		60,021			59,975			52,459

 

(1)                Includes 6,000,000 shares at December 31, 2003, 16,200,000 shares at September 30, 2003 and 18,000,000 shares at December 31, 2002, held in escrow.

(2)                Excludes 6,000,000 shares at December 31, 2003, 16,200,000 shares at September 30, 2003 and 18,000,000 shares at December 31, 2002, held in escrow.

(3)                Includes 2,380, 2,353 and 2,356 full-time equivalent employees reported as part of discontinued operations at December 31, 2003, September 30, 2003 and December 31, 2002.

 

WM - 3

Washington Mutual, Inc.

Selected Financial Information

(dollars in millions)

(unaudited)

 

		Year Ended
		Dec. 31, 2003			Dec. 31, 2002
Stockholders’ Equity Rollforward
Balance, beginning of period		$	20,061		$	14,025
Net income		3,880			3,861
Other comprehensive (loss) income, net of tax		(699		)	418
Cash dividends declared on common stock		(1,274		)	(1,021		)
Cash dividends declared on redeemable preferred stock		—			(5		)
Cash dividends returned (1)		53			—
Common stock repurchased and retired		(2,699		)	(1,303		)
Common stock issued for acquisitions		—			3,672
Fair value of Dime stock options		—			90
Common stock issued to redeem preferred stock		—			102
Common stock issued		420			222
Balance, end of period		$	19,742		$	20,061

 

(1)                Represents accumulated dividends on shares returned from escrow.

 

WM - 4

Washington Mutual, Inc.

Selected Financial Information

(dollars in millions, except per share data)

(unaudited)

 

		Quarter Ended
		Dec. 31, 2003			Sept. 30, 2003			June 30, 2003			Mar. 31, 2003			Dec. 31, 2002
PROFITABILITY
Net interest income		$	1,743		$	1,909		$	1,986		$	1,993		$	1,881
Net interest margin		2.90		%	3.07		%	3.22		%	3.28		%	3.16		%
Noninterest income		$	1,465		$	1,564		$	1,526		$	1,295		$	1,251
Noninterest expense		2,101			1,810			1,850			1,647			1,603
Basic earnings per common share:
Income from continuing operations		$	0.93		$	1.11		$	1.09		$	1.06		$	0.99
Income from discontinued operations, net		0.02			0.03			0.03			0.02			0.03
Net income		0.95			1.14			1.12			1.08			1.02
Diluted earnings per common share:
Income from continuing operations		$	0.91		$	1.09		$	1.07		$	1.05		$	0.97
Income from discontinued operations, net		0.02			0.02			0.02			0.02			0.03
Net income		0.93			1.11			1.09			1.07			1.00
Dividends declared per common share		$	0.41		$	0.40		$	0.30		$	0.29		$	0.28
Return on average assets (1)		1.21		%	1.41		%	1.43		%	1.42		%	1.38		%
Return on average common equity (1)		16.80			19.82			19.26			19.41			17.87
Efficiency ratio (2)(3)		65.51			52.13			52.66			50.09			51.18
ASSET QUALITY
Nonaccrual loans (4)		$	1,626		$	1,813		$	1,893		$	2,062		$	2,155
Foreclosed assets		311			293			307			325			328
Total nonperforming assets		1,937			2,106			2,200			2,387			2,483
Nonperforming assets/total assets		0.70		%	0.73		%	0.78		%	0.86		%	0.93		%
Restructured loans		$	111		$	118		$	89		$	99		$	98
Total nonperforming assets and restructured loans		2,048			2,224			2,289			2,486			2,581
Allowance for loan and lease losses		1,250			1,549			1,530			1,530			1,503
Allowance as a percentage of total loans held in portfolio		0.71		%	0.96		%	1.02		%	1.04		%	1.04		%
Provision (reversal of reserve) for loan and lease losses		$	(202	)	$	76		$	81		$	88		$	67
Net charge-offs		97			74			81			58			65
CAPITAL ADEQUACY
Stockholders’ equity/total assets		7.17		%	7.13		%	7.41		%	7.44		%	7.48		%
Tangible common equity (5)/total tangible assets(5)		5.26			5.26			5.26			5.26			5.26
Estimated total risk-based capital/risk-weighted assets (6)		11.12			11.54			11.68			11.68			11.53
SUPPLEMENTAL DATA
Average balance sheet:
Total loans held for sale		$	29,362		$	51,272		$	51,519		$	47,301		$	42,329
Total loans held in portfolio		167,033			152,696			147,708			144,690			145,479
Total interest-earning assets		241,718			249,892			246,851			242,791			238,970
Total assets		277,469			290,215			284,037			280,774			273,669
Total interest-bearing deposits		125,318			124,488			120,144			119,056			116,136
Total noninterest-bearing deposits		33,368			49,457			43,536			38,851			32,375
Total stockholders’ equity		20,056			20,657			21,112			20,557			21,061
Period-end balance sheet:
Loans held for sale		20,343			35,493			44,870			49,219			38,782
Loans held in portfolio, net of allowance for loan and lease losses		174,394			159,007			148,520			145,442			142,366
Interest-earning assets (2)		236,175			236,547			245,628			244,012			232,274
Total assets		275,178			286,631			283,120			277,041			268,225
Interest-bearing deposits		123,213			124,944			119,952			119,394			118,001
Noninterest-bearing deposits		29,968			39,197			46,505			40,478			37,515
Total stockholders’ equity		19,742			20,441			20,978			20,608			20,061

 

(1)                Includes income from continuing and discontinued operations.

 

(2)                Based on continuing operations.

 

(3)                The efficiency ratio is defined as noninterest expense, divided by total revenue (net interest income and noninterest income).

 

(4)                Excludes nonaccrual loans held for sale.

 

(5)                Excludes unrealized net gain/loss on available-for-sale securities and derivatives, goodwill and intangible assets, but includes MSR.

 

(6)                Estimate of what the total risk-based capital ratio would be if Washington Mutual, Inc. was a bank holding company that complies with Federal Reserve Board capital requirements.

WM - 5

Washington Mutual, Inc.

Selected Financial Information

(dollars in millions)

(unaudited)

 

		Quarter Ended
		Dec. 31, 2003										Sept. 30, 2003										Dec. 31, 2002
		Balance				Rate		Interest Income/ Expense				Balance				Rate		Interest Income/ Expense				Balance				Rate		Interest Income/ Expense
Average Balances and Weighted Average Interest Rates
Assets
Interest-earning assets:
Federal funds sold and securities purchased under resale agreements		$	414			2.26	%	$		2		$	1,350			2.16	%	$		7		$	2,536			1.43	%	$		9
Available-for-sale securities(1):
Mortgage-backed securities		12,584				4.14		130				21,174				4.51		239				26,010				5.01		325
Investment securities		27,386				3.24		223				17,652				3.66		162				18,214				4.83		221
Loans held for sale(2)		29,362				5.98		439				51,272				5.34		684				42,329				5.58		591
Loans held in portfolio(2):
Loans secured by real estate:
Home loans		94,713				4.41		1,045				84,456				4.56		963				85,325				5.55		1,184
Purchased specialty mortgage finance		11,799				5.05		149				10,777				5.30		143				9,405				5.54		130
Total home loans		106,512				4.48		1,194				95,233				4.64		1,106				94,730				5.55		1,314
Home construction loans:
Builder (3)		1,073				4.67		13				1,105				4.47		13				1,109				5.68		16
Custom (4)		1,087				6.53		18				977				6.90		17				914				8.34		19
Home equity loans and lines of credit		25,850				4.71		306				22,209				4.81		266				15,380				5.69		219
Multi-family		20,177				5.07		256				19,920				5.16		258				18,815				5.82		274
Other real estate		6,941				6.39		111				6,989				6.31		111				8,230				6.67		138
Total loans secured by real estate		161,640				4.69		1,898				146,433				4.83		1,771				139,178				5.69		1,980
Consumer		1,066				9.02		24				1,178				8.55		25				1,713				9.18		40
Commercial business		4,327				4.22		47				5,085				4.02		52				4,588				4.84		56
Total loans held in portfolio		167,033				4.71		1,969				152,696				4.83		1,848				145,479				5.70		2,076
Other		4,939				2.87		36				5,748				3.99		58				4,402				5.29		59
Total interest-earning assets		241,718				4.62		2,799				249,892				4.79		2,998				238,970				5.48		3,281
Noninterest-earning assets:
Mortgage servicing rights		6,408										6,250										5,855
Goodwill		6,196										6,196										6,171
Other (5)		23,147										27,877										22,673
Total assets		$	277,469									$	290,215									$	273,669
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing checking		$	67,896			1.44		247				$	64,057			1.68		272				$	53,588			2.35		317
Savings accounts and money market deposit accounts		27,667				0.81		56				28,674				0.88		63				28,738				1.30		94
Time deposit accounts		29,755				2.50		188				31,757				2.53		203				33,810				3.06		261
Total interest-bearing deposits		125,318				1.55		491				124,488				1.72		538				116,136				2.30		672
Federal funds purchased and commercial paper		3,872				1.08		11				4,057				1.12		12				2,189				1.61		9
Securities sold under agreements to repurchase		27,394				2.17		152				21,399				2.19		120				23,659				2.77		165
Advances from Federal Home Loan Banks		44,837				2.47		283				45,334				2.59		300				56,030				2.94		415
Other		13,675				3.51		119				12,203				3.94		119				14,240				3.86		139
Total interest-bearing liabilities		215,096				1.94		1,056				207,481				2.07		1,089				212,254				2.62		1,400
Noninterest-bearing sources:
Noninterest-bearing deposits		33,368										49,457										32,375
Other liabilities (6)		8,949										12,620										7,979
Stockholders’ equity		20,056										20,657										21,061
Total liabilities and stockholders’ equity		$		277,469								$		290,215								$		273,669
Net interest spread and net interest income						2.68		$	1,743							2.72		$	1,909							2.86		$	1,881
Impact of noninterest-bearing sources						0.22										0.35										0.30
Net interest margin						2.90										3.07										3.16

 

(1)                The average balance and yield are based on average amortized cost balances.

 

(2)                Nonaccrual loans were included in the average loan amounts outstanding.

 

(3)                Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

 

(4)                Represents construction loans made directly to the intended occupant of a single-family residence.

 

(5)                Includes assets of discontinued operations.

 

(6)                Includes liabilities of discontinued operations.

 

WM - 6

		Year Ended
		Dec. 31, 2003									Dec. 31, 2002
		Balance				Rate		Interest Income/ Expense			Balance			Rate		Interest Income/ Expense
Average Balances and Weighted Average Interest Rates
Assets
Interest-earning assets:
Federal funds sold and securities purchased under resale agreements		$		2,570		1.45	%	$	37		$	2,352		1.70	%	$	40
Available-for-sale securities (1):
Mortgage-backed securities		20,977				4.91		1,030			24,654			5.46		1,345
Investment securities		18,742				3.77		708			32,387			4.96		1,606
Loans held for sale (2)		44,832				5.54		2,483			30,954			6.19		1,917
Loans held in portfolio (2):
Loans secured by real estate:
Home loans		86,443				4.77		4,124			86,039			5.90		5,077
Purchased specialty mortgage finance		10,794				5.43		586			9,028			6.27		566
Total home loans		97,237				4.84		4,710			95,067			5.94		5,643
Home construction loans:
Builder (3)		1,084				4.79		52			1,316			5.93		78
Custom (4)		978				7.13		70			906			8.19		74
Home equity loans and lines of credit		21,163				4.98		1,053			13,382			5.91		790
Multi-family		19,409				5.30		1,029			17,973			6.01		1,081
Other real estate		7,243				6.35		460			8,368			6.83		572
Total loans secured by real estate		147,114				5.01		7,374			137,012			6.01		8,238
Consumer		1,208				8.87		107			2,340			9.41		220
Commercial business		4,771				4.31		205			4,223			5.14		217
Total loans held in portfolio		153,093				5.02		7,686			143,575			6.04		8,675
Other		5,109				4.27		219			4,513			6.04		272
Total interest-earning assets		245,323				4.96		12,163			238,435			5.81		13,855
Noninterest-earning assets:
Mortgage servicing rights		5,721									6,650
Goodwill		6,198									5,996
Other (5)		25,746									20,339
Total assets		$	282,988								$	271,420
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing checking		$	62,723			1.69		1,057			$	40,338		2.55		1,028
Savings accounts and money market deposit accounts		28,196				0.93		263			31,529			1.48		466
Time deposit accounts		31,416				2.69		845			37,253			3.13		1,167
Total interest-bearing deposits		122,335				1.77		2,165			109,120			2.44		2,661
Federal funds purchased and commercial paper		3,158				1.18		37			2,976			1.90		57
Securities sold under agreements to repurchase		22,318				2.44		545			34,830			2.31		804
Advances from Federal Home Loan Banks		49,441				2.62		1,296			59,369			2.82		1,676
Other		13,315				3.68		491			12,172			4.34		528
Total interest-bearing liabilities		210,567				2.15		4,534			218,467			2.62		5,726
Noninterest-bearing sources:
Noninterest-bearing deposits		41,250									25,396
Other liabilities (6)		10,724									7,624
Stockholders’ equity		20,447									19,933
Total liabilities and stockholders’ equity		$	282,988								$	271,420
Net interest spread and net interest income						2.81		$	7,629					3.19		$	8,129
Impact of noninterest-bearing sources						0.30								0.22
Net interest margin						3.11								3.41

 

(1)                The average balance and yield are based on average amortized cost balances.

 

(2)                Nonaccrual loans were included in the average loan amounts outstanding.

 

(3)                Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

 

(4)                Represents construction loans made directly to the intended occupant of a single-family residence.

 

(5)                Includes assets of discontinued operations.

 

(6)                Includes liabilities of discontinued operations.

 

WM - 7

		Quarter Ended									Year Ended
		Dec. 31, 2003			Sept. 30, 2003			Dec. 31, 2002			Dec. 31, 2003			Dec. 31, 2002
Loan Volume
Home loans:
Adjustable rate		$	23,397		$	28,225		$	25,998		$	99,899		$	84,627
Fixed rate		28,105			83,360			69,123			263,604			180,745
Specialty mortgage finance (1)		6,031			5,460			4,689			20,678			14,077
Total home loan volume		57,533			117,045			99,810			384,181			279,449
Home construction loans:
Builder (2)		636			787			389			2,506			1,842
Custom (3)		377			363			194			1,176			761
Home equity loans and lines of credit		7,922			9,369			4,721			29,639			15,254
Multi-family		1,647			2,598			1,864			8,065			5,839
Other real estate		655			439			513			1,969			1,818
Total loans secured by real estate		68,770			130,601			107,491			427,536			304,963
Consumer		72			146			114			339			760
Commercial business		1,061			1,191			883			4,370			3,696
Total loan volume		$	69,903		$	131,938		$	108,488		$	432,245		$	309,419
Loan Volume by Channel
Originated		$	47,964		$	82,514		$	64,702		$	265,217		$	199,127
Purchased/Correspondent		21,939			49,424			43,786			167,028			110,292
Total loan volume by channel		$	69,903		$	131,938		$	108,488		$	432,245		$	309,419
Refinancing Activity (4)
Home loan refinancing		$	31,919		$	83,564		$	71,203		$	269,442		$	183,788
Home construction loans		6			16			11			47			50
Home equity loans and lines of credit and consumer		848			2,030			904			4,775			2,814
Multi-family and other real estate		690			1,164			903			3,453			2,155
Total refinancing		$	33,463		$	86,774		$	73,021		$	277,717		$	188,807
Home Loan Volume by Index:
Short-term adjustable-rate loans (5):
Treasury indices		$	13,021		$	7,076		$	3,972		$	30,147		$	19,474
COFI		151			124			316			722			3,231
Other		628			336			244			1,404			789
Total short-term adjustable-rate loans		13,800			7,536			4,532			32,273			23,494
Medium-term adjustable-rate loans (6)		13,667			24,138			24,896			81,404			72,597
Fixed-rate loans		30,066			85,371			70,382			270,504			183,358
Total home loan volume		$	57,533		$	117,045		$	99,810		$	384,181		$	279,449

 

Note: Pursuant to regulatory guidance issued in December 2003, buyouts of delinquent mortgages contained within Government National Mortgage Association (GNMA) loan servicing pools must be classified as loans on the balance sheet. Accordingly, total home loan volume includes GNMA pool buy-out volume of $1.30 billion, $1.67 billion and $1.64 billion for the quarters ended December 31, 2003, September 30, 2003 and December 31, 2002 and $6.94 billion and $4.71 billion for the years ended December 31, 2003 and December 31, 2002.

 

(1)                Represents purchased subprime loan portfolios and mortgages originated by Long Beach Mortgage.

 

(2)                Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

 

(3)                Represents construction loans made directly to the intended occupant of a single-family residence.

 

(4)                Includes loan refinancing entered into by both new and pre-existing loan customers.

 

(5)                Short term is defined as adjustable-rate loans that reprice within one year or less.

 

(6)                Medium term is defined as adjustable-rate loans that reprice after one year.

 

WM - 8

		Change from Sept. 30, 2003 to Dec. 31, 2003			Dec. 31, 2003			Sept. 30, 2003			Dec. 31, 2002
Loans by Property Type and Mortgage-Backed Securities (“MBS”)
Loans held in portfolio:
Loans secured by real estate:
Home loans		$	9,800		$	100,043		$	90,243		$	82,842
Purchased specialty mortgage finance		1,607			12,973			11,366			10,128
Total home loans		11,407			113,016			101,609			92,970
Home construction loans:
Builder (1)		(9		)	1,052			1,061			1,017
Custom (2)		136			1,168			1,032			932
Home equity loans and lines of credit		3,587			27,647			24,060			16,168
Multi-family		133			20,324			20,191			18,000
Other real estate		(283		)	6,649			6,932			7,986
Total loans secured by real estate		14,971			169,856			154,885			137,073
Consumer		(93		)	1,028			1,121			1,663
Commercial business		210			4,760			4,550			5,133
Total loans held in portfolio		15,088			175,644			160,556			143,869
Less: allowance for loan and lease losses		299			(1,250		)	(1,549		)	(1,503		)
Loans securitized and retained as MBS		(3,393		)	9,229			12,622			25,054
Total net loans held in portfolio and loans securitized and retained as MBS		11,994			183,623			171,629			167,420
Loans held for sale (3)		(15,150		)	20,343			35,493			38,782
Total net loans and loans securitized and retained as MBS		(3,156		)	203,966			207,122			206,202
Purchased MBS		(264		)	1,466			1,730			3,321
Total net loans and MBS		$	(3,420	)	$	205,432		$	208,852		$	209,523

 

(1)                Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

 

(2)                Represents construction loans made directly to the intended occupant of a single-family residence.

 

(3)                Fair value of loans held for sale was $20.34 billion, $35.53 billion and $38.84 billion as of December 31, 2003, September 30, 2003 and December 31, 2002.

 

WM - 9

		Change from Sept. 30, 2003 to Dec. 31, 2003			Dec. 31, 2003			Weighted Average Coupon Rate		Sept. 30, 2003			Weighted Average Coupon Rate		Dec. 31, 2002			Weighted Average Coupon Rate
Loans Secured by Real Estate and MBS
Selected loans held in portfolio (1):
Short-term adjustable-rate loans (2):
COFI		$	(942	)	$	10,766		4.93	%	$	11,708		5.05	%	$	15,315		5.59	%
Treasury indices		11,547			51,494			3.66		39,947			3.99		31,015			4.78
Other		2,624			26,867			4.81		24,243			4.96		17,843			5.80
Total short-term adjustable-rate loans		13,229			89,127			4.16		75,898			4.46		64,173			5.26
Medium-term adjustable-rate loans (3)		3,593			53,576			5.56		49,983			5.65		43,715			6.55
Fixed-rate loans		(1,695		)	18,284			6.91		19,979			7.16		19,250			7.75
Total loans held in portfolio secured by real estate (4)		15,127			160,987			4.94		145,860			5.24		127,138			6.08
Loans held for sale (5)		(15,177		)	20,211			6.51		35,388			5.90		38,686			6.26
Total loans secured by real estate		(50		)	181,198			5.12		181,248			5.37		165,824			6.12
MBS (6):
Short-term adjustable-rate MBS (2):
COFI		(1,562		)	5,270			3.87		6,832			3.95		11,459			4.46
Treasury indices		(1,664		)	3,401			2.94		5,065			3.14		8,984			3.78
Other		(403		)	9			3.15		412			4.62		3,562			6.04
Total short-term adjustable-rate MBS		(3,629		)	8,680			3.50		12,309			3.64		24,005			4.44
Fixed-rate MBS		46			1,496			6.35		1,450			6.98		3,707			6.87
Total MBS (7)		(3,583		)	10,176			3.92		13,759			3.99		27,712			4.77
Total loans secured by real estate and MBS		$	(3,633	)	$	191,374		5.05		$	195,007		5.27		$	193,536		5.93

 

(1)                Includes total home loans, home equity loans and lines of credit and multi-family loans.

 

(2)                Short term is defined as adjustable-rate loans and MBS that reprice within one year or less.

 

(3)                Medium term is defined as adjustable-rate loans that reprice after one year.

 

(4)                At December 31, 2003, September 30, 2003 and December 31, 2002 adjustable-rate loans with lifetime caps totaled $138.58 billion, $123.96 billion and $105.60 billion with a lifetime weighted average cap rate of 12.21%, 12.16% and 12.67%.

 

(5)                Excludes student loans.

 

(6)                Excludes principal-only strips and interest-only strips.

 

(7)                At December 31, 2003, September 30, 2003 and December 31, 2002 adjustable-rate MBS with lifetime caps totaled $8.12 billion, $11.82 billion and $23.84 billion with a lifetime weighted average cap rate of 11.32%, 11.27% and 11.34%.

 

		Sept. 30, 2003 to Dec. 31, 2003			Dec. 31, 2002 to Dec. 31, 2003
Rollforward of Loans Held for Sale
Balance, beginning of period		$	35,493		$	38,782
Loans originated and purchased		36,552			317,417
Loans sold and other		(51,702		)	(335,856		)
Balance, end of period		$	20,343		$	20,343
Rollforward of Loans Held in Portfolio
Balance, beginning of period		$	160,556		$	143,869
Loans originated and purchased		33,351			114,828
Loan payments and other		(18,263		)	(83,053		)
Balance, end of period		$	175,644		$	175,644

 

WM - 10

		Sept. 30, 2003 to Dec. 31, 2003			Dec. 31, 2002 to Dec. 31, 2003
Rollforward of Mortgage Servicing Rights (“MSR”) (1)
Balance, beginning of period		$	5,870		$	5,341
Home loans:
Additions		701			4,203
Amortization		(604		)	(3,269		)
Recovery		615			712
Sales of MSR		(231		)	(638		)
Net change in commercial real estate MSR		3			5
Balance, end of period (2)		$	6,354		$	6,354
Rollforward of Valuation Allowance for MSR Impairment
Balance, beginning of period		$	3,075		$	4,521
Recovery		(615		)	(712		)
Other than temporary impairment		—			(1,115		)
Sales of MSR		(25		)	(259		)
Balance, end of period		$	2,435		$	2,435
Rollforward of Loans Serviced for Others
Balance, beginning of period		$	577,822		$	604,504
Home loans:
Additions		51,480			342,871
Sales of servicing		(195		)	(3,155		)
Loan payments and other		(47,062		)	(362,319		)
Net change in commercial real estate loans serviced for others		624			768
Balance, end of period		$	582,669		$	582,669

 

				Dec. 31, 2003 Balance
Total Servicing Portfolio
Loans serviced for others				$	582,669
Servicing on retained MBS without MSR				3,455
Servicing on owned loans				182,604
Subservicing portfolio				1,852
Total servicing portfolio				$	770,580

 

		Dec. 31, 2003
		Unpaid Principal Balance			Weighted Average Servicing Fee
					(in basis points)
Loans Serviced for Others by Loan Type
Government		$	66,773		50
Agency		387,233			29
Private		115,302			36
Specialty home loans		13,361			50
Total loans serviced for others (3)		$	582,669		34

 

(1)                Net of valuation allowance.

 

(2)                At December 31, 2003, aggregate mortgage servicing rights fair value was $6.39 billion.

 

(3)                Weighted average coupon rate was 6.07% at December 31, 2003.

 

WM - 11

		Quarter Ended
		Dec. 31, 2003			Sept. 30, 2003			June 30, 2003			Mar. 31, 2003			Dec. 31, 2002
Home Loan Mortgage Banking Income (Expense)
Loan servicing fees		$	524		$	542		$	593		$	613		$	628
Loan subservicing fees		1			1			7			5			14
Amortization of mortgage servicing rights		(604		)	(665		)	(1,032		)	(969		)	(920			)
Mortgage servicing rights recovery (impairment)		615			368			(309		)	37			(308			)
Other, net		(76		)	(221		)	(168		)	(137		)	(134			)
Net home loan servicing income (expense)		460			25			(909		)	(451		)	(720			)
Revaluation gain (loss) from derivatives:
Mortgage servicing rights risk management		(314		)	(317		)	745			412			109
Loans held for sale risk management(1)		8			145			(147		)	(195		)	(128			)
Total revaluation gain (loss) from derivatives		(306		)	(172		)	598			217			(19			)
Net settlement income from certain interest-rate swaps		190			130			84			140			158
Gain (loss) from mortgage loans(1)		63			(204		)	747			643			439
Loan related income		124			108			91			75			76
Gain from sale of originated mortgage-backed securities		61			258			—			1			15
Total home loan mortgage banking income (expense)		592			145			611			625			(51			)
Impact of other mortgage servicing rights risk management instruments(2):
Gain (loss) from certain available-for-sale securities		(11		)	176			140			—			407
Total home loan mortgage banking income (expense), net of other mortgage servicing rights risk management instruments		$	581		$	321		$	751		$	625		$	356

 

		Year Ended
		Dec. 31, 2003			Dec. 31, 2002
Home Loan Mortgage Banking Income
Loan servicing fees		$	2,273		$	2,237
Loan subservicing fees		14			100
Amortization of mortgage servicing rights		(3,269		)	(2,616		)
Mortgage servicing rights recovery (impairment)		712			(3,219		)
Other, net		(606		)	(371		)
Net home loan servicing income (expense)		(876		)	(3,869		)
Revaluation gain (loss) from derivatives:
Mortgage servicing rights risk management		526			2,645
Loans held for sale risk management(1)		(188		)	(128		)
Total revaluation gain (loss) from derivatives		338			2,517
Net settlement income from certain interest-rate swaps		543			382
Gain from mortgage loans(1)		1,250			1,375
Loan related income		399			268
Gain from sale of originated mortgage-backed securities		320			34
Total home loan mortgage banking income		1,974			707
Impact of other mortgage servicing rights risk management instruments(2):
Gain from certain available-for-sale securities		305			795
Gain on extinguishment of securities sold under agreements to repurchase		—			257
Total home loan mortgage banking income, net of other mortgage servicing rights risk management instruments		$	2,279		$	1,759

 

(1)                The Company’s policy of recording the fair value of rate lock commitments on its Consolidated Statements of Financial Condition has the effect of recognizinggain (loss) from mortgage loans before the loans are sold.  Rate lock commitment volume, adjusted for actual and anticipated fallout factors, totaled $29.13 billion for the quarter ended December 31, 2003.  Gain (loss) from mortgage loans net of revaluation gain (loss) from derivatives used for loans held for sale risk management was a gain of $71 million for the quarter ended December 31, 2003, compared with a net loss of $59 million for the quarter ended September 30, 2003 and a net gain of $600 million for the quarter ended June 30, 2003.

 

(2)                Includes only instruments designated for mortgage servicing rights risk management and does not include the effects of instruments held for asset/liability risk management.

 

WM - 12

		Dec. 31, 2003			Sept. 30, 2003			Dec. 31, 2002
Deposits
Deposits:
Checking accounts:
Noninterest bearing		$	27,906		$	35,649		$	35,730
Interest bearing		68,318			66,353			56,132
Total checking accounts		96,224			102,002			91,862
Savings and money market deposit accounts		29,000			31,348			29,886
Time deposit accounts (1)		27,957			30,791			33,768
Total deposits (2)		$	153,181		$	164,141		$	155,516

 

(1)                Weighted average remaining maturity of time deposits was 14 months at December 31, 2003, 15 months at September 30, 2003 and 15 months at December 31, 2002.

 

(2)                Includes custodial and escrow deposits of $14.99 billion at December 31, 2003, $24.92 billion at September 30, 2003 and $25.90 billion at December 31, 2002.

 

		Dec. 31, 2003		Sept. 30, 2003		June 30, 2003		Mar. 31, 2003		Dec. 31, 2002
Retail Checking Accounts (1)
Accounts, beginning of period		7,882,946		7,637,914		7,461,320		7,258,555		7,091,568
Net accounts opened during the quarter		183,386		245,032		176,594		202,765		166,987
Accounts, end of period		8,066,332		7,882,946		7,637,914		7,461,320		7,258,555

 

(1)                Retail checking accounts exclude commercial business accounts.  The information provided refers to the number of accounts, not dollar amounts.

 

		Dec. 31, 2003		Sept. 30, 2003		June 30, 2003		Mar. 31, 2003		Dec. 31, 2002
Retail Banking Stores
Stores, beginning of period		1,677		1,602		1,556		1,526		1,462
Net stores opened during the quarter		99		75		46		30		64
Stores, end of period		1,776		1,677		1,602		1,556		1,526

 

WM - 13

		Quarter Ended
		Dec. 31, 2003			Sept. 30, 2003			June 30, 2003			Mar. 31, 2003			Dec. 31, 2002
Allowance for Loan and Lease Losses
Balance, beginning of quarter		$	1,549		$	1,530		$	1,530		$	1,503		$	1,566
Allowance transferred to loans held for sale		—			—			—			(3		)	(13		)
Allowance for certain loan commitments		—			17			—			—			(52		)
Provision (reversal of reserve) for loan and lease losses		(202		)	76			81			88			67
		1,347			1,623			1,611			1,588			1,568
Loans charged off:
Loans secured by real estate:
Home loans		(18		)	(22		)	(9		)	(15		)	(23		)
Purchased specialty mortgage finance		(11		)	(9		)	(9		)	(10		)	(7		)
Total home loan charge-offs		(29		)	(31		)	(18		)	(25		)	(30		)
Home construction loans - builder		(1		)	(1		)	—			—			—
Home equity loans and lines of credit		(2		)	(4		)	(4		)	(4		)	(9		)
Multi-family		(1		)	(4		)	—			—			—
Other real estate		(52		)	(16		)	(21		)	(10		)	(7		)
Total loans secured by real estate		(85		)	(56		)	(43		)	(39		)	(46		)
Consumer		(14		)	(20		)	(18		)	(17		)	(16		)
Commercial business		(15		)	(19		)	(31		)	(14		)	(18		)
Total loans charged off		(114		)	(95		)	(92		)	(70		)	(80		)
Recoveries of loans previously charged off:
Loans secured by real estate:
Home loans		1			7			2			—			—
Purchased specialty mortgage finance		1			1			1			1			—
Total home loan recoveries		2			8			3			1			—
Other real estate		5			6			2			4			5
Total loans secured by real estate		7			14			5			5			5
Consumer		5			5			3			3			5
Commercial business		5			2			3			4			5
Total recoveries of loans previously charged off		17			21			11			12			15
Net charge-offs		(97		)	(74		)	(81		)	(58		)	(65		)
Balance, end of quarter		$	1,250		$	1,549		$	1,530		$	1,530		$	1,503
Net charge-offs (annualized) as a percentage of average loans held in portfolio		0.23		%	0.19		%	0.22		%	0.16		%	0.18		%
Allowance as a percentage of total loans held in portfolio		0.71			0.96			1.02			1.04			1.04

 

WM - 14

		Dec. 31, 2003			Sept. 30, 2003			June 30, 2003			Mar. 31, 2003			Dec. 31, 2002
Nonperforming Assets and Restructured Loans
Nonaccrual loans (1):
Nonaccrual loans secured by real estate:
Home loans		$	736		$	760		$	804		$	954		$	1,068
Purchased specialty mortgage finance		597			553			483			479			438
Total home loan nonaccrual loans		1,333			1,313			1,287			1,433			1,506
Home construction loans:
Builder (2)		25			31			31			38			42
Custom (3)		10			9			9			9			7
Home equity loans and lines of credit		47			46			49			44			36
Multi-family		19			39			54			49			50
Other real estate		153			309			369			402			413
Total nonaccrual loans secured by real estate		1,587			1,747			1,799			1,975			2,054
Consumer		8			10			15			14			22
Commercial business		31			56			79			73			79
Total nonaccrual loans held in portfolio		1,626			1,813			1,893			2,062			2,155
Foreclosed assets		311			293			307			325			328
Total nonperforming assets		$	1,937		$	2,106		$	2,200		$	2,387		$	2,483
As a percentage of total assets		0.70		%	0.73		%	0.78		%	0.86		%	0.93		%
Restructured loans		$	111		$	118		$	89		$	99		$	98
Total nonperforming assets and restructured loans		$	2,048		$	2,224		$	2,289		$	2,486		$	2,581

 

(1)                Excludes nonaccrual loans held for sale of $66 million at December 31, 2003.  Prior periods also reflect the exclusion of nonaccrual loans held for sale of $67 million, $73 million, $72 million and $119 million at September 30, 2003, June 30, 2003, March 31, 2003 and December 31, 2002.  Loans held for sale are accounted for at lower of aggregate cost or market value, with valuation changes included as adjustments to gain from mortgage loans.

 

(2)                Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

 

(3)                Represents construction loans made directly to the intended occupant of a single-family residence.

 

WM - 15

Washington Mutual, Inc.

Pro Forma Combining Statements of Income

(dollars in millions, except per share data)

(unaudited)

 

Note:  The following schedule combines income from continuing operations with the discontinued operations of Washington Mutual Finance in order to present the pro forma effects of total net income on an individual line level basis.

 

		Quarter Ended Dec. 31, 2003									Year Ended Dec. 31, 2003
		Income From Continuing Operations			Washington Mutual Finance			Pro Forma Combined			Income From Continuing Operations			Washington Mutual Finance			Pro Forma Combined
Interest Income
Loans held for sale		$	439		$	—		$	439		$	2,483		$	—		$	2,483
Loans held in portfolio		1,969			152			2,121			7,686			587			8,273
Available-for-sale securities		353			1			354			1,738			5			1,743
Other interest and dividend income		38			—			38			256			—			256
Total interest income		2,799			153			2,952			12,163			592			12,755
Interest Expense
Deposits		491			—			491			2,165			—			2,165
Borrowings		565			39			604			2,369			159			2,528
Total interest expense		1,056			39			1,095			4,534			159			4,693
Net interest income		1,743			114			1,857			7,629			433			8,062
Provision (reversal of reserve) for loan and lease losses		(202		)	41			(161		)	42			153			195
Net interest income after provision for loan and lease losses		1,945			73			2,018			7,587			280			7,867
Noninterest Income
Home loan mortgage banking income:
Loan servicing fees		524			—			524			2,273			—			2,273
Amortization of mortgage servicing rights		(604		)	—			(604		)	(3,269		)	—			(3,269		)
Mortgage servicing rights recovery		615			—			615			712			—			712
Revaluation gain (loss) from derivatives		(306		)	—			(306		)	338			—			338
Net settlement income from certain interest-rate swaps		190			—			190			543			—			543
Gain from mortgage loans		63			—			63			1,250			—			1,250
Other home loan mortgage banking income, net		110			—			110			127			—			127
Total home loan mortgage banking income		592			—			592			1,974			—			1,974
Depositor and other retail banking fees		472			—			472			1,818			—			1,818
Securities fees and commissions		103			—			103			395			—			395
Insurance income		49			5			54			188			21			209
Portfolio loan related income		96			—			96			439			—			439
Gain (loss) from other available-for-sale securities		(13		)	—			(13		)	676			—			676
Gain (loss) on extinguishment of securities sold under agreements to repurchase		—			—			—			(129		)	—			(129		)
Other income		166			1			167			489			3			492
Total noninterest income		1,465			6			1,471			5,850			24			5,874
Noninterest Expense
Compensation and benefits		877			25			902			3,304			95			3,399
Occupancy and equipment		569			4			573			1,592			14			1,606
Telecommunications and outsourced information services		125			3			128			554			14			568
Depositor and other retail banking losses		49			—			49			201			—			201
Amortization of other intangible assets		15			—			15			61			—			61
Advertising and promotion		88			3			91			278			14			292
Professional fees		78			3			81			267			11			278
Other expense		300			7			307			1,151			19			1,170
Total noninterest expense		2,101			45			2,146			7,408			167			7,575
Income before income taxes		1,309			34			1,343			6,029			137			6,166
Income taxes		488			13			501			2,236			50			2,286
Net Income		$	821		$	21		$	842		$	3,793		$	87		$	3,880
Net Income Attributable to Common Stock		$	821		$	21		$	842		$	3,793		$	87		$	3,880
Basic earnings per common share:		$	0.93		$	0.02		$	0.95		$	4.20		$	0.09		$	4.29
Diluted earnings per common share:		0.91			0.02			0.93			4.12			0.09			4.21

---

WM - 16

Washington Mutual, Inc.

Pro Forma Statement of Financial Condition

December 31, 2003

(dollars in millions)

(unaudited)

 

Note:  The following schedule presents the pro forma effects of disaggregating the discontinued operations of Washington Mutual Finance into its individual components on the Statement of Financial Condition.  

 

		As Reported			Washington Mutual Finance			Pro Forma
Assets
Cash and cash equivalents		$	7,018		$	64		$	7,082
Federal funds sold and securities purchased under resale agreements		19			—			19
Available-for-sale securities, total amortized cost of $36,858 as reported, $36,987 pro forma:
Mortgage-backed securities		10,695			—			10,695
Investment securities		26,012			130			26,142
Loans held for sale		20,343			—			20,343
Loans held in portfolio		175,644			3,997			179,641
Allowance for loan and lease losses		(1,250		)	(150		)	(1,400		)
Total loans held in portfolio, net of allowance for loan and lease losses		174,394			3,847			178,241
Investment in Federal Home Loan Banks		3,462			—			3,462
Mortgage servicing rights		6,354			—			6,354
Goodwill		6,196			57			6,253
Assets of discontinued operations		4,184			(4,184		)	—
Other assets		16,501			86			16,587
Total assets		$	275,178		$	—		$	275,178
Liabilities
Deposits:
Noninterest-bearing deposits		$	29,968		$	—		$	29,968
Interest-bearing deposits		123,213			—			123,213
Total deposits		153,181			—			153,181
Federal funds purchased and commercial paper		2,011			1,067			3,078
Securities sold under agreements to repurchase		28,333			—			28,333
Advances from Federal Home Loan Banks		48,330			—			48,330
Other borrowings		15,483			2,431			17,914
Liabilities of discontinued operations		3,578			(3,578		)	—
Other liabilities		4,520			80			4,600
Total liabilities		255,436			—			255,436
Stockholders’ equity		19,742			—			19,742
Total liabilities and stockholders’ equity		$	275,178		$	—		$	275,178

---

WM - 17

Washington Mutual, Inc.

Selected Financial Information

(dollars in millions)

 

(unaudited)

 

		Quarter Ended
		Dec. 31, 2003
Credit Overview - Key Statistics
Allowance for Loan and Lease Losses (“ALLL”):
September 30, 2003 as originally reported, including Washington Mutual Finance		$	1,699
Less:  ALLL associated with Washington Mutual Finance		(150		)
September 30, 2003 ALLL excluding Washington Mutual Finance		1,549
Less:  Excess franchise lending portfolio specific reserve (net of charge-offs)		(82		) (1)
Less:  December 31, 2003 ALLL reversal		(120		) (1)
Less:  December 31, 2003 net charge-offs		(97		)
Balance, end of quarter		$	1,250

 

(1)                Included in the December 31, 2003 reversal of reserve for loan and lease losses

 

		Quarter Ended
Key Ratios:		Dec. 31, 2003			Sept. 30, 2003
Nonaccrual loans as a percentage of total loans held in portfolio		0.93		%	1.13		%
Nonperforming assets as a percentage of total loans held in portfolio		1.10			1.31
Nonperforming assets as a percentage of total assets		0.70			0.73
Allowance as a percentage of total loans held in portfolio		0.71			0.96
Foreclosed assets		$	311		$	293