WASHINGTON MUTUAL INC (Form: 10-Q, Received: 11/13/2003 16:37:18)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

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 or organization)		(I.R.S. Employer Identification Number)

1201 Third Avenue, Seattle, Washington		98101
(Address of principal executive offices)		(Zip Code)

(206) 461-2000

(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]

The number of shares outstanding of the issuer’s classes of common stock as of October 31, 2003:

Common Stock – 899,338,464 ⁽¹⁾

⁽¹⁾ Includes 6 million shares held in escrow.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

			*Page*
PART I Financial Information			1
	Item 1. Financial Statements
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2003 and 2002 (Restated)	1
		Consolidated Statements of Financial Condition – September 30, 2003 and December 31, 2002 (Restated)	2
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Nine Months Ended September 30, 2003 and 2002 (Restated)	3
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2003 and 2002 (Restated)	4
		Notes to Consolidated Financial Statements	6

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
		Cautionary Statements	19
		Controls and Procedures	19
		Critical Accounting Policies	20
		Summary Financial Data	21
		Earnings Performance	23
		Review of Financial Condition	35
		Operating Segments	38
		Off-Balance Sheet Activities	42
		Asset Quality	43
		Liquidity	46
		Capital Adequacy	48
		Market Risk Management	48
		Maturity and Repricing Information	52
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		48
	Item 4. Controls and Procedures		19

PART II Other Information			59
	Item 4. Submission of Matters to a Vote of Security Holders		59
	Item 6. Exhibits and Reports on Form 8-K		59

PART I – FINANCIAL INFORMATION

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			(Restated) 2002			2003			(Restated) 2002
	(in millions, except per share amounts)
Interest Income
Loans held for sale	$	619		$	388		$	1,834		$	1,192
Loans held in portfolio		1,997			2,287			6,152			7,033
Available-for-sale securities		402			652			1,388			2,411
Other interest and dividend income		65			86			218			245

Total interest income		3,083			3,413			9,592			10,881
Interest Expense
Deposits		538			679			1,674			1,996
Borrowings		591			815			1,923			2,470

Total interest expense		1,129			1,494			3,597			4,466

Net interest income		1,954			1,919			5,995			6,415
Provision for loan and lease losses		113			135			356			470

Net interest income after provision for loan and lease losses		1,841			1,784			5,639			5,945
Noninterest Income
Home loan mortgage banking income (expense):
Loan servicing fees		542			508			1,748			1,609
Amortization of mortgage servicing rights		(665	)		(713	)		(2,665	)		(1,696	)
Mortgage servicing rights recovery (impairment)		368			(1,849	)		96			(2,911	)
Revaluation gain (loss) from derivatives		(172	)		1,694			643			2,535
Net settlement income from certain interest-rate swaps		130			116			354			224
Gain (loss) from mortgage loans		(271	)		418			939			889
Other home loan mortgage banking income, net		292			105			538			260

Total home loan mortgage banking income		224			279			1,653			910
Depositor and other retail banking fees		471			426			1,346			1,185
Securities fees and commissions		103			92			291			272
Insurance income		50			46			155			132
Portfolio loan related income		116			85			344			226
Gain from other available-for-sale securities		557			356			689			195
Gain (loss) on extinguishment of securities sold under agreements to repurchase		7			98			(129	)		293
Other income		120			(4	)		325			175

Total noninterest income		1,648			1,378			4,674			3,388
Noninterest Expense
Compensation and benefits		860			719			2,497			2,141
Occupancy and equipment		356			289			1,035			859
Telecommunications and outsourced information services		153			136			440			409
Depositor and other retail banking losses		50			55			151			153
Amortization of other intangible assets		15			17			46			50
Advertising and promotion		55			75			201			188
Professional fees		71			55			195			161
Other expense		304			270			925			763

Total noninterest expense		1,864			1,616			5,490			4,724

Income before income taxes		1,625			1,546			4,823			4,609
Income taxes		602			567			1,786			1,690

Net Income	$	1,023		$	979		$	3,037		$	2,919

Net Income Attributable to Common Stock	$	1,023		$	978		$	3,037		$	2,914

Net income per common share:
Basic	$	1.14		$	1.03		$	3.34		$	3.07
Diluted		1.11			1.02			3.27			3.01
Dividends declared per common share		0.40			0.27			0.99			0.78
Basic weighted average number of common shares outstanding (in thousands)		899,579			947,293			910,449			949,868
Diluted weighted average number of common shares outstanding (in thousands)		918,372			963,422			927,470			966,938

See Notes to Consolidated Financial Statements.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

	September 30, 2003			(Restated) December 31, 2002
	(dollars in millions)
Assets
Cash and cash equivalents	$	5,811		$	7,208
Federal funds sold and securities purchased under resale agreements		12			2,015
Available-for-sale securities, total amortized cost of $36,916 and $42,592:
Mortgage-backed securities (including assets pledged of $7,439 and $6,570)		14,352			28,375
Investment securities (including assets pledged of $13,006 and $10,679)		22,831			15,597

		37,183			43,972
Loans held for sale		31,339			33,996
Loans held in portfolio		164,499			147,528
Allowance for loan and lease losses		(1,699	)		(1,653	)

Total loans held in portfolio, net of allowance for loan and lease losses		162,800			145,875
Investment in Federal Home Loan Banks		3,429			3,703
Mortgage servicing rights		5,870			5,341
Goodwill		6,253			6,270
Other assets		33,934			19,845

Total assets	$	286,631		$	268,225

Liabilities
Deposits:
Noninterest-bearing deposits	$	39,197		$	37,515
Interest-bearing deposits		124,944			118,001

Total deposits		164,141			155,516
Federal funds purchased and commercial paper		4,140			1,247
Securities sold under agreements to repurchase		20,468			16,717
Advances from Federal Home Loan Banks		43,743			51,265
Other borrowings		14,424			15,264
Other liabilities		19,274			8,155

Total liabilities		266,190			248,164

Stockholders’ Equity
Common stock, no par value: 1,600,000,000 shares authorized, 913,854,221 and 944,046,787 shares issued and outstanding		-			-
Capital surplus – common stock		4,796			5,961
Accumulated other comprehensive (loss) income		(419	)		175
Retained earnings		16,064			13,925

Total stockholders’ equity		20,441			20,061

Total liabilities and stockholders’ equity	$	286,631		$	268,225

See Notes to Consolidated Financial Statements.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(UNAUDITED)

	Number of Shares		Capital Surplus- Common Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(in millions)
BALANCE, December 31, 2001 (previously reported)	873.1		$	3,178		$	(243	)	$	11,128		$	14,063
Restatement adjustment (see Note 2)	-			-			-			(38	)		(38	)

BALANCE, December 31, 2001 (as restated)	873.1			3,178			(243	)		11,090			14,025
Comprehensive income:
Net income (restated)	-			-			-			2,919			2,919
Other comprehensive income (loss), net of tax:
Net unrealized gain from securities arising during the period, net of reclassification adjustments	-			-			1,528			-			1,528
Net unrealized loss on cash flow hedging instruments	-			-			(682	)		-			(682	)
Minimum pension liability adjustment	-			-			(2	)		-			(2	)

Total comprehensive income													3,763
Cash dividends declared on common stock	-			-			-			(756	)		(756	)
Cash dividends declared on redeemable preferred stock	-			-			-			(5	)		(5	)
Common stock repurchased and retired	(27.1	)		(942	)		-			-			(942	)
Common stock issued for acquisitions	96.4			3,672			-			-			3,672
Fair value of Dime stock options	-			90			-			-			90
Common stock issued to redeem preferred stock	4.3			102			-			-			102
Common stock issued	7.1			183			-			-			183

BALANCE, September 30, 2002 (restated)	953.8		$	6,283		$	601		$	13,248		$	20,132

BALANCE, December 31, 2002 (previously reported)	944.0		$	5,961		$	175		$	13,998		$	20,134
Restatement adjustment (see Note 2)	-			-			-			(73	)		(73	)

BALANCE, December 31, 2002 (as restated)	944.0			5,961			175			13,925			20,061
Comprehensive income:
Net income	-			-			-			3,037			3,037
Other comprehensive income (loss), net of tax:
Net unrealized loss from securities arising during the period, net of reclassification adjustments	-			-			(707	)		-			(707	)
Net unrealized gain on cash flow hedging instruments	-			-			117			-			117
Minimum pension liability adjustment	-			-			(4	)		-			(4	)

Total comprehensive income													2,443
Cash dividends declared on common stock	-			-			-			(898	)		(898	)
Common stock repurchased and retired	(39.0	)		(1,430	)		-			-			(1,430	)
Common stock issued	8.9			265			-			-			265

BALANCE, September 30, 2003	913.9		$	4,796		$	(419	)	$	16,064		$	20,441

See Notes to Consolidated Financial Statements.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2003			(Restated) 2002
	(in millions)
Cash Flows from Operating Activities
Net income	$	3,037		$	2,919
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Provision for loan and lease losses		356			470
Gain from mortgage loans		(939	)		(889	)
Gain from securities		(949	)		(214	)
Revaluation gain from derivatives		(643	)		(2,535	)
Loss (gain) on extinguishment of securities sold under agreements to repurchase		129			(293	)
Depreciation and amortization		2,945			2,146
Mortgage servicing rights (recovery) impairment		(96	)		2,911
Stock dividends from Federal Home Loan Banks		(101	)		(153	)
Origination and purchases of loans held for sale, net of principal payments		(273,657	)		(139,197	)
Proceeds from sales of loans held for sale		270,838			142,211
Increase in other assets		(3,130	)		(1,533	)
Increase in other liabilities		709			1,835

Net cash (used) provided by operating activities		(1,501	)		7,678
Cash Flows from Investing Activities
Purchases of securities		(22,433	)		(45,940	)
Proceeds from sales and maturities of mortgage-backed securities		8,907			6,257
Proceeds from sales and maturities of other available-for-sale securities		14,724			53,698
Principal payments on securities		7,816			6,763
Purchases of Federal Home Loan Bank stock		(279	)		(4	)
Redemption of Federal Home Loan Bank stock		663			668
Proceeds from sales of mortgage servicing rights		406			822
Origination and purchases of loans held in portfolio		(82,309	)		(57,959	)
Principal payments on loans held in portfolio		66,275			49,936
Proceeds from sales of foreclosed assets		377			252
Net decrease in federal funds sold and securities purchased under resale agreements		2,003			68
Net cash used for acquisitions		-			(2,215	)
Purchases of premises and equipment, net		(749	)		(672	)

Net cash (used) provided by investing activities	$	(4,599	)	$	11,674

(The Consolidated Statements of Cash Flows are continued on the next page.)

See Notes to Consolidated Financial Statements.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Continued from the previous page.)

	Nine Months Ended September 30,
	2003			(Restated) 2002
	(in millions)
Cash Flows from Financing Activities
Increase in deposits	$	8,625		$	18,255
Increase (decrease) in short-term borrowings		8,396			(13,198	)
Proceeds from long-term borrowings		9,051			30,293
Repayments of long-term borrowings		(11,759	)		(38,343	)
Proceeds from advances from Federal Home Loan Banks		62,118			24,901
Repayments of advances from Federal Home Loan Banks		(69,622	)		(38,159	)
Cash dividends paid on preferred and common stock		(898	)		(761	)
Repurchase of common stock		(1,430	)		(942	)
Other		222			161

Net cash provided (used) by financing activities		4,703			(17,793	)

(Decrease) increase in cash and cash equivalents		(1,397	)		1,559
Cash and cash equivalents, beginning of period		7,208			3,563

Cash and cash equivalents, end of period	$	5,811		$	5,122

Noncash Activities
Loans exchanged for mortgage-backed securities	$	2,179		$	5,297
Real estate acquired through foreclosure		359			337
Cash Paid During the Period for
Interest on deposits	$	1,642		$	1,980
Interest on borrowings		1,985			2,445
Income taxes		2,701			2,416

See Notes to Consolidated Financial Statements.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and include the accounts of Washington Mutual, Inc. (together with its subsidiaries “Washington Mutual” or the “Company”). Washington Mutual’s accounting and financial reporting policies are in accordance with accounting principles generally accepted in the United States of America. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such periods. Such adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year. The interim financial information should be read in conjunction with Washington Mutual, Inc.’s 2002 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period classifications.

Recently Adopted Accounting Standards

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“Statement” or “SFAS”) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity . Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement, which was effective for financial instruments entered into or modified after May 31, 2003 and for all financial instruments on July 1, 2003, did not have a material impact on the Consolidated Financial Statements.

In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities . Statement No. 149 provides clarification on the definition of derivative instruments within the scope of FASB Statement No. 133. Generally, this Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003, and did not have a material impact on the Consolidated Financial Statements.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities . This Interpretation provides guidance on how to identify a variable interest entity and determine when the assets, liabilities, noncontrolling interests and results of operations of a variable interest entity should be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that will absorb a majority of the variable interest entity’s expected losses or receive a majority of the expected residual returns as a result of holding variable interests. The Company adopted the provisions of FIN 46 for variable interest entities formed on or after February 1, 2003, which did not have a material effect on the Consolidated Financial Statements. The Company adopted the provisions of FIN 46 for existing variable interest entities on July 1, 2003, which also did not have a material effect on the Consolidated Financial Statements.

As of September 30, 2003, the Company had variable interests in securitization trusts, which are discussed in the 2002 Annual Report on Form 10-K in Note 5 to the Consolidated Financial Statements – “Mortgage Banking Activities.” These trusts are qualifying special-purpose entities and thus are not subject to the consolidation requirements of FIN 46. The Company reports its rights and obligations related to these qualifying special-purpose entities according to the requirements of Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . The Company has not identified any unconsolidated investments in variable interest entities that are not qualifying special-purpose entities as of September 30, 2003.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation -Transition and Disclosure , which amends Statement No. 123, Accounting for Stock-Based Compensation . This Statement provides alternative methods of transitioning, on a voluntary basis, from the intrinsic value method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees , to the fair value method of accounting for stock-based employee compensation. Effective January 1, 2003 and in accordance with the transitional guidance of Statement No. 148, the Company elected to prospectively apply the fair value method of accounting for stock-based awards granted subsequent to December 31, 2002. Stock-based awards granted prior to January 1, 2003, and not modified after December 31, 2002, will continue to be accounted for under APB Opinion No. 25.

Had compensation cost for the Company’s stock-based compensation plans been determined using the fair value method consistent with Statement No. 123 for all periods presented, 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:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(dollars in millions, except per share amounts)
Net income attributable to common stock	$	1,023		$	978		$	3,037		$	2,914
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		10			4			43			18
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(28	)		(20	)		(97	)		(59	)

Pro forma net income attributable to common stock	$	1,005		$	962		$	2,983		$	2,873

Net income per common share:
Basic:
As reported	$	1.14		$	1.03		$	3.34		$	3.07
Pro forma		1.12			1.02			3.28			3.02
Diluted:
As reported		1.11			1.02			3.27			3.01
Pro forma		1.09			1.00			3.22			2.97

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others , which expands on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34, which is being superseded. This Interpretation requires a guarantor to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition requirements of FIN 45 apply prospectively to guarantees issued or modified after December 31, 2002. Refer to Note 5 to the Consolidated Financial Statements - “Guarantees” for discussion on significant guarantees that have been entered into by the Company.

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 2: Restatement of Financial Statements

After announcing its earnings for the third quarter, the Company concluded that the inclusion of certain components (i.e., deferred acquisition costs and claims stabilization reserves) in the cash surrender value of its bank-owned life insurance policies was incorrect. The accounting policy the Company previously used resulted in the overstatement of the cash surrender value of the policies and, accordingly, other noninterest income. This restatement also resulted in a $73 million decrease to other assets and a corresponding $73 million decrease to retained earnings as of December 31, 2002. The restatement only affects periods commencing with the second quarter of 2000 when the policies were first acquired. The Company has corrected its accounting for all affected prior reporting periods. The tables below show the impact of the restatements to net income and basic and diluted earnings per share for those periods:

	Three Months Ended
	June 30, 2003			Mar. 31, 2003
	(in millions, except per share amounts)
Net income:
Net income as previously reported	$	1,020		$	1,003
Restatement adjustment		(3	)		(6	)

Net income as restated	$	1,017		$	997


Basic earnings per share:
Net income attributable to common stock as previously reported		1.12			1.09
Restatement adjustment		-			(0.01	)
Net income attributable to common stock as restated		1.12			1.08

Diluted earnings per share:
Net income attributable to common stock as previously reported		1.10			1.07
Restatement adjustment		(0.01	)		-
Net income attributable to common stock as restated		1.09			1.07

	Three Months Ended
	Sept. 30, 2002			June 30, 2002			Mar. 31, 2002
	(in millions, except per share amounts)
Net income:
Net income as previously reported	$	981		$	990		$	956
Restatement adjustment		(2	)		(2	)		(4	)

Net income as restated	$	979		$	988		$	952


Basic earnings per share:
Net income attributable to common stock as previously reported		1.04			1.04			1.01
Restatement adjustment		(0.01	)		(0.01	)		(0.01	)
Net income attributable to common stock as restated		1.03			1.03			1.00

Diluted earnings per share:
Net income attributable to common stock as previously reported		1.02			1.01			0.99
Restatement adjustment		-			-			-
Net income attributable to common stock as restated		1.02			1.01			0.99

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

	Nine Months Ended September 30,
	2002
	(in millions, except per share amounts)
Net income:
Net income as previously reported	$	2,927
Restatement adjustment		(8	)

Net income as restated	$	2,919


Basic earnings per share:
Net income attributable to common stock as previously reported		3.08
Restatement adjustment		(0.01	)
Net income attributable to common stock as restated		3.07

Diluted earnings per share:
Net income attributable to common stock as previously reported		3.02
Restatement adjustment		(0.01	)
Net income attributable to common stock as restated		3.01

	Year Ended December 31,
	2002			2001			2000
	(in millions, except per share amounts)
Net income:
Net income as previously reported	$	3,896		$	3,114		$	1,899
Restatement adjustment		(35	)		(10	)		(28	)

Net income as restated	$	3,861		$	3,104		$	1,871


Basic earnings per share:
Net income attributable to common stock as previously reported		4.12			3.65			2.37
Restatement adjustment		(0.03	)		(0.01	)		(0.04	)
Net income attributable to common stock as restated		4.09			3.64			2.33

Diluted earnings per share:
Net income attributable to common stock as previously reported		4.05			3.59			2.36
Restatement adjustment		(0.03	)		(0.01	)		(0.04	)
Net income attributable to common stock as restated		4.02			3.58			2.32

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 3: Earnings Per Share

Information used to calculate earnings per share (“EPS”) was as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2002			2003		2002
	(dollars in millions, except per share amounts)
Net income
Net income	$	1,023	$	979		$	3,037	$	2,919
Accumulated dividends on preferred stock		-		(1	)		-		(5	)

Net income attributable to common stock	$	1,023	$	978		$	3,037	$	2,914

Weighted average shares (in thousands)
Basic weighted average number of common shares outstanding		899,579		947,293			910,449		949,868
Dilutive effect of potential common shares from:
Stock options		9,774		8,460			8,860		8,991
Premium Income Equity Securities ^SM ⁽¹⁾		-		775			-		1,269
Trust Preferred Income Equity Redeemable Securities ^SM		9,019		6,894			8,161		6,810

Diluted weighted average number of common shares outstanding		918,372		963,422			927,470		966,938

Net income per common share
Basic	$	1.14	$	1.03		$	3.34	$	3.07
Diluted		1.11		1.02			3.27		3.01

⁽¹⁾	Redeemed on August 16, 2002.

For the three and nine months ended September 30, 2003, options to purchase an additional 54,700 and 1,891,409 shares of common stock were outstanding, but were not included in the computation of diluted EPS because their inclusion would have had an antidilutive effect. For the three and nine months ended September 30, 2002, options to purchase an additional 464,025 shares of common stock were outstanding, but were not included in the computation of diluted EPS because their inclusion would have had an antidilutive effect.

Additionally, as part of the 1996 business combination with Keystone Holdings, Inc. (the parent of American Savings Bank, F.A.), 18 million shares of common stock, with an assigned value of $18.4944 per share, were, as of January 1, 2003, held in escrow for the benefit of the investors in Keystone Holdings, the Federal Deposit Insurance Corporation (“FDIC”) as manager of the Federal Savings and Loan Insurance Corporation Resolution Fund and their transferees. Under the terms of the original agreement, the conditions under which these shares could be released from escrow to the Keystone Holdings’ investors and the FDIC were related to the outcome of certain litigation and were not based on future earnings or market prices. The escrow would have by its terms automatically expired on December 20, 2002, absent the occurrence of certain circumstances that would extend it. The Company disagreed with the Keystone Holdings’ investors and the FDIC as to whether these circumstances had occurred.

Pursuant to an amended tolling agreement, the parties agreed to return to the Company 225,000 shares per month through September 30, 2003, while they attempted to resolve their disagreement. During the nine months ended September 30, 2003, 1,800,000 of these shares were returned to the Company. An additional 225,000

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

shares were received by the Company in October 2003. At September 30, 2003, the Company continued to assert that the conditions for releasing the remaining shares to the Keystone Holdings’ investors and the FDIC had not occurred, and thus the remaining shares were still in the escrow. Therefore, none of the shares in the escrow during the periods indicated above were included in the above computations.

Subsequent to September 30, 2003, the parties settled their disagreement. The FDIC agreed to sell its interest in the escrow to Escrow Partners, L.P., a partnership owned by investors in Keystone Holdings. The Company, Keystone Holdings and Escrow Partners then agreed that 9,975,000 shares would be returned immediately to the Company, together with the related accumulated dividends and interest on these shares. Six million shares will remain in the escrow, together with the accumulated dividends and interest thereon, under substantially the same terms as set forth in the original agreement, except that the expiration date has been extended to December 20, 2008, subject to certain limited extensions. As of the date hereof, the escrow agent is in the process of returning the 9,975,000 shares to the Company, together with related accumulated dividends and interest. The Company expects that the accumulated dividends and interest thereon will be approximately $60 million. Substantially all of this amount will consist of accumulated dividends and thus will be credited to retained earnings.

Note 4: Mortgage Banking Activities

Changes in the portfolio of loans serviced for others were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(in millions)
Balance, beginning of period	$	583,823		$	477,309		$	604,504		$	382,500
Home loans:
Additions through acquisitions		-			-			-			49,242
Other additions		105,883			52,910			291,391			162,067
Sales		-			-			(2,960	)		-
Loan payments and other		(111,834	)		(51,957	)		(315,257	)		(115,576	)
Net change in commercial real estate loans serviced for others		(50	)		13			144			42

Balance, end of period	$	577,822		$	478,275		$	577,822		$	478,275

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Changes in the balance of mortgage servicing rights (“MSR”), net of the valuation allowance, were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(in millions)
Balance, beginning of period	$	4,598		$	6,489		$	5,341		$	6,241
Home loans:
Additions through acquisitions		-			-			-			926
Other additions		1,587			732			3,502			2,810
Amortization		(665	)		(713	)		(2,665	)		(1,696	)
Recovery (impairment provision)		368			(1,849	)		96			(2,911	)
Sales		(18	)		(111	)		(406	)		(822	)
Net change in commercial real estate MSR		-			-			2			-

Balance, end of period ⁽¹⁾	$	5,870		$	4,548		$	5,870		$	4,548

⁽¹⁾	At September 30, 2003 and 2002, the aggregate mortgage servicing rights fair value was $5.90 billion and $4.57 billion.

Changes in the valuation allowance for MSR were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(in millions)
Balance, beginning of period	$	3,444		$	2,568		$	4,521		$	1,714
(Recovery) impairment provision		(368	)		1,849			(96	)		2,911
Other than temporary impairment		-			-			(1,115	)		-
Sales		(1	)		(97	)		(235	)		(305	)

Balance, end of period	$	3,075		$	4,320		$	3,075		$	4,320

At September 30, 2003, the expected weighted average life of the Company’s MSR was 3.5 years. Projected amortization expense for the gross carrying value of MSR at September 30, 2003 is estimated to be as follows (in millions):

Remainder of 2003	$	705
2004		2,168
2005		1,419
2006		1,012
2007		760
2008		586
After 2008		2,295

Gross carrying value of MSR		8,945
Less: valuation allowance		(3,075	)

Net carrying value of MSR	$	5,870

The projected amortization expense of MSR is an estimate and should be used with caution. The amortization expense for future periods was calculated by applying the same quantitative factors, such as

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

prepayment assumptions, that were used to determine amortization expense for the third quarter of 2003. These factors are inherently subject to significant fluctuations, primarily due to the effect that changes in mortgage rates have on loan prepayment experience. Accordingly, any projection of MSR amortization in future periods is limited by the conditions that existed at the time the calculations were performed, and may not be indicative of actual amortization expense that will be recorded in future periods.

Note 5: Guarantees

In the ordinary course of business, the Company sells loans with recourse. For loans that have been sold with recourse, the recourse component is considered a guarantee. When the Company sells a loan with recourse, it commits to stand ready to perform, if the loan defaults, and to make payments to remedy the default. As of September 30, 2003 and December 31, 2002, loans sold with recourse totaled $3.55 billion and $4.26 billion. The Company’s recourse reserve related to these loans totaled $23 million and $11 million at September 30, 2003 and December 31, 2002.

The Company sells loans without recourse that may have to be subsequently repurchased if a defect that occurred during the loan’s origination process results in a violation of a representation or warranty made in connection with the sale of the loan. When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred and if such defects give rise to a violation of a representation or warranty made to the investor in connection with the sale. If such a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no such defects, the Company has no commitment to repurchase the loan. As of September 30, 2003 and December 31, 2002, the amount of loans sold without recourse totaled $574.27 billion and $600.25 billion, which substantially represents the unpaid principal balance of the Company’s loans serviced for others portfolio. The Company has reserved $107 million as of September 30, 2003 and $74 million as of December 31, 2002 to cover the estimated loss exposure related to the loan origination process defects that are inherent within this portfolio.

Note 6: Operating Segments

The Company has identified three major operating segments for the purpose of management reporting: Banking and Financial Services; Home Loans and Insurance Services; and Specialty Finance. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. The management reporting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The Company’s operating segments are defined by the products and services they offer.

The Company uses various methodologies to assign certain balance sheet and income statement items to the responsible operating segment. Methodologies that are applied to the measurement of segment profitability include: (1) a funds transfer pricing system, which matches assets and liabilities with the market benchmark (approximation) of the Company’s cost of funds based on interest rate sensitivity and maturity characteristics and determines how much each interest margin source contributes to the Company’s total net interest income; (2) a calculation of the provision for loan and lease losses based on management’s current assessment of the long-term, normalized net charge-off ratio for loan products within each segment, which differs from the “losses inherent in the loan portfolio” methodology that is used to measure the allowance for loan and lease losses under accounting principles generally accepted in the United States of America. This methodology is used to provide segment management with provision information for strategic decision making; (3) the utilization of an activity-based costing approach to measure allocations of certain operating expenses that were not directly charged to the segments; (4) the allocation of goodwill and other intangible assets to the operating segments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

based on benefits received from each acquisition; (5) capital charges for goodwill as a component of an internal measurement of return on the goodwill allocated to the operating segment; and (6) an economic capital model which is the framework for assessing business performance on a risk-adjusted basis. Changing economic conditions, further research and new data may lead to the update of the capital allocation assumptions.

The Company continues to enhance its segment reporting process methodologies. Changes to the operating segment structure and the funds transfer pricing methodology were made during the first quarter of 2003. Additionally, effective January 1, 2003, the primary management responsibilities for the Company’s originated home loan mortgage-backed securities portfolio were transferred from the Home Loans and Insurance Services Group to the Company’s Treasury operations. Accordingly, the earnings performance and financial condition of this portfolio are now included within the Corporate Support/Treasury and Other category. Results for the prior periods have been restated to conform to all of these changes.

The Banking and Financial Services Group offers a comprehensive line of financial products and services to a broad spectrum of consumers and small- to mid-sized businesses. The Group offers various deposit products including the Group’s signature Free Checking accounts as well as other personal and business checking accounts, savings accounts, money market deposit accounts and time deposit accounts. It also offers consumer loans as well as small business and commercial loans to small- and mid-sized businesses. The Group’s services are offered through multiple delivery channels, including financial center stores, business banking centers, ATMs, the internet and 24-hour telephone banking centers.

The principal activities of the Home Loans and Insurance Services Group include: originating and servicing the Company’s home loans, buying and selling home loans in the secondary market and managing the home loan portfolio. Home loans are either originated or purchased, and are either held in portfolio or held for sale and subsequently sold into the secondary market. The Group offers home loans through multiple distribution channels, which include retail home loan centers, financial center stores, correspondent channels, wholesale home loan centers and directly to consumers through call centers and the internet. The Home Loans Group also includes the Company’s community reinvestment functions and the activities of Washington Mutual Insurance Services, Inc., WaMu Capital Corp. and Washington Mutual Mortgage Securities Corp.

The Specialty Finance Group provides financing to developers, investors, mortgage bankers and homebuilders for the acquisition, construction and development of apartment buildings (“multi-family” lending), other commercial real estate and homes. The Group also services commercial real estate mortgages as part of its commercial asset management business and conducts a consumer finance business through Washington Mutual Finance Corporation.

The Corporate Support/Treasury and Other category includes management of the Company’s interest rate risk, liquidity, capital, borrowings, and investment securities and home loan mortgage-backed securities portfolios. To the extent not allocated to the business segments, this category also includes the costs of the Company’s technology services, facilities, legal, accounting and human resources. Also reported in this category is the net impact of funds transfer pricing for loan and deposit balances including the effects of changes in interest rates on the Company’s net interest margin and the effects of inter-segment allocations of gains and losses related to interest rate risk management instruments. The funds transfer pricing methodology isolates the majority of interest rate risk and concentrates it in the Company’s Treasury operations. It captures historical interest rate sensitivity of the balance sheet, risk management decisions within approved limits and the temporary divergence of funds transfer pricing assumptions from the actual duration of assets and liabilities. Certain basis and other residual risk remains in the operating segments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Financial highlights by operating segment were as follows:

	Three Months Ended September 30, 2003
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income (expense)	$	922		$	1,175		$	365		$	(508	)	$	-		$	1,954
Provision for loan and lease losses		42			47			53			1			(30	) ⁽¹⁾		113
Noninterest income		665			229			158			596			-			1,648
Noninterest expense		989			832			111			147			(215	) ⁽²⁾		1,864
Income taxes (benefit)		212			192			135			(22	)		85	⁽³⁾		602

Net income (loss)	$	344		$	333		$	224		$	(38	)	$	160		$	1,023

Performance and other data:
Efficiency ratio		54.80	% ⁽⁴⁾		54.19	% ⁽⁴⁾		16.65	% ⁽⁴⁾		n/a			n/a			51.76	% ⁽⁵⁾
Average loans	$	28,374		$	143,602		$	31,793		$	141		$	(377	) ⁽⁶⁾	$	203,533
Average assets		37,296			185,274			35,501			32,521			(377	) ⁽⁶⁾		290,215
Average deposits		127,392			35,458			4,440			6,655			n/a			173,945

	Three Months Ended September 30, 2002
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income (expense)	$	789		$	820		$	311		$	(1	)	$	-		$	1,919
Provision for loan and lease losses		42			45			60			9			(21	) ⁽¹⁾		135
Noninterest income (expense)		563			969			5			(159	)		-			1,378
Noninterest expense		920			678			97			134			(213	) ⁽²⁾		1,616
Income taxes (benefit)		148			391			60			(111	)		79	⁽³⁾		567

Net income (loss)	$	242		$	675		$	99		$	(192	)	$	155		$	979

Performance and other data:
Efficiency ratio		59.27	% ⁽⁴⁾		33.97	% ⁽⁴⁾		23.49	% ⁽⁴⁾		n/a			n/a			49.02	% ⁽⁵⁾
Average loans	$	21,463		$	120,594		$	30,318		$	(22	)	$	(453	) ⁽⁶⁾	$	171,900
Average assets		29,763			153,741			32,547			45,527			(453	) ⁽⁶⁾		261,125
Average deposits		116,579			12,717			2,938			3,239			n/a			135,473

⁽¹⁾	Represents the difference between the long-term, normalized net charge-off ratio used to assess expected loan and lease losses for the operating segments and the “losses inherent in the loan portfolio” methodology used by the Company.

⁽²⁾	Represents the corporate offset for goodwill cost of capital allocated to segments.

⁽³⁾	Represents the tax effect of reconciling adjustments.

⁽⁴⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

⁽⁵⁾	The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

⁽⁶⁾

Represents the impact to the allowance for loan and lease losses that results from the difference between the long-term, normalized net charge-off ratio used to assess expected loan and lease losses for the operating segments and the “losses inherent in the loan portfolio” methodology used by the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

	Nine Months Ended September 30, 2003
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income (expense)	$	2,678		$	3,420		$	1,048		$	(1,151	)	$	-		$	5,995
Provision for loan and lease losses		116			132			156			16			(64	) ⁽¹⁾		356
Noninterest income		1,872			2,109			187			506			-			4,674
Noninterest expense		2,857			2,507			330			433			(637	) ⁽²⁾		5,490
Income taxes (benefit)		600			1,074			282			(405	)		235	⁽³⁾		1,786

Net income (loss)	$	977		$	1,816		$	467		$	(689	)	$	466		$	3,037

Performance and other data:
Efficiency ratio		54.98	% ⁽⁴⁾		41.51	% ⁽⁴⁾		21.11	% ⁽⁴⁾		n/a			n/a			51.46	% ⁽⁵⁾
Average loans	$	25,873		$	140,824		$	31,113		$	105		$	(383	) ⁽⁶⁾	$	197,532
Average assets		34,584			178,128			34,796			37,907			(383	) ⁽⁶⁾		285,032
Average deposits		125,618			30,352			3,616			5,650			n/a			165,236

	Nine Months Ended September 30, 2002
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income	$	2,214		$	2,417		$	925		$	859		$	-		$	6,415
Provision for loan and lease losses		117			136			188			26			3	⁽¹⁾		470
Noninterest income (expense)		1,615			1,963			48			(238	)		-			3,388
Noninterest expense		2,608			1,904			292			524			(604	) ⁽²⁾		4,724
Income taxes		418			879			186			26			181	⁽³⁾		1,690

Net income	$	686		$	1,461		$	307		$	45		$	420		$	2,919

Performance and other data:
Efficiency ratio		59.29	% ⁽⁴⁾		38.88	% ⁽⁴⁾		23.23	% ⁽⁴⁾		n/a			n/a			48.19	% ⁽⁵⁾
Average loans	$	20,463		$	121,599		$	30,219		$	30		$	(471	) ⁽⁶⁾	$	171,840
Average assets		28,608			145,593			32,317			64,615			(471	) ⁽⁶⁾		270,662
Average deposits		110,772			11,481			2,780			5,000			n/a			130,033

⁽¹⁾	Represents the difference between the long-term, normalized net charge-off ratio used to assess expected loan and lease losses for the operating segments and the “losses inherent in the loan portfolio” methodology used by the Company.

⁽²⁾	Represents the corporate offset for goodwill cost of capital allocated to segments.

⁽³⁾	Represents the tax effect of reconciling adjustments.

⁽⁴⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

⁽⁵⁾	The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

⁽⁶⁾

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

	Year Ended December 31, 2002
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income	$	3,018		$	3,409		$	1,262		$	652		$	-		$	8,341
Provision for loan and lease losses		160			187			271			34			(57	) ⁽¹⁾		595
Noninterest income (expense)		2,222			2,522			114			(103	)		-			4,755
Noninterest expense		3,508			2,661			400			631			(818	) ⁽²⁾		6,382
Income taxes (benefit)		602			1,143			265			(43	)		291	⁽³⁾		2,258

Net income (loss)	$	970		$	1,940		$	440		$	(73	)	$	584		$	3,861

Performance and other data:
Efficiency ratio		58.24	% ⁽⁴⁾		40.28	% ⁽⁴⁾		22.55	% ⁽⁴⁾		n/a			n/a			48.73	% ⁽⁵⁾
Average loans	$	20,915		$	124,566		$	30,488		$	32		$	(468	) ⁽⁶⁾	$	175,533
Average assets		29,071			151,537			32,653			58,627			(468	) ⁽⁶⁾		271,420
Average deposits		113,250			13,730			2,836			4,885			n/a			134,701

	Year Ended December 31, 2001
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income	$	2,142		$	1,635		$	1,023		$	2,076		$	-		$	6,876
Provision for loan and lease losses		146			189			298			32			(90	) ⁽¹⁾		575
Noninterest income (expense)		1,793			1,474			74			(103	)		-			3,238
Noninterest expense		2,512			1,456			294			613			(258	) ⁽²⁾		4,617
Income taxes		483			566			189			491			89	⁽³⁾		1,818

Net income	$	794		$	898		$	316		$	837		$	259		$	3,104

Performance and other data:
Efficiency ratio		61.89	% ⁽⁴⁾		42.43	% ⁽⁴⁾		22.73	% ⁽⁴⁾		n/a			n/a			45.65	% ⁽⁵⁾
Average loans	$	13,123		$	107,528		$	27,684		$	411		$	(432	) ⁽⁶⁾	$	148,314
Average assets		17,931			121,603			29,261			57,178			(432	) ⁽⁶⁾		225,541
Average deposits		82,384			7,860			2,613			3,665			n/a			96,522

⁽¹⁾	Represents the difference between the long-term, normalized net charge-off ratio used to assess expected loan and lease losses for the operating segments and the “losses inherent in the loan portfolio” methodology used by the Company.

⁽²⁾	Represents the corporate offset for goodwill cost of capital allocated to segments.

⁽³⁾	Represents the tax effect of reconciling adjustments.

⁽⁴⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

⁽⁵⁾	The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

⁽⁶⁾

WASHINGTON MUTUAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

	Year Ended December 31, 2000
	Banking and Financial Services			Home Loans and Insurance Services			Specialty Finance			Corporate Support/ Treasury and Other			Reconciling Adjustments			Total
	(dollars in millions)
Condensed income statement:
Net interest income (expense)	$	2,061		$	1,645		$	822		$	(217	)	$	-		$	4,311
Provision for loan and lease losses		65			101			148			(1	)		(128	) ⁽¹⁾		185
Noninterest income (expense)		1,403			548			42			(37	)		-			1,956
Noninterest expense		2,010			679			215			361			(139	) ⁽²⁾		3,126
Income taxes (benefit)		528			537			190			(226	)		56	⁽³⁾		1,085

Net income (loss)	$	861		$	876		$	311		$	(388	)	$	211		$	1,871

Performance and other data:
Efficiency ratio		56.80	% ⁽⁴⁾		27.69	% ⁽⁴⁾		21.94	% ⁽⁴⁾		n/a			n/a			49.88	% ⁽⁵⁾
Average loans	$	9,315		$	86,044		$	22,383		$	-			n/a		$	117,742
Average assets		12,441			109,130			22,839			43,147			n/a			187,557
Average deposits		78,074			1,213			191			798			n/a			80,276

⁽¹⁾	Represents the difference between the long-term, normalized net charge-off ratio used to assess expected loan and lease losses for the operating segments and the “losses inherent in the loan portfolio” methodology used by the Company.

⁽²⁾	Represents the corporate offset for goodwill cost of capital allocated to segments.

⁽³⁾	Represents the tax effect of reconciling adjustments.

⁽⁴⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

⁽⁵⁾	The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

Note 7: Subsequent Event

At the end of September 2003, the Company announced a major realignment and the decision to place the mortgage and consumer banking businesses under one common management, and to place all commercial and specialty lending businesses under one common management. The Company is conducting a comprehensive review of all its businesses with a focus on realigning its operations and systems around these two customer groups – retail consumers and commercial clients.

The Company is in the process of evaluating the changes necessary to reflect this new structure for management reporting purposes. Those changes are expected to be reflected in the Company’s 2003 Annual Report on Form 10-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS

As discussed in Note 2 to the consolidated financial statements, the Company has restated its financial statements for all reporting periods beginning with the second quarter of 2000. The accompanying management’s discussion and analysis takes into account the effects of the restatement.

Cautionary Statements

Our Form 10-Q 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;

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.

Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and

procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. While we believe the present design of our disclosure controls and procedures is effective, future events affecting our business may cause us to modify our disclosure controls and procedures.

Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our Consolidated Financial Statements and accompanying notes. We believe that the judgments, estimates and assumptions used in the preparation of our Consolidated Financial Statements are appropriate given the factual circumstances as of September 30, 2003.

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified four accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, and the sensitivity of our Consolidated Financial Statements to those judgments, estimates and assumptions, are critical to an understanding of our Consolidated Financial Statements. These policies relate to the valuation of our mortgage servicing rights (“MSR”) and rate lock commitments, the methodology that determines our allowance for loan and lease losses, and the assumptions used in the calculation of our net periodic pension expense.

Management has discussed the development and selection of these critical accounting policies with the Audit Committee of our Board of Directors. In addition, there are other complex accounting standards that require the Company to employ significant judgment in interpreting and applying certain of the principles prescribed by those standards. These judgments include, but are not limited to, the determination of whether a financial instrument or other contract meets the definition of a derivative in accordance with Statement of Financial Accounting Standards (“Statement”) No. 133, Accounting for Derivative Instruments and Hedging Activities , and the applicable hedge accounting criteria. These policies and the judgments, estimates and assumptions are described in greater detail in the Company’s 2002 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial Statements – “Summary of Significant Accounting Policies.”

Summary Financial Data

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(dollars in millions, except per share amounts and ratios)
Profitability
Net interest income	$	1,954		$	1,919		$	5,995		$	6,415
Net interest margin		3.15	%		3.36	%		3.26	%		3.55	%
Noninterest income	$	1,648		$	1,378		$	4,674		$	3,388
Noninterest expense		1,864			1,616			5,490			4,724
Net income		1,023			979			3,037			2,919
Net income per common share:
Basic	$	1.14		$	1.03		$	3.34		$	3.07
Diluted		1.11			1.02			3.27			3.01
Basic weighted average number of common shares outstanding (in thousands)		899,579			947,293			910,449			949,868
Diluted weighted average number of common shares outstanding (in thousands)		918,372			963,422			927,470			966,938
Dividends declared per common share	$	0.40		$	0.27		$	0.99		$	0.78
Return on average assets		1.41	%		1.50	%		1.42	%		1.44	%
Return on average common equity		19.82			18.79			19.50			19.88
Efficiency ratio ⁽¹⁾		51.76			49.02			51.46			48.19

Asset Quality
Nonaccrual loans ⁽²⁾	$	1,920		$	2,188		$	1,920		$	2,188
Foreclosed assets		304			309			304			309

Total nonperforming assets		2,224			2,497			2,224			2,497
Nonperforming assets/total assets		0.78	%		0.95	%		0.78	%		0.95	%
Restructured loans	$	118		$	112		$	118		$	112

Total nonperforming assets and restructured loans		2,342			2,609			2,342			2,609
Allowance for loan and lease losses		1,699			1,705			1,699			1,705
Allowance as a percentage of total loans held in portfolio		1.03	%		1.15	%		1.03	%		1.15	%
Provision for loan and lease losses	$	113		$	135		$	356		$	470
Net charge-offs		111			88			324			303

Capital Adequacy
Stockholders’ equity/total assets		7.13	%		7.67	%		7.13	%		7.67	%
Tangible common equity ⁽³⁾ /total tangible assets ⁽³⁾		5.26			5.25			5.26			5.25
Estimated total risk-based capital/risk-weighted assets ⁽⁴⁾		11.54			11.14			11.54			11.14

Per Common Share Data
Book value per common share ⁽⁵⁾	$	22.77		$	21.51		$	22.77		$	21.51
Market prices:
High		42.75			38.50			43.90			39.45
Low		36.92			30.98			32.98			30.98
Period end		39.37			31.47			39.37			31.47

⁽¹⁾	The efficiency ratio is defined as noninterest expense, divided by total revenue (net interest income and noninterest income).

⁽²⁾	Excludes nonaccrual loans held for sale.

⁽³⁾	Excludes unrealized net gain/loss on available-for-sale securities and derivatives, goodwill and intangible assets, but includes MSR.

⁽⁴⁾	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.

⁽⁵⁾	Excludes 16,200,000 shares held in escrow at September 30, 2003, and 18,000,000 shares held in escrow at September 30, 2002.

Summary Financial Data (Continued)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
	(in millions)
Supplemental Data
Average balance sheet:
Total loans held for sale	$	46,956	$	25,740	$	45,353	$	25,059
Total loans held in portfolio		156,577		146,160		152,179		146,781
Total interest-earning assets		249,641		229,364		245,813		240,253
Total assets		290,215		261,125		285,032		270,662
Total interest-bearing deposits		124,488		111,408		121,221		106,989
Total noninterest-bearing deposits		49,457		24,065		44,015		23,044
Total stockholders’ equity		20,657		20,827		20,764		19,552
Period-end balance sheet:
Loans held for sale		31,339		29,508		31,339		29,508
Loans held in portfolio, net of allowance for loan and lease losses		162,800		146,157		162,800		146,157
Total assets		286,631		262,585		286,631		262,585
Total deposits		164,141		140,608		164,141		140,608
Total stockholders’ equity		20,441		20,132		20,441		20,132
Loan volume:
Home loans:
Adjustable rate		28,225		25,928		76,503		58,629
Fixed rate		81,694		38,323		229,854		108,553
Specialty mortgage finance ⁽¹⁾		5,460		3,187		14,647		9,388

Total home loan volume		115,379		67,438		321,004		176,570
Total loan volume		130,586		75,483		357,529		198,949
Home loan refinancing ⁽²⁾		83,564		45,334		237,523		112,583
Total refinancing ⁽²⁾		86,774		46,321		244,254		115,785

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

⁽²⁾	Includes loan refinancing entered into by both new and pre-existing loan customers.

Earnings Performance

Net Interest Income

Net interest income increased $35 million, or 2%, for the three months ended September 30, 2003, compared with the same period in 2002. This increase was due to higher levels of average interest-earning assets, with most of this growth occurring in loans held for sale and home equity loans and lines of credit. The increase in net interest income was substantially offset by the contraction of the net interest margin, which declined to 3.15% for the three months ended September 30, 2003 from 3.36% for the same period in 2002, largely due to the continued downward repricing of loans and debt securities from the higher interest rate environment of the previous twelve months. The decline in the margin was partially offset by a decrease in interest-bearing checking (Platinum) rates and higher levels of noninterest-bearing custodial balances. The average rate paid on Platinum accounts decreased to 1.82% from 2.92% on average balances of $58.49 billion and $40.44 billion for the three months ended September 30, 2003 and 2002.

For the nine months ended September 30, 2003, net interest income decreased $420 million or 7% compared with the same period in 2002. This decrease resulted from contraction of the margin, which declined to 3.26% for the nine months ended September 30, 2003 from 3.55% for the same period in 2002, as yields on loans and debt securities continued to reprice downward from the higher interest rate environment of 2002. The decline in the margin was partially offset by decreases in the rates paid on interest-bearing deposits. In particular, the average rate paid on interest-bearing checking (Platinum) accounts decreased to 1.93% from 3.13% on average balances of $55.30 billion and $29.43 billion for the nine months ended September 30, 2003 and 2002. Growth in noninterest-bearing sources, primarily from higher average custodial balances, also offset the contraction in the margin by 15 basis points for the nine months ended September 30, 2003, as compared with the same period in 2002. Higher average balances of loans held for sale and home equity loans and lines of credit during the nine months ended September 30, 2003, further reduced the decline in net interest income.

The Company expects further contraction of the margin in the fourth quarter of 2003 due to lower yields on available-for-sale securities and a decrease in average custodial balances that will occur if loan refinancing activity continues to decline.

Interest rate contracts, including embedded derivatives, held for asset/liability interest rate risk management purposes decreased net interest income by $153 million and $447 million for the three and nine months ended September 30, 2003, compared with $146 million and $275 million for the same periods in 2002.

Certain average balances, together with the total dollar amounts of interest income and expense and the weighted average interest rates, were as follows:

	Three Months Ended September 30,
	2003						2002
	Average Balance		Rate		Interest Income		Average Balance		Rate		Interest Income
	(dollars in millions)
Assets
Interest-earning assets:
Federal funds sold and securities purchased under resale agreements	$	1,350	2.16	%	$	7	$	3,707	1.74	%	$	17
Available-for-sale securities ⁽¹⁾ :
Mortgage-backed securities		21,174	4.51			239		24,882	5.53			344
Investment securities		17,788	3.65			163		24,472	5.02			308
Loans held for sale ⁽²⁾		46,956	5.27			619		25,740	6.03			388
Loans held in portfolio ⁽²⁾⁽³⁾ :
Loans secured by real estate:
Home loans		84,460	4.56			963		84,276	5.85			1,232
Purchased specialty mortgage finance		10,777	5.30			143		9,141	6.28			144

Total home loans		95,237	4.64			1,106		93,417	5.89			1,376
Home construction loans:
Builder ⁽⁴⁾		1,105	4.47			13		1,214	5.53			17
Custom ⁽⁵⁾		977	6.90			17		891	8.15			18
Home equity loans and lines of credit:
Banking subsidiaries		22,209	4.82			267		14,170	5.97			211
Washington Mutual Finance		2,077	11.56			60		2,225	11.96			67
Multi-family		19,920	5.16			258		18,094	5.92			269
Other real estate		6,989	6.31			111		8,412	6.76			143

Total loans secured by real estate		148,514	4.93			1,832		138,423	6.07			2,101
Consumer:
Banking subsidiaries		1,191	8.46			25		2,119	9.53			51
Washington Mutual Finance		1,784	19.68			88		1,708	19.13			82
Commercial business		5,088	4.02			52		3,910	5.34			53

Total loans held in portfolio		156,577	5.09			1,997		146,160	6.25			2,287
Other		5,796	3.96			58		4,403	6.23			69

Total interest-earning assets		249,641	4.93			3,083		229,364	5.94			3,413
Noninterest-earning assets:
Mortgage servicing rights		6,250						5,933
Goodwill		6,253						6,231
Other		28,071						19,597

Total assets	$	290,215					$	261,125

(This table is continued on the next page.)

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

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

⁽³⁾	Interest income for loans held in portfolio includes amortization of net deferred loan origination costs of $96 million and $58 million for the three months ended September 30, 2003 and 2002.

⁽⁴⁾	Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

⁽⁵⁾	Represents construction loans made directly to the intended occupant of a single-family residence.

(Continued from the previous page.)

	Three Months Ended September 30,
	2003						2002
	Average Balance		Rate		Interest Expense		Average Balance		Rate		Interest Expense
	(dollars in millions)
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	64,057	1.68	%	$	272	$	46,508	2.59	%	$	304
Savings accounts and money market deposit accounts		28,674	0.88			63		29,963	1.45			110
Time deposit accounts		31,757	2.53			203		34,937	3.01			265

Total interest-bearing deposits		124,488	1.72			538		111,408	2.42			679
Federal funds purchased and commercial paper		5,041	1.37			17		1,983	2.06			10
Securities sold under agreements to repurchase		21,399	2.19			120		26,814	3.06			207
Advances from Federal Home Loan Banks		45,334	2.59			300		56,926	3.01			431
Other		14,053	4.38			154		13,549	4.87			167

Total interest-bearing liabilities		210,315	2.12			1,129		210,680	2.81			1,494

Noninterest-bearing sources:
Noninterest-bearing deposits		49,457						24,065
Other liabilities		9,786						5,553
Stockholders’ equity		20,657						20,827

Total liabilities and stockholders’ equity	$	290,215					$	261,125

Net interest spread and net interest income			2.81		$	1,954			3.13		$	1,919

Impact of noninterest-bearing sources			0.34						0.23
Net interest margin			3.15						3.36

	Nine Months Ended September 30,
	2003						2002
	Average Balance		Rate		Interest Income		Average Balance		Rate		Interest Income
	(dollars in millions)
Assets
Interest-earning assets:
Federal funds sold and securities purchased under resale agreements	$	3,297	1.39	%	$	35	$	2,289	1.77	%	$	31
Available-for-sale securities ⁽¹⁾ :
Mortgage-backed securities		23,805	5.04			900		24,199	5.62			1,019
Investment securities		15,926	4.09			488		37,301	4.98			1,392
Loans held for sale ⁽²⁾		45,353	5.39			1,834		25,059	6.34			1,192
Loans held in portfolio ⁽²⁾⁽³⁾ :
Loans secured by real estate:
Home loans		83,657	4.91			3,079		86,251	6.02			3,894
Purchased specialty mortgage finance		10,456	5.57			437		8,905	6.52			435

Total home loans		94,113	4.98			3,516		95,156	6.07			4,329
Home construction loans:
Builder ⁽⁴⁾		1,088	4.75			39		1,386	5.93			62
Custom ⁽⁵⁾		942	7.36			52		904	8.15			55
Home equity loans and lines of credit:
Banking subsidiaries		19,583	5.08			747		12,709	6.01			571
Washington Mutual Finance		2,026	11.79			179		2,146	12.02			193
Multi-family		19,149	5.38			773		17,689	6.08			808
Other real estate		7,344	6.30			348		8,415	6.84			432

Total loans secured by real estate		144,245	5.22			5,654		138,405	6.21			6,450
Consumer:
Banking subsidiaries		1,259	8.79			83		2,560	9.43			181
Washington Mutual Finance		1,749	19.54			256		1,713	18.77			241
Commercial business		4,926	4.28			159		4,103	5.19			161

Total loans held in portfolio		152,179	5.39			6,152		146,781	6.39			7,033
Other		5,253	4.64			183		4,624	6.17			214

Total interest-earning assets		245,813	5.20			9,592		240,253	6.04			10,881
Noninterest-earning assets:
Mortgage servicing rights		5,490						6,918
Goodwill		6,257						5,995
Other		27,472						17,496

Total assets	$	285,032					$	270,662

(This table is continued on the next page.)

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

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

⁽³⁾	Interest income for loans held in portfolio includes amortization of net deferred loan origination costs of $235 million and $162 million for the nine months ended September 30, 2003 and 2002.

⁽⁴⁾	Represents loans to builders for the purpose of financing the acquisition, development and construction of single-family residences for sale.

⁽⁵⁾	Represents construction loans made directly to the intended occupant of a single-family residence.

(Continued from the previous page.)

	Nine Months Ended September 30,
	2003						2002
	Average Balance		Rate		Interest Expense		Average Balance		Rate		Interest Expense
	(dollars in millions)
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	60,980	1.78	%	$	810	$	35,873	2.65	%	$	711
Savings accounts and money market deposit accounts		28,265	0.98			207		32,488	1.53			372
Time deposit accounts		31,976	2.74			657		38,628	3.16			913

Total interest-bearing deposits		121,221	1.85			1,674		106,989	2.49			1,996
Federal funds purchased and commercial paper		3,766	1.40			40		3,690	1.98			55
Securities sold under agreements to repurchase		20,607	2.52			394		38,595	2.21			638
Advances from Federal Home Loan Banks		50,993	2.62			1,012		60,595	2.79			1,265
Other		14,819	4.31			477		13,892	4.93			512

Total interest-bearing liabilities		211,406	2.26			3,597		223,761	2.66			4,466

Noninterest-bearing sources:
Noninterest-bearing deposits		44,015						23,044
Other liabilities		8,847						4,305
Stockholders’ equity		20,764						19,552

Total liabilities and stockholders’ equity	$	285,032					$	270,662

Net interest spread and net interest income			2.94		$	5,995			3.38		$	6,415

Impact of noninterest-bearing sources			0.32						0.17
Net interest margin			3.26						3.55

Noninterest Income

Noninterest income consisted of the following:

	Three Months Ended September 30,						Percentage Change		Nine Months Ended September 30,						Percentage Change
	2003			2002			Percentage Change		2003			2002			Percentage Change
	(dollars in millions)
Home loan mortgage banking income (expense):
Loan servicing income:
Loan servicing fees	$	542		$	508		7	%	$	1,748		$	1,609		9	%
Loan subservicing fees		1			34		(97	)		13			87		(85	)
Amortization of mortgage servicing rights		(665	)		(713	)	(7	)		(2,665	)		(1,696	)	57
Mortgage servicing rights recovery (impairment)		368			(1,849	)	-			96			(2,911	)	-
Other, net		(221	)		(97	)	128			(528	)		(238	)	122

Net home loan servicing income (expense)		25			(2,117	)	-			(1,336	)		(3,149	)	(58	)
Revaluation gain (loss) from derivatives		(172	)		1,694		-			643			2,535		(75	)
Net settlement income from certain interest-rate swaps		130			116		12			354			224		58
Gain (loss) from mortgage loans		(271	)		418		-			939			889		6
GNMA pool buy-out income		146			109		34			519			200		160
Loan related income		108			60		80			274			192		43
Gain (loss) from sale of originated mortgage-backed securities		258			(1	)	-			260			19		-

Total home loan mortgage banking income		224			279		(20	)		1,653			910		82
Depositor and other retail banking fees		471			426		11			1,346			1,185		14
Securities fees and commissions		103			92		12			291			272		7
Insurance income		50			46		9			155			132		17
Portfolio loan related income		116			85		36			344			226		52
Gain from other available-for-sale securities		557			356		56			689			195		253
Gain (loss) on extinguishment of securities sold under agreements to repurchase		7			98		(93	)		(129	)		293		-
Other income		120			(4	)	-			325			175		86

Total noninterest income	$	1,648		$	1,378		20		$	4,674		$	3,388		38

Home Loan Mortgage Banking Income (Expense)

The increase in home loan servicing fees for the three and nine months ended September 30, 2003 was the result of the increase in our loans serviced for others portfolio, partially offset by a decline in the aggregate weighted average servicing fee. Our loans serviced for others portfolio increased from $478.28 billion at September 30, 2002 to $577.82 billion at September 30, 2003 substantially as a result of the acquisition of HomeSide Lending, Inc., including its servicing portfolio, in the fourth quarter of 2002.

The weighted average servicing fee decreased from 40 basis points at September 30, 2002 to 35 basis points at September 30, 2003 largely due to the Company’s continuing process of selling a portion of the future contractual servicing cash flows to third parties. This process decreased the net MSR balance by $571 million but had no impact on the unpaid principal balance of the loans serviced for others portfolio. Additionally, the Company has entered into loan sales and securitizations with certain government-sponsored and private enterprises in which it has retained a smaller servicing fee than is common in the industry. The smaller servicing fee leads to a lower value for the resulting MSR and greater cash income when the loans or securities are sold, although it does not have an impact on the original gain from mortgage loans that was recorded at the time of rate lock.

During the first half of 2003, we recorded an other than temporary MSR impairment of $1.11 billion. The amount of the other than temporary impairment was determined by selecting an appropriate interest rate shock to estimate the amount of MSR fair value that we might expect to recover in the foreseeable future. To the extent that the gross carrying value of the MSR exceeded the estimated recoverable amount, that portion of the gross carrying value was written off as an other than temporary impairment. Although the writedowns had no impact on our results of operations or financial condition, they did reduce the gross carrying value of the MSR, which is used as the basis for MSR amortization. A similar analysis was also performed during the third quarter of 2003 and the recording of an other than temporary impairment was not necessary.

The Company recognized a recovery from its previously recorded MSR impairment valuation allowance of $368 million during the third quarter of 2003. This recovery was due to an increase in quarter-end mortgage rates, as compared with June 30, 2003, which decreased the expected prepayment rate on the Company’s servicing portfolio. MSR amortization expense was lower in the third quarter of 2003, as compared with the same quarter in 2002, due to expected lower prepayment rates during the quarter as a result of an overall increase in mortgage rates, and the other than temporary MSR impairment recorded in the first half of 2003 which reduced the gross carrying value of the MSR available to amortize.

The increase in other home loan servicing expense for the three and nine months ended September 30, 2003 resulted from higher loan pool expenses due to significant refinancing activity. Loan pool expenses represent the amount of interest expense that the Company incurs for the elapsed time between the borrower payoff date and the next monthly loan servicing investor pool cutoff date.

In measuring the fair value of MSR, we stratify the loans in our servicing portfolio based on loan type and coupon rate. We measure MSR impairment by estimating the fair value of each stratum. An impairment allowance for a stratum is recorded when, and in the amount by which, its fair value is less than its gross carrying value. A recovery of the impairment allowance for a stratum is recorded when its fair value exceeds its net carrying value, however, the recovery cannot exceed the valuation allowance for each stratum. At September 30, 2003, we stratified the loans in our servicing portfolio as follows:

		September 30, 2003
	Rate Band	Gross Carrying Value		Valuation Allowance		Net Carrying Value		Fair Value
		(in millions)
Primary Servicing:
Adjustable	All loans	$	1,684	$	576	$	1,108	$	1,108
Government-sponsored enterprises	6.00% and below		2,436		566		1,870		1,870
Government-sponsored enterprises	6.01% to 7.49%		1,903		931		972		972
Government-sponsored enterprises	7.50% and above		334		118		216		216
Government	6.00% and below		350		53		297		297
Government	6.01% to 7.49%		725		314		411		411
Government	7.50% and above		370		114		256		256
Private	6.00% and below		448		147		301		301
Private	6.01% to 7.49%		326		171		155		155
Private	7.50% and above		145		36		109		109

Total primary servicing			8,721		3,026		5,695		5,695
Master servicing	All loans		117		49		68		68
Specialty home loans	All loans		85		-		85		118
Multi-family	All loans		22		-		22		24

Total		$	8,945	$	3,075	$	5,870	$	5,905

Since loans with coupon rates at or below 6.00% reached a significant level, the Company adjusted the strata of the loan servicing portfolio during the second quarter of 2003 to the rate bands illustrated in the table above.

At September 30, 2003, key economic assumptions and the sensitivity of the current fair value for home loans MSR to immediate changes in those assumptions were as follows:

	September 30, 2003
	Mortgage Servicing Rights
	Fixed-Rate Mortgage Loans						Adjustable-Rate Mortgage Loans
	Government and Government- Sponsored Enterprises			Privately Issued			All Types			Specialty Home Loans
	(dollars in millions)
Fair value of home loans MSR	$	4,022		$	565		$	1,108		$	118
Expected-weighted-average life (in years)		3.5			3.4			3.5			2.1

Constant prepayment rate (“CPR”) ⁽¹⁾		24.06	%		27.60	%		26.79	%		39.18	%
Impact on fair value of 25% decrease in CPR	$	844		$	140		$	249		$	30
Impact on fair value of 50% decrease in CPR		2,054			343			616			74
Impact on fair value of 25% increase in CPR		(617	)		(104	)		(180	)		(22	)
Impact on fair value of 50% increase in CPR		(1,086	)		(205	)		(323	)		(40	)

Discounted cash flow rate (“DCF”)		8.35	%		9.84	%		10.06	%		19.52	%
Impact on fair value of 10% decrease in DCF		n/a			n/a			n/a		$	3
Impact on fair value of 25% decrease in DCF	$	232		$	33		$	72			9
Impact on fair value of 50% decrease in DCF		497			71			157			n/a
Impact on fair value of 25% increase in DCF		(204	)		(29	)		(63	)		(7	)
Impact on fair value of 50% increase in DCF		(386	)		(54	)		(118	)		(13	)

⁽¹⁾	Represents the expected lifetime average.

These sensitivities are hypothetical and should be used with caution. As the table above demonstrates, our methodology for estimating the fair value of MSR is highly sensitive to changes in assumptions. For example, our determination of fair value uses anticipated prepayment speeds. Actual prepayment experience may differ and any difference may have a material effect on MSR fair value. 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 MSR is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, increases in market interest rates may result in lower prepayments, but credit losses may increase), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time. Refer to “Market Risk Management” for discussion of how MSR prepayment risk is managed and to Note 1 to the Consolidated Financial Statements — ”Summary of Significant Accounting Policies” in the Company’s 2002 Annual Report on Form 10-K for further discussion of how MSR impairment is measured.

As part of its mortgage banking activities, the Company enters into commitments to originate or purchase loans whereby the interest rate on the loan is set prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Therefore, they are recorded at fair value on the Consolidated Statements of Financial Condition with changes in fair value recorded in gain from mortgage loans on the Consolidated Statements of Income. In measuring the fair value of rate lock commitments, the amount of the expected servicing rights is included in the valuation. This value is calculated using the same methodologies as are used to value the Company’s MSR, adjusted for an anticipated fallout factor for loan commitments that are not expected to be funded. The fair value of rate lock commitments on the Consolidated Statements of Financial Condition at September 30, 2003 and 2002 for which the underlying loans had not been funded was $130 million and $463 million.

This policy of recognizing the value of the derivative has the effect of recognizing the gain from mortgage loans before the loans are sold. In October 2003, the Financial Accounting Standards Board (“FASB”) decided to add a project to its agenda that would clarify how fair value should be measured for rate lock commitments that are considered to be derivatives. The FASB will determine if it is appropriate to recognize an asset component (e.g., the anticipated servicing rights retained by the Company when the underlying loans are sold) when measuring the value of a rate lock commitment, or if these commitments solely represent written option contracts that by definition must be recorded as liabilities. If the FASB decides that rate lock commitments are written option contracts or changes the manner in which the asset component is measured, the timing of the gain recognition inherent within our rate lock commitments could be delayed, possibly until the anticipated loans are sold. Generally, loans held for sale are sold within 60 to 120 days after the initial recognition of the rate lock commitment. No timetable has been established yet for the completion of this project.

Rate lock commitment volume, adjusted for actual and anticipated fallout factors, totaled $66.90 billion for the three months ended September 30, 2003, compared with $69.31 billion for the same period in 2002.

The fair value changes in loans held for sale and the offsetting changes in the derivative instruments used as fair value hedges are also recorded within gain from mortgage loans when hedge accounting treatment is achieved. Loans held for sale where hedge accounting treatment is not achieved (“nonqualifying” loans held for sale) are not recorded at fair value and are instead recorded at the lower of aggregate cost or market value. Due to changes in the fair value of derivatives acquired to mitigate the risk of fair value changes to these nonqualifying loans, net gains of $145 million in the third quarter of 2003 and net losses of $197 million for the nine months ended September 30, 2003 were recognized as revaluation gain (loss) from derivatives. A gain may be recognized when the loans are subsequently sold if the fair value of those loans is higher than the carrying amount. As of September 30, 2003, the fair value of loans held for sale was $31.38 billion with a carrying amount of $31.34 billion, and as of December 31, 2002, the fair value was $34.06 billion with a carrying amount of $34.00 billion.

The following tables separately present the MSR, loans held for sale and other risk management activities included within noninterest income for the three and nine months ended September 30, 2003.

	Three Months Ended September 30, 2003
	MSR Risk Management			Loans Held for Sale Risk Management			Other Risk Management		Total
	(in millions)
Revaluation gain (loss) from derivatives	$	(317	)	$	145		$	-	$	(172	)
Net settlement income from certain interest-rate swaps		120			10			-		130
Gain from other available-for-sale securities		176			-			381		557

Total	$	(21	)	$	155		$	381	$	515


	Nine Months Ended September 30, 2003
	MSR Risk Management			Loans Held for Sale Risk Management			Other Risk Management		Total
	(in millions)
Revaluation gain (loss) from derivatives	$	840		$	(197	)	$	-	$	643
Net settlement income from certain interest-rate swaps		344			10			-		354
Gain from other available-for-sale securities		316			-			373		689

Total	$	1,500		$	(187	)	$	373	$	1,686

Revaluation gain (loss) from derivatives is the earnings impact of the changes in fair value from certain derivatives where the Company either has not attempted to achieve, or has attempted but did not achieve, hedge accounting treatment under Statement No. 133. Derivatives that were used for MSR risk management purposes

produced a revaluation loss of $317 million and a gain of $840 million during the three and nine months ended September 30, 2003, compared with gains of $1.69 billion and $2.54 billion for the same periods in 2002. The total notional amount of these MSR risk management derivatives at September 30, 2003 was $48.79 billion with a combined net fair value of $1.08 billion.

Net settlement income from certain interest-rate swaps consisted of income on receive-fixed swaps, which were used predominantly as MSR risk management derivatives. At September 30, 2003, the total notional amount of these receive-fixed swaps was $27.18 billion, compared with $12.08 billion at September 30, 2002.

The Company recorded a loss from mortgage loans, net of revaluation gains from derivatives used as loans held for sale risk management instruments, of $126 million in the third quarter of 2003, compared with a net gain of $475 million in the preceding quarter. During the third quarter, the Company experienced market volatility and operational performance issues that adversely impacted the risk management of interest rate lock commitments on residential mortgage loans to be sold. Despite the sharp rise in mortgage rates that occurred in late July and early August, refinancing application volume remained at high levels during this period as borrowers attempted to obtain rate locks before rates potentially moved even higher. Additionally, borrowers with existing rate lock commitments had a strong incentive to fund their loans before the locks expired, which caused the expected fallout rates on these commitments to decline to extremely low levels. This created capacity issues within loan origination systems, which often culminated in rate lock extensions for loans that could not be funded within their prescribed timeframe. Due to information gaps that occurred between loan origination systems and the secondary marketing risk management system, many of these rate lock extensions were not economically hedged. Origination system processing interruptions also occurred during this period of market volatility, which delayed the entry of new rate lock information into the risk management system and resulted in further economic hedge ineffectiveness.

Derivative market illiquidity issues during this period of rapidly rising mortgage rates also adversely affected the risk management of both the aforementioned rate lock commitments and loans held for sale. Due to the sudden changes in the values of these instruments, the Company attempted to respond by making large adjustments to the quantity of derivatives used to manage the risk in these portfolios. However, due to the lack of liquidity in the market, the required risk profile adjustments to these portfolios were not always made on a timely basis. In particular, the market for derivatives that we hold to manage the risk from the mortgage servicing component embedded within these portfolios sharply contracted in size, thus causing the sale of these derivatives to occur at distressed prices.

The Company undertook numerous actions to correct these issues and to mitigate their financial effects. Corrective measures include the timely interface of rate lock activity from the origination systems to the secondary marketing risk management system, a more rigorous origination oversight process that prioritizes loan funding resources, thereby reducing the occurrence of rate lock extensions, and a broader diversification of derivative instruments used to risk manage rate lock commitments and loans held for sale. In addition, the Company sold a significant amount of available-for-sale securities during the third quarter of 2003. The gains recognized from these securities sales consisted of $258 million in gains from originated mortgage-backed securities and $381 million of gains from the sale of other available-for-sale securities.

Government National Mortgage Association (“GNMA”) pool buy-out income was $146 million and $519 million for the three and nine months ended September 30, 2003 and $109 million and $200 million for the same periods in 2002. Beginning in September of 2002, the Company began to regularly exercise its buy-back rights under the terms of its contract with GNMA. The Company has the right to repurchase certain loans that are part of pools serviced for GNMA before they have reached nonperforming status. In one part of the Company’s program, loans that have been 30 days past due for three consecutive months (referred to as “rolling 30 loans”) are repurchased from GNMA and then resold in the secondary market. In the other, loans that have missed three consecutive payments are likewise purchased and resold. These loans are collectively referred to as Early Buy-Out Loans.

Gain from the sale of these loans was $81 million and $309 million for the three and nine months ended September 30, 2003 and $44 million and $66 million for the three and nine months ended September 30, 2002. The Company does not have the option of repurchasing “rolling 30 loans” from pools created after January 1, 2003, but continues to make such purchases from previously created pools. The Company does not expect this change to have a significant impact on its results of operations throughout the remainder of 2003.

Additionally, as part of its normal Federal Housing Administration and Department of Veterans Affairs lending program, the Company repurchases defaulted loans from GNMA and undertakes collection and, if necessary, foreclosure proceedings with respect to those loans. Upon completion of the foreclosure, the Company can also submit a claim to either the Federal Housing Administration or the Department of Veterans Affairs for payment on the insurance or guarantee, as the case may be, issued by that agency. The portion of the recovery which is attributed to interest income owed to the Company is also recorded in this category. That interest income, together with interest income on the Early Buy-Out Loans was $65 million and $210 million for the three and nine months ended September 30, 2003 and $65 million and $134 million for the three and nine months ended September 30, 2002.

Loan related income increased during the three and nine months ended September 30, 2003, primarily due to increased fees charged to our correspondent lenders and late charges on the loans serviced for others portfolio.

All Other Noninterest Income Analysis

The increase in depositor and other retail banking fees for the three and nine months ended September 30, 2003 was primarily due to higher levels of checking fees that resulted from an increased number of noninterest-bearing checking accounts in comparison with the three and nine months ended September 30, 2002 and an increase in debit card and ATM related income. The number of noninterest-bearing checking accounts at September 30, 2003 totaled approximately 6.3 million, an increase of more than 600,000 from September 30, 2002.

The growth in portfolio loan related income for the three and nine months ended September 30, 2003 was primarily due to continued high levels of loan prepayment fees as a result of refinancing activity.

Several securities sold under agreements to repurchase (“repurchase agreements”) that contained embedded pay-fixed swaps were restructured during the nine months ended September 30, 2003, resulting in a loss on extinguishment of repurchase agreements of $129 million. The restructured repurchase agreements also contain embedded pay-fixed swaps with the same terms, but with a lower pay rate.

Other income increased for the three and nine months ended September 30, 2003 largely due to the effects recorded in the third quarter of 2002 of the Company’s removal of the cash flow hedge designation on certain payor swaptions. This resulted in the reclassification of a $112 million loss from accumulated other comprehensive income to other income. No such reclassifications have occurred during the nine months ended September 30, 2003. The increase in other income was also partially attributable to fees paid to the Company by the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). In the first of a two part transaction, the Company received $55 million in nonrefundable fees to induce the Company to swap approximately $3.3 billion of multi-family loans for 100% of the beneficial interest in those loans in the form of mortgage-backed securities issued by Freddie Mac. Since the Company has the unilateral right to collapse the securities after one year, the Company has effectively retained control over the loans. Accordingly, the assets continue to be accounted for and reported as loans. This transaction was undertaken by Freddie Mac in order to facilitate fulfilling its 2003 affordable housing goals as set by the Department of Housing and Urban Development. The second part of this transaction, of similar size and purpose, was completed during the fourth quarter of 2003. These increases were partially offset by losses due to revaluation adjustments on residual interests in collateralized mortgage obligations.

Noninterest Expense

Noninterest expense consisted of the following:

	Three Months Ended September 30,				Percentage Change		Nine Months Ended September 30,				Percentage Change
	2003		2002		Percentage Change		2003		2002		Percentage Change
	(dollars in millions)
Compensation and benefits	$	860	$	719	20	%	$	2,497	$	2,141	17	%
Occupancy and equipment		356		289	23			1,035		859	20
Telecommunications and outsourced information services		153		136	13			440		409	8
Depositor and other retail banking losses		50		55	(9	)		151		153	(1	)
Amortization of other intangible assets		15		17	(12	)		46		50	(8	)
Advertising and promotion		55		75	(27	)		201		188	7
Professional fees		71		55	29			195		161	21
Postage		51		50	2			164		136	21
Loan expense		71		65	9			192		154	25
Travel and training		39		31	26			114		102	12
Reinsurance expense		12		13	(8	)		44		37	19
Other expense		131		111	18			411		334	23

Total noninterest expense	$	1,864	$	1,616	15		$	5,490	$	4,724	16

The increase in employee base compensation and benefits expense for the three and nine months ended September 30, 2003 over the same periods in 2002 was substantially due to the hiring of additional staff to support our expanding operations and the increased overtime and second shifts in response to higher refinancing activity. Full-time equivalent employees were 59,975 at September 30, 2003, compared with 50,329 at September 30, 2002.

The increase in occupancy and equipment expense for the three and nine months ended September 30, 2003 resulted primarily from higher equipment depreciation expense related to various technology related projects that were placed in service during the second quarter of 2003 and increased rent and building expense due to continued branch expansion into new markets.

Professional fees increased for the three and nine months ended September 30, 2003, primarily as a result of increased technology related projects and legal fees.

The increase in loan expense for the three and nine months ended September 30, 2003 was largely due to higher non-deferred loan closing costs, resulting from an overall increase in refinancing activity, compared with the three and nine months ended September 30, 2002.

Other expense increased during the periods reported primarily due to higher foreclosed asset expenses, outside services and charitable contributions.

The Company announced a major realignment at the end of September 2003, which places the mortgage and consumer banking business under one common management and the commercial and specialty lending businesses under one common management. Among other goals, this realignment is expected to create opportunities to eliminate redundant operations and processes within the newly combined business units. Accordingly, the Company expects the outcome of this initiative to lead to reduced levels of noninterest expense in future periods.

Review of Financial Condition

Assets

At September 30, 2003, our assets were $286.63 billion, an increase of 7% from $268.23 billion at December 31, 2002. The increase was predominantly due to an increase in investment securities, loans held in portfolio and other assets.

Securities

Securities consisted of the following:

	September 30, 2003
	Amortized Cost			Unrealized Gains			Unrealized Losses			Fair Value
	(in millions)
Available-for-sale securities
Mortgage-backed securities:
U.S. Government and agency	$	11,728		$	266		$	(14	)	$	11,980
Private issue		2,352			25			(5	)		2,372

Total mortgage-backed securities		14,080			291			(19	)		14,352
Investment securities:
U.S. Government and agency		22,404			67			(97	)		22,374
Other debt securities		307			17			-			324
Equity securities		125			9			(1	)		133

Total investment securities		22,836			93			(98	)		22,831

Total available-for-sale securities	$	36,916		$	384		$	(117	)	$	37,183


	December 31, 2002
	Amortized Cost			Unrealized Gains			Unrealized Losses			Fair Value
	(in millions)
Available-for-sale securities
Mortgage-backed securities:
U.S. Government and agency	$	19,649		$	583		$	(5	)	$	20,227
Private issue		7,940			216			(8	)		8,148

Total mortgage-backed securities		27,589			799			(13	)		28,375
Investment securities:
U.S. Government and agency		14,560			581			(4	)		15,137
Other debt securities		309			16			-			325
Equity securities		134			3			(2	)		135

Total investment securities		15,003			600			(6	)		15,597

Total available-for-sale securities	$	42,592		$	1,399		$	(19	)	$	43,972


	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(in millions)
Available-for-sale securities
Realized gross gains	$	905		$	500		$	1,083		$	827
Realized gross losses		(90	)		(145	)		(134	)		(613	)

Realized net gain	$	815		$	355		$	949		$	214

Our mortgage-backed securities portfolio declined to $14.35 billion at September 30, 2003 from $28.38 billion at December 31, 2002. Substantially all of this decrease resulted from the sale of $7.53 billion of mortgage-backed securities during the three months ended September 30, 2003 and prepayments that occurred from refinancing activity. Our investment securities portfolio increased to $22.83 billion at September 30, 2003 from $15.60 billion at December 31, 2002. This increase resulted from the purchase of U.S. Government and agency investment securities. The Company’s available-for-sale securities portfolio includes both mortgage-backed securities and investment securities that are used for MSR risk management purposes.

Loans

Loans held in portfolio consisted of the following:

	September 30, 2003		December 31, 2002
	(in millions)
Loans secured by real estate:
Home loans	$	90,243	$	82,842
Purchased specialty mortgage finance		11,366		10,128

Total home loans		101,609		92,970
Home construction loans:
Builder ⁽¹⁾		1,061		1,017
Custom ⁽²⁾		1,032		932
Home equity loans and lines of credit:
Banking subsidiaries		24,060		16,168
Washington Mutual Finance		2,117		1,930
Multi-family		20,191		18,000
Other real estate		6,932		7,986

Total loans secured by real estate		157,002		139,003
Consumer:
Banking subsidiaries		1,121		1,663
Washington Mutual Finance		1,826		1,729
Commercial business		4,550		5,133

Total loans held in portfolio	$	164,499	$	147,528

⁽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.

Our loans held in portfolio increased $16.97 billion to $164.50 billion at September 30, 2003 from $147.53 billion at December 31, 2002. This increase was predominantly due to an increase in home loans, home equity loans and lines of credit and multi-family loans. Growth in the home loan portfolio primarily resulted from the retention of certain medium-term adjustable-rate mortgages originated during the third quarter of 2003. These products, also referred to as “hybrid” loans, offer fixed interest rates during their initial term, which is usually three or five years, and then convert to an adjustable rate for their remaining life. Those loans that were retained in the portfolio yield a rate of return that is consistent with the Company’s capital deployment guidelines. The Company may retain future hybrid loan production in its portfolio as market conditions warrant.

Other Assets

Other assets consisted of the following:

	September 30, 2003		December 31, 2002
	(in millions)
Premises and equipment	$	3,244	$	2,862
Investment in bank-owned life insurance		2,550		2,471
Accrued interest receivable		1,307		1,439
Foreclosed assets		304		336
GNMA pool buy-outs		4,223		4,859
Other intangible assets		265		311
Derivatives		2,632		4,105
Trading securities		1,235		336
Accounts receivable		16,789		1,625
Other		1,385		1,501

Total other assets	$	33,934	$	19,845

Substantially all of the decrease in the derivatives balance from December 31, 2002 to September 30, 2003 was due to a decrease in the net fair value of receive-fixed swaps and receiver swaptions held for MSR risk management purposes. The net fair value of the receive-fixed swaps and receiver swaptions decreased primarily as a result of terminations and maturities of certain of those swaps and swaptions with higher receive-fixed rates and correspondingly higher net fair value. The net fair value of the receive-fixed swaps used for MSR risk management purposes was $467 million at September 30, 2003, compared with $2.18 billion at December 31, 2002. There were no receiver swaptions used for MSR risk management purposes at September 30, 2003, compared with $415 million of net fair value at December 31, 2002.

The increase in trading securities was a result of growth in mortgage-backed securities held by WaMu Capital Corp., the Company’s institutional broker-dealer.

The increase in accounts receivable was largely due to the sale in September 2003 of mortgage-backed securities and investment securities where we had not yet settled with the counterparties as of September 30, 2003.

Deposits

Deposits consisted of the following:

	September 30, 2003		December 31, 2002
	(in millions)
Checking accounts:
Noninterest bearing	$	35,649	$	35,730
Interest bearing		66,353		56,132

		102,002		91,862
Savings accounts		11,445		10,313
Money market deposit accounts		19,903		19,573
Time deposit accounts		30,791		33,768

Total deposits	$	164,141	$	155,516

Deposits increased to $164,141 million at September 30, 2003 from $155,516 million at December 31, 2002. Substantially all of the increase in interest-bearing checking accounts was due to the growth in Platinum

Accounts. Platinum Accounts totaled $60.90 billion at September 30, 2003, compared with $55.90 billion at June 30, 2003 and $50.20 billion at December 31, 2002. During the nine months ended September 30, 2003, the number of Platinum Accounts increased by 239,601 from 683,245 to 922,846 total accounts. At September 30, 2003, total deposits included $24.92 billion in custodial/escrow deposits related to loan servicing activities, compared with $32.95 billion at June 30, 2003 and $25.90 billion at December 31, 2002. Time deposit accounts decreased by $2.98 billion from year-end 2002 predominantly as a result of decreases in short-term certificates of deposit accounts.

Checking accounts, savings accounts and money market deposit accounts increased to 81% of total deposits at September 30, 2003, compared with 78% at year-end 2002. These products generally have the benefit of lower interest costs, compared with time deposit accounts. At September 30, 2003 deposits funded 57% of total assets, compared with 58% at December 31, 2002.

Borrowings

Our borrowings largely take the form of repurchase agreements and advances from the Federal Home Loan Banks (“FHLB”) of Seattle, San Francisco, Dallas and New York. The exact mix of these two types of wholesale borrowings at any given time is dependent upon the market pricing of the individual borrowing sources.

Our wholesale borrowings decreased by $878 million at September 30, 2003, compared with year-end 2002 predominantly due to a decrease in advances from FHLBs, which was mostly offset by an increase in federal funds purchased and commercial paper and repurchase agreements. Other borrowings decreased by $840 million during the nine months ended September 30, 2003 substantially due to a reduction in outstanding senior debt. Refer to “Liquidity” for further discussion of funding sources at September 30, 2003, compared with year-end 2002.

Operating Segments

We manage our business along three major operating segments: Banking and Financial Services; Home Loans and Insurance Services; and Specialty Finance. Results for Corporate Support/Treasury and Other are also presented. Refer to Note 6 to the Consolidated Financial Statements – “Operating Segments” for information regarding the key elements of our management reporting methodologies used to measure segment performance.

Operating Results

Banking and Financial Services

	Three Months Ended September 30,						Percentage Change		Nine Months Ended September 30,						Percentage Change
	2003			2002			Percentage Change		2003			2002			Percentage Change
	(dollars in millions)
Condensed income statement:
Net interest income	$	922		$	789		17	%	$	2,678		$	2,214		21	%
Provision for loan and lease losses		42			42		-			116			117		(1	)
Noninterest income		665			563		18			1,872			1,615		16
Noninterest expense		989			920		8			2,857			2,608		10
Income taxes		212			148		43			600			418		44

Net income	$	344		$	242		42		$	977		$	686		42

Performance and other data:
Efficiency ratio ⁽¹⁾		54.80	%		59.27	%	(8	)		54.98	%		59.29	%	(7	)
Average loans	$	28,374		$	21,463		32		$	25,873		$	20,463		26
Average assets		37,296			29,763		25			34,584			28,608		21
Average deposits		127,392			116,579		9			125,618			110,772		13

⁽¹⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

Net interest income increased to $922 million and $2,678 million for the three and nine months ended September 30, 2003, compared with $789 million and $2,214 million for the same periods in 2002. The primary sources of net interest income are a funds transfer credit for deposits and interest income on home equity loans and lines of credit, commercial and consumer loans. Net interest income increased for the three and nine months ended September 30, 2003 substantially due to decreased interest expense on deposits resulting from lower interest rates, a decreased funds transfer charge and an increase in interest income from higher levels of home equity loans and lines of credit balances.

Noninterest income was $665 million and $1,872 million for the three and nine months ended September 30, 2003, compared with $563 million and $1,615 million for the same periods in 2002. These increases were mostly due to an increase in depositor and other retail banking fees and an increase in home loan origination broker fees received from the Home Loans and Insurance Services Group, which totaled $65 million and $163 million for the three and nine months ended September 30, 2003, compared with $21 million and $61 million for the same periods in 2002. The increase in home loan origination broker fees was driven by higher levels of originations.

Noninterest expense increased to $989 million and $2,857 million for the three and nine months ended September 30, 2003, compared with $920 million and $2,608 million for the same periods in 2002. These increases were primarily due to increased compensation and benefits expense, occupancy and equipment expense and allocated corporate technology expense.

Total average assets increased to $37,296 million and $34,584 million for the three and nine months ended September 30, 2003, compared with $29,763 million and $28,608 million for the same periods in 2002. These increases in average assets were substantially a result of an approximately 50% increase in home equity loans and lines of credit average balances, partly offset by a decrease in average consumer loans.

Total average deposits increased to $127,392 million and $125,618 million for the three and nine months ended September 30, 2003, compared with $116,579 million and $110,772 million for the same periods in 2002. These increases in average deposits were predominantly due to higher levels of Platinum balances, partly offset by decreases in money market deposit and time deposit account balances. Average Platinum balances increased approximately 45% and 88% to $58.49 billion and $55.30 billion for the three and nine months ended September 30, 2003 from $40.44 billion and $29.43 billion for the same periods in 2002.

Home Loans and Insurance Services

	Three Months Ended September 30,						Percentage Change		Nine Months Ended September 30,						Percentage Change
	2003			2002			Percentage Change		2003			2002			Percentage Change
	(dollars in millions)
Condensed income statement:
Net interest income	$	1,175		$	820		43	%	$	3,420		$	2,417		41	%
Provision for loan and lease losses		47			45		4			132			136		(3	)
Noninterest income		229			969		(76	)		2,109			1,963		7
Noninterest expense		832			678		23			2,507			1,904		32
Income taxes		192			391		(51	)		1,074			879		22

Net income	$	333		$	675		(51	)	$	1,816		$	1,461		24

Performance and other data:
Efficiency ratio ⁽¹⁾		54.19	%		33.97	%	60			41.51	%		38.88	%	7
Average loans	$	143,602		$	120,594		19		$	140,824		$	121,599		16
Average assets		185,274			153,741		21			178,128			145,593		22
Average deposits		35,458			12,717		179			30,352			11,481		164

⁽¹⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

Net interest income increased to $1,175 million and $3,420 million for the three and nine months ended September 30, 2003, compared with $820 million and $2,417 million for the same periods in 2002. These increases in net interest income were mostly due to increases in interest income resulting from higher loans held for sale average balances and decreases in funding costs due to lower funds transfer pricing rates. Partially offsetting these increases were decreases in interest income on loans held in portfolio, primarily adjustable-rate loans, which continued to reprice downward from the higher interest rate environment of 2002.

Noninterest income was $229 million in the third quarter of 2003, compared with $969 million for the same quarter in the prior year. The decrease was largely the result of the loss from mortgage loans of $271 million in the third quarter of 2003, compared with a gain of $418 million in the third quarter of 2002. The loss stemmed from various market volatility and operational issues, including unhedged rate lock extensions granted to customers, a diminished level of market liquidity for certain instruments used to manage interest rate risk on rate locks and loans held for sale, and system issues that caused data interruptions during the period. The decrease in noninterest income during the third quarter of 2003 was the primary reason for the increase in the efficiency ratio to 54.19%, compared with 33.97% for the same period in 2002.

Noninterest expense increased to $832 million and $2,507 million for the three and nine months ended September 30, 2003, from $678 million and $1,904 million for the same periods in 2002. These increases were substantially due to higher allocated technology expense that resulted from various ongoing projects, compensation and benefits expense, occupancy and equipment expense and foreclosed assets expense.

Total average assets increased to $185,274 million and $178,128 million for the three and nine months ended September 30, 2003, compared with $153,741 million and $145,593 million for the same periods in 2002. These increases were primarily due to growth in average loans held for sale balances that resulted from the high levels of home loan refinancing activity during the first nine months of 2003.

Total average deposits increased to $35,458 million and $30,352 million for the three and nine months ended September 30, 2003, compared with $12,717 million and $11,481 million for the same periods in 2002. These increases were substantially due to the growth of average custodial balances resulting from higher loan prepayments that occurred from refinancing activity.

Specialty Finance

	Three Months Ended September 30,						Percentage Change		Nine Months Ended September 30,						Percentage Change
	2003			2002			Percentage Change		2003			2002			Percentage Change
	(dollars in millions)
Condensed income statement:
Net interest income	$	365		$	311		17	%	$	1,048		$	925		13	%
Provision for loan and lease losses		53			60		(12	)		156			188		(17	)
Noninterest income		158			5		-			187			48		290
Noninterest expense		111			97		14			330			292		13
Income taxes		135			60		125			282			186		52

Net income	$	224		$	99		126		$	467		$	307		52

Performance and other data:
Efficiency ratio ⁽¹⁾		16.65	%		23.49	%	(29	)		21.11	%		23.23	%	(9	)
Average loans	$	31,793		$	30,318		5		$	31,113		$	30,219		3
Average assets		35,501			32,547		9			34,796			32,317		8
Average deposits		4,440			2,938		51			3,616			2,780		30

⁽¹⁾	The efficiency ratio is defined as noninterest expense, excluding a cost of capital charge on goodwill, divided by total revenue (net interest income and noninterest income).

Net interest income was $365 million and $1,048 million for the three and nine months ended September 30, 2003, compared with $311 million and $925 million for the same periods in 2002. These increases in net interest income were substantially due to lower funding costs resulting from reduced interest rates and increased interest income on available-for-sale mortgage-backed securities. A major portion of these increases were offset by reduced interest income from multi-family loans held in portfolio as a result of the lower interest rate environment.

The increase in noninterest income was due to gains recognized from the sale of commercial mortgage-backed securities and nonrefundable fees received as consideration for swapping approximately $3.3 billion of multi-family loans with Freddie Mac and receiving a beneficial interest in those loans in the form of mortgage-backed securities.

Noninterest expense was $111 million and $330 million for the three and nine months ended September 30, 2003, compared with $97 million and $292 million for the same periods in 2002. These increases were primarily due to increased compensation and benefits expense as a result of higher multi-family loan volumes.

Total average assets increased to $35,501 million and $34,796 million for the three and nine months ended September 30, 2003, compared with $32,547 million and $32,317 million for the same periods in 2002. A major portion of these increases were driven by higher multi-family loans and an increase in the available-for-sale mortgage-backed securities portfolio.

Corporate Support/Treasury and Other

	Three Months Ended September 30,						Percentage Change		Nine Months Ended September 30,						Percentage Change
	2003			2002			Percentage Change		2003			2002			Percentage Change
	(dollars in millions)
Condensed income statement:
Net interest income (expense)	$	(508	)	$	(1	)	-	%	$	(1,151	)	$	859		-	%
Provision for loan and lease losses		1			9		(89	)		16			26		(38	)
Noninterest income (expense)		596			(159	)	-			506			(238	)	-
Noninterest expense		147			134		10			433			524		(17	)
Income taxes (benefit)		(22	)		(111	)	(80	)		(405	)		26		-

Net income (loss)	$	(38	)	$	(192	)	(80	)	$	(689	)	$	45		-

Performance and other data:
Average loans	$	141		$	(22	)	-		$	105		$	30		250
Average assets		32,521			45,527		(29	)		37,907			64,615		(41	)
Average deposits		6,655			3,239		105			5,650			5,000		13

Net interest expense was $508 million and $1,151 million for the three and nine months ended September 30, 2003, compared with net interest expense of $1 million and net interest income of $859 million for the same periods in 2002. These decreases in net interest income were predominantly due to decreases in the average balances of available-for-sale securities resulting from sales of mortgage-backed and investment securities and prepayments of mortgage-backed securities that occurred from refinancing activity, and the negative impact of the funds transfer pricing process. These decreases were partially offset by a reduction in interest expense from borrowed funds, as a result of lower rates and higher average deposit balances, which reduced the need for these borrowings.

Noninterest income was $596 million and $506 million for the three and nine months ended September 30, 2003, compared with noninterest expense of $159 million and $238 million for the same periods in 2002. These increases in noninterest income were primarily due to gains realized on the sale of available-for-sale securities.

Operating Segment Realignment

Off-Balance Sheet Activities

Asset Securitization

We transform loans into securities, which are sold to investors – a process known as securitization. Securitization involves the sale of loans to a qualifying special-purpose entity (“QSPE”), typically a trust. The QSPE, in turn, issues interest-bearing securities, commonly called asset-backed securities, that are secured by future collections on the sold loans. The QSPE sells securities to investors, which entitle the investors to receive specified cash flows during the term of the security. The QSPE uses proceeds from the sale of these securities to pay the Company for the loans sold to the QSPE. These QSPEs are not consolidated within our financial statements since they satisfy the criteria established by Statement No. 140, Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . In general, these criteria require the QSPE to be legally isolated from the transferor (the Company), be limited to permitted activities, and have defined limits on the assets it can hold and the permitted sales, exchanges or distributions of its assets.

When we sell or securitize loans, we generally retain the right to service the loans and may retain senior, subordinated, residual, and other interests, all of which are considered retained interests in the sold or securitized assets. Retained interests may provide credit enhancement to the investors and, absent the violation of representations and warranties, generally represent the Company’s maximum risk exposure associated with these transactions. Retained interests in the form of mortgage-backed securities were $4.18 billion at September 30, 2003, of which $4.04 billion have either a AAA credit rating or are agency insured. Additional information concerning securitization transactions is included in Note 5 to the Consolidated Financial Statements – “Mortgage Banking Activities” of the Company’s 2002 Annual Report on Form 10-K.

Guarantees

The Company may incur liabilities under certain contractual agreements contingent upon the occurrence of certain events. A discussion of these contractual arrangements under which the Company may be held liable is included in Note 5 – “Guarantees” to the Consolidated Financial Statements.

Asset Quality

Nonaccrual Loans, Foreclosed Assets and Restructured Loans

Loans are generally placed on nonaccrual status when they are 90 days or more past due or when the timely collection of the principal of the loan, in whole or in part, is not expected. Management’s classification of a loan as nonaccrual or restructured does not necessarily indicate that the principal of the loan is uncollectible in whole or in part.

Nonaccrual loans and foreclosed assets (“nonperforming assets”) and restructured loans consisted of the following:

	September 30, 2003			June 30, 2003			December 31, 2002
	(dollars in millions)
Nonperforming assets and restructured loans:
Nonaccrual loans:
Home loans	$	760		$	804		$	1,068
Purchased specialty mortgage finance		553			483			438

Total home loan nonaccrual loans		1,313			1,287			1,506
Home construction loans:
Builder ⁽¹⁾		31			31			42
Custom ⁽²⁾		9			9			7
Home equity loans and lines of credit:
Banking subsidiaries		45			49			36
Washington Mutual Finance		43			41			37
Multi-family		39			54			50
Other real estate		309			369			413

Total nonaccrual loans secured by real estate		1,789			1,840			2,091
Consumer:
Banking subsidiaries		8			13			18
Washington Mutual Finance		67			64			69
Commercial business		56			79			79

Total nonaccrual loans held in portfolio		1,920			1,996			2,257
Foreclosed assets		304			317			336

Total nonperforming assets	$	2,224		$	2,313		$	2,593
As a percentage of total assets		0.78	%		0.82	%		0.97	%
Restructured loans	$	118		$	89		$	98

Total nonperforming assets and restructured loans	$	2,342		$	2,402		$	2,691

⁽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.

Nonaccrual loans totaled $1,920 million at September 30, 2003, compared with $1,996 million at June 30, 2003 and $2,257 million at December 31, 2002. Improvements during the first nine months of 2003 were predominantly driven by declines in home loans and other real estate nonaccruals, partially offset by increases in purchased specialty mortgage finance nonaccruals. The decline in nonaccrual home loans was largely achieved through sales of nonperforming home loans.

The Company continues its program of selling packages of nonperforming loans that it holds in portfolio. During the third quarter of 2003, the Company completed sales that included $172 million of nonperforming

loans. Year-to-date, the Company has sold $438 million of nonperforming loans that it held in portfolio, incurring $24 million in related charge-offs. We will periodically evaluate nonperforming loan sales as part of our ongoing portfolio management strategy.

Nonaccrual loans held for sale, which are excluded from the nonaccrual balances presented above, were $67 million, $73 million and $119 million at September 30, 2003, June 30, 2003 and December 31, 2002. Valuation changes on loans held for sale are reflected as gains or losses within gain from mortgage loans in noninterest income.

Purchased specialty mortgage finance nonaccrual loans totaled $553 million at September 30, 2003, up $70 million during the third quarter and $115 million from December 31, 2002 primarily reflecting growth and seasoning of this loan portfolio and a conforming change in the application of our nonaccrual policy to this portfolio.

Nonaccrual home equity loans and lines of credit totaled $88 million at September 30, 2003, a decrease of $2 million during the quarter and an increase of $15 million from December 31, 2002. However, the percentage of nonaccruals to total loans in this portfolio totaled 0.34% at September 30, 2003, down 0.06% from December 31, 2002.

At quarter end, other real estate loans on nonaccrual totaled $309 million, down from $369 million last quarter and $413 million at December 31, 2002. Much of the year-to-date improvement was due to reinstatements in the nonresidential commercial real estate portfolio as well as principal charge-offs and paydowns within the Company’s franchise-oriented finance business.

The multi-family portfolio continues to exhibit strong performance, with nonaccrual loans in this category representing 0.19% of total multi-family loans at September 30, 2003, compared with 0.28% at June 30, 2003 and December 31, 2002.

At September 30, 2003, foreclosed assets were $304 million, compared with $317 million at June 30, 2003 and $336 million at December 31, 2002. The Company’s foreclosed assets include home and commercial real estate as well as a small amount of personal property.

90 or More Days Past Due

The amount of loans held in portfolio which were 90 or more days contractually past due and still accruing interest was $62 million at September 30, 2003, compared with $47 million at June 30, 2003 and $60 million at December 31, 2002. The majority of these loans are either VA- or FHA-insured with little or no risk of loss of principal or interest.

Provision and Allowance for Loan and Lease Losses

Changes in the allowance for loan and lease losses were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(dollars in millions)
Balance, beginning of period	$	1,680		$	1,665		$	1,653		$	1,404
Allowance transferred to loans held for sale		-			(7	)		(3	)		(14	)
Allowance acquired through business combinations		-			-			-			148
Allowance for certain loan commitments		17			-			17			-
Provision for loan and lease losses		113			135			356			470

		1,810			1,793			2,023			2,008
Loans charged off:
Loans secured by real estate:
Home loans		(22	)		(9	)		(46	)		(31	)
Purchased specialty mortgage finance		(9	)		(9	)		(29	)		(25	)

Total home loan charge-offs		(31	)		(18	)		(75	)		(56	)
Home construction loans – builder		(1	)		-			(1	)		-
Home equity loans and lines of credit:
Banking subsidiaries		(4	)		(3	)		(11	)		(5	)
Washington Mutual Finance		(1	)		(2	)		(2	)		(8	)
Multi-family		(4	)		(1	)		(5	)		(2	)
Other real estate		(16	)		(11	)		(46	)		(53	)

Total loans secured by real estate		(57	)		(35	)		(140	)		(124	)
Consumer:
Banking subsidiaries		(20	)		(15	)		(55	)		(54	)
Washington Mutual Finance		(43	)		(42	)		(128	)		(127	)
Commercial business		(19	)		(17	)		(64	)		(55	)

Total loans charged off		(139	)		(109	)		(387	)		(360	)
Recoveries of loans previously charged off:
Loans secured by real estate:
Home loans		7			2			9			2
Purchased specialty mortgage finance		1			-			2			-

Total home loan recoveries		8			2			11			2
Home equity loans and lines of credit:
Banking subsidiaries		-			-			-			1
Multi-family		-			1			-			1
Other real estate		6			6			13			8

Total loans secured by real estate		14			9			24			12
Consumer:
Banking subsidiaries		5			3			11			8
Washington Mutual Finance		7			5			19			15
Commercial business		2			4			9			22

Total recoveries of loans previously charged off		28			21			63			57

Net charge-offs		(111	)		(88	)		(324	)		(303	)

Balance, end of period	$	1,699		$	1,705		$	1,699		$	1,705

Net charge-offs (annualized) as a percentage of average loans held in portfolio		0.28	%		0.24	%		0.28	%		0.28	%
Allowance as a percentage of total loans held in portfolio		1.03			1.15			1.03			1.15

From the fourth quarter of 2001 through the third quarter of 2002, the Company provided for amounts significantly in excess of charge-offs reflecting risks associated with growth in nonaccrual loans and economic uncertainty. As the economy stabilizes and nonperforming loan levels continue to decrease, the Company is adjusting the provision to amounts approaching actual net charge-offs. The Company believes its portfolio is adequately reserved, and accordingly, decreased its third quarter 2003 provision to $113 million compared with $135 million during the same period in 2002. As a percentage of average loans, net charge-offs were 0.28% for both the three and nine months ended September 30, 2003, compared with 0.24% and 0.28% for the same periods in 2002.

Net charge-offs for the three and nine months ended September 30, 2003 were $111 million and $324 million compared with $88 million and $303 million for the same periods in 2002. While representing less than 2% of the Company’s assets, Washington Mutual Finance accounted for 34% of total net charge-offs during the first nine months of 2003. This higher level of charge-offs in a consumer finance operation, such as Washington Mutual Finance, is expected due to the higher risk profile of the customer base as reflected in the interest rates charged for these loans.

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. The estimation of the allowance is based on a variety of factors, including past loan loss experience, adverse situations that have occurred but are not yet known that may affect the borrower’s ability to repay, the estimated value of underlying collateral and general economic conditions. The Company’s methodology for assessing the adequacy of the allowance includes the evaluation of three distinct elements: the formula allowance, the specific allowance (which includes the allowance for loans deemed to be impaired by Statement No. 114, Accounting by Creditors for Impairment of a Loan ) and the unallocated allowance. The formula allowance and the specific allowance collectively represent the portion of the allowance for loan and lease losses that are allocated to the various loan portfolios.

Refer to Note 1 to the Consolidated Financial Statements — “Summary of Significant Accounting Policies” in our 2002 Annual Report on Form 10-K for further discussion of the Allowance for Loan and Lease Losses.

Liquidity

The objective of liquidity management is to ensure the Company has the continuing ability to maintain cash flows that are adequate to fund operations and meet obligations and other commitments on a timely and cost-effective basis. The Company establishes liquidity guidelines for its principal operating subsidiaries as well as for the parent holding company, Washington Mutual, Inc.

Banking Subsidiaries

The principal sources of liquidity for our banking subsidiaries are customer deposits, wholesale borrowings, the maturity and repayment of portfolio loans, securities held in our available-for-sale portfolio and mortgage loans designated as held for sale. Among these sources, transaction deposits and wholesale borrowings from FHLB advances and repurchase agreements continue to provide the Company with a significant source of stable funding. During the nine months ended September 30, 2003, those sources funded 72% of average total assets. Our continuing ability to retain our transaction deposit base and to attract new deposits depends on various factors, such as customer service satisfaction levels and the competitiveness of interest rates offered on our deposit products. We expect to continue to have the necessary assets available to pledge as collateral to obtain FHLB advances and repurchase agreements to offset any potential declines in deposit balances.

In the nine months ended September 30, 2003, the Company’s proceeds from the sales of loans held for sale were approximately $270.84 billion. These proceeds were, in turn, used as the primary funding source for the origination and purchases of approximately $273.66 billion of loans held for sale during the same period. As this cyclical pattern of sales and originations/purchases repeats itself during the course of a period, the amount of funding necessary to sustain our mortgage banking operations does not significantly affect the Company’s overall level of liquidity resources.

To supplement our funding sources, our banking subsidiaries also raise funds in domestic and international capital markets. In August 2003, the Company established a new $20 billion Global Bank Note Program for Washington Mutual Bank, FA (“WMBFA”) and Washington Mutual Bank (“WMB”) to issue senior and subordinated notes in the United States and in international capital markets in a variety of currencies and structures. This program replaced the $15 billion program established in April 2001. Under this program, WMBFA will be allowed to issue up to $15 billion in notes, of which $5 billion can be issued as subordinated notes subject to regulatory approval. WMB will be allowed to issue up to $5 billion in senior notes. The maximum aggregate principal amount of notes with maturities greater than 270 days from the date of issue offered by WMBFA may not exceed $7.5 billion.

Washington Mutual, Inc. and Non-banking Subsidiaries

Liquidity for Washington Mutual, Inc. is generated through its ability to raise funds in various capital markets and through dividends from subsidiaries, commercial paper programs and lines of credit.

Washington Mutual, Inc.’s primary funding source during the first nine months of 2003 was from dividends paid by our banking subsidiaries. Although we expect Washington Mutual, Inc. to continue to receive banking subsidiary dividends during the fourth quarter of 2003, various regulatory requirements related to capital adequacy and retained earnings limit the amount of dividends that can be paid by our banking subsidiaries. For more information on dividend restrictions applicable to our banking subsidiaries, refer to the Company’s 2002 Annual Report on Form 10-K, “Business - Regulation and Supervision” and Note 18 to the Consolidated Financial Statements – “Regulatory Capital Requirements and Dividend Restrictions.”

In February 2003, Washington Mutual, Inc. filed a shelf registration statement with the Securities and Exchange Commission to register $2 billion of debt securities, preferred stock and depositary shares in the United States and in international capital markets in a variety of currencies and structures. The shelf registration statement was declared effective on April 15, 2003. At September 30, 2003, Washington Mutual, Inc. had $2 billion available under this shelf registration. Subsequently, in November 2003, Washington Mutual, Inc. issued $1.65 billion of fixed- and adjustable-rate debt securities. As a result, Washington Mutual, Inc. has $350 million available for issuance under this shelf registration statement.

In addition, in October 2003, Washington Mutual, Inc. filed with the Securities and Exchange Commission an additional shelf registration statement under which Washington Mutual, Inc. will be permitted to issue in the United States and in international capital markets in a variety of currencies and structures up to $5 billion of debt securities, preferred stock and depositary shares. This registration statement became effective in November 2003.

Washington Mutual, Inc. and its non-banking subsidiaries also have various other credit facilities and agreements that are sources of liquidity, including a revolving credit facility totaling $800 million which provides back-up for certain commercial paper programs of Washington Mutual, Inc. and Washington Mutual Finance as well as funds for general corporate purposes. The borrowing capacity of the revolving credit facility is reduced by the amount of unsecured commercial paper outstanding. At September 30, 2003, there was $373 million available under this facility. Additionally, Washington Mutual Finance has agreements to participate in a $600 million asset-backed commercial paper conduit program. At September 30, 2003, the full amount of this program was outstanding. Long Beach Mortgage has revolving credit facilities with non-affiliated lenders totaling $1.5 billion that are used to fund loans held for sale. At September 30, 2003, Long Beach had borrowed $1.2 billion under these credit facilities.

Capital Adequacy

Reflecting the increases in loans held in portfolio and other assets during the nine months ended September 30, 2003, the ratio of stockholders’ equity to total assets decreased from 7.48% at December 31, 2002 to 7.13% at September 30, 2003.

The regulatory capital ratios of WMBFA, WMB and Washington Mutual Bank fsb (“WMBfsb”) and the minimum regulatory ratios to be categorized as well-capitalized were as follows:

	September 30, 2003						Well-Capitalized Minimum
	WMBFA		WMB		WMBfsb		Well-Capitalized Minimum
Tier 1 capital to adjusted total assets (leverage)	5.38	%	5.10	%	9.81	%	5.00	%
Adjusted tier 1 capital to total risk-weighted assets	8.95		8.63		15.63		6.00
Total risk-based capital to total risk-weighted assets	11.14		10.82		16.88		10.00

Our federal savings bank subsidiaries, WMBFA and WMBfsb, are also required by Office of Thrift Supervision regulations to maintain tangible capital of at least 1.50% of assets. WMBFA and WMBfsb both satisfied this requirement at September 30, 2003.

Our broker-dealer subsidiaries are also subject to capital requirements. At September 30, 2003, both of our broker-dealer subsidiaries were in compliance with their applicable capital requirements.

During the three and nine months ended September 30, 2003, the Company repurchased 11.6 million and 37.2 million shares of our common stock at an average price of $39.25 and $38.45 per share as part of our share repurchase program. Effective July 15, 2003, the Company adopted a new share repurchase program approved by the Board of Directors. Under the new program, the Company is authorized to repurchase up to 100 million shares of its common stock, as conditions warrant. This Program replaces the Company’s previous share repurchase program. From October 1, 2003 through October 31, 2003, the Company repurchased an additional 6.2 million shares. Management may engage in future share repurchases as liquidity conditions permit and market conditions warrant.

Market Risk Management

Market risk is defined as the sensitivity of income, fair market values and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices. The primary market risk to which we are exposed is interest rate risk. Substantially all of our interest rate risk arises from instruments, positions and transactions entered into for purposes other than trading. They include loans, MSR, securities, deposits, borrowings, long-term debt and derivative financial instruments.

We are exposed to different types of interest rate risks, including lag, repricing, basis, prepayment and lifetime cap risk. These risks are described in further detail within the “Market Risk Management” section of Management’s Discussion and Analysis in our 2002 Annual Report on Form 10-K. We manage interest rate risk within an overall asset/liability management framework. The principal objective of our asset/liability management is to manage the sensitivity of net income to changing interest rates. Asset/liability management is governed by a policy reviewed and approved annually by our Board. The Board has delegated the oversight of the administration of this policy to the Finance Committee of the Board of Directors.

Management of Interest Rate Risk

We manage our balance sheet to mitigate the impact of changes in market interest rates on net income and changes in the fair value of MSR. Key components of our balance sheet strategy include the origination and retention of short-term and adjustable-rate assets and certain hybrid adjustable-rate mortgage loans, the

origination and sale of most fixed-rate mortgage loans, the management of our MSR and deposit and borrowing portfolios. We may also modify our interest rate risk profile with interest rate contracts, including embedded derivatives and forward commitments.

Overall, we believe our risk management program will minimize net income sensitivity under most interest rate environments. However, the success of this program is dependent on the judgments we make regarding the direction and timing of changes in interest rates and the amount and mix of risk management instruments that we believe are appropriate to manage our interest rate risk. Our net income could be adversely affected if we are unable to effectively implement, execute or manage this strategy.

Asset/Liability Risk Management

The interest rate contracts that are classified as asset/liability risk management instruments are intended to assist in the management of our net interest income. These contracts are often used to modify the repricing period of our interest-bearing funding with the intention of reducing the volatility of changes in net interest income. The types of contracts used for this purpose consist of interest rate swaps, interest rate corridors, payor swaptions and certain derivatives that are embedded in borrowings. The aggregate notional amount of these contracts totaled $31.61 billion at September 30, 2003.

The pay-fixed swaps, interest rate corridors, payor swaptions and embedded pay-fixed swaps, caps and payor swaptions are intended to assist in reducing the sensitivity of the net interest margin to changes in interest rates. The payor swaptions and embedded payor swaptions are exercisable upon maturity in September 2005 and February 2004. None of the interest rate corridors had strike rates that were in the money at September 30, 2003. We also use receive-fixed swaps as part of our asset/liability risk management strategy to help us modify the repricing characteristics of certain long-term liabilities to match those of our assets. Typically, these are swaps of long-term fixed-rate debt to a short-term adjustable-rate which more closely resembles our asset repricing characteristics.

MSR Risk Management

As part of our overall approach to interest rate risk management, we manage potential impairment in the fair value of MSR and increased amortization levels of MSR by a comprehensive risk management program. Our intent is to offset the changes in fair value and higher amortization levels of MSR with changes in the fair value of risk management instruments. The risk management instruments include interest rate contracts, forward purchase commitments and available-for-sale securities. The goal is to offset decreases (increases) in the fair value of MSR with increases (decreases) in the fair value of the forward purchase commitments, interest rate contracts and available-for-sale securities.

The available-for-sale securities generally consist of fixed-rate debt securities, such as U.S. Government and agency bonds and mortgage-backed securities, including principal-only strips. The interest rate contracts typically consist of interest rate swaps and swaptions and interest rate floors. From time to time, we may choose to embed interest rate contracts into our borrowing instruments, such as repurchase agreements. The forward purchase commitments generally consist of agreements to purchase 15- and 30-year fixed-rate mortgage-backed securities.

As derivatives, the interest rate swaps, swaptions, stand alone interest rate floors and forward commitments receive mark-to-market accounting treatment. Changes in the fair value of instruments that manage MSR fair value changes are recorded as components of noninterest income.

We adjust the mix of instruments used to manage MSR fair value changes as interest rates and market conditions warrant. The intent is to maintain an efficient and fairly liquid mix as well as a diverse portfolio of risk management instruments with broad maturity ranges. We may elect to increase or decrease our concentration of specific instruments during certain times based on market conditions. We believe this approach will result in

the most efficient strategy. However, our net income could be adversely affected if we are unable to effectively implement, execute or manage this strategy.

The mix of instruments is predicated, in part, on the requirement of lower of cost or market accounting treatment for MSR, whereby each MSR stratum is recorded at its fair value unless the fair value exceeds the amortized cost. This could result in increases in the fair value of MSR that are not marked-to-market through earnings. Therefore, management may elect to decrease the emphasis on risk management instruments accorded mark-to-market accounting treatment in periods in which the fair value of MSR significantly exceeds its amortized cost.

We also manage the size and risk profile of the MSR asset. Depending on market conditions and our desire to expand customer relationships, we may periodically sell or purchase servicing rights. We also may structure loan sales to reduce the size of the MSR asset.

Other Mortgage Banking Risk Management

We also manage the risks associated with our mortgage warehouse and pipeline. The mortgage warehouse consists of fixed-rate and, to a lesser degree, adjustable-rate home loans to be sold in the secondary market. The pipeline consists of commitments to originate or purchase fixed-rate and, to a lesser degree, adjustable-rate home loans to be sold in the secondary market. The risk associated with the mortgage pipeline and warehouse is the potential change in interest rates between the time the customer locks in the rate on the loan and the time the loan is sold. Generally, loans held for sale are sold within 60 to 120 days after the initial recognition of the rate lock commitment.

To manage the warehouse and pipeline risks, we execute forward sales commitments, interest-rate contracts, mortgage option contracts and interest rate futures. A forward sales commitment protects us in a rising interest rate environment, since the sales price and delivery date are already established. A forward sales commitment is different, however, from an option contract in that we are obligated to deliver the loan to the third party on the agreed-upon future date. We also consider the fallout factor, which represents the percentage of loans that are not expected to close, when determining the appropriate amount of forward sales commitments.

During the third quarter we enhanced the risk management of the expected servicing component of the warehouse and pipeline. This contributed to a change in the instruments used for other mortgage banking risk management. The risk management instruments utilized include forward commitments and interest-rate contracts. The goal is identical to the MSR risk management program, which is to offset decreases (increases) in the fair value of the MSR servicing component with the increases (decreases) in the fair value of the risk management instruments.

September 30, 2003 and December 31, 2002 Sensitivity Comparison

To analyze net income sensitivity, we project net income over a twelve month horizon based on parallel shifts in the yield curve. Management employs other analyses and interest rate scenarios to evaluate interest rate risk. For example, we project net income and net interest income under a variety of interest rate scenarios, including immediate parallel shifts in the yield curve, non-parallel shifts in the yield curve and more extreme non-parallel rising and falling interest rate environments. These additional scenarios also address the risk exposure over longer periods of time. They also capture the net income and net interest income sensitivity due to changes in the slope of the yield curve and changes in the spread between Treasury and LIBOR rates. The Company’s net income and net interest income sensitivity analysis methodologies are described in further detail within the “Market Risk Management” section of Management’s Discussion and Analysis in our 2002 Annual Report on Form 10-K.

The table below indicates the sensitivity of net income and net interest income to interest rate movements. The comparative scenarios assume a parallel shift in the yield curve with interest rates rising 200 basis points in even quarterly increments over the twelve month periods ending September 30, 2004 and December 31, 2003 and interest rates decreasing by 50 basis points in even quarterly increments over the first six months of the twelve month periods.

	Gradual Change in Rates
	-50 basis points		+200 basis points
Net income change for the one-year period beginning:
October 1, 2003	0.40	%	(5.96	)%
January 1, 2003	5.11		3.90
Net interest income change for the one-year period beginning:
October 1, 2003	0.51		(7.17	)
January 1, 2003	2.11		(5.71	)

The projected increase in net income in the -50 basis point scenario in the October 1 analysis was less than in the January 1 analysis due to a reduction in the anticipated increase in net interest income as well as a decrease in projected income resulting from changes in the fair value of the MSR and the MSR risk management instruments. MSR impairment was mostly offset by changes in the fair value of the MSR risk management instruments in the October 1 projection whereas changes in the fair value of the MSR risk management instruments exceeded the MSR impairment in the January 1 projection. The projected change in MSR income was due to changes in the profile of the MSR and the composition of the MSR risk management portfolio. The change in net interest income was due to modest decreases in the expansion of the net interest margin and increased balance sheet shrinkage.

The change in the net income sensitivity in the +200 basis point environment was due to an increase in the deterioration in net interest income as well as a decrease in projected income resulting from changes in the fair value of the MSR and the MSR risk management instruments. The recovery of MSR valuation reserves was mostly offset by changes in the fair value of the MSR risk management instruments in the October 1 projection whereas changes in the recovery of the MSR valuation reserves exceeded changes in the fair value of the MSR risk management instruments in the January 1 projection. The projected change in MSR income was due to changes in the profile of the MSR and the composition of the MSR risk management portfolio. Net interest income deteriorated from the levels in the January 1, 2003 analysis in the +200 basis point scenario mainly due to reductions in interest-earning assets. The reduction in interest-earning assets was mainly due to the projected decline in the loans held for sale balances.

Maturity and Repricing Information

We use interest rate risk management contracts and available-for-sale securities as tools to manage our interest rate risk profile. The following tables summarize the key contractual terms associated with these contracts and available-for-sale securities. Interest rate risk management contracts that are embedded within certain adjustable- and fixed-rate borrowings, while not accounted for as derivatives under Statement No. 133, have been included in the tables since they also function as interest rate risk management tools. Substantially all of the pay-fixed swaps, receive-fixed swaps, payor swaptions, receiver swaptions, floors and embedded derivatives at September 30, 2003 are indexed to three-month LIBOR.

The following estimated net fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies:

	September 30, 2003
	Maturity Range
	Net Fair Value			Total Notional Amount			2003			2004			2005			2006			2007			After 2007
	(dollars in millions)
Interest Rate Risk Management Contracts:
Asset/Liability Risk Management
Pay-fixed swaps:	$	(953	)
Contractual maturity				$	22,158		$	902		$	8,834		$	3,169		$	4,708		$	3,700		$	845
Weighted average pay rate					4.28	%		3.03	%		4.03	%		4.10	%		4.39	%		5.02	%		4.87	%
Weighted average receive rate					1.14	%		1.12	%		1.13	%		1.13	%		1.18	%		1.12	%		1.12	%
Receive-fixed swaps:		521
Contractual maturity				$	5,570		$	530		$	200		$	530		$	1,000			-		$	3,310
Weighted average pay rate					1.08	%		1.01	%		1.33	%		0.71	%		1.13	%		-			1.11	%
Weighted average receive rate					5.79	%		5.09	%		6.75	%		5.37	%		6.81	%		-			5.61	%
Interest rate corridors:		-
Contractual maturity				$	344		$	90		$	191		$	63			-			-			-
Weighted average strike rate – long cap					7.86	%		8.63	%		8.14	%		5.94	%		-			-			-
Weighted average strike rate – short cap					9.12	%		9.50	%		9.48	%		7.44	%		-			-			-
Payor swaptions ⁽¹⁾ :		1
Contractual maturity (option)				$	41			-			-		$	41			-			-			-
Weighted average strike rate					5.89	%		-			-			5.89	%		-			-			-
Contractual maturity (swap)					-			-			-			-			-			-		$	41
Weighted average pay rate					-			-			-			-			-			-			5.89	%
Embedded pay-fixed swaps:		(130	)
Contractual maturity				$	2,500			-			-			-			-		$	2,500			-
Weighted average pay rate					4.09	%		-			-			-			-			4.09	%		-
Weighted average receive rate					1.11	%		-			-			-			-			1.11	%		-
Embedded caps:		-
Contractual maturity				$	500			-		$	500			-			-			-			-
Weighted average strike rate					7.75	%		-			7.75	%		-			-			-			-
Embedded payor swaptions ⁽¹⁾ :		-
Contractual maturity (option)				$	500			-		$	500			-			-			-			-
Weighted average strike rate					6.21	%		-			6.21	%		-			-			-			-
Contractual maturity (swap)					-			-			-			-			-			-		$	500
Weighted average pay rate					-			-			-			-			-			-			6.21	%

Total asset/liability risk management	$	(561	)	$	31,613

⁽¹⁾	Interest rate swaptions are only exercisable upon maturity.

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	September 30, 2003
	Maturity Range
	Net Fair Value			Total Notional Amount			2003		2004			2005			2006		2007		After 2007
	(dollars in millions)
Interest Rate Risk Management Contracts:
Other Mortgage Banking Risk Management
Forward purchase commitments:	$	415
Contractual maturity				$	26,777		$	26,777		-			-			-		-		-
Weighted average price					100.76			100.76		-			-			-		-		-
Forward sales commitments:		(1,377	)
Contractual maturity				$	57,804		$	57,804		-			-			-		-		-
Weighted average price					100.74			100.74		-			-			-		-		-
Interest rate futures:		-
Contractual maturity				$	120		$	21	$	54		$	32		$	12	$	1		-
Weighted average price					97.95			98.86		98.54			97.14			96.14		95.47		-
Mortgage put options:		5
Contractual maturity				$	5,890		$	5,890		-			-			-		-		-
Weighted average strike price					98.14			98.14		-			-			-		-		-
Receive-fixed swaps:		121
Contractual maturity				$	2,550			-		-			-			-		-	$	2,550
Weighted average pay rate					1.14	%		-		-			-			-		-		1.14	%
Weighted average receive rate					4.90	%		-		-			-			-		-		4.90	%
Floors ⁽²⁾ :		1
Contractual maturity				$	250			-		-		$	250			-		-		-
Weighted average strike rate					1.56	%		-		-			1.56	%		-		-		-
Payor swaptions:		50
Contractual maturity (option)				$	2,850			-	$	1,050		$	1,800			-		-		-
Weighted average strike rate					6.39	%		-		5.94	%		6.65	%		-		-		-
Contractual maturity (swap)					-			-		-			-			-		-	$	2,850
Weighted average pay rate					-			-		-			-			-		-		6.39	%
Receiver swaptions:		24
Contractual maturity (option)				$	500			-	$	500			-			-		-		-
Weighted average strike rate					5.09	%		-		5.09	%		-			-		-		-
Contractual maturity (swap)					-			-		-			-			-		-	$	500
Weighted average receive rate					-			-		-			-			-		-		5.09	%

Total other mortgage banking risk management	$	(761	)	$	96,741

⁽²⁾	At September 30, 2003, none of these floors were effective. These contracts will become effective during December 2003.

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	September 30, 2003
	Maturity Range
	Net Fair Value			Total Notional Amount			2003		2004			2005			2006			2007	After 2007
	(dollars in millions)
Interest Rate Risk Management Contracts:
MSR Risk Management
Receive-fixed swaps:	$	467
Contractual maturity				$	24,627			-	$	243		$	8,100		$	200		-	$	16,084
Weighted average pay rate					1.13	%		-		1.11	%		1.12	%		1.14	%	-		1.13	%
Weighted average receive rate					3.75	%		-		5.34	%		1.96	%		5.20	%	-		4.61	%
Constant maturity mortgage swaps:		1
Contractual maturity				$	100			-		-			-			-		-	$	100
Weighted average pay rate					4.76	%		-		-			-			-		-		4.76	%
Weighted average receive rate					6.08	%		-		-			-			-		-		6.08	%
Floors ⁽³⁾ :		171
Contractual maturity				$	4,600			-		-			-			-		-	$	4,600
Weighted average strike rate					3.18	%		-		-			-			-		-		3.18	%
Payor swaptions:		93
Contractual maturity (option)				$	8,000			-	$	2,500		$	5,500			-		-		-
Weighted average strike rate					6.93	%		-		6.40	%		7.18	%		-		-		-
Contractual maturity (swap)					-			-		-			-			-		-	$	8,000
Weighted average strike rate					-			-		-			-			-		-		6.93	%
Forward purchase commitments:		344
Contractual maturity				$	11,460		$	11,460		-			-			-		-		-
Weighted average price					97.09			97.09		-			-			-		-		-

Total MSR risk management	$	1,076		$	48,787

Total interest rate risk management contracts	$	(246	)	$	177,141

⁽³⁾	At September 30, 2003, none of these floors were effective. These contracts will become effective during January 2004.

	September 30, 2003
	Amortized Cost		Net Unrealized Gain/Loss			Fair Value
	(dollars in millions)
Available-For-Sale Securities:
MSR Risk Management
Mortgage-backed securities ⁽⁴⁾ :
U.S. Government and agency	$	549	$	(7	)	$	542
Investment securities ⁽⁴⁾ :
U.S. Government and agency		6,281		(34	)		6,247

Total MSR risk management	$	6,830	$	(41	)	$	6,789

⁽⁴⁾	Mortgage-backed securities and investment securities mature after 2007.

	December 31, 2002
	Maturity Range
	Net Fair Value			Total Notional Amount			2003			2004			2005			2006			2007			After 2007
	(dollars in millions)
Interest Rate Risk Management Contracts:
Asset/Liability Risk Management
Pay-fixed swaps:	$	(1,143	)
Contractual maturity				$	29,742		$	8,416		$	8,834		$	3,210		$	4,709		$	3,700		$	873
Weighted average pay rate					3.92	%		2.92	%		4.03	%		4.09	%		4.39	%		5.02	%		4.68	%
Weighted average receive rate					1.56	%		1.56	%		1.53	%		1.57	%		1.58	%		1.66	%		1.37	%
Receive-fixed swaps:		591
Contractual maturity				$	5,905		$	825		$	200		$	530		$	1,000			-		$	3,350
Weighted average pay rate					1.39	%		1.21	%		1.65	%		0.90	%		1.40	%		-			1.49	%
Weighted average receive rate					5.81	%		5.40	%		6.75	%		5.37	%		6.81	%		-			5.62	%
Interest rate caps:		-
Contractual maturity				$	181		$	181			-			-			-			-			-
Weighted average strike rate					7.13	%		7.13	%		-			-			-			-			-
Interest rate corridors:		-
Contractual maturity				$	345		$	90		$	191		$	64			-			-			-
Weighted average strike rate – long cap					7.86	%		8.63	%		8.14	%		5.94	%		-			-			-
Weighted average strike rate – short cap					9.11	%		9.50	%		9.48	%		7.44	%		-			-			-
Payor swaptions ⁽¹⁾ :		-
Contractual maturity (option)				$	5,000		$	5,000			-			-			-			-			-
Weighted average strike rate					6.12	%		6.12	%		-			-			-			-			-
Contractual maturity (swap)					-			-			-			-		$	1,000		$	750		$	3,250
Weighted average pay rate					-			-			-			-			6.05	%		6.26	%		6.11	%
Embedded pay-fixed swaps:		(207	)
Contractual maturity				$	2,750			-			-			-			-		$	2,750			-
Weighted average pay rate					4.73	%		-			-			-			-			4.73	%		-
Weighted average receive rate					1.74	%		-			-			-			-			1.74	%		-
Embedded caps:		-
Contractual maturity				$	641		$	141		$	500			-			-			-			-
Weighted average strike rate					7.64	%		7.25	%		7.75	%		-			-			-			-
Embedded payor swaptions ⁽¹⁾ :		4
Contractual maturity (option)				$	6,400		$	5,900		$	500			-			-			-			-
Weighted average strike rate					6.14	%		6.13	%		6.21	%		-			-			-			-
Contractual maturity (swap)					-			-			-			-		$	3,750			-		$	2,650
Weighted average pay rate					-			-			-			-			5.99	%		-			6.34	%

Total asset/liability risk management	$	(755	)	$	50,964

⁽¹⁾	Interest rate swaptions are only exercisable upon maturity.

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	December 31, 2002
	Maturity Range
	Net Fair Value			Total Notional Amount			2003			2004			2005			2006			2007			After 2007
	(dollars in millions)
Interest Rate Risk Management Contracts:
Other Mortgage Banking Risk Management
Forward purchase commitments:	$	101
Contractual maturity				$	10,193		$	10,193			-			-			-			-			-
Weighted average price					102.38			102.38			-			-			-			-			-
Forward sales commitments:		(662	)
Contractual maturity				$	41,238		$	41,238			-			-			-			-			-
Weighted average price					102.34			102.34			-			-			-			-			-
Mortgage put options:		7
Contractual maturity				$	7,150		$	7,150			-			-			-			-			-
Weighted average strike price					99.28			99.28			-			-			-			-			-

Total other mortgage banking risk management	$	(554	)	$	58,581

MSR Risk Management
Pay-fixed swaps:	$	(50	)
Contractual maturity				$	2,903			-			-			-			-		$	1,950		$	953
Weighted average pay rate					3.77	%		-			-			-			-			3.41	%		4.52	%
Weighted average receive rate					1.41	%		-			-			-			-			1.40	%		1.42	%
Receive-fixed swaps:		2,176
Contractual maturity				$	17,915			-		$	561		$	500		$	700		$	1,250		$	14,904
Weighted average pay rate					1.57	%		-			1.80	%		1.41	%		1.42	%		1.50	%		1.58	%
Weighted average receive rate					5.65	%		-			4.35	%		4.54	%		5.31	%		4.33	%		5.86	%
Floors ⁽²⁾ :		249
Contractual maturity				$	3,900			-			-			-			-		$	3,900			-
Weighted average strike rate					6.09	%		-			-			-			-			6.09	%		-
Receiver swaptions:		415
Contractual maturity (option)				$	4,000		$	300		$	800		$	2,900			-			-			-
Weighted average strike rate					6.21	%		5.42	%		5.73	%		6.43	%		-			-			-
Contractual maturity (swap)					-			-			-			-			-			-		$	4,000
Weighted average receive rate					-			-			-			-			-			-			6.21	%
Forward purchase commitments:		236
Contractual maturity				$	13,250		$	13,250			-			-			-			-			-
Weighted average price					100.35			100.35			-			-			-			-			-

Total MSR risk management	$	3,026		$	41,968

Total interest rate risk management contracts	$	1,717		$	151,513

⁽²⁾	At December 31, 2002, none of these floors were effective. These contracts became effective during May and July 2003.

	December 31, 2002
	Amortized Cost		Net Unrealized Gain/Loss		Fair Value
	(dollars in millions)
Available-For-Sale Securities:
MSR Risk Management
Mortgage-backed securities ⁽³⁾ :
U.S. Government and agency	$	583	$	20	$	603
Investment securities ⁽³⁾ :
U.S. Government and agency		7,268		212		7,480

Total MSR risk management	$	7,851	$	232	$	8,083

⁽³⁾	Mortgage-backed securities and investment securities mature after 2007.

Derivative Counterparty Credit Risk

Derivative financial instruments 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. Credit risk related to derivative financial instruments is considered and provided for separately from the allowance for loan and lease losses. The Company manages the credit risk associated with its various derivative agreements through counterparty credit review, counterparty exposure limits and monitoring procedures. With the exception of forward purchase and sales commitments, the Company obtains collateral from the counterparties for amounts in excess of the exposure limits and monitors its exposure and collateral requirements on a daily basis. The fair value of collateral received from a counterparty is continually monitored and the Company may request additional collateral from counterparties or return collateral pledged as deemed appropriate. The Company’s agreements generally include master netting agreements whereby the counterparties are entitled to settle their positions “net.” At September 30, 2003 and December 31, 2002, the Company’s credit risk related to derivative financial instruments, net of the effects of collateral and master netting agreements, was $430 million and $780 million.

Gap Report

A historical view of interest rate sensitivity for savings institutions is the gap report, which indicates the difference between assets maturing or repricing within a period and total liabilities maturing or repricing within the same period. In assigning assets to maturity and repricing categories, we consider expected prepayment speeds and amortization of principal rather than contractual maturities. The analysis excludes reinvestment of cash. Prepayment assumptions are based on internal projections based on an analysis of market prepayment estimates and past experience with our current loan and mortgage-backed securities portfolios. The majority of our transaction deposits are not contractually subject to repricing. Therefore, these instruments have been allocated based on expected decay rates and/or repricing intervals. Certain transaction deposits that reprice based on a market index or which typically have frequent repricing intervals are allocated to the repricing or maturity buckets based on the expected repricing period. Non-rate sensitive items such as the reserve for loan losses, mark-to-market adjustments, premiums and discounts and deferred loan fees/costs are not included in the table. Loans held for sale are included in the 0-3 months category. In addition, MSR interest rate risk management contracts are excluded from the analysis.

The gap information is limited by the fact that it is a point-in-time analysis. The data reflects conditions and assumptions as of September 30, 2003. These conditions and assumptions may not be appropriate at another point in time. The analysis is also subject to the accuracy of various assumptions used, particularly the prepayment and decay rate projections, the expected repricing period of certain deposits and the allocation of instruments with optionality to a specific maturity category, especially interest rate contracts. Consequently, the interpretation of the gap information is subjective.

	September 30, 2003
	Projected Repricing
	0-3 months			4-12 months			1-5 years			Thereafter			Total
	(dollars in millions)
Interest-Sensitive Assets
Adjustable-rate loans ⁽¹⁾	$	87,898		$	24,930		$	28,755		$	175		$	141,758
Fixed-rate loans ⁽¹⁾		25,923			6,923			13,607			3,271			49,724
Adjustable-rate securities ⁽¹⁾ ⁽²⁾		15,553			134			-			-			15,687
Fixed-rate securities ⁽¹⁾		1,347			763			11,902			11,092			25,104
Cash and cash equivalents, federal funds sold and securities purchased under resale agreements		5,823			-			-			-			5,823
Derivatives matched against assets		516			-			(154	)		(362	)		-

	$	137,060		$	32,750		$	54,110		$	14,176		$	238,096

Interest-Sensitive Liabilities
Noninterest-bearing deposits ⁽³⁾	$	1,429		$	6,362		$	19,500		$	11,906		$	39,197
Interest-bearing checking accounts, savings accounts and money market deposit accounts ⁽³⁾		23,081			15,242			35,481			20,350			94,154
Interest-bearing time deposit accounts		9,583			10,541			9,520			1,145			30,789
Short-term and adjustable-rate borrowings		64,072			968			52			257			65,349
Long-term fixed-rate borrowings		1,420			2,371			8,184			5,037			17,012
Derivatives matched against liabilities		(23,770	)		5,608			15,152			3,010			-

	$	75,815		$	41,092		$	87,889		$	41,705		$	246,501

Repricing gap	$	61,245		$	(8,342	)	$	(33,779	)	$	(27,529	)	$	(8,405	)

Cumulative gap	$	61,245		$	52,903		$	19,124		$	(8,405	)	$	(8,405	)

Cumulative gap as a percentage of total assets		21.37	%		18.46	%		6.67	%		(2.93	)%		(2.93	)%
Total assets													$	286,631

⁽¹⁾	Based on scheduled maturity or scheduled repricing and estimated prepayments of principal.

⁽²⁾	Includes investment in FHLBs.

⁽³⁾	Based on projected decay rates and/or repricing periods for checking, savings and money market deposit accounts.

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

See Index of Exhibits on page 61.

(b) Reports on Form 8-K

1. The Company filed a report on Form 8-K dated July 15, 2003, under Item 9. The report included a press release reporting Washington Mutual’s results of operations for the second quarter ended June 30, 2003.

2. The Company filed a report on Form 8-K dated September 9, 2003, under Item 9. The report included a presentation given by Kerry K. Killinger, Chairman, President and Chief Executive Officer of Washington Mutual, Inc. at the Lehman Brothers 2003 Financial Services Conference.

3. The Company filed a report on Form 8-K dated September 9, 2003, under Item 9. The report included a transcript of the Lehman Brothers 2003 Financial Services Conference presented by Kerry K. Killinger, Chairman, President and Chief Executive Officer of Washington Mutual, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 13, 2003.

W ASHINGTON M UTUAL , I NC .

By:		/s/ T HOMAS W. C ASEY
		Thomas W. Casey Executive Vice President and Chief Financial Officer

By:		/s/ R OBERT H. M ILES
		Robert H. Miles Senior Vice President and Controller (Principal Accounting Officer)

WASHINGTON MUTUAL, INC.

INDEX OF EXHIBITS

Exhibit No.

3.1		Restated Articles of Incorporation of Washington Mutual, Inc., 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. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. File No. 001-14667).

3.3		Restated Bylaws of Washington Mutual, Inc., as amended (filed herewith).

4.1		Rights Agreement dated December 20, 2000 between Washington Mutual, Inc. and Mellon Investor Services, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed January 8, 2001. File No. 0-25188).

4.2		Washington Mutual, Inc. will furnish upon request copies of all instruments defining the rights of holders of long-term debt instruments of Washington Mutual, Inc. and its consolidated subsidiaries.

4.3		Warrant Agreement dated as of April 30, 2001. (Incorporated by reference to the Company’s Registration Statement on Form S-3. File No. 333-63976).

4.4		2003 Amended and Restated Warrant Agreement, dated March 11, 2003 by and between Washington Mutual, Inc. and Mellon Investor Services LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K, dated March 12, 2003. File No. 001-14667).

10.1		Executive Separation and Release Agreement, (filed herewith).

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

99.1		Computation of Ratios of Earnings to Fixed Charges (filed herewith).

99.2		Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends (filed herewith).

Exhibit 3.3

RESTATED ¹

BYLAWS

WASHINGTON MUTUAL, INC.

ARTICLE I

OFFICES

The principal office and place of business of the corporation in the state of Washington shall be located at 1201 Third Avenue, Seattle, Washington 98101.

The corporation may have such other offices within or without the state of Washington as the board of directors may designate or the business of the corporation may require from time to time.

ARTICLE II

NUMBER OF DIRECTORS

The board of directors of this corporation shall consist of sixteen (16) directors.

ARTICLE III

SHAREHOLDERS

Section 3.1. Annual Meeting . The annual meeting of the shareholders shall be held on the third Tuesday in the month of April in each year, beginning with the year 1995, at 10:00 a.m., or at such other date or time as may be determined by the board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state of Washington, the meeting shall be held on the next succeeding business day. If the election of directors is not held on the day designated herein for any annual meeting of the shareholders or at any adjournment thereof, the board of directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient.

Section 3.2. Special Meetings . Special meetings of the shareholders for any purpose or purposes unless otherwise prescribed by statute may be called by the board of directors or by the written request of holders of at least twenty-five percent (25%) of the votes entitled to be cast on each issue to be considered at the special meeting.

¹	Reflects amendments adopted by the Board of Directors through and including the June 2003 meeting of the Board of Directors.

Section 3.3. Place of Meetings . Meetings of the shareholders shall be held at either the principal office of the corporation or at such other place within or without the state of Washington as the person or persons calling the meeting may designate.

Section 3.4. Fixing of Record Date . For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, which date in any case shall not be more than seventy (70) days and, in the case of a meeting of shareholders, not less than 20 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend or distribution, the day before the first notice of a meeting is dispatched to shareholders or the date on which the resolution of the board of directors authorizing such dividend or distribution is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting.

The record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent in lieu of meeting.

Section 3.5. Voting Lists . At least ten (10) days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the corporation shall prepare an alphabetical list of all its shareholders on the record date who are entitled to vote at the meeting or any adjournment thereof, arranged by voting group, and within each voting group by class or series of shares, with the address of and the number of shares held by each, which record for a period of ten (10) days prior to the meeting shall be kept on file at the principal office of the corporation or at a place identified in the meeting notice in the city where the meeting will be held. Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder, shareholder’s agent or shareholder’s attorney at any time during the meeting or any adjournment thereof. Failure to comply with the requirements of this bylaw shall not affect the validity of any action taken at the meeting.

Section 3.6. Notice of Meetings . Notice, in tangible written or printed form, in electronic form, or in any other form then allowed under the Washington Business Corporations Act or other applicable law, stating the date, time and place of a meeting of

shareholders and, in the case of a special meeting of shareholders, the purpose or purposes for which the meeting is called, shall be given by the person or persons calling the meeting or by the Secretary of the corporation at the direction of such person or persons to each shareholder of record entitled to vote at such meeting (unless required by law to send notice to all shareholders regardless of whether or not such shareholders are entitled to vote), not less than ten (10) days and not more than sixty (60) days before the meeting, except that notice of a meeting to act on an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange or other disposition of all or substantially all of the assets of the corporation other than in the usual course of business, or the dissolution of the corporation shall be given not less than twenty (20) days and not more than sixty (60) days before the meeting. Written notice may be transmitted by: mail, private carrier or personal delivery; telegraph or teletype; or telephone, wire or wireless equipment which transmits a facsimile of the notice. Such notice shall be effective upon dispatch if sent to the shareholder’s address, telephone number, or other number appearing on the records of the corporation.

Only such business shall be conducted at a special meeting of shareholders as shall be specified in the applicable notice of meeting given pursuant to this Section 3.6. If an annual or special shareholders’ meeting is adjourned or postponed to a different date, time or place, notice need not be given of the new date, time or place of the adjourned or postponed meeting if the new date, time or place is announced at the meeting before adjournment or postponement unless a new record date is or, under the Washington Business Corporation Act or other applicable law, must be fixed. If a new record date for the adjourned or postponed meeting is or, under the Washington Business Corporation Act or other applicable law, must be fixed, however, notice of the adjourned or postponed meeting must be given to persons who are shareholders as of the new record date.

Section 3.7. Waiver of Notice . A shareholder may waive any notice required to be given under the provisions of these bylaws, the articles of incorporation or by applicable law, whether before or after the date and time stated therein. A valid waiver is created by any of the following three methods: (a) in writing signed by the shareholder entitled to the notice and delivered to the corporation for inclusion in its corporate records; (b) by attendance at the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; or (c) by failure to object at the time of presentation of a matter not within the purpose or purposes described in the meeting notice.

Section 3.8. Manner of Acting; Proxies . A shareholder may vote either in person or by proxy. A shareholder may vote by proxy by means of a proxy appointment form which is executed by the shareholder, his agent, or by his duly authorized attorney-in-fact. All proxy appointment forms shall be filed with the secretary of the corporation before or at the commencement of meetings. No unrevoked proxy appointment form shall be valid after eleven (11) months from the date of its execution unless otherwise expressly provided in the appointment form. No proxy appointment may be effectively revoked until notice of such revocation has been given to the secretary of the corporation by the shareholder appointing the proxy. Any proxy appointment or any revocation of a

proxy appointment may be executed in tangible written form, may be by means of an electric transmission or may be by any other means then allowed by the Washington Business Corporations Act or other applicable law.

Section 3.9. Quorum . At any meeting of the shareholders, a majority in interest of all the shares entitled to vote on a matter by the voting group, represented in person or by proxy by shareholders of record, shall constitute a quorum of that voting group for action on that matter. Once a share is represented at a meeting, other than to object to holding the meeting or transacting business, it is deemed to be present for purposes of a quorum for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be fixed for the adjourned meeting. At such reconvened meeting, any business may be transacted which might have been transacted at the adjourned meeting. If a quorum exists, action on a matter is approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the question is one upon which a different vote is required by express provision of law or of the articles of incorporation or of these bylaws.

Section 3.10. Voting of Shares . Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except as may be otherwise provided in the articles of incorporation.

Section 3.11. Voting for Directors . In the election of directors every shareholder of record entitled to vote at the election shall have the right to vote in person the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Shareholders entitled to vote at any election of directors shall have no right to cumulate votes. In any election of directors the candidates elected are those receiving the largest numbers of votes cast by the shares entitled to vote in the election, up to the number of directors to be elected by such shares.

Section 3.12. Voting of Shares by Certain Holders .

3.12.1. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the board of directors of such corporation may determine. A certified copy of a resolution adopted by such directors shall be conclusive as to their determination.

3.12.2. Shares held by a personal representative, administrator, executor, guardian or conservator may be voted by such administrator, executor, guardian or conservator, without a transfer of such shares into the name of such personal representative, administrator, executor, guardian or conservator. Shares standing in the name of a trustee may be voted by such trustee, but no trustee shall be entitled to vote shares held in trust without a transfer of such shares into the name of the trustee.

3.12.3. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed.

3.12.4. If shares are held jointly by three or more fiduciaries, the will of the majority of the fiduciaries shall control the manner of voting or appointment of a proxy, unless the instrument or order appointing such fiduciaries otherwise directs.

3.12.5. Unless the pledge agreement expressly provides otherwise, a shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

3.12.6. Shares held by another corporation shall not be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote at any given time if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this corporation.

3.12.7. On and after the date on which written notice of redemption of redeemable shares has been dispatched to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders thereof upon surrender of certificates therefor, such shares shall not be entitled to vote on any matter and shall be deemed to be not outstanding shares.

Section 3.13. Conduct of Meetings . The Chairman shall serve as chairman of a meeting of the shareholders. In the absence of the Chairman, the Chief Executive Officer or any other person designated by the board of directors shall serve as chairman of a meeting of shareholders. The Secretary or in his absence an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.

The chairman of a meeting of shareholders, determined in accordance with this Section 3.13, shall have discretion to establish the rules, regulations and procedures for the conduct of such meeting of shareholders and shall have the authority to adjourn or postpone such meeting from time to time whether or not there is a quorum present, subject to any specific rules, regulations and procedures established by the board of directors.

Section 3.14. Notice of Nomination . Nominations for the election of directors and proposals for any new business to be taken up at any annual or, subject to Section 3.6 of these bylaws, special meeting of shareholders may be made by the board of directors of the corporation or by any shareholder of the corporation entitled to vote generally in the election of directors. In order for a shareholder of the corporation to make any such nomination or proposal at any annual meeting, the shareholder’s nomination or proposal must be in writing and received at the Executive Offices of the corporation by the

Secretary of the corporation not less than 120 days in advance of the date corresponding to the date in the previous year on which the corporation’s proxy statement was released to shareholders in connection with the previous year’s annual meeting of shareholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date of the previous year’s annual meeting, a proposal shall be received by the corporation in accordance with the method set forth hereafter for proposals or nominations in advance of a special meeting of shareholders. In order for a shareholder of the corporation to make any nomination or proposal to be taken up at a special meeting of shareholders, the shareholder’s nomination or proposal must be in writing and received at the Executive Offices of the corporation by the Secretary of the corporation not later than the later of the 90 ^th day prior to such special meeting or the 10 ^th day following the day on which public announcement of the date of such special meeting is made by the corporation. Each such notice given by a shareholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the corporation which are beneficially owned, and the number of shares of stock of the corporation concerning which there is a right to acquire, directly or indirectly, by (A) each such nominee, and (B) by each associate of such person, determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

For purposes of this Section 3.14, “public announcement” means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act.

In no event shall the public announcement of an adjournment or postponement of an annual or special meeting commence a new time period (or extend any time period) for the giving of a shareholder’s notice of a proposal or a nomination for director at such meeting as described above.

Section 3.15. Action Without a Meeting . Any action permitted or required to be taken at a meeting of the shareholders may be taken without a meeting if one or more consents in writing setting forth the action so taken shall be signed by all the shareholders.

ARTICLE IV.

BOARD OF DIRECTORS

Section 4.1. General Powers . The business and affairs of the corporation shall be managed by its board of directors.

Section 4.2. Number, Tenure and Qualification . The number of directors set forth in Article II of these bylaws may be increased or decreased from time to time by amendment to or in the manner provided in these bylaws. No decrease, however, shall have the effect of shortening the term of any incumbent director unless such director resigns or is removed in accordance with the provisions of these bylaws. The directors shall be classified and shall hold such terms as set forth in the articles of incorporation. In all cases, directors shall serve until their successors are duly elected and qualified or until their earlier resignation, removal from office or death. Directors need not be residents of the state of Washington or shareholders of the corporation.

Section 4.3. Annual and Other Regular Meetings . Regular meetings of the board shall be held at two-thirty o’clock, or an earlier hour in the discretion of the Chairman or the President, on the third Tuesday of the months of January, February, April, June, July, September, October, and December unless such day is a legal holiday, in which case the meeting shall be held on the first business day thereafter, or unless such meeting has been canceled by the Chairman or the President upon giving notice to the members of the board at least three calendar days before the date on which such meeting is scheduled. The date of any regular meeting may be changed to such other date within the month as shall be determined by the Chairman or the President, or in the absence of the Chairman or the President, by any three members of the Board, provided notice of the time and place of such meeting is given as provided in Section 4.4. In each year, the regular meeting on the day of the Annual Meeting of Shareholders shall be known as the Annual Meeting of the Board.

Section 4.4. Special Meetings . Special meetings of the board of directors may be called by the board of directors, the chairman of the board, or the president. The notice of a special meeting of the board of directors shall state the date and time and, if the meeting is not exclusively telephonic, the place of the meeting. Unless otherwise required by law, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Notice shall be given by the person or persons authorized to call such meeting, or by the secretary at the direction of the person or persons authorized to call such meeting. The notice may be oral or written. If the notice is orally communicated in person or by telephone to the director or to the director’s personal secretary or is sent by electronic mail, telephone or wireless equipment, which transmits a facsimile of the notice to the director’s electronic mail designation or telephone number appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than twenty-four (24) hours prior to the time set for such meeting. If the notice is sent by courier to the director’s address appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than three (3) full days prior to the time set for such meeting. If the notice is sent by mail to the director’s address appearing on the records of the corporation, the notice of a meeting shall be timely if sent no later than five (5) full days prior to the time set for such meeting.

Section 4.5 Waiver of Notice . Any director may waive notice of any meeting at any time. Whenever any notice is required to be given to any director of the corporation pursuant to applicable law, a waiver thereof in writing signed by the director, entitled to

notice, shall be deemed equivalent to the giving of notice. The attendance of a director at a meeting shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully convened. A director waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the director objects to considering the matter when it is presented.

Section 4.6. Quorum . A majority of the number of directors specified in or fixed in accordance with these bylaws shall constitute a quorum for the transaction of any business at any meeting of directors. If less than a majority shall attend a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and a quorum present at such adjourned meeting may transact business.

Section 4.7. Manner of Acting . If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors.

Section 4.8. Participation by Conference Telephone . Directors may participate in a regular or special meeting of the board by, or conduct the meeting through the use of, any means of communication by which all directors participating can hear each other during the meeting and participation by such means shall constitute presence in person at the meeting.

Section 4.9. Presumption of Assent . A director who is present at a meeting of the board of directors at which action is taken shall be presumed to have assented to the action taken unless such director’s dissent shall be entered in the minutes of the meeting or unless such director shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

Section 4.10. Action by Board Without a Meeting . Any action permitted or required to be taken at a meeting of the board of directors may be taken without a meeting if one or more consents setting forth the action so taken, shall be executed by all the directors, either before or after the action taken, and delivered to the corporation. Such consents may be set forth in a tangible written form, in an electronic transmission or in any other form then allowed under the Washington Business Corporations Act or other applicable law. Action taken by consent is effective when the last director executes the consent, unless the consent specifies a later effective date.

Section 4.11. Audit Committee . The board of directors, at any regular meeting of the Board, shall elect from their number an Audit Committee of not less than three members, none of whom shall be employed by the corporation. At least annually the Board of Directors shall determine that each Committee member has the independence and other qualifications set forth in the Charter of the Audit Committee as approved by the Board, and in any supplemental statements that the Board may adopt with regard to the composition of the Committee.

The Audit Committee shall have the authorities and responsibilities and shall perform the functions specified in the Charter of the Audit Committee, as approved by the Board, and in any supplemental statement that the Board may adopt with regard to the functions of the Committee.

Section 4.12 Human Resources Committee . The board of directors at any regular meeting of the board, shall elect from their number a Human Resources Committee which committee shall have not less than three members, none of whom shall be employed by the corporation. The Human Resources Committee shall have the authorities and responsibilities and shall perform the functions specified in the Charter of the Human Resources Committee, as approved by the Board, and in any supplemental statement or resolution that the Board may adopt with regard to the functions of the Committee.

Section 4.13. Governance Committee . The board of directors, at any regular meeting of the board, shall elect from their number a Governance Committee, none of the members of which shall be employed by the corporation. The Governance Committee shall have the composition, authorities and responsibilities and shall perform the functions specified in the Charter of the Governance Committee, as approved by the Board, and in any supplemental statement or resolution that the Board may adopt with regard to the functions of the Committee.

Section 4.14. Finance Committee . The board of directors, at any regular meeting of the board, shall elect from their number a Finance Committee. A majority of the members of the Finance Committee shall not be officers of the corporation. The board, upon the recommendation of the Governance Committee in consultation with the Chief Executive Officer, shall appoint a chairman who is not an officer of the corporation. The Finance Committee shall have the authorities and responsibilities and shall perform the functions specified in the Charter of the Finance Committee, as approved by the board, and in any supplemental statement or resolution that the board may adopt with regard to the functions of the Committee.

Section 4.15. Corporate Relations Committee . The board of directors, at any regular meeting of the board, may elect from among their number a Corporate Relations Committee which shall consist of no fewer than two Directors. The Corporate Relations Committee shall have the composition, authorities and responsibilities and shall perform the functions specified in the Charter of the Corporate Relations Committee, as approved by the Board, and in any supplemental statement or resolution that the Board may adopt with regard to the functions of the Committee.

Section 4.16. Corporate Development Committee . The board of directors, at any regular meeting of the board, may elect from among their number a Corporate Development Committee, which shall consist of the Chairman of the Board and not less

than two other directors. The Corporate Development Committee shall have the composition, authorities and responsibilities and shall perform the functions specified in the Charter of the Corporate Development Committee, as approved by the Board, and in any supplemental statement or resolution that the Board may adopt with regard to the functions of the Committee.

Section 4.17. Committee Procedures . Except as provided in the bylaws or in specific resolutions of the Board of Directors, the committees of the Board shall be governed by the same rules regarding meetings, action without meetings, notice, waiver of notice, and quorum and voting requirements as applied to the Board of Directors.

Section 4.18. Resignation . Any director may resign at any time by delivering written notice to the chairman of the board, the president, the secretary, or the registered office of the corporation, or by giving oral notice at any meeting of the directors or shareholders. Any such resignation shall take effect at any subsequent time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4.19. Removal . At a meeting of the shareholders called expressly for that purpose, any director or the entire board of directors may be removed from office, with cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of the director or directors whose removal is sought. If the board of directors or any one or more directors is so removed, new directors may be elected at this same meeting.

Section 4.20. Vacancies . A vacancy on the board of directors may occur by the resignation, removal or death of an existing director, or by reason of increasing the number of directors on the board of directors as provided in these bylaws. Except as may be limited by the articles of incorporation, any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors whether or not less than a quorum. A director elected to fill a vacancy shall be elected for a term of office continuing only until the next election of directors by shareholders.

If the vacant office was held by a director elected by holders of one or more authorized classes or series of shares, only the holders of those classes or series of shares are entitled to vote to fill the vacancy.

Section 4.21. Compensation . By resolution of the board of directors, the directors may be paid a fixed sum plus their expenses, if any, for attendance at meetings of the board of directors or committee thereof, or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

Section 4.22 Chairman of the Board . The Chairman shall preside at meetings of the board of directors. In the absence of the Chairman and the Chief Executive Officer, the directors present may select someone from their number to preside. The Chairman shall perform such other duties as may be assigned by the board of directors.

ARTICLE V

OFFICERS

Section 5.1. Ranks and Terms in Office . The officers of the corporation shall be a Chief Executive Officer, a Chairman, a President of the Corporation, a General Auditor, a Chief Financial Officer, a Controller, and such Vice Chairmen, Group Presidents, Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents or First Vice Presidents as the board of directors may designate and elect, or such other officers as the board of directors may designate and elect or the Chief Executive Officer may designate and appoint.

Officers shall serve until the termination of their employment or their earlier removal from service as officers. Any officer may be removed, with or without cause, by the board of directors, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Other than the General Auditor, any officer who has been elected by the board of directors may be suspended with or without pay by the Chief Executive Officer, and any other officer may be removed or suspended with or without pay by the Chief Executive Officer, but such removal or suspension shall be without prejudice to the contractual rights, if any, of the person so removed or suspended. The termination of any officer’s employment shall constitute removal of such person from office, effective as of the date of termination of employment.

Section 5.2. Chief Executive Officer . The Chief Executive Officer of the corporation shall have direct supervision and management of its affairs and the general powers and duties of supervision and management usually vested in the Chief Executive Officer of a corporation, subject to the Bylaws and policies of the corporation. The Chief Executive Officer shall perform such other duties as may be assigned by the board of directors. In the absence of the Chief Executive Officer, the duties of the Chief Executive Officer shall be assumed by the President of the Corporation, and in their absence such duties shall be assumed by a person designated by the Chief Executive Officer or the board of directors.

Section 5.3. Chairman . The Chairman shall preside over all meetings of the board of directors. In accordance with Section 3.13 of these bylaws, the Chairman shall preside over all meetings of the shareholders, which duty shall include the authority to adjourn such meetings without any action or vote by the shareholders present at such meetings. The Chairman shall perform such other duties as may be assigned by the board of directors or the Chief Executive Officer, or as may be set forth in the policies and procedural directives of the corporation. Except as set forth in Section 3.13 of these bylaws, in the event of the Chairman’s incapacity, the Chairman’s duties shall be assumed by the Chief Executive Officer or, in the event of the Chief Executive Officer’s incapacity, the duties of the Chairman shall be assumed by the President of the Corporation, and in their absence such duties shall be assumed by a person designated by the board of directors.

Section 5.4. President of the Corporation . The President of the Corporation shall perform such duties as may be assigned by the Chief Executive Officer or the board of directors, or as may be set forth in the policies and procedural directives of the corporation.

Section 5.5. General Auditor . The General Auditor shall supervise and maintain continuous audit control of the assets and liabilities of the corporation. He shall be responsible only to the board of directors in coordination with the Chief Executive officer. He shall perform such other duties as may be assigned to him by the Chief Executive Officer or the President of the Corporation from time to time, only to the extent that such other duties do not compromise the independence of audit control.

Section 5.6. Chief Financial Officer . The Chief Financial Officer of the corporation shall have the power and duty of supervising and managing the corporation’s acquisition, retention and disposition of securities, loans and financial instruments (including but not limited to the corporation’s investments in and loans to the corporation’s subsidiaries), the power and duty of supervising the corporation’s financial reporting, and the other general powers and duties of supervision and management usually vested in the Chief Financial Officer of a corporation, subject to the Bylaws and policies of the corporation. The Chief Financial Officer shall perform such other duties as may be assigned by the board of directors or by the Chief Executive Officer. In the absence of the Chief Financial Officer, the duties of the Chief Financial Officer shall be assumed by the Controller of the corporation, and in their absence such duties shall be assumed by a person designated by the Chief Executive Officer or the board of directors.

Section 5.7. Controller . The Controller shall be the chief accounting officer of the corporation and shall have supervisory control and direction of the general accounting, accounting procedure, budgeting and general bookkeeping, and shall be the custodian of the general accounting books, records, forms and papers. He shall also perform such other duties as may be assigned from time to time by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President, or as may be set forth in the policies and procedural directives of the corporation, only to the extent that such other duties do not compromise the independence of audit control.

Section 5.8. Vice Chairmen, Group Presidents, Senior Executive Vice Presidents, Executive Vice Presidents . Any Vice Chairmen, Group Presidents, Senior Executive Vice Presidents, Executive Vice Presidents shall perform such duties as may be assigned from time to time by the Chief Executive Officer or the President of the Corporation, or as may be set forth in the policies and procedural directives of the corporation.

Section 5.9. Senior Vice Presidents, First Vice Presidents and Vice Presidents . Senior Vice Presidents, First Vice Presidents and Vice Presidents shall perform such duties as may be assigned from time to time by the Chief Executive Officer, the President of the Corporation, a Vice Chairmen, a Group President, a Senior Executive Vice President or a Executive Vice President, or as may be set forth in the policies and procedural directives of the corporation.

Section 5.10. Secretary and Assistant Secretary . Except as otherwise set forth in these bylaws, the Secretary of the corporation shall keep the minutes of all meetings of the board of directors and of the shareholders and give such notices to the directors or shareholders as may be required by law or by these Bylaws. The Secretary shall have the custody of the corporate seal, if any, and the contracts, papers and documents belonging to the corporation. The Secretary shall also perform such other duties as may be assigned from time to time by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President, or as may be set forth in the policies and procedural directives of the corporation. Except as otherwise set forth in these bylaws, in the absence of the Secretary, the powers and duties of the Secretary shall devolve upon an Assistant Secretary or such person as shall be designated by the Chief Executive Officer.

Section 5.11. Combining Offices . An officer who holds one office may, with or without resigning from such existing office, be elected by the board of directors to hold, in addition to such existing office, the office of Chairman, Vice Chairman, Group President Senior Executive Vice President, Senior Vice President, First Vice President or Vice President. An officer who holds one office may, with or without resigning from such existing office, be appointed by the Chief Executive Officer to hold, in addition to such existing office, another office other than the office of Chairman, Vice Chairman, Group President Senior Executive Vice President, Senior Vice President, First Vice President or Vice President.

Section 5.12. Other Officers . The other Officers shall perform such duties as may be assigned by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President, or as may be set forth in the policies and procedural directives of the corporation. The Chief Executive Officer may designate such functional titles to an officer, as the Chief Executive Officer deems appropriate from time to time.

Section 5.13. Official Bonds . The corporation may be indemnified in the event of the dishonest conduct or unfaithful performance of an officer, employee, or agent by a corporate fidelity bond, the premiums for which may be paid by the corporation.

Section 5.14. Execution of Contracts and Other Documents . The Chief Executive Officer, the President of the Corporation, or any Vice Chairman, Group President, or Senior Executive Vice President may from time to time designate the officers, employees or agents of the corporation who shall have authority to sign deeds, contracts, satisfactions, releases, and assignments of mortgages, and all other documents or instruments in writing to be made or executed by the corporation.

Section 5.15. Resignation . Any officer may resign at any time by delivering written notice to the Chief Executive Officer, the President, the Secretary or the board of directors, or by giving oral notice at any meeting of the board. Any such resignation shall take effect at any subsequent time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.16. Compensation of Officers and Employees . The board of directors shall fix compensation of officers and may fix compensation of other employees from time to time. No officer shall be prevented from receiving a salary by reason of the fact that such officer is also a director of the corporation.

Section 5.17. Voting of Shares Held by Corporation . Shares of another corporation held by this corporation may be voted in person or by proxy by the Chief Executive Officer, by the President of the Corporation, by a Vice Chairman, by a Group President, by a Senior Executive Vice President, by an Executive Vice President, or by a Senior Vice President.

ARTICLE VI

SHARES

Section 6.1. Certificates for Shares . The shares of the corporation may be represented by certificates in such form as prescribed by the board of directors. Signatures of the corporate officers on the certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. All certificates shall be consecutively numbered or otherwise identified. All certificates shall bear such legend or legends as prescribed by the board of directors or these bylaws.

Section 6.2. Issuance of Shares . Shares of the corporation shall be issued only when authorized by the board of directors, which authorization shall include the consideration to be received for each share.

Section 6.3. Beneficial Ownership . Except as otherwise permitted by these bylaws, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. The board of directors may adopt by resolution a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. Upon receipt by the corporation of a certification complying with such procedure, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.

Section 6.4. Transfer of Shares . Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, on surrender for cancellation of the certificate for the shares. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled.

Section 6.5. Lost or Destroyed Certificates . In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe.

Section 6.6. Stock Transfer Records . The stock transfer books shall be kept at the principal office of the corporation or at the office of the corporation’s transfer agent or registrar. The name and address of the person to whom the shares represented by any certificate, together with the class, number of shares and date of issue, shall be entered on the stock transfer books of the corporation. Except as provided in these bylaws, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

Section 6.7. Uncertificated Shares . The shares of the Corporation may be issued in uncertificated or book entry form in the manner prescribed by the board of directors. Without limiting the foregoing, shares of the Corporation may be issued in uncertificated or book entry form in connection with new share issuances, the transfer of shares as provided in Section 6.4 of these bylaws and the replacement of shares represented by lost, destroyed or mutilated certificates as provided in Section 6.5 of these bylaws.

ARTICLE VII

SEAL

This corporation need not have a corporate seal. If the directors adopt a corporate seal, the seal of the corporation shall be circular in form and consist of the name of the corporation, the state and year of incorporation, and the words “Corporate Seal.”

ARTICLE VIII

INDEMNIFICATION OF DIRECTORS, OFFICERS,

EMPLOYEES AND AGENT

Section 8.1. Director’s Right To Indemnification . Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director of the corporation or, being or having been such a director, he or she is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or in any other capacity while serving as a director, shall be indemnified and held harmless by the corporation against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith; provided, however, that (a) the corporation shall not indemnify any person from or on account of any acts or omissions of such person finally adjudged to be intentional misconduct or knowing violation of the law of such person, or from conduct of the person in violation of RCW 23B.08.310, or from or on account of any transaction with respect to which it is finally adjudged that such person personally received a benefit in money, property, or services to which such person was not legally entitled, and (b) except as provided in subsection 8.3 with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. Such indemnification shall continue as to a person who has ceased to be a director and shall inure to the benefit of his or her heirs, executors and administrators. Without limiting the situations in which a person shall be considered to be serving at the request of the corporation, a director who serves as a director, officer, employee or agent of another corporation or other enterprise that is a subsidiary of the corporation shall be deemed to be serving at the request of the corporation, where “subsidiary” means a corporation or other enterprise in which a majority of the voting stock or other voting power is owned or controlled by the corporation directly or through one or more subsidiaries, or a corporation or other enterprise which is consolidated on the corporation’s financial statements or is reported using the equity method. If the Washington Business Corporation Act is amended to authorize further indemnification of directors, then directors of the corporation shall be indemnified to the fullest extent permitted by the Washington Business Corporation Act, as so amended.

Section 8.2. Director’s Burden of Proof and Procedure For Payment .

(a) The claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the undertaking in (b) below has been tendered to the corporation) and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is so entitled.

(b) The right to indemnification shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director, to repay all amounts so advanced if it shall ultimately be determined that such director is not entitled to be indemnified under this Article or otherwise.

Section 8.3. Right of Claimant to Bring Suit . If a claim under this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. Neither the failure of the corporation (including its board of directors, its shareholders or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances nor an actual determination by the corporation (including its board of directors, its shareholders or independent legal counsel) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled.

Section 8.4. Nonexclusivity of Rights . The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.

Section 8.5. Insurance, Contracts and Funding . The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may, without any shareholder action, enter into contracts with such director or officer in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article.

Section 8.6. Indemnification of Officers, Employees and Agents of the Corporation . The corporation shall provide indemnification and pay expenses in advance of the final disposition of a proceeding to officers and employees of the corporation with the same scope and effect (including without limitation coverage when

serving at the request of the corporation as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises), and observing the same procedures, as the provisions of this Article with respect to the indemnification and advancement of expenses to directors of the corporation, except that determinations and authorizations described in RCW 23B.08.550(2) and (3) may also be made by a committee of officers authorized by the board of directors. Without limiting the situations in which a person shall be considered to be serving at the request of the corporation, an officer or employee who serves as a director, officer, employee or agent of another corporation or other enterprise that is a subsidiary of the corporation shall be deemed to be serving at the request of the corporation, where “subsidiary” has the meaning set forth in Section 8.1. At its sole option, the corporation may provide indemnification and pay expenses in advance of the final disposition of a proceeding to agents of the corporation (including without limitation providing such indemnification or advance to agents serving at the request of the corporation as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises), provided that such indemnification or advance (i) is made pursuant to a written contract executed and delivered on behalf of the corporation prior to the occurrence of the conduct giving rise to the liability or expense for which indemnification or payment is being sought or (ii) is approved or ratified by the board of directors, a committee thereof, or a committee of officers authorized by the board of directors.

Section 8.7. Contract Right . The rights to indemnification conferred in this Article shall be a contract right and any amendment to or repeal of this Article shall not adversely affect any right or protection of a director of the corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal.

Section 8.8. Severability . If any provision of this Article or any application thereof shall be invalid, unenforceable or contrary to applicable law, the remainder of this Article, or the application of such provision to persons or circumstances other than those as to which it is held invalid, unenforceable or contrary to applicable law, shall not be affected thereby and shall continue in full force and effect.

ARTICLE IX

BOOKS AND RECORDS

The corporation shall keep correct and complete books and records of account, stock transfer books, minutes of the proceedings of its shareholders and the board of directors and such other records as may be necessary or advisable.

ARTICLE X

FISCAL YEAR

The fiscal year of the corporation shall be the calendar year.

ARTICLE XI

VOTING OF SHARES OF ANOTHER CORPORATION

Shares of another corporation held by this corporation may be voted by the Chief Executive Officer, by the President of the Corporation, by the Senior Executive Vice President, by an Executive Vice President, or by a Senior Vice President, or by proxy appointment form executed by any of them, unless the directors by resolution shall designate some other person to vote the shares.

ARTICLE XII

AMENDMENTS TO BYLAWS

These bylaws may be altered, amended or repealed, and new bylaws may be adopted, by the board of directors, subject to the concurrent power of the shareholders, by at least two-thirds affirmative vote of the shares of the corporation entitled to vote thereon, to alter amend or repeal these bylaws or to adopt new bylaws.

WASHINGTON MUTUAL, INC.

AMENDMENTS TO RESTATED BYLAWS

(Amendments after the most recent (effective as of June 17, 2003 ) restatement of the bylaws, organized according to the affected article and, within each article, organized chronologically)

Article/Sec.	Effect of Amendment	Date of Amendment

ARTICLE II	NUMBER OF DIRECTORS	09/16/2003
	The board of directors of this corporation shall consist of thirteen (13) directors.

Article V Section 5.3	Section 5.3 Chairman . The Chairman shall preside over all meetings of the board of directors. In accordance with Section 3.13 of these bylaws, the Chairman shall preside over all meetings of the shareholders, which duty shall include the authority to adjourn such meetings without any action or vote by the shareholders present at such meetings. The Chairman shall perform such other duties as may be assigned by the board of directors or the Chief Executive Officer, or as may be set forth in these bylaws. Except as set forth in Section 3.13 of these bylaws, in the event of the Chairman’s incapacity, the Chairman’s duties shall be assumed by the Chief Executive Officer or, in the event of the Chief Executive Officer’s incapacity, the duties of the Chairman shall be assumed by the President of the Corporation, and in their absence such duties shall be assumed by a person designated by the board of directors.	09/16/2003

Article V Section 5.4	Section 5.4 President of the Corporation . The President of the Corporation shall perform such duties as may be assigned by the Chief Executive Officer or the board or a committee of directors.	09/16/2003

Article V Section 5.6	Section 5.6 Chief Financial Officer . The Chief Financial Officer of the corporation shall have the power and duty of supervising and managing the corporation’s acquisition, retention and disposition of securities, loans and financial instruments (including but not limited to the corporation’s investments in and loans to the corporation’s subsidiaries), the power and duty of supervising the corporation’s financial reporting, and the other general powers and duties of supervision and management usually vested in the Chief Financial Officer of a corporation, subject to the Bylaws and, subject to these Bylaws and to such limits as may from time to time be established by the board of directors or by a	09/16/2003

Washington Mutual, Inc.

Amendments to Bylaws — Page 2

Article/Sec.	Effect of Amendment	Date of Amendment
	committee of directors or officers that the board of directors has authorized to establish such limits. The Chief Financial Officer shall perform such other duties as may be assigned by the board of directors or by the Chief Executive Officer or by a committee of directors or officers that the board of directors has authorized to assign such duties. In the absence of the Chief Financial Officer, the duties of the Chief Financial Officer shall be assumed by the Controller of the corporation, and in their absence such duties shall be assumed by a person designated by the Chief Executive Officer or the board of directors.

Article V Section 5.7	Section 5.7 Controller . The Controller shall be the chief accounting officer of the corporation and shall have supervisory control and direction of the general accounting, accounting procedure, budgeting and general bookkeeping, and shall be the custodian of the general accounting books, records, forms and papers. He shall also perform such other duties as may be assigned from time to time by a committee of directors or officers that the board of directors has authorized to assign such duties or by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President, only to the extent that such other duties do not compromise the independence of audit control.	09/16/2003

Article V Section 5.8	Section 5.8 Vice Chairmen, Group Presidents, Senior Executive Vice Presidents, Executive Vice Presidents . Any Vice Chairmen, Group Presidents, Senior Executive Vice Presidents, Executive Vice Presidents shall perform such duties as may be assigned from time to time by a committee of directors or officers that the board of directors has authorized to assign such duties or by the Chief Executive Officer or the President of the Corporation.	09/16/2003

Article V Section 5.9	Section 5.9 Senior Vice Presidents, First Vice Presidents and Vice Presidents . Senior Vice Presidents, First Vice Presidents and Vice Presidents shall perform such duties as may be assigned from time to time by a committee of directors or officers that the board of directors has authorized to assign such duties	09/16/2003

Washington Mutual, Inc.

Amendments to Bylaws — Page 3

Article/Sec.	Effect of Amendment	Date of Amendment

	or by the Chief Executive Officer, the President of the Corporation, a Vice Chairmen, a Group President, a Senior Executive Vice President or a Executive Vice President.

Article V Section 5.10	Section 5.10 Secretary and Assistant Secretary . Except as otherwise set forth in these bylaws, the Secretary of the corporation shall keep the minutes of all meetings of the board of directors and of the shareholders and give such notices to the directors or shareholders as may be required by law or by these Bylaws. The Secretary shall have the custody of the corporate seal, if any, and the contracts, papers and documents belonging to the corporation. The Secretary shall also perform such other duties as may be assigned from time to time by a committee of directors or officers that the board of directors has authorized to assign such duties or by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President. Except as otherwise set forth in these bylaws, in the absence of the Secretary, the powers and duties of the Secretary shall devolve upon an Assistant Secretary or such person as shall be designated by the Chief Executive Officer.	09/16/2003

Article V Section 5.12	Section 5.12 Other Officers . The other Officers shall perform such duties as may be assigned by a committee of directors or officers that the board of directors has authorized to assign such duties or by the Chief Executive Officer, the President of the Corporation, a Vice Chairman, a Group President, a Senior Executive Vice President or an Executive Vice President. The Chief Executive Officer may designate such functional titles to an officer, as the Chief Executive Officer deems appropriate from time to time.	09/16/2003

Exhibit 10.1

Confidential Executive Separation Agreement

This Confidential Executive Separation and Release Agreement (“Agreement”) is entered into between Craig Davis (“Executive”) and Washington Mutual, Inc. (“Employer”) and is in consideration of the mutual undertakings set forth below.

Employer and Executive have mutually agreed to end Executive’s employment. In order to assist Executive in his transition to new employment and acknowledge past contributions, Employer has decided to offer Executive the benefits described below. To clearly set forth the terms and conditions of Executive’s departure, the parties agree as follows:

1. The purpose of this Agreement is to set forth the mutual understanding of the parties. This Agreement shall not be construed as an admission by Employer that it acted wrongfully with respect to Executive, nor shall it be construed as an admission by Executive of any misconduct or impropriety.

2. Executive’s

employment with Employer is ended effective September 30, 2003 (“Separation Date”).

3. Employer shall pay to Executive as severance pay a gross amount of $3,200,000.00 (3.2 million dollars), less all lawful and required deductions. Payment is to be made 8-days after Executive signs the Agreement, upon expiration of the revocation period referred to in paragraph 19 herein below. In addition Employer shall pay Executive, in January 2004, the full cash bonus for 2003 that Executive would have received had he remained employed through the end of 2003, less all lawful and required deductions.

4. Employer shall also pay Executive a consulting payment of $1,500,000.00 (1.5 million dollars), less all lawful and required deductions, on October 1, 2005, on the following conditions: (i) that Executive refrain from working for or consulting in any way for Employer’s competitors Countrywide, Wells Fargo, and Bank of America or any of their corporate entities, affiliates or subsidiaries until that time, and (ii) refrain from soliciting any of Employer’s officers, employees, whether salaried or commissioned, agents or contractors for twenty four (24) months after the Separation Date.

5. Employer shall provide Executive with medical and dental benefits and life insurance until May 31, 2006, at a level of coverage and at the same level of company contribution as if Executive had remained an active employee, and after that date, Executive may elect to continue these benefits at his own expense under COBRA.

Page 1 of 6

6. As approved by the Human Resources Committee of the Washington Mutual, Inc. Board of Directors at its meeting on September 22, 2003, and with the consent of Executive as indicated by his execution of this Agreement, all of Executive’s unvested stock options will vest effective October 1, 2003, and all vested options will then remain exercisable by Executive until the earlier of May 31, 2006, or the expiration of their ten-year term. If Executive dies prior to the exercise of such options and prior to their expiration, the right to exercise all vested options through May 31, 2006, will pass to his estate.

7. As approved by the Human Resources Committee of the Washington Mutual, Inc. Board of Directors at its meeting on September 22, 2003, and with the consent of Executive as indicated by his execution of this Agreement, the restrictions on any performance shares awarded to Executive before the Separation Date will lapse as if Executive were employed through May 31, 2006.

8. At the time that Executive would first receive distributions under the terms of the Supplemental Executive Retirement Accumulation Plan (“SERAP”) and the Supplemental Employee’s Retirement Plan (“SERP”), Employer shall pay to Executive the equivalent of the benefits that would have accrued under those plans had Executive earned the $3.2 million set forth above in 2003.

9. In exchange for the benefits contained in this Agreement, Executive releases and discharges Employer, all subsidiary, parent, and affiliated entities, and any Employer-sponsored benefit plans in which Executive participates, and all of their respective owners, officers, directors, trustees, shareholders, employees, agents, attorneys, and insurers from any and all claims, actions, causes of action, rights, benefits, compensation, or damages, including costs and attorneys’ fees, of whatever nature, whether known or unknown, suspected or unsuspected, matured or unmatured, now existing or arising in the future from any act, omission, event, occurrence, or non-occurrence prior to the date Executive signs this Agreement arising out of or in any way related to Executive’s employment with Employer. This release includes but is not limited to any claims under any federal, state, or local laws prohibiting discrimination in employment, including Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act; based upon any employment agreement, severance plan, compensation plan, or change in control agreement; based upon any alleged legal restriction on Employer’s right to terminate its employees; or based upon ERISA. This Agreement shall not affect Executive’s entitlement to receive any 401(k), stock option, or pension benefits that have vested as of the Separation Date, or as otherwise provided in paragraph 7 of this Agreement.

10. Executive agrees that, as a result of his employment by Employer, he has been exposed to confidential information that is not generally known to the public, all of which information is owned by Employer. This includes information

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developed by Executive, alone or with others, or entrusted to Employer by customers or others. Employer’s confidential information includes, without limitation, information relating to its finances, business and strategic plans, unannounced acquisition and/or investment prospects, products, trade secrets, know-how, procedures, purchasing, business and vendor relationships, accounting, marketing, sales, customers and employees. Executive agrees that, during his remaining employment by Employer and for all time thereafter, as long as such information is not made public by Employer, Executive shall hold such information in strict confidence and not disclose or use it except as specifically authorized in writing by Employer and for Employer’s benefit.

11. Executive recognizes that Employer’s workforce and contracting relationships are a vital part of its business. Therefore, Executive agrees that for twenty four (24) months after the Separation Date, Executive will not directly or indirectly be involved in (a) soliciting any employee, whether salaried or commissioned, agent or contractor to leave his or her employment or contract relationship with Employer, or (b) hiring any employee, whether salaried or commissioned, agent or contractor who, at the time of hiring or during the three month period before the hiring, was such an employee, agent or contractor of Employer. This includes that Executive will not (a) disclose to any third party the names, backgrounds or qualifications of any of Employer’s said employees, agents or contractors, or otherwise identify them as potential candidates for employment, or (b) personally or through any other person approach, recruit, interview or otherwise solicit such employees, agents or contractors of Employer to work for any other employer or to reduce their relationship with Employer. This provision does not prohibit Executive from responding to reference inquiries requested on behalf of employees.

12. Executive agrees to fully and reasonably cooperate with Employer with respect to business issues, claims, administrative charges, governmental investigations and litigation related to Employer or its business interests. This would include, but not be limited to, responding to questions, providing information, attending meetings, depositions, administrative proceedings, and court hearings, and assisting Employer, its counsel and any of its expert witnesses. Executive agrees not to communicate with any adverse party, any such party’s legal counsel, or others adverse to Employer with respect to any pending or threatened claim, charges, or litigation except through legal counsel designated by Employer. Should Executive receive notice of a subpoena or other attempt to communicate with or obtain information from Executive in any way relating to Employer or its business interests, Executive agrees to notify counsel for Employer, to provide a copy of any such subpoena or request within two (2) calendar days of receipt of such notice, and not to provide any such information except through counsel designated by Employer unless compelled to do so by court order and after Employer has had an opportunity to raise and

Page 3 of 6

resolve any objections. Employer will reimburse Executive for reasonable costs associated with his cooperation. Notwithstanding the release of claims in Section 9 of this Agreement, from and after September 30, 2003, the Employer shall continue to indemnify and hold harmless the Executive in accordance with and to the fullest extent permitted by the Employer’s articles of incorporation and bylaws, as well as applicable law and regulations, subject to any limitations provided therein, all as in effect on the date hereof; and Employer represents and warrants that the D&O insurance policies in effect on September 30, 2003, will continue to cover Executive for acts and omissions occurring through September 30, 2003, as provided under the terms of said policies.

13. Because Employer does not offer such benefits to all departing employees, it is important to Employer that this Agreement remain confidential. Executive agrees not to disclose the fact or terms of this Agreement to anyone, or to tell anyone that he received any special consideration from Employer. Executive may disclose the terms of this Agreement only to his spouse, his attorney, and his accountant or similar advisor, on the condition that Executive shall direct each such person, and they agree, to maintain the confidentiality of this Agreement.

14. Executive agrees that, as a condition of and before receiving the severance pay and other benefits described in this Agreement, he will return to Employer all of Employer’s property, including all physical property (laptop computers, cellular phones, personal digital assistants, computer disks, access cards, etc.) as well as any and all documents, data, plans, or other information, whether on paper or in electronic form.

15. Executive represents that he has not filed any claim against Employer or any of the individuals or entities released in paragraph 9, and that he will not do so at any time in the future concerning any of the claims released in this Agreement. Executive shall not be prohibited from taking steps to enforce the terms of this Agreement, the enforcement of which is governed by paragraph 22.

16. Executive agrees and covenants that he will not directly or indirectly, publicly or privately disparage Employer or any of its subsidiaries, affiliates, employees, officers, directors, business partners, methods, services, or products. Employer agrees to direct its Executive Committee and its designated communications spokespersons to make no written or verbal statements concerning the Executive’s separation or performance knowing that such statements are factually inaccurate and could reasonably be interpreted as disparaging the Executive, and the Executive Committee and its designated communications spokespersons shall comply with this directive.

Page 4 of 6

17. Executive and Employer shall cooperate to coordinate appropriate internal and external communications concerning Executive’s separation and to designate individuals to whom reference requests shall be directed. Employer shall have final approval on all communications.

18. Executive understands and acknowledges the significance and consequences of this Agreement and agrees that he enters this Agreement voluntarily, and that he is not signing as a result of any coercion. Executive has been encouraged to seek the advice of an attorney and, to the extent desired, has availed himself of that opportunity. Executive acknowledges that he has been given at least twenty-one (21) days after receipt of this Agreement during which to consider it.

19. Executive understands and acknowledges that he has seven (7) days after signing this Agreement in which to revoke it. This Agreement will become effective after that period has expired.

20. This Agreement is binding on and shall inure to the benefit of the parties and to those individuals and entities released in paragraph 9, as well as to all of their heirs, successors, and assigns.

21. If any of the provisions of the Agreement is held to be invalid or unenforceable, the remaining provisions will nevertheless continue to be valid and enforceable to the fullest extent permitted by law.

22. In the event of any dispute concerning the validity, interpretation, enforcement or breach of this Agreement or in any way related to Executive’s employment by Employer or the termination of such employment, the dispute shall be resolved by arbitration within King County, Washington, and the parties waive their right to trial by jury; Executive and Employer will submit the dispute to a mutually acceptable arbitration service, or, if they cannot agree to an arbitration service, the dispute will be submitted to the American Arbitration Association. The procedural rules of the selected arbitration service shall apply, provided that during the time the arbitration proceedings are ongoing, Employer will advance any required administrative and/or arbitration fees. Executive requests and Employer agrees that each party will pay its own attorneys’ fees, costs and disbursements. Judgment upon any arbitration award may be entered and enforced by any state or federal court having jurisdiction. Notwithstanding the above arbitration provisions, the parties to this Agreement agree that irreparable damage will occur in the event that the provisions of this Agreement concerning confidential information as set forth in paragraph 10 hereof and non solicitation as set forth in paragraph 11 hereof are not performed in accordance with their specific terms or are otherwise breached. It is accordingly agreed that the Employer shall be entitled to specific enforcement of those terms and provisions

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of this Agreement and to injunctive and other equitable relief in any court of the United States or of any state thereof having jurisdiction in addition to any other remedy to which Employer is entitled at law or in equity, and in this event, the governing law will be the law of the State of Washington.

23. This Agreement represents and contains the entire understanding between the parties in connection with its subject matter, and supercedes any prior written or oral agreements or understandings. No modification or waiver of any provision of this Agreement shall be valid unless in writing and signed by Executive and the Chief Executive Officer of Employer. Executive acknowledges that in signing this Agreement he has not relied upon any representation or statement not set forth in this Agreement made by Employer or any of its representatives.

24. Attached as Exhibit A is the certification made by Executive, dated August 7, 2003 to Kerry Killinger and Thomas Casey, on which they relied in connection with their certification to the Securities and Exchange Commission contained in the Company’s Form 10-Q for the quarter ended June 30, 2003. Executive is not today aware of any facts existing then and not subsequently disclosed to the Corporate Disclosure Committee the inclusion or omission of which would have caused any portion of such certification to be false as of the date of such certification.


Washington Mutual, Inc.						Executive

By

Its
						(Print Name)

Date						Date

Page 6 of 6

EXHIBIT 31.1

CERTIFICATION

I, Kerry K. Killinger, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Washington Mutual, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2003

/s/ K ERRY K. K ILLINGER

Kerry K. Killinger

Chairman, President and Chief Executive Officer

of Washington Mutual, Inc.

EXHIBIT 31.2

CERTIFICATION

I, Thomas W. Casey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Washington Mutual, Inc.;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2003

/s/ T HOMAS W. C ASEY

Thomas W. Casey

Executive Vice President and Chief Financial Officer

of Washington Mutual, Inc.

EXHIBIT 32.1

WASHINGTON MUTUAL, INC.

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kerry K. Killinger, the Chief Executive Officer of Washington Mutual, Inc., does hereby certify that this report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2003

By:

/s/ K ERRY K. K ILLINGER

Kerry K. Killinger

Chairman, President and Chief Executive Officer
of Washington Mutual, Inc.

A signed original of this written statement required by Section 906 has been provided to Washington Mutual, Inc. and will be retained by Washington Mutual, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

WASHINGTON MUTUAL, INC.

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Thomas W. Casey, the Chief Financial Officer of Washington Mutual, Inc., does hereby certify that this report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2003

By:

/s/ T HOMAS W. C ASEY

Thomas W. Casey

Executive Vice President and Chief Financial Officer
of Washington Mutual, Inc.

EXHIBIT 99.1

WASHINGTON MUTUAL, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(dollars in millions)
Earnings, including interest on deposits ⁽¹⁾ :

Income before income tax expense	$	1,625		$	1,546		$	4,823		$	4,609
Fixed charges		1,169			1,525			3,708			4,552

	$	2,794		$	3,071		$	8,531		$	9,161

Fixed charges ⁽¹⁾ :
Interest expense	$	1,129		$	1,494		$	3,597		$	4,466
Estimated interest component of net rental expense		40			31			111			86

	$	1,169		$	1,525		$	3,708		$	4,552

Ratio of earnings to fixed charges ⁽²⁾		2.39			2.01			2.30			2.01

Earnings, excluding interest on deposits :

Income before income tax expense	$	1,625		$	1,546		$	4,823		$	4,609
Fixed charges		631			846			2,034			2,556

	$	2,256		$	2,392		$	6,857		$	7,165

Fixed charges :
Interest expense	$	1,129		$	1,494		$	3,597		$	4,466
Less: interest on deposits		(538	)		(679	)		(1,674	)		(1,996	)
Estimated interest component of net rental expense		40			31			111			86

	$	631		$	846		$	2,034		$	2,556

Ratio of earnings to fixed charges ⁽²⁾		3.58			2.83			3.37			2.80

⁽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.

EXHIBIT 99.2

WASHINGTON MUTUAL, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

AND PREFERRED DIVIDENDS

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(dollars in millions)
Earnings, including interest on deposits ⁽¹⁾ :
Income before income tax expense	$	1,625		$	1,546		$	4,823		$	4,609
Fixed charges		1,169			1,525			3,708			4,552

	$	2,794		$	3,071		$	8,531		$	9,161

Preferred dividend requirement	$	-		$	1		$	-		$	5
Ratio of income before income tax expense to net income		1.59			1.58			1.59			1.58

Preferred dividends ⁽²⁾	$	-		$	2		$	-		$	8

Fixed charges ⁽¹⁾ :
Interest expense	$	1,129		$	1,494		$	3,597		$	4,466
Estimated interest component of net rental expense		40			31			111			86

		1,169			1,525			3,708			4,552

Fixed charges and preferred dividends	$	1,169		$	1,527		$	3,708		$	4,560

Ratio of earnings to fixed charges and preferred dividends ⁽³⁾		2.39			2.01			2.30			2.01

Earnings, excluding interest on deposits :
Income before income tax expense	$	1,625		$	1,546		$	4,823		$	4,609
Fixed charges		631			846			2,034			2,556

	$	2,256		$	2,392		$	6,857		$	7,165

Preferred dividends ⁽²⁾	$	-		$	2		$	-		$	8

Fixed charges :
Interest expense	$	1,129		$	1,494		$	3,597		$	4,466
Less: interest on deposits		(538	)		(679	)		(1,674	)		(1,996	)
Estimated interest component of net rental expense		40			31			111			86

		631			846			2,034			2,556

Fixed charges and preferred dividends	$	631		$	848		$	2,034		$	2,564

Ratio of earnings to fixed charges and preferred dividends ⁽³⁾		3.58			2.82			3.37			2.79

⁽¹⁾	As defined in Item 503(d) of Regulation S-K.

⁽²⁾	The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such dividend requirements.

⁽³⁾