<PAGE> 1
Registration No. 33-57413
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
WASHINGTON MUTUAL, INC.
(Exact name of issuer as specified in its Charter)
Washington 91-1653725
(State of Incorporation) (I.R.S. Employer
identification No.)
1201 Third Avenue
Seattle, WA 98101
(206) 461-2000
(Address, including zip code, and telephone number, including area code,
of registrant's Principal Executive Offices)
__________
Marc R. Kittner,
Senior Vice President
Washington Mutual, Inc.
1201 Third Avenue
Seattle, WA 98101
(206) 461-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
__________
Copy to:
Fay L. Chapman
Bernard L. Russell
Foster Pepper & Shefelman
1111 Third Avenue
Suite 3400
Seattle, WA 98101
(206) 447-4400
Approximate date of proposed commencement of sales hereunder:
As soon as practicable after the effective date of this Registration Statement
and after the satisfaction or waiver of all conditions to the merger of Olympus
Capital Corporation with and into the Registrant pursuant to the Merger
Agreement described in the enclosed Proxy Statement/Prospectus.
i
<PAGE> 2
WASHINGTON MUTUAL, INC.,
Cross Reference Sheet
<TABLE>
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S-4 Item No. and Caption Heading
------------------------ -------
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Part I. Information Required in the Prospectus
--------------------------------------
A. Information About the Transaction
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . Inside Front Cover Page; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information . . . . . . . . . . . . . Summary; Comparative Per Share Data;
Selected Historical and Pro Forma
Financial Data
4. Terms of the Transaction . . . . . . . . . . . . Summary; The Merger - Background of
and Reasons for the Merger; -
Accounting Treatment;
- Federal Income Tax Consequences; -
Opinion of Financial Advisor; The
Merger Agreement
5. Pro Forma Financial Information . . . . . . . . Selected Historical and Pro Forma Financial Data
6. Material Contracts with the Company Being
Acquired . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters . Not Applicable
8. Interests of Named Experts and Counsel . . . . . Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . Comparative Rights of Shareholders -
Limitation of Directors' Liability;
B. Information About the Registrant Indemnification
10. Information with Respect to S-3 Registrants . . Summary; Information Concerning
Washington Mutual
11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by
Reference
</TABLE>
ii
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<TABLE>
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12. Information with Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . . . . . Not Applicable
13. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . Not Applicable
14. Information with Respect to Registrants Other
than S-3 or S-2 Registrants . . . . . . . . . . Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies . . . Not Applicable
16. Information with Respect to S-3 or
S-2 Companies . . . . . . . . . . . . . . . . . . Summary; Information Concerning
Olympus; Incorporation of Certain
Documents by Reference
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies . . . . . . . . . . . . . . Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited or in an
Exchange Offer:
(1) Date, Time and Place of Meeting . . . . Summary - The Special Meeting; The
Special Meeting
(2) Revocability of Proxy . . . . . . . . . The Special Meeting - Voting and
Revocation of Proxies
(3) Dissenters' Rights of Appraisal . . . . Summary - The Merger;
- Dissenters' Rights; The Merger -
Dissenters' Rights
(4) Persons Making the Solicitation . . . . The Special Meeting - Solicitation of
Proxies
(5)(i) Interest of Certain Persons in Matters
to be Acted Upon . . . . . . . . . . . Summary - The Merger; - Interest of
Certain Persons in the Merger; The
Merger - Interest of Certain Persons
in the Merger
(ii) Voting Securities and Principal Holders
Thereof . . . . . . . . . . . . . . . . Information Concerning Olympus -
Beneficial Ownership of Olympus Common
Stock; Incorporation of Certain
Documents by Reference; Information
Concerning Washington Mutual
</TABLE>
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<TABLE>
<S> <C> <C>
(6) Vote Required for Approval . . . . . . Summary - The Special Meeting; - Voter
Required; The Special Meeting -
Quorum; - Vote Required
(7)(i) Directors and Executive Officers . . . Information Concerning Olympus;
Information Concerning Washington
Mutual; Incorporation of Certain
Documents by Reference
(ii) Executive Compensation . . . . . . . . Information Concerning Olympus;
Information Concerning Washington
Mutual; Incorporation of Certain
Documents by Reference
(iii) Certain Relationships and Related
Transactions . . . . . . . . . . . . . Information Concerning Olympus;
Information Concerning Washington
Mutual; Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents or
Authorizations are not to be solicited or in an
Exchange Offer . . . . . . . . . . . . . . . . . Not Applicable
Part II. Information Not Required in the Prospectus
------------------------------------------
20. Indemnification of Directors and Officers . . . Indemnification of Directors and
Officers
21. Exhibits and Financial Schedules . . . . . . . . Exhibits
22. Undertakings . . . . . . . . . . . . . . . . . . Undertakings
</TABLE>
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<PAGE> 5
[OLYMPUS]
_________________, 1995
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Olympus Capital Corporation ("Olympus") to be held on April 24,
1995 at 11:00 a.m., local time, at the corporate headquarters of Olympus
located at 115 South Main Street, Salt Lake City, Utah.
At this meeting you will be asked to consider and vote upon the
following proposals:
1. To approve the Amended and Restated Agreement for Merger
(including the alternative Plans of Merger) dated as of January 20, 1995 among
Washington Mutual, Inc. ("Washington Mutual"), Washington Mutual Bank,
Washington Mutual Federal Savings Bank, Olympus and Olympus Bank, a Federal
Savings Bank (the "Merger Agreement"), which provides for the merger of
Olympus with and into Washington Mutual (the "Merger").
2. To approve an amendment to the Olympus Capital Corporation
Nonqualified Stock Option Plan and Incentive Stock Option Plan (the "Option
Plan Amendment").
As a result of the Merger, Olympus shareholders will receive $15.50 per
share in newly issued shares of Washington Mutual common stock ("Merger
Consideration"), which amount is subject to increase if the effective time of
the Merger is after April 30, 1995. If the average price of Washington Mutual
common stock for the ten trading days immediately prior to the third trading
day before the effective time of the Merger is less than $18.00, then
Washington Mutual may elect to pay up to 49% of the aggregate Merger
Consideration with cash. In such case, each shareholder of Olympus, subject to
certain allocation procedures, will be eligible to receive such shareholder's
preference as to the form of the Merger Consideration to be paid. Unless
Washington Mutual waives its right to pay a portion of the Merger Consideration
with cash, preference forms will be sent to shareholders of Olympus prior to
the effective time of the Merger through which each holder can indicate such
holder's preference to receive either Washington Mutual common stock or cash in
the Merger. Preference forms will only be utilized, however, if Washington
Mutual elects to pay a portion of the aggregate Merger Consideration in cash.
As a result of the Option Plan Amendment, if Washington Mutual elects
to pay a portion of the aggregate Merger Consideration in cash, the holders of
outstanding stock options of Olympus will have their options converted into
options to acquire shares of Washington Mutual common stock, adjusted as to the
number of shares of Washington Mutual common stock to be acquired and the
exercise price by the exchange ratio in the Merger.
THE OLYMPUS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND "FOR" THE OPTION PLAN AMENDMENT.
Details of the proposed Merger and the Option Plan Amendment and other
important information concerning Olympus and Washington Mutual appear in the
accompanying Proxy Statement/Prospectus. Please give this material your
careful attention.
Whether or not you plan to attend this special meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described
in the accompanying Proxy Statement/Prospectus at any time before it has been
<PAGE> 6
voted at the special meeting. If you attend the special meeting, you may vote
in person even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
A. Blaine Huntsman
Chairman of the Board and
Chief Executive Officer
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<PAGE> 7
[OLYMPUS]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
APRIL 24, 1995
TO THE SHAREHOLDERS OF OLYMPUS CAPITAL CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Olympus Capital Corporation, a Utah corporation ("Olympus"), will be held on
April 24, 1995 at 11:00 a.m., local time, at the corporate headquarters of
Olympus located at 115 South Main Street, Salt Lake City, Utah, for the
following purposes:
1. To approve the Amended and Restated Agreement for Merger
(including the alternative Plans of Merger) dated as of January 20, 1995 among
Washington Mutual, Inc. ("Washington Mutual"), Washington Mutual Bank,
Washington Mutual Federal Savings Bank, Olympus and Olympus Bank, a Federal
Savings Bank (the "Merger Agreement"), which provides for the merger of
Olympus with and into Washington Mutual, which Merger Agreement is attached to
and described in the enclosed Proxy Statement/Prospectus.
2. To approve an amendment to the Olympus Capital Corporation
Nonqualified Stock Option Plan and Incentive Stock Option Plan, which amendment
is attached to and described in the enclosed Proxy Statement/Prospectus.
Only shareholders of record at the close of business on
March 13, 1995 are entitled to notice of and to vote at the special meeting.
If there are not sufficient votes to approve any of the foregoing proposals at
the time of the special meeting, the special meeting may be adjourned or
postponed in order to permit further solicitation of proxies by Olympus.
All shareholders are cordially invited to attend the meeting in
person. However, to ensure your representation at the meeting, you are urged
to complete, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. You may
revoke your proxy in the manner described in the accompanying Proxy
Statement/Prospectus at any time before it has been voted at the special
meeting. Any shareholder attending the special meeting may vote in person even
if he or she has returned a proxy card.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
BY ORDER OF THE BOARD OF DIRECTORS
__________________________
A. Blaine Huntsman,
Chairman of the Board and
Chief Executive Officer
Salt Lake City, Utah
March ___, 1995
<PAGE> 8
PROXY STATEMENT PROSPECTUS
OF OF
OLYMPUS CAPITAL CORPORATION WASHINGTON MUTUAL, INC.
SPECIAL MEETING OF SHAREHOLDERS COMMON STOCK
TO BE HELD ON APRIL 24, 1995 (NO PAR VALUE)
This Proxy Statement/Prospectus is being furnished to the holders of
shares of common stock, par value $1.00 per share ("Olympus Common Stock"), of
Olympus Capital Corporation, a Utah corporation ("Olympus"), in connection with
the solicitation of proxies by the Board of Directors of Olympus for use at a
special meeting of shareholders to be held on April 24, 1995, at 11:00 a.m.,
local time, at the corporate headquarters of Olympus located at 115 South Main
Street, Second Floor, Salt Lake City, Utah 84111, and at any adjournments or
postponements thereof (the "Special Meeting").
At the Special Meeting, the holders of Olympus Common Stock will
consider and vote upon proposals (i) to approve an Amended and Restated
Agreement for Merger (including the alternatiave Plans of Merger) dated as of
January 20, 1995, by and among Washington Mutual, Inc., a Washington
corporation ("Washington Mutual"), Washington Mutual Bank, a Washington
state-chartered stock savings bank ("WMB"), Washington Mutual Federal Savings
Bank, a federal savings association ("WMFSB"), Olympus, and Olympus Bank, a
Federal Savings Bank ("Olympus Bank") (the "Merger Agreement"), a copy of which
is attached to this Proxy Statement/Prospectus as Appendix A, and (ii) to
approve an amendment (the "Option Plan Amendment") to the Olympus Capital
Corporation Nonqualified Stock Option Plan and Incentive Stock Option Plan (the
"Option Plan"), a copy of which amendment is attached to this Proxy
Statement/Prospectus as Appendix G. WMB and WMFSB are wholly-owned
subsidiaries of Washington Mutual and Olympus Bank is a wholly-owned subsidiary
of Olympus. As more fully described herein, pursuant to the Merger Agreement,
Olympus will merge with and into Washington Mutual (the "Merger") and all of
the outstanding shares of Olympus Common Stock held by each holder thereof
immediately before the effective time of the Merger will be converted into the
right to receive $15.50 per share, subject to adjustment, as described herein,
to be paid in shares of common stock, no par value per share, of Washington
Mutual ("Washington Mutual Common Stock"). If the average price of Washington
Mutual Common Stock for the ten trading days immediately prior to the third
trading day before the effective time of the Merger is less than $18.00 per
share, subject to certain adjustments, Washington Mutual may elect to pay up to
49% of the aggregate consideration to be paid in the Merger with cash. Unless
the average price of Washington Mutual Common Stock falls significantly below
$18.00 per share, Washington Mutual does not intend to elect to pay any of the
consideration for the Merger with cash. See "THE MERGER -- General."
Washington Mutual intends, after the effective time, to merge Olympus Bank with
and into WMFSB (the "Bank Merger").
This Proxy Statement/Prospectus also constitutes a Prospectus of
Washington Mutual with respect to the shares of Washington Mutual Common Stock
to be issued in the Merger. The outstanding shares of Washington Mutual Common
Stock are quoted on the National Association of Securities Dealers Automated
Quotations -- National Market System ("The Nasdaq Stock Market"). The last
reported sale price of Washington Mutual Common Stock on The Nasdaq Stock
Market on March 6, 1995, was $20.125 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Olympus on or about March ____, 1995.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MARCH ____, 1995.
<PAGE> 9
AVAILABLE INFORMATION
Olympus and Washington Mutual are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by Olympus and Washington
Mutual with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven
World Trade Center (13th Floor), New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, at
prescribed rates. In November 1994, Washington Mutual became a holding company
for WMB, WMFSB and other subsidiaries. Prior to creating a holding company
structure, Washington Mutual Savings Bank ("WMSB"), the publicly reporting
predecessor to Washington Mutual's most significant subsidiary, WMB, filed
reports, proxy statements and other information with the Federal Deposit
Insurance Corporation (the "FDIC"). The reports, proxy statements and other
information filed by WMSB with the FDIC can be inspected and copied at the
public reference facilities maintained by the FDIC at 550 17th Street, N.W.,
Washington, D.C. 20429, at prescribed rates. In addition, material filed by
Washington Mutual and Olympus can be inspected at the offices of the National
Association of Securities Dealers, Inc., Report Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
Washington Mutual has filed a Registration Statement on Form S-4
(together with any exhibits, amendments or supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") covering the Washington Mutual Common Stock to be issued
pursuant to the Merger Agreement. This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Statements contained in this Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available upon request to any person, including
any beneficial owner to whom this Proxy Statement/Prospectus is delivered,
without charge, in the case of documents relating to Olympus, directed to
Olympus, 115 South Main Street, Salt Lake City, Utah 84111 (telephone number
(801) 325-1000), Attention: Corporate Secretary, or, in the case of documents
relating to Washington Mutual, directed to Washington Mutual, Washington Mutual
Tower, 1201 Third Avenue, 12th Floor, Seattle, Washington 98101 (telephone
number (206) 461-3187), Attention: Ms. JoAnn DeGrande, Vice President of
Investor Relations. In order to ensure timely delivery of the documents, any
requests should be made by April 17, 1995.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representation must not be
relied upon as having been authorized by Olympus, Washington Mutual or any
other person. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, or the solicitation
of a proxy, in any jurisdiction to or from any person to or from whom it is not
lawful to make any such offer or solicitation in such jurisdiction.
Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of Olympus
or Washington Mutual since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
All information contained in this Proxy Statement/Prospectus relating to
Washington Mutual has been supplied by Washington Mutual and all information
herein relating to Olympus has been supplied by Olympus.
-2-
<PAGE> 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Washington Mutual
pursuant to the Exchange Act, under cover of a Current Report on Form 8-K dated
November 29, 1994, are incorporated by reference in this Proxy
Statement/Prospectus:
1. WMSB's Annual Report on Form F-2 ("Form F-2") for the year ended
December 31, 1993 and Washington Mutual's Annual Report on
Form 10-K ("Form 10-K") for the year ended December 31, 1994;
2. The independent auditors' report and the audited financial
statements of WMSB contained in WMSB's Annual Report to
Shareholders for the year ended December 31, 1993, attached as an
exhibit to the Form F-2;
3. WMSB's Quarterly Report on Form F-4 for the quarters ended March
31, 1994, June 30, 1994 and September 30, 1994;
4. WMSB's Proxy Statement for the Annual Meeting of Shareholders
held on April 9, 1994; and
5. Item 5 of Washington Mutual's Form 8-K dated November 29, 1994.
The following documents filed by Olympus with the Commission pursuant to
the Exchange Act are incorporated in this Proxy Statement/Prospectus by
reference:
1. Olympus' Annual Report on Form 10-K for the year ended
December 31, 1993;
2. Olympus' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994, and September 30, 1994; and
3. Olympus' Current Report on Form 8-K dated July 22, 1994.
All documents and reports subsequently filed by Olympus and Washington
Mutual pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Proxy Statement/Prospectus and before the date of the Special
Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement/Prospectus.
The information relating to Washington Mutual and Olympus contained in
this Proxy Statement/Prospectus does not purport to be complete and should be
read together with the information in the documents that accompany this Proxy
Statement/Prospectus and the additional documents that are incorporated by
reference herein.
-3-
<PAGE> 11
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MARKET PRICES AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Summary Consolidated Financial Data of Washington Mutual . . . . . . . . . . . . . . . . . . . . . . . 15
Condensed Consolidated Financial Data of Olympus . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Pro Forma Combined Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Matters To Be Considered at the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Record Date and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Quorum; Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Recommendation of the Olympus Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Resales of Washington Mutual Common Stock by Olympus Shareholders . . . . . . . . . . . . . . . . . . 37
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Effective Date and Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Business of Olympus Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Break-Up Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Preference and Allocation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Exchange of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Effect on Employee Benefit Plans and Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Post-Merger Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
COMPARATIVE RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Authorized Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Comparison of Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Amendments of Articles and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C>
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Limitation of Directors' Liability; Indemnification . . . . . . . . . . . . . . . . . . . . . . 52
Washington Mutual Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
CERTAIN DIFFERENCES BETWEEN WASHINGTON AND UTAH CORPORATE LAWS . . . . . . . . . . . . . . . . . . . . 54
Right to Call Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 54
Provisions Affecting Control Share Acquisitions and Business Combinations . . . . . . . . . . . 54
Transactions With Officers or Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
INFORMATION CONCERNING OLYMPUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Recent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Beneficial Ownership of Olympus Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 62
INFORMATION CONCERNING WASHINGTON MUTUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
The Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Washington Mutual's Operating Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
WMFSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Recent Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Recent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
THE OPTION PLAN AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Description of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Value of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
APPENDIX A: Amended and Restated Agreement for Merger (including Plans of Merger) . . . . . . . A-1
APPENDIX B: Opinion of Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
APPENDIX C: Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D: Utah Revised Business Corporation Act, Part 13 . . . . . . . . . . . . . . . . . . D-1
APPENDIX E: Olympus' Annual Report on Form 10-K for
the year ended December 31, 1993 and
Amendment to such report on Form 10-K/A
filed June 22, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
APPENDIX F: Olympus' Quarterly Report on Form 10-Q for
the three months ended September 30, 1994 . . . . . . . . . . . . . . . . . . . F-1
APPENDIX G: Option Plan Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
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<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus or in documents incorporated herein by
reference. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information contained elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the other documents
incorporated herein by reference. Shareholders are urged to read this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference in their entirety.
THE PARTICIPANTS
WASHINGTON MUTUAL. Washington Mutual is a Washington corporation which
provides a broad range of financial services in Washington, Oregon and Idaho
through WMB, WMFSB and other subsidiary operations. These services include the
traditional savings bank activities of accepting deposits from the general
public and making residential loans, consumer loans and limited types of
commercial real estate loans, primarily multi-family. As part of its consumer
banking focus, Washington Mutual also underwrites and markets insurance
annuities and offers mutual funds through various subsidiaries. At September
30, 1994, Washington Mutual's predecessor had total assets of $17.8 billion,
total deposits of $9.4 billion and stockholders' equity of $1.3 billion and was
the largest independent depository institution headquartered in the state of
Washington. The principal executive offices of Washington Mutual are located
in the Washington Mutual Tower, 1201 Third Avenue, Suite 1500, Seattle,
Washington 98101, and its telephone number is (206) 461-2000.
In November 1994, Washington Mutual's predecessor, Washington Mutual
Savings Bank, a Washington state-chartered stock savings bank ("WMSB") was
reorganized into a holding company structure (the "Reorganization"), with
Washington Mutual as the resulting holding company. Washington Mutual, which
was formed in August 1994, serves as the holding company for WMSB's successor,
WMB, WMFSB and other subsidiaries. Washington Mutual qualifies as a savings
and loan holding company. Except as noted otherwise, references in this Proxy
Statement/Prospectus to "Washington Mutual" refer to both (i) Washington
Mutual, Inc. and its consolidated subsidiaries after the consummation of the
Reorganization; and (ii) WMSB and its consolidated subsidiaries prior to
consummation of the Reorganization. See "INFORMATION CONCERNING WASHINGTON
MUTUAL -- The Reorganization."
WMFSB. WMFSB, a wholly-owned subsidiary of Washington Mutual, is a
federal savings bank, formed in 1994 to participate in a supervisory
acquisition of three branches of a savings association in receivership, two of
which were subsequently transferred to another subsidiary of Washington Mutual.
WMFSB's principal business includes the traditional savings association
activity of accepting deposits from the public, as well the brokering of loans
to other Washington Mutual subsidiaries.
For additional information concerning Washington Mutual and WMFSB, see
"INFORMATION CONCERNING WASHINGTON MUTUAL," "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
OLYMPUS. Olympus Capital Corporation, a Utah corporation ("Olympus"),
provides banking services in Utah and Montana through its wholly owned
subsidiary, Olympus Bank, a Federal Savings Bank ("Olympus Bank"). At
September 30, 1994, Olympus had total assets of $392.3 million, total deposits
of $311.2 million and stockholders' equity of $33.8 million. The principal
executive offices of Olympus are located at 115 South Main Street, Salt Lake
City, Utah 84111, and its telephone number is (801) 325-1000.
OLYMPUS BANK. Olympus Bank is a federal savings bank that provides a
broad range of financial services in Utah and Montana. These services include
obtaining funds from savings and transaction account deposits and borrowings,
investing in real estate loans, mortgage-backed securities and debt securities,
and providing related financial services.
For additional information concerning Olympus and Olympus Bank, see
"INFORMATION CONCERNING OLYMPUS," "AVAILABLE INFORMATION" and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE> 14
THE SPECIAL MEETING
TIME, DATE AND PLACE. The Special Meeting will be held at 11:00 a.m.,
local time, on April 24, 1995, at the corporate headquarters of Olympus
located at 115 South Main Street, Salt Lake City, Utah 84111.
MATTERS TO BE CONSIDERED. At the Special Meeting, shareholders of
Olympus ("Olympus Shareholders") will be asked to consider and vote upon
proposals (i) to approve the Merger Agreement, and (ii) to approve the Option
Plan Amendment, and to transact such other business as shall properly come
before the Special Meeting. See "THE SPECIAL MEETING -- Matters To Be
Considered at the Special Meeting."
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM. The Board of Directors
of Olympus has fixed the close of business on March 13, 1995, as the record
date (the "Record Date") for the determination of Olympus Shareholders entitled
to receive notice of and vote at the Special Meeting. As of the Record Date,
3,134,539 shares of Olympus Common Stock were outstanding and eligible to be
voted at the Special Meeting. Each share of Olympus Common Stock will be
entitled to one vote on each matter to be acted upon or that may properly come
before the Special Meeting. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Olympus Common Stock is
required for a quorum. See "THE SPECIAL MEETING -- Record Date and Voting" and
"-- Quorum; Votes Required."
VOTES REQUIRED. The affirmative vote of the holders of a majority of
the shares of Olympus Common Stock outstanding on the Record Date is required
to approve the Merger Agreement. Because the required vote of the holders of
Olympus Common Stock on the Merger Agreement is based upon the number of issued
and outstanding shares of stock, the failure to submit a proxy card (or to vote
in person at the Special Meeting), broker non-votes, which is an indication by
a broker that it does not have discretionary authority to vote on a particular
matter, and abstentions from voting by Olympus Shareholders will have the same
effect as a "NO" vote with respect to the Merger Agreement. To approve the
Option Plan Amendment, once a quorum is present, the votes cast in favor of the
proposal must exceed the votes cast against the proposal. Abstentions and
broker non-votes will not have the effect of being considered as votes cast
against the proposal. See "THE SPECIAL MEETING -- Record Date and Voting" and
"-- Quorum; Votes Required."
THE MERGER
GENERAL. The Merger Agreement provides for the merger of Olympus with
and into Washington Mutual, with Washington Mutual as the surviving
corporation. It is further intended that thereafter Olympus Bank will be
merged with and into WMFSB, with WMFSB as the surviving federal savings bank.
The separate existence of Olympus and Olympus Bank will cease upon completion
of the respective mergers. The Articles of Incorporation and Bylaws of
Washington Mutual will continue to be the Articles of Incorporation and Bylaws
of Washington Mutual after the completion of the Merger. Upon consummation of
the Merger, all shares of Olympus Common Stock will no longer be outstanding
and will automatically be canceled and retired and will cease to exist, and
each holder of a certificate representing any shares of Olympus Common Stock
will cease to have any rights with respect thereto, except the right to receive
shares of Washington Mutual Common Stock or, under certain circumstances,
shares of Washington Mutual Common Stock and/or cash, to be issued or paid upon
the surrender of such certificate, without interest, as described below, or the
right of dissenting Olympus Shareholders to receive fair value for their shares
of Olympus Common Stock, under certain circumstances. See "THE MERGER --
Dissenters' Rights."
At the effective date of the Merger (the "Effective Date"), each
outstanding share of Olympus Common Stock will be converted into the right to
receive $15.50 per share (the "Merger Consideration") in newly issued shares of
Washington Mutual Common Stock, which amount is subject to increase if the
Effective Date is after April 30, 1995, as described in "THE MERGER --
General." The per share value of Washington Mutual Common Stock for purposes
of determining the number of shares of Washington Mutual Common Stock to be
received in the Merger will be based upon the arithmetic average of the closing
prices of Washington Mutual Common Stock on The Nasdaq Stock Market for the
ten trading days immediately preceding the third trading day before the
Effective Date (the "Average Price"). The exchange ratio for determining the
number of shares of Washington Mutual Common Stock to be issued for each share
of Olympus Common Stock (the "Exchange Ratio") will be the Merger Consideration
divided by the Average Price. No certificates for fractional shares of
Washington Mutual Common Stock will be issued as a result of the Merger.
Instead, each stockholder otherwise entitled to a fractional share will receive
cash in lieu of such fractional share.
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<PAGE> 15
If the Effective Date occurs after April 30, 1995, the Merger
Consideration will be increased by an amount equal to (i) $0.775 (five percent
of $15.50) multiplied by (ii) a fraction, the numerator of which is the number
of days elapsed between April 30, 1995 and the Effective Date and the
denominator of which is 365.
If the Average Price is less than $18.00, then Washington Mutual may
elect to pay up to 49% of the aggregate Merger Consideration in the form of
cash (the "Partial Cash Consideration Option"). Unless the Average Price is
substantially below $18.00, Washington Mutual does not intend to elect the
Parial Cash Consideration Option. If Washington Mutual were to elect the
Partial Cash Consideration Option, each shareholder of Olympus, subject to
certain allocation procedures, will be eligible to receive such shareholder's
preference as to the form of the Merger Consideration to be paid. Unless
Washington Mutual waives its right to elect the Partial Cash Consideration
Option, preference forms ("Preference Forms") will be sent to Olympus
Shareholders prior to the Effective Date. On such Preference Form, each holder
will be able to indicate such holder's preference to receive either Washington
Mutual Common Stock or cash in the Merger. Preference Forms will only be
utilized, however, if Washington Mutual elects the Partial Cash Consideration
Option. During the period after an Olympus Shareholder delivers a Preference
Form and such shareholder's stock certificates and before such shareholder
receives Washington Mutual Common Stock and/or cash in the Merger, such Olympus
Shareholder will not be able to sell his shares or liquidate his investment in
Olympus Common Stock. However, an Olympus Shareholder may revoke a Preference
Form prior to the Preference Deadline (as hereinafter defined) and promptly
receive a return of such shareholder's stock certificate. See "THE MERGER --
General," "-- Dissenters' Rights" and "-- Federal Income Tax Consequences," and
"THE MERGER AGREEMENT -- Preference and Allocation Procedures."
RECOMMENDATION OF THE OLYMPUS BOARD; REASONS FOR THE MERGER. The Board of
Directors of Olympus ("Olympus Board") has carefully considered the terms of
the Merger Agreement, has approved it as being in the best interests of Olympus
and its shareholders, and recommends that shareholders of Olympus vote FOR the
proposal to approve the Merger Agreement.
The recommendation of the Olympus Board is based upon a number of
factors, including the terms of the Merger, the Merger Agreement and the Stock
Option Agreement between Olympus and Washington Mutual (the "Stock Option
Agreement"), benefits expected to result from the combination of Olympus and
Washington Mutual, information concerning the financial condition, results of
operations and prospects of Washington Mutual and Olympus on a stand-alone and
combined basis, the Board's view of the relative merits of other opportunities
presented to the Board or that the Board believed would be available, including
the possibility of remaining independent, the market price of Olympus Common
Stock and the fairness opinion of Goldman, Sachs & Co. ("Goldman Sachs") as
financial advisor to Olympus. See "THE MERGER -- Background of and Reasons for
the Merger" and "-- Opinion of Financial Advisor."
The Olympus Board believes that the Merger would provide Olympus
Shareholders with the opportunity to receive a premium over the prices per
share of Olympus Common Stock at which individual trades have occurred in the
recent past and, to the extent that shareholders receive solely Washington
Mutual Common Stock in the Merger, enable them to participate as Washington
Mutual shareholders, on a tax-deferred basis, in the expanded opportunities for
growth and profitability made possible by the Merger. The Olympus Board also
believes that the Merger would result in a combined entity that is (i) capable
of competing more effectively with larger financial institutions that have
exerted increasing competitive pressure on Olympus, and (ii) capable of
enjoying significant market penetration in the banking and financial services
markets served by the combined entity.
OPINION OF FINANCIAL ADVISOR. Goldman Sachs has served as financial
advisor to the Olympus Board, and has delivered its written opinion, dated
March ___, 1995 to the Olympus Board that the consideration to be received by
Olympus Shareholders pursuant to the Merger Agreement is fair to
such holders. Olympus has agreed to pay Goldman Sachs a fee for its services
which is, in part, contingent on the consummation of the Merger. The full text
of Goldman Sachs' written opinion, dated March ___, 1995, which sets forth
the assumptions made, matters considered and limits on their review, is
attached hereto as Appendix B. Shareholders of Olympus are urged to read such
opinion in its entirety. See "THE MERGER -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of
Olympus' management and the Olympus Board may be deemed to have interests in
the Merger in addition to their interests, if any, as shareholders of Olympus
generally. These include, among other things, payments under Olympus' Cash
Incentive Plan, payments of deferred compensation, the acceleration of vesting
of options to purchase shares of Olympus Common Stock, and provisions in the
Merger Agreement relating to indemnification, severance payments, employee
benefit plans, continued employment or consulting relationships with Washington
Mutual, and under certain circumstances, the conversion of outstanding options
into options to purchase Washington Mutual Common Stock or the ability to
receive the net value of options which remain unexercised immediately prior to
the effective time of the Merger and certain other benefits. See
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<PAGE> 16
"THE MERGER -- Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT -- Effect on Employee Benefit Plans and Stock Plans."
AFFILIATE LETTERS. As of the Record Date, Olympus directors and
officers and their affiliates beneficially owned an aggregate of 456,399
shares of Olympus Common Stock (excluding 205,600 shares issuable upon the
exercise of outstanding options) or approximately 14.6% of the shares of
Olympus Common Stock outstanding on such date. In addition, as of the Record
Date, certain shareholders and their affiliates who owned more than 5% of the
shares of Olympus Common Stock owned an aggregate of 539,891 shares or
approximately 17.2% of the shares of Olympus Common Stock. These Olympus
directors, officers and shareholders have each delivered a letter to
Washington Mutual and WMB (the "Affiliate Letters") agreeing, among other
things, to vote all shares of Olympus Common Stock held by them in favor of
the Merger Agreement. Accordingly, holders of approximately 31.8% of the
shares of Olympus Common Stock outstanding on the Record Date have committed
to voting in favor of the proposal to approve the Merger Agreement. These
Affiliate Letters are intended to increase the likelihood that the Merger will
be consummated according to the terms set forth in the Merger Agreement and
may tend to discourage competing offers by other parties to acquire Olympus.
See "THE MERGER -- Affiliate Letters."
REGULATORY APPROVALS. The Merger and the Bank Merger are subject to
the prior approval of the Office of Thrift Supervision ("OTS"). Receipt of
regulatory approvals of the Merger and the Bank Merger are conditions to
consummation of the Merger. Generally, bank mergers may not be consummated
until the 30th day following the date of the OTS's approval. Washington Mutual
has filed applications for all required regulatory approvals, but there can be
no assurance that such applications will be approved or, if approved, that such
approvals will not contain conditions or requirements which cause such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
A protest to the OTS merger application may significantly delay OTS approval of
the Merger. See "THE MERGER -- Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to
qualify as a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, for federal income
tax purposes, no gain or loss will be recognized by Olympus Shareholders who
receive solely Washington Mutual Common Stock in exchange for their Olympus
Common Stock. Cash received by Olympus Shareholders in the Merger will be
wholly or partially taxed. Consummation of the Merger is conditioned upon
receipt by Washington Mutual and Olympus of an opinion of counsel to Washington
Mutual to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code. For a further discussion of the
federal income tax consequences of the Merger, see "THE MERGER -- Federal
Income Tax Consequences."
Because certain tax consequences of the Merger may vary depending upon
the particular circumstances of each shareholder and other factors, each holder
of Olympus Common Stock is urged to consult such holder's own tax advisor to
determine the particular tax consequences to such holder of the Merger
(including the effect of state and local income and other tax laws).
ACCOUNTING TREATMENT. It is intended that the Merger will be accounted
for as a pooling-of-interests of Washington Mutual and Olympus under generally
accepted accounting principles. It is Washington Mutual's intention not to
restate financial statements and other financial information for periods prior
to the Merger to include the accounts and results of operations of Olympus
because the transaction is not expected to be material to Washington Mutual.
If the Average Price of Washington Mutual Common Stock is below $18.00 and
Washington Mutual elects the Partial Cash Consideration Option, the Merger will
be accounted for as a purchase under generally accepted accounting principles.
See "THE MERGER -- Accounting Treatment."
DISSENTERS' RIGHTS. Under Sections 1301-1331 of Part 13 ("Part 13") of
the Utah Revised Business Corporation Act ("URBCA"), Olympus Shareholders will
not be entitled to dissent from the Merger and obtain payment of the fair value
of shares held by them, unless Washington Mutual elects the Partial Cash
Consideration Option. If Washington Mutual elects the Partial Cash
Consideration Option, Olympus Shareholders will be entitled to dissent from the
Merger and obtain payment for such shares in cash, assuming the Merger is
consummated, by following certain procedures set forth in Part 13 of the URBCA,
the text of which is attached hereto as Appendix D. An Olympus Shareholder's
failure to follow exactly the procedures specified will result in a loss of
such shareholder's dissenters' rights. Under the Merger Agreement, Washington
Mutual may elect the Partial Cash Consideration Option if the Average Price is
less than $18.00. The Average Price is determined three trading days prior to
the Effective Date. At the time of the Special Meeting, it is not likely to be
known if the Partial Cash Consideration Option will be available to Washington
Mutual, or, if available, whether it would be elected by Washington Mutual.
Therefore, Olympus Shareholders should assume, for purposes of exercising
dissenters' rights, that Washington Mutual will elect the Partial Cash
Consideration Option. Dissenting Olympus Shareholders should follow the
procedures for perfecting such rights described in "THE MERGER -- Dissenters'
Rights" and in Part 13
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<PAGE> 17
of the URBCA. If Washington Mutual does not elect the Partial Cash
Consideration Option, however, Olympus Shareholders will not be entitled to
dissenters' rights. See "THE MERGER -- Dissenters' Rights."
THE MERGER AGREEMENT
EFFECTIVE DATE AND TIME OF THE MERGER. The Merger will become effective
at the time (the "Effective Time") of the occurrence of both (a) the filing of
the articles of merger with the Secretary of State of the State of Washington
and (b) the delivery to the Division of Corporations and Commercial Code of the
State of Utah of the articles of merger, or at such later time after such
filing and delivery as is provided in the articles of merger. See "THE MERGER
AGREEMENT -- Effective Date and Time of the Merger."
CONDITIONS TO THE MERGER. The respective obligations of Olympus and
Washington Mutual to consummate the Merger are subject to certain conditions,
including the receipt of regulatory approvals, approval of the Merger Agreement
by the shareholders of Olympus, the receipt of certain tax and accounting
opinions, and certain other conditions customary in a transaction of this
nature. See "THE MERGER AGREEMENT -- Conditions to the Merger" and "THE MERGER
- -- Regulatory Approvals."
BREAK-UP FEES. To compensate Olympus for certain costs incurred in
anticipation of the Merger and to induce Olympus to forego initiating
discussions with other potential acquirors, Washington Mutual has agreed to pay
to Olympus $250,000 if the Merger Agreement terminates under certain
circumstances. To compensate Washington Mutual for certain costs incurred in
anticipation of the Merger and to induce it to forego initiating discussions
regarding other potential acquisitions, Olympus has agreed to pay to Washington
Mutual $250,000 if the Merger Agreement terminates under certain circumstances.
See "THE MERGER AGREEMENT -- Break-Up Fees."
TERMINATION. The Merger Agreement may be terminated, and the Merger
abandoned, at any time before the Effective Time, either before or after its
approval by the Olympus Shareholders, by either party if, among other reasons,
the Merger shall not have become effective by June 30, 1995, unless the failure
of such occurrence shall be due to the failure of the party seeking termination
to perform its respective covenants and agreements under the Merger Agreement.
See "THE MERGER AGREEMENT -- Termination."
STOCK OPTION AGREEMENT. As a condition to Washington Mutual entering
into the Merger Agreement, Olympus and Washington Mutual also entered into the
Stock Option Agreement, pursuant to which Olympus granted Washington Mutual an
option (the "Option") to purchase up to 306,864 authorized and unissued shares
of Olympus Common Stock (representing approximately 9.9% of the outstanding
shares of Olympus Common Stock on July 22, 1994) at a price of $13.6126 per
share. The Option is exercisable only upon the occurrence of certain events
(none of which has occurred as of the date hereof), including without
limitation Olympus pursuing an acquisition with an entity other than Washington
Mutual. The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement and may discourage offers by other parties to acquire Olympus. A
copy of the Stock Option Agreement is attached to this Proxy
Statement/Prospectus as Appendix C. See "THE MERGER AGREEMENT -- Stock Option
Agreement."
EXCHANGE OF STOCK CERTIFICATES. Promptly after consummation of the
Merger, an agreed upon escrow agent (the "Exchange Agent") will mail
instructions to each Olympus Shareholder who did not deliver stock certificates
with a Preference Form concerning the proper method of surrendering
certificates formerly representing Olympus Common Stock in exchange for the
Merger Consideration. OLYMPUS SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
AT THIS TIME. See "THE MERGER AGREEMENT -- Exchange of Stock Certificates."
COMPARATIVE RIGHTS OF SHAREHOLDERS
Washington Mutual is a Washington corporation organized under the
Washington Business Corporations Act ("WBCA"). Olympus is a Utah corporation
operating under the URBCA. The rights of Olympus Shareholders are governed by
the URBCA and the Articles of Incorporation and Bylaws of Olympus. Upon
consummation of the Merger, except with respect to those Olympus Shareholders
who receive only cash in the event Washington Mutual elects the Partial Cash
Consideration Option, Olympus Shareholders will become shareholders of
Washington Mutual and their rights as shareholders of Washington Mutual will be
governed by the WBCA and the Articles of Incorporation and Bylaws of Washington
Mutual. Certain differences arise from this change of governing law, as well
as from the distinctions between the Articles of Incorporation and Bylaws of
Olympus and the Articles of Incorporation and Bylaws of Washington Mutual.
Among other things, Washington Mutual's Articles of
-10-
<PAGE> 18
Incorporation include provisions that generally prohibit certain business
combinations with shareholders owning 5% or more of the voting stock of
Washington Mutual except under specified circumstances. In addition,
Washington Mutual has adopted a shareholders' rights plan that under certain
circumstances allows holders of such rights to purchase an additional share of
Washington Mutual Common Stock for each right held. For a summary of certain
differences between the rights of holders of Washington Mutual Common Stock and
holders of Olympus Common Stock and an explanation of certain possible
anti-takeover effects of certain provisions in Washington Mutual's Articles of
Incorporation and Bylaws, see "COMPARATIVE RIGHTS OF SHAREHOLDERS" and "CERTAIN
DIFFERENCES BETWEEN WASHINGTON AND UTAH CORPORATE LAWS."
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL AFTER THE MERGER
Following the Merger, it is expected that the Washington Mutual Board of
Directors (the "Washington Mutual Board") will not change and will continue as
constituted immediately prior to the Merger. From time to time prior to
consummation of the Merger, decisions may be made with respect to the
management and operations of Washington Mutual after the Merger. See
"INFORMATION CONCERNING WASHINGTON MUTUAL" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
RESALES OF WASHINGTON MUTUAL COMMON STOCK
The shares of Washington Mutual Common Stock to be issued to
shareholders of Olympus in connection with the Merger have been registered
under the Securities Act. All Washington Mutual Common Stock received by
holders of Olympus Common Stock upon consummation of the Merger will be freely
transferable by those shareholders of Olympus not deemed to be "affiliates" of
Olympus. "Affiliates" are generally defined as persons who control, are
controlled by, or are under common control with, Olympus at the time of the
Special Meeting (generally, executive officers, directors and certain and
beneficial owners). See "THE MERGER -- Resales of Washington Mutual Common
Stock by Olympus Shareholders" for a discussion of the limitations on transfer
of Washington Mutual Common Stock held by affiliates of Olympus.
THE OPTION PLAN AMENDMENT
Under the terms of the Option Plan, upon execution of the Merger
Agreement, all outstanding options under the Option Plan became immediately
exercisable, and, upon consummation of the Merger, any unexercised options will
terminate and cease to be effective. The Merger Agreement contemplates that
Olympus will submit for shareholder approval an amendment to the Option Plan
which provides that, if Washington Mutual elects the Partial Cash Consideration
Option, the outstanding options under the Option Plan will not terminate upon
consummation of the Merger but will instead be converted into options to
acquire shares of Washington Mutual Common Stock, adjusted as to the number of
shares of Washington Mutual Common Stock to be acquired and the exercise price
by the Exchange Ratio.
The Olympus Board has adopted the Option Plan Amendment to effectuate
the changes contemplated by the Merger Agreement. The Olympus Board has
carefully considered the Option Plan Amendment, has approved it as being in the
best interests of Olympus and its Shareholders, and recommends that Olympus
Shareholders vote FOR the proposal to approve the Option Plan Amendment. The
text of the Option Plan Amendment is set forth on Appendix G to this Proxy
Statement/Prospectus. The effectiveness of the Option Plan Amendment is
conditioned on (i) Olympus Shareholder approval and (ii) the election by
Washington Mutual of the Partial Cash Consideration Option. IF WASHINGTON
MUTUAL DOES NOT ELECT THE PARTIAL CASH CONSIDERATION OPTION, THE OPTION PLAN
AMENDMENT WILL NOT BECOME EFFECTIVE, NOTWITHSTANDING ADOPTION BY THE OLYMPUS
BOARD AND APPROVAL BY OLYMPUS SHAREHOLDERS. See "THE OPTION PLAN AMENDMENT."
-11-
<PAGE> 19
MARKET PRICES AND DIVIDENDS
Washington Mutual Common Stock and Olympus Common Stock are traded on
The Nasdaq Stock Market under the symbols "WAMU" and "OLCC," respectively.
The table below sets forth, for the calendar quarters indicated, the reported
high and low sales prices of Washington Mutual Common Stock (adjusted for the
50% stock dividends declared in the first quarter of 1992 and the third quarter
of 1993) and Olympus Common Stock as reported on The Nasdaq Stock Market, in
each case based on published financial sources, and the dividends declared on
such stock.
<TABLE>
<CAPTION>
WASHINGTON MUTUAL OLYMPUS
COMMON STOCK COMMON STOCK
----------------------------------- ----------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 First Quarter . . . . . $24.08 $17.92 $0.10 $ 9.50 $ 6.50 $ --
Second Quarter . . . . 23.00 18.08 0.11 11.25 8.75 --
Third Quarter . . . . . 27.38 22.25 0.14 15.00 10.50 --
Fourth Quarter . . . . 28.38 22.63 0.15 14.50 12.50 --
1994 First Quarter . . . . . 25.00 19.13 0.16 15.75 11.25 --
Second Quarter . . . . 21.50 18.25 0.17 13.75 10.25 --
Third Quarter . . . . . 21.63 19.63 0.18 14.75 13.25 --
Fourth Quarter . . . . 20.63 15.75 0.19 15.00 14.25 --
1995 First Quarter . . . . . 20.75 16.63 0.19 15.63 14.63 --
(through March 6, 1995)
</TABLE>
The following table sets forth (i) the last reported sale price per
share of Washington Mutual Common Stock and Olympus Common Stock on July 22,
1994, the last full trading day before the execution and delivery of the Merger
Agreement and the public announcement thereof, and on March 6, 1995, the most
recent date for which it was practicable to obtain market price data prior to
the mailing of this Proxy Statement/Prospectus, (ii) the hypothetical Average
Price of Washington Mutual Common Stock computed as if the Effective Date were
each of such dates and (iii) the Merger Consideration.
<TABLE>
<CAPTION>
HYPOTHETICAL
AVERAGE PRICE
OF WASHINGTON
WASHINGTON MUTUAL OLYMPUS MUTUAL MERGER
COMMON STOCK COMMON STOCK COMMON STOCK CONSIDERATION
----------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Market Value Per Share at:
July 22, 1994 $20.125 $13.50 $20.30 $15.50
March 6, 1995 $20.125 $14.625 $20.31 $15.15
</TABLE>
Under the Merger Agreement, the number of shares of Washington Mutual
Common Stock to be issued to Olympus Shareholders in the Merger will vary
depending on the Average Price of Washington Mutual Common Stock. As the
Average Price increases, the number of shares of Washington Mutual Common Stock
to be issued in the Merger will decrease. Conversely, as the Average Price
decreases, the number of shares of Washington Mutual Common Stock to be issued
in the Merger will increase. No assurance can be given as to what the Average
Price will be or as to what the market price of Washington Mutual Common Stock
will be at the time the Merger is consummated. Olympus Shareholders
are encouraged to obtain current market quotations for shares of Washington
Mutual Common Stock and Olympus Common Stock. The value of the Merger
Consideration is fixed and bears no relation to the market price of the Olympus
Common Stock or the Washington Mutual Common Stock.
On June 30, 1994, there were approximately 44,000 shareholders,
including beneficial and record holders, of Washington Mutual Common Stock and
an aggregate of 3,500 holders of the three series of outstanding Washington
Mutual preferred stock ("Washington Mutual Preferred Stock"). On October 31,
1994, there were approximately 11,564 beneficial and record holders of Olympus
Common Stock.
-12-
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table sets forth for Washington Mutual Common Stock and
Olympus Common Stock certain historical, unaudited pro forma and unaudited pro
forma equivalent per share financial information for the years ended December
31, 1991, 1992, and 1993 and for the nine months ended September 30, 1994. The
information presented herein should be read in conjunction with the Pro Forma
Condensed Combined Financial Data of Washington Mutual and Olympus appearing
elsewhere in this Proxy Statement/Prospectus and the other financial
information incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
- -- Pro Forma Combined Consolidated Financial Data." The pro forma and pro
forma equivalent per share data in the following table are presented for
comparative purposes only and are not necessarily indicative of the combined
financial position or results of operations in the future or what the combined
financial position or results of operations would have been had the Merger been
consummated during the period or as of the date for which this pro forma table
is presented.
The pro forma and pro forma equivalent per share data reflect the
combined results of Washington Mutual and Olympus, after giving effect to the
Merger under the pooling-of-interests accounting method. If the Average Price
is less than $18.00, and Washington Mutual elects the Partial Cash
Consideration Option, the Merger will be treated as a purchase for accounting
purposes. The pro forma and pro forma equivalent per share data for the 1993
fiscal year and the nine-month period ended September 30, 1994 would not be
materially different if the Merger were treated as a purchase for accounting
purposes. See "THE MERGER."
-13-
<PAGE> 21
<TABLE>
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended September 30,
------------------------------- -------------------
1991 1992 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
WASHINGTON MUTUAL COMMON STOCK (A)
Net income per fully diluted share:
Historical . . . . . . . . . . . . $ 1.58 $ 1.91 $ 2.67 $ 1.83
Pro forma . . . . . . . . . . . . 1.51 1.88 2.66 1.81
Dividends per share:
Historical . . . . . . . . . . . . 0.24 0.33 0.50 0.51
Pro forma (b) . . . . . . . . . . 0.24 0.33 0.50 0.51
Book value per share at period-end:
Historical . . . . . . . . . . . . 12.00 14.37 16.42 17.47
Pro forma . . . . . . . . . . . . 11.84 14.22 16.17 17.18
OLYMPUS COMMON STOCK
Net income per fully diluted share:
Historical . . . . . . . . . . . . 0.14 1.04 1.95 1.02
Pro forma equivalent (c) . . . . . 1.15 1.43 2.03 1.39
Dividends per share:
Historical . . . . . . . . . . . . - - - -
Pro forma equivalent (c) . . . . . 0.18 0.25 0.39 0.39
Book value per share at period-end:
Historical . . . . . . . . . . . . 8.57 8.82 10.76 10.85
Pro forma equivalent (c) . . . . . 9.12 10.95 12.55 13.32
</TABLE>
________________
(a) Washington Mutual's acquisition of Summit Bancorp, Inc. on
November 14, 1994 was accounted for as a pooling-of-interests.
Washington Mutual has not restated any financial statements or
other financial information for periods prior to the date of
such acquisition because such transaction was not material to
Washington Mutual.
(b) The Washington Mutual pro forma combined dividends per share
amounts represent historical dividends per share.
(c) The Olympus pro forma equivalent per share amounts are
calculated by multiplying the Washington Mutual pro forma per
share amounts by an exchange ratio of 0.770186. This exchange
ratio is based upon a Washington Mutual Common Stock price of
$20.125, the closing price on March 6, 1995.
-14-
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
SUMMARY CONSOLIDATED FINANCIAL DATA OF WASHINGTON MUTUAL
The following table presents certain historical consolidated financial
data for Washington Mutual. This table is based upon and should be read in
conjunction with the Consolidated Financial Statements of Washington Mutual and
the notes thereto, which are incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Additionally, all per
common share information has been adjusted for 50% stock dividends paid on
February 14, 1992, and August 13, 1993, each of which had the effect of a
three-for-two stock split. Because of the significant increase in Washington
Mutual's size as a result of the acquisition of Pacific First Bank and Pioneer
Savings Bank early in 1993, the financial results for the year ended December
31, 1993, the nine months ended September 30, 1993, and 1994, and as of
September 30, 1994, are not generally comparable to prior periods or dates.
The information as of September 30, 1994 and for the nine-month periods ended
September 30, 1993 and 1994 is unaudited and reflects all adjustments which
are, in the opinion of Washington Mutual management, necessary for a fair
statement of the results for the periods presented and is not necessarily
indicative of the operating results for the entire year.
-15-
<PAGE> 23
<TABLE>
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended September 30,
----------------------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
-------- ------- ------- -------- -------- ------ ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARIZED STATEMENTS
OF INCOME:
Net interest income . . . . $152,836 $193,057 $234,061 $329,558 $529,431 $382,941 $428,820
Provision for loan 21,382 61,549 21,627 14,000 35,000 27,500 15,000
losses(1) . . . . . . . .
Other income . . . . . . . 55,280 66,924 94,475 90,692 143,862 107,147 81,877
Other expense . . . . . . . 158,030 166,295 183,792 230,896 369,264 268,631 291,195
Income taxes . . . . . . . 8,287 20,508 42,526 60,247 93,765 67,226 76,655
Extraordinary items, net
of federal income tax
effect . . . . . . . . . . (1,999) -- -- (4,638) (8,953) (8,953) --
Cumulative effect of
change in tax
accounting method . . . . -- -- -- -- 13,365 13,365 --
-------- ------- ------- -------- -------- ------ ---------
Net income (1) . . . . . . $ 18,418 $ 11,629 $ 80,591 $110,469 $179,676 $131,143 $127,847
======== ======== ======== ======== ======== ======== ========
Net income attributable
to common stock . . . . . $ 17,226 $ 6,754 $ 75,716 $105,594 $166,118 $121,819 $113,909
======== ======== ======== ======== ======== ======== ========
Net income per share:
Primary . . . . . . . . . $0.41 $0.15 $1.65 $2.01 $2.82 $2.08 $1.89
Fully diluted . . . . . . 0.41 0.15 1.58 1.91 2.67 1.96 1.83
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of September 30,
----------------------------------------------------------- ------------------------
1989 1990 1991 1992 1993 1993 1994
---------- ---------- ---------- ---------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARIZED STATEMENTS
OF FINANCIAL
POSITION:
Total assets . . . . . $7,243,845 $7,659,973 $7,970,427 $9,911,602 $15,827,228 $15,075,483 $17,840,418
Loans . . . . . . . . . 4,526,419 4,997,762 5,251,558 6,719,680 10,891,102 10,339,936 11,872,057
Trading, investment
and mortgage-backed
securities . . . . . . 2,284,118 2,155,914 2,140,490 2,587,476 4,013,098 3,823,726 5,110,382
Deposits . . . . . . . 4,417,833 5,009,947 5,410,236 6,058,112 9,351,402 9,332,643 9,392,236
Borrowings (includes
annuities) . . . . . . 2,191,512 2,065,472 1,789,308 2,735,652 5,050,645 4,263,163 6,863,275
Stockholders' equity . 506,861 505,506 658,326 995,036 1,195,704 1,151,154 1,269,754
</TABLE>
____________________
(1) In 1990, Washington Mutual modified its reserving methodology from a
"loan-by-loan" analysis of providing for losses to one of "general
reserving" and accordingly increased its provision for loan losses by
$48.0 million.
-16-
<PAGE> 24
OTHER FINANCIAL DATA (1):
<TABLE>
<CAPTION>
For The Nine Months
For The Year Ended December 31, Ended September 30,
---------------------------------------------- -----------------
1989 1990 1991 1992 1993 1993 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Yield on earning assets 9.97% 10.22% 10.11% 9.26% 8.03% 8.11% 7.49%
Cost of deposits and
borrowings . . . . . 7.85 7.74 7.05 5.49 4.04 4.12 3.95
Net interest spread . . 2.12 2.48 3.06 3.77 3.99 3.99 3.54
Net interest margin . . 2.33 2.71 3.25 3.99 4.12 4.12 3.67
Operating efficiency
ratio (2) . . . . . . 75.93 63.96 55.94 54.94 54.84 54.81 57.02
Return on average
assets. . . . . . . . 0.26 0.15 1.04 1.24 1.31 1.33 1.04
Return on average
stockholders' equity 4.15 2.27 14.08 15.16 16.92 17.02 13.52
Ratios of combined
earnings to fixed
charges (3):
Excluding interest on
deposits . . . . . . 1.15x 1.16x 1.81x 2.33x 2.62x 2.61x 2.09x
Including interest on
deposits . . . . . 1.06x 1.06x 1.25x 1.40x 1.53x 1.52x 1.46x
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------------------------------------- --------------
1989 1990 1991 1992 1993 1993 1994
----- ----- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming assets as
a percentage of total
assets . . . . . . . 2.05% 1.92% 1.66% 1.34% 0.70% 0.91% 0.48%
Loan loss reserves/total
loans . . . . . . . . 0.56 1.06 1.00 0.80 1.06 1.17 1.04
Loan loss reserves/
nonperforming assets 16.93 35.92 39.54 40.75 103.70 88.42 144.92
Leverage capital ratio
(4)(5) . . . . . . . 6.27 5.77 7.57 9.35 6.00 6.22 5.91
Core risk-based capital
ratio (5)(6) . . . . 10.69 9.57 12.04 15.41 9.84 9.89 10.71
Total risk-based capital
ratio (5)(7) . . . . 13.25 12.87 15.13 16.99 10.59 10.98 11.58
- --------------------
</TABLE>
(1) Where appropriate, calculations for the nine-month periods are
annualized.
(2) Other expense divided by operating income (net interest income plus
other income).
(3) The ratios of combined earnings to fixed charges have been computed by
dividing earnings before income tax expense and fixed charges by fixed
charges.
(4) The FDIC requires that a bank have a minimum leverage ratio of at
least 5.00% to be considered "well capitalized."
(5) The capital ratios at December 31, 1992, were significantly higher
than Washington Mutual's historical levels primarily because of the
completion of the offerings of the 9.12% Noncumulative Perpetual
Preferred Stock, Series C and $6.00 Noncumulative Convertible
Perpetual Preferred Stock, Series D, on December 28, 1992. These
offerings were intended, in part, to provide capital to support
Washington Mutual's acquisition of Pacific First Bank, which was
consummated on April 9, 1993.
(6) The FDIC requires that a bank have a core risk-based capital ratio of
at least 6.00% to be considered "well capitalized."
(7) The FDIC requires that a bank have a total risk-based capital ratio of
at least 10.00% to be considered "well capitalized."
-17-
<PAGE> 25
CONDENSED CONSOLIDATED FINANCIAL DATA OF OLYMPUS
The following table sets forth certain condensed historical financial
data of Olympus and is based upon and should be read in conjunction with the
Consolidated Financial Statements of Olympus, including the respective notes
thereto, which are incorporated herein by reference. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." The information as of September 30, 1994 and
for the nine month periods ended September 30, 1993 and 1994 is unaudited and
reflects all adjustments which are, in the opinion of Olympus management,
necessary for a fair statement of results for the periods presented and is not
necessarily indicative of the operating results for the entire year.
<TABLE>
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended September 30,
------------------------------------------------------- -------------------
1989 1990 1991 1992 1993 1993 1994
-------- ------- ------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Interest income . . . . . . . . $ 65,147 $48,833 $39,544 $33,109 $27,430 $20,558 $20,493
Interest expense . . . . . . . 59,376 40,513 29,665 19,769 14,485 11,132 10,127
Net interest income . . . . . . 5,771 8,320 9,879 13,340 12,945 9,426 10,366
Provision (recovery) for losses
on loans . . . . . . . . . . 8,874 2,113 1,922 2,038 (996) (844) 1,027
Net interest income after
provision for loan losses . . (3,103) 6,207 7,957 11,302 13,941 10,270 9,339
Other income . . . . . . . . . 2,841 3,547 3,546 3,083 4,492 3,422 2,216
Other expenses . . . . . . . . 14,157 8,896 10,774 11,707 12,105 8,849 8,233
Income (loss) before federal -------- ------- ------- ------- ------- ------- -------
income taxes and
extraordinary items . . . . . (14,419) 858 729 2,678 6,328 4,843 3,322
Federal income taxes . . . . . - 1,090 553 (157) - - -
Extraordinary items, net of
federal income tax effect . . . - 1,090 169 - (323) (323) -
Cumulative effect of change in
tax accounting method . . . . - - - - 338 338 -
-------- ------ ------- ------- ------- ------- -------
Net income (loss) . . . . . . . $(14,419) $ 858 $ 345 $ 2,835 $ 6,343 $ 4,858 $ 3,322
======== ====== ======= ======= ======= ======= =======
Cash dividends declared . . . . - - - - - - -
PER SHARE DATA:
Net income per common share:
Primary . . . . . . . . . . . . $(5.65) $0.34 $0.14 $1.06 $1.97 $1.51 $1.02
Fully diluted . . . . . . . . . (5.65) 0.34 0.14 1.04 1.95 1.50 1.02
Cash dividends declared per
common share . . . . . . . . . . - - - - - - -
Book value per common share . . . . 8.10 8.43 8.57 8.82 10.76 10.36 10.85
Average common shares and common
stock equivalents outstanding . . 2,550,139 2,550,139 2,550,139 2,716,003 3,255,226 3,245,804 3,269,792
</TABLE>
-18-
<PAGE> 26
STATEMENT OF FINANCIAL
CONDITION DATA:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------- -------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets . . . . . . . . . . . . $589,933 $450,466 $403,693 $380,480 $414,169 $388,603 $392,320
Loans receivable, net . . . . . 306,686 268,771 264,630 238,906 242,470 237,368 233,935
Mortgage-backed securities . . 178,106 122,758 90,661 99,736 134,347 113,709 118,070
Cash and investments . . . . . 71,145 34,153 23,683 23,233 18,966 20,031 20,482
Total deposits . . . . . . . . 332,560 291,580 292,713 291,651 294,561 294,699 311,242
Borrowings . . . . . . . . . . 228,972 131,548 83,168 57,562 81,646 56,301 41,963
Shareholders' equity . . . . . 20,646 21,504 21,849 26,987 33,364 31,930 33,765
</TABLE>
OTHER FINANCIAL DATA:
<TABLE>
<CAPTION>
For the Nine
Months Ended
For the Year Ended December 31, September 30,
----------------------------------------- ----------------
1989 1990 1991 1992 1993 1993 1994
------ ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Yield on earning assets . . . . . . . . . . 9.66% 9.84% 9.49% 8.37% 7.12% 7.42% 7.09%
Cost of deposits and borrowings . . . . . . 8.79 8.21 7.27 5.28 4.12 4.27 3.77
Net interest spread . . . . . . . . . . . . 0.87 1.63 2.22 3.09 3.00 3.15 3.32
Net interest margin . . . . . . . . . . . . 0.83 1.63 2.32 3.23 3.25 3.42 3.58
Return on average assets . . . . . . . . . (2.01) 0.16 0.08 0.70 1.64 1.70 1.12
Return on average stockholders' equity . . (50.47) 3.73 1.57 12.08 20.83 22.00 13.01
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------------------- -----------------
1989 1990 1991 1992 1993 1993 1994
----- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming assets as a percentage
of total assets . . . . . . . . . . . . 5.25% 5.48% 3.48% 2.45% 1.28% 0.25% 0.23%
Loan loss reserve to total loans . . . . . 3.99 2.43 2.41 2.72 2.26 2.38 2.77
Loan loss reserve to nonperforming assets . 41.08 27.17 46.55 71.73 105.91 594.11 730.37
Tangible capital ratio . . . . . . . . . . 3.30 4.70 5.20 7.03 7.91 8.05 8.58
Core capital ratio . . . . . . . . . . . . 3.30 4.70 5.20 7.03 7.91 8.05 8.58
Total risk-based capital ratio . . . . . . 6.45 8.30 8.90 12.30 14.27 13.99 15.92
</TABLE>
-19-
<PAGE> 27
PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain pro forma combined consolidated
financial data for Washington Mutual giving effect to the Merger under the
pooling-of-interests accounting method. The pro forma combined consolidated
statements of income and per share data are presented as if the Merger had been
consummated at the beginning of each period presented. The pro forma combined
consolidated statement of financial position combines the historical
consolidated statement of financial position of Washington Mutual and Olympus
as if the Merger had occurred on September 30, 1994. For a description of the
treatment of the Merger for accounting purposes, see "THE MERGER -- Accounting
Treatment." This information should be read in conjunction with and is
qualified in its entirety by the historical consolidated financial statements
of Washington Mutual and Olympus, including the respective notes thereto,
which are incorporated by reference in this Proxy Statement/ Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The pro forma condensed
combined financial data have not been audited by the independent auditors of
Washington Mutual or Olympus, are intended for informational purposes only and
are not necessarily indicative of the future financial position or future
results of operations of the combined company or of the financial position or
the results of operations of the combined company that would have been realized
had the Merger been consummated as of the dates or for the periods presented.
Washington Mutual's acquisition of Summit Bancorp, Inc. on November 14, 1994
was accounted for as a pooling-of- interests. Washington Mutual has not
restated any financial statements or other financial information for periods
prior to the date of such acquisition because such transaction was not
material to Washington Mutual.
The presentation of the following pro forma information should not be
construed as indicative of the form or the probability of consummation of the
Merger. If Washington Mutual elects the Partial Cash Consideration Option, the
Merger will be treated as a purchase for accounting purposes. The pro forma
financial information for the 1993 fiscal year and the nine-month period ended
September 30, 1994 would not be materially different if the Merger were treated
as a purchase for accounting purposes. See "THE MERGER."
-20-
<PAGE> 28
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30, 1994
-------------------------------------------------------------
Washington Pro Forma Pro Forma
Mutual Olympus Adjustment Combined
------------ --------- ---------- ----------
(in thousands)
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . . . $ 225,678 $ 9,569 $ - $ 235,247
Trading account securities . . . . . . 1,721 - - 1,721
Available-for-sale securities . . . . 2,559,765 76,380 - 2,636,145
Held-to-maturity securities . . . . . 2,548,896 52,603 - 2,601,499
Loans . . . . . . . . . . . . . . . . 11,872,057 233,935 - 12,105,992
REO . . . . . . . . . . . . . . . . . 19,421 32 - 19,453
Bank premises and equipment . . . . . 168,802 6,982 - 175,784
Goodwill and other
intangible assets . . . . . . . . . . 198,071 - - 198,071
Other assets . . . . . . . . . . . . . 246,007 12,819 258,826
------------ --------- ----- ------------
Total assets . . . . . . . . . . . $17,840,418 $392,320 $ - $18,232,738
============ ========= ===== ============
Liabilities:
Deposits . . . . . . . . . . . . . . . $ 9,392,236 $311,242 $ - $ 9,703,478
Annuities . . . . . . . . . . . . . . 782,015 - - 782,015
Securities sold under
agreements to repurchase . . . . . . 2,635,253 16,636 - 2,651,889
Advances from the FHLB . . . . . . . . 3,365,682 25,327 - 3,391,009
Other borrowings . . . . . . . . . . . 80,325 - - 80,325
Other liabilities . . . . . . . . . . 315,153 5,350 - 320,503
------------ --------- ----- ------------
Total liabilities . . . . . . . . . 16,570,664 358,555 - 16,929,219
Stockholders' Equity:
Preferred stock . . . . . . . . . . . 6,200 - - 6,200
Common stock. . . . . . . . . . . . . . 60,391 3,112 (523) 63,546
Capital surplus . . . . . . . . . . . . 561,485 1,942 523 563,384
Valuation reserve for available-
for-sale securities . . . . . . . . . (14,427) (3,088) - (17,515)
Retained earnings . . . . . . . . . . 656,105 31,799 - 687,904
------------ --------- ----- ------------
Total stockholders' equity . . . . . . 1,269,754 33,765 - 1,303,519
Total liabilities and
stockholders' equity . . . . . . . $17,840,418 $392,320 $ - $18,232,738
============ ========= ===== ============
</TABLE>
________________
Key assumptions:
(1) The Merger is accounted for as a pooling-of-interests.
(2) Adjustment of common stock and capital surplus is retirement of Olympus
Stock (3,112,239 shares) and issuance of Washington Mutual Common Stock
(2,589,620 shares). (Includes approximately 250,000 shares of Olympus
Stock issued under Olympus Stock Plan.) Resulting total shares
outstanding of Washington Mutual Common Stock after the Merger is
62,980,616. Conversation based upon March 6, 1995 closing price of
Washington Mutual Common Stock.
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<PAGE> 29
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1991 Year Ended December 31, 1992
--------------------------------------- ---------------------------------------
Washington Pro Forma Washington Pro Forma
Mutual Olympus Combined Mutual Olympus Combined
----------- ------- --------- ---------- ------- ---------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans . . . . . . . . . . . . . . . $542,176 $26,821 $568,997 $581,095 $25,279 $606,374
Securities . . . . . . . . . . . . 189,381 12,723 202,104 188,261 7,830 196,091
-------- ------- -------- -------- ------- --------
Total interest income . . . . . . 731,557 39,544 771,101 769,356 33,109 802,465
Interest expense:
Deposits . . . . . . . . . . . . . 344,819 19,944 364,763 308,065 14,169 322,234
Borrowings . . . . . . . . . . . . 152,677 9,721 162,398 131,733 5,600 137,333
-------- ------- -------- -------- ------- --------
Total interest expense . . . . . 497,496 29,665 527,161 439,798 19,769 459,567
-------- ------- -------- -------- ------- --------
Net interest income . . . . . . 234,061 9,879 243,940 329,558 13,340 342,898
Provision for loan losses . . . . . . . 21,627 1,922 23,549 14,000 2,038 16,038
-------- ------- -------- -------- ------- --------
Net interest income after
provision for loan losses . . 212,434 7,957 220,391 315,558 11,302 326,860
Other income:
Service fees . . . . . . . . . . . 40,856 217 41,073 51,363 555 51,918
Loan servicing fees . . . . . . . . 10,858 866 11,724 10,380 836 11,216
Other operating income . . . . . . 11,621 1,983 13,604 10,897 483 11,380
Interest on federal income tax refund 9,085 - 9,085 - - -
Gain on sale of assets . . . . . . 22,055 480 22,535 18,052 1,209 19,261
-------- ------- -------- -------- ------- --------
Total other income . . . . . . . 94,475 3,546 98,021 90,692 3,083 93,775
Other expense:
Salaries and employee benefits . . 82,912 4,242 87,154 106,997 5,079 112,076
Occupancy and equipment . . . . . . 29,095 1,697 30,792 33,163 1,966 35,129
Deposit insurance . . . . . . . . . 11,125 553 11,678 13,579 577 14,156
Other operating expense . . . . . . 45,519 2,649 48,168 61,927 2,083 64,010
Amortization of goodwill and
other intangible assets . . . . . 7,707 - 7,707 10,407 - 10,407
REO operations . . . . . . . . . . 5,051 103 5,154 2,111 583 2,694
Write down of other assets . . . . 2,383 1,530 3,913 2,712 1,419 4,131
-------- ------- -------- -------- ------- --------
Total other expense . . . . . . 183,792 10,774 194,566 230,896 11,707 242,603
-------- ------- -------- -------- ------- --------
Income before income tax expense . . . 123,117 729 123,846 175,354 2,678 178,032
Income tax expense . . . . . . . . . . 42,526 553 43,079 60,247 (157) 60,090
-------- ------- -------- -------- ------- --------
Net income from continuing operations . 80,591 176 80,767 115,107 2,835 117,942
======== ======= ======== ======== ======= ========
Net income applicable to common stock . $ 75,716 $176 $ 75,892 $110,232 $ 2,835 $113,067
======== ======= ======== ======== ======= ========
PER SHARE DATA:
Net income from continuing
operations per common share:
Primary . . . . . . . . . . . . . $1.65 $0.07 $1.56 $2.10 $1.06 $2.05
Fully diluted . . . . . . . . . . 1.58 0.07 1.50 1.99 1.04 1.95
Average number of common shares:
Primary . . . . . . . . . . . . .45,924,301 2,550,139 48,513,921 52,529,967 2,674,297 55,119,587
Diluted . . . . . . . . . . . . .51,101,258 2,550,139 53,690,878 57,763,252 2,716,003 60,352,872
</TABLE>
___________________
NOTE: For a discussion of the effect of the 1993 business combinations with
Pioneer Savings Bank and Pacific First Bank, see Washington Mutual's
1994 Form 10-K, Item 8, "Financial Statements and Supplementary
Data--Note 25: Acquisitions," which is incorporated by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE> 30
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1993 Nine Months Ended September 30, 1994
--------------------------------------- ---------------------------------------
Washington Pro Forma Washington Pro Forma
Mutual Olympus Combined Mutual Olympus Combined
---------- -------- ---------- ------------ ---------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans . . . . . . . . . . . . . . $ 789,669 $21,010 $ 810,679 $666,833 $15,128 $681,961
Securities . . . . . . . . . . . 246,270 6,420 252,690 205,544 5,365 210,909
--------- ------- ---------- -------- ------- --------
Total interest income . . . . . 1,035,939 27,430 1,063,369 872,377 20,493 892,870
Interest expense:
Deposits . . . . . . . . . . . . 340,595 11,023 351,618 255,355 8,207 263,562
Borrowings . . . . . . . . . . . 165,913 3,462 169,375 188,202 1,920 190,122
--------- ------- ---------- -------- ------- --------
Total interest expense . . . . 506,508 14,485 520,993 443,557 10,127 453,684
--------- ------- ---------- -------- ------- --------
Net interest income . . . . . 529,431 12,945 542,376 428,820 10,366 439,186
Provision (or recovery) for loan losses 35,000 (996) 34,004 15,000 1,027 16,027
--------- ------- ---------- -------- ------- --------
Net interest income after
provision for loan losses . 494,431 13,941 508,372 413,820 9,339 423,159
Other income:
Service fees . . . . . . . . . . 68,862 794 69,656 52,858 1,145 54,003
Loan servicing fees . . . . . . . 13,381 619 14,000 6,935 619 7,554
Other operating income . . . . . 19,963 560 20,523 17,638 173 17,811
Interest on federal income tax refund - - - 428 - 428
Gain on sale of assets . . . . . 41,656 2,519 44,175 4,018 279 4,297
--------- ------- ---------- -------- ------- --------
Total other income . . . . . . 143,862 4,492 148,354 81,877 2,216 84,093
Other expense:
Salaries and employee benefits . 162,516 5,439 167,955 131,404 4,493 135,897
Occupancy and equipment . . . . . 55,936 2,185 58,121 46,658 1,655 48,313
Deposit insurance . . . . . . . . 20,425 455 20,880 16,780 551 17,331
Other operating expense . . . . . 96,914 3,451 100,365 74,838 2,264 77,102
Amortization of goodwill and
other intangible assets . . . . 24,690 - 24,690 21,784 - 21,784
REO operations . . . . . . . . . 6,295 (62) 6,233 (269) (788) (1,057)
Write down of other assets . . . 2,488 637 3,125 - 58 58
--------- ------- ---------- -------- ------- --------
Total other expense . . . . . . 369,264 12,105 381,369 291,195 8,233 299,428
--------- ------- ---------- -------- ------- --------
Income before income tax expense . . 269,029 6,328 275,357 204,502 3,322 207,824
Income tax expense . . . . . . . . . 93,765 - 93,765 76,655 - 76,655
--------- ------- ---------- -------- ------- --------
Net income from continuing operations 175,264 6,328 181,592 127,847 3,322 131,169
========= ======= ========== ======== ======= ========
Net income applicable to common stock $ 161,706 $ 6,328 $ 168,034 $113,909 $ 3,322 $117,231
========= ======= ========== ======== ======= ========
PER SHARE DATA:
Net income from continuing
operations per common share:
Primary . . . . . . . . . . . . $2.74 $1.96 $2.73 $1.89 $1.02 $1.87
Fully diluted . . . . . . . . . 2.60 1.94 2.59 1.83 1.02 1.81
Average number of common shares
Primary . . . . . . . . . . . . 58,954,059 3,223,742 61,543,679 60,265,903 3,254,341 62,855,523
Diluted . . . . . . . . . . . . 65,016,545 3,255,226 67,606,165 65,685,150 3,269,792 68,274,770
</TABLE>
__________________________
NOTE: For a discussion of the effect of the 1993 business combinations with
Pioneer Savings Bank and Pacific First Bank, see Washington Mutual's
Form 10-K, Item 8, "Financial Statements and Supplementary Data --
Note 25: Acquisitions," which is incorporated by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE> 31
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to Olympus
Shareholders in connection with the solicitation of proxies by the Olympus
Board for use at the Special Meeting to be held at 11:00 a.m. local time on
April 24, 1995, at the corporate headquarters of Olympus located at
115 South Main Street, Salt Lake City, Utah 84111, and at any
adjournments or postponements thereof for the purposes set forth herein.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
As more fully described in this Proxy Statement/Prospectus, the purpose
of the Special Meeting is to consider and vote upon proposals (i) to approve
the Merger Agreement pursuant to which Olympus will be merged with and into
Washington Mutual with Washington Mutual as the surviving corporation (see "THE
MERGER") and (ii) to amend the Option Plan to provide that, if and only if
Washington Mutual elects the Partial Cash Consideration Option, all outstanding
options of Olympus shall not terminate as of the Effective Time but shall
instead be converted into fully-exercisable options to acquire Washington
Mutual Common Stock, adjusted as to the number of options and the exercise
price by the Exchange Ratio. See "THE OPTION PLAN AMENDMENT."
RECORD DATE AND VOTING
The Olympus Board has fixed the close of business on March 13, 1995 as
the Record Date for the determination of holders of Olympus Common Stock
entitled to receive notice of and to vote at the Special Meeting. On the
Record Date, 3,134,539 shares of Olympus Common Stock were outstanding and
entitled to vote, which were held by 11,414 holders of record. Holders of
shares of Olympus Common Stock will be entitled to one vote exercisable in
person or by properly executed proxy, for each share held of record at the
close of business on the Record Date on each proposal described herein and on
any other matter that may be presented for consideration and action by the
shareholders at the Special Meeting.
QUORUM; VOTES REQUIRED
The presence, in person or by proxy, of at least a majority of the total
number of shares of Olympus Common Stock outstanding on the Record Date is
necessary to constitute a quorum at the Special Meeting. Abstentions will be
considered as shares present for purposes of determining the presence of a
quorum. The approval of the Merger Agreement will require the affirmative vote
of the holders of a majority of the outstanding shares of Olympus Common Stock
entitled to vote thereon. With respect to the vote on the proposal to approve
the Merger, abstentions and failures to vote (including broker non-votes) will
have the same effect as negative votes. The approval of the Option Plan
Amendment will require, once a quorum is present, that votes cast in favor of
the proposal exceed the votes cast against the proposal. Abstentions and
broker non-votes will not have the effect of being considered as votes cast
against the proposal.
As of the Record Date, Olympus directors and officers and their
affiliates beneficially owned an aggregate of 456,399 shares of Olympus Common
Stock (excluding 205,600 shares issuable upon the exercise of outstanding
options) or approximately 14.6% of the shares of Olympus Common Stock
outstanding on such date. In connection with the Merger Agreement, each of the
directors and officers of Olympus, and certain shareholders of Olympus owning
in the aggregate 996,290 shares of Olympus Common Stock or approximately 31.8%
of the shares outstanding as of the Record Date, entered into letter agreements
with Washington Mutual pursuant to which, among other things, each such person
agreed to vote all shares of Olympus Common Stock held by such person in favor
of the Merger Agreement. See "THE MERGER -- Affiliate Letters."
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<PAGE> 32
VOTING AND REVOCATION OF PROXIES
Shares of Olympus Common Stock represented by a proxy properly signed
and received at, or prior to, the Special Meeting, unless such proxy is revoked
prior to the vote at the Special Meeting, will be voted at the Special Meeting
in accordance with the instructions thereon. If a proxy is properly signed and
returned without indicating any voting instructions, the shares represented by
the proxy will be voted (1) FOR approval of the Merger Agreement; and (2) FOR
the approval of the Option Plan Amendment. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by filing with the Secretary of Olympus a written instrument
revoking the proxy, by submitting to the Secretary of Olympus a new proxy
bearing a later date prior to or at the Special Meeting, or by voting in person
at the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy. All written instruments of
revocation and other communications with respect to revocation of proxies
should be addressed as follows: Olympus Capital Corporation, 115 South Main
Street, Salt Lake City, Utah 84111, Attention: K. John Jones, Secretary.
As of the date of this Proxy Statement/Prospectus, the Olympus Board is
not aware of any business to be acted on at the Special Meeting other than as
described herein. If, however, any other matters properly come before the
Special Meeting, including, among other things, consideration of a motion to
adjourn or postpone the Special Meeting to another time and/or place (including
without limitation, for the purpose of soliciting additional proxies), the
persons named as proxies will, unless the shareholder otherwise specifies in
the proxy, vote upon such matters as determined by a majority of the Olympus
Board.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees
of Olympus, who will not be specifically compensated for such services, may
solicit proxies, personally or by telephone or telegram or other forms of
communication. Brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward soliciting materials to beneficial owners and will
be reimbursed for their reasonable expenses incurred in sending proxy material
to beneficial owners. Olympus will bear its own expenses in connection with
the solicitation of proxies for the Special Meeting. See "THE MERGER
AGREEMENT -- Expenses."
OLYMPUS SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO OLYMPUS IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH THEIR PROXY CARDS
THE MERGER
The following information, insofar as it relates to matters contained in
the Merger Agreement or the Stock Option Agreement, is qualified in its
entirety by reference to the Merger Agreement and the Stock Option Agreement,
which are incorporated herein by reference and attached hereto as Appendix A
and Appendix C, respectively. OLYMPUS SHAREHOLDERS ARE URGED TO READ THE MERGER
AGREEMENT, THE STOCK OPTION AGREEMENT AND THE OTHER APPENDICES IN THEIR
ENTIRETY.
GENERAL
The Merger Agreement provides for the merger of Olympus with and into
Washington Mutual, with Washington Mutual as the surviving corporation. It is
further intended that thereafter Olympus Bank will be merged
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<PAGE> 33
with and into WMFSB, with WMFSB as the surviving federal savings bank. The
separate existence of Olympus and Olympus Bank will cease upon completion of
the respective mergers. The Articles of Incorporation and Bylaws of Washington
Mutual will continue to be the Articles of Incorporation and Bylaws of
Washington Mutual after the completion of the Merger. Upon consummation of the
Merger, all shares of Olympus Common Stock will no longer be outstanding and
will automatically be canceled and retired and will cease to exist, and each
holder of a certificate representing any shares of Olympus Common Stock will
cease to have any rights with respect thereto, except the right to receive
shares of Washington Mutual Common Stock or, under certain circumstances,
shares of Washington Mutual Common Stock and/or cash, to be issued and/or paid
upon the surrender of such certificate, without interest, as described below,
or the right of dissenting Olympus Shareholders to receive fair value for their
shares of Olympus Common Stock, under certain circumstances. See "THE MERGER
- -- Dissenters' Rights."
At the Effective Time, each outstanding share of Olympus Common Stock
will be converted into the right to receive $15.50 per share, in newly issued
shares of Washington Mutual Common Stock or, under certain circumstances, cash
and/or Washington Mutual Common Stock, which amount is subject to increase if
the Effective Date is after April 30, 1995. The per share value of Washington
Mutual Common Stock for purposes of determining the number of shares of
Washington Mutual Common Stock to be received in the Merger is based upon the
arithmetic average of the closing prices of Washington Mutual Common Stock on
The Nasdaq Stock Market for the ten trading days immediately preceding the
third trading day before the Effective Date. The exchange ratio for determining
the number of shares of Washington Mutual Common Stock to be issued for each
share of Olympus Common Stock will be the Merger Consideration divided by the
Average Price. No certificates for fractional shares of Washington Mutual
Common Stock will be issued as a result of the Merger. Instead, each
stockholder otherwise entitled to a fractional share will receive cash in lieu
of such fractional share.
If the Effective Date is after April 30, 1995, the Merger Consideration
will be increased by an amount equal to (i) $0.775 (five percent of $15.50)
multiplied by (ii) a fraction, the numerator of which equals the number of days
elapsed between April 30, 1995 and the Effective Date and the denominator of
which equals 365.
If the Average Price is less than $18.00, then Washington Mutual may
elect to pay up to 49% of the aggregate Merger Consideration in the form of
cash. Unless the Average Price is substantially below $18.00, Washington
Mutual does not intend to elect the Partial Cash Consideration Option. If
Washington Mutual were to elect the Partial Cash Consideration Option and
subject to certain allocation procedures, each Olympus Shareholder will be
eligible to receive such shareholder's preference as to the form of the Merger
Consideration to be paid. Unless Washington Mutual waives its right to elect
the Partial Cash Consideration Option, a Preference Form and other appropriate
transmittal materials will be sent to each such holder of record of Olympus
Common Stock through which each holder can indicate such holder's preference to
receive either Washington Mutual Common Stock or cash with respect to such
holder's Olympus Common Stock, or indicate no such preference. Although Olympus
Shareholders may be asked to complete Preference Forms prior to the Effective
Date, such forms will only be utilized under circumstances where Washington
Mutual elects the Partial Cash Consideration Option. See "THE MERGER AGREEMENT
- -- Preference and Allocation Procedures."
BACKGROUND OF AND REASONS FOR THE MERGER
The Olympus Board has been cognizant of increasing levels of competition
in the financial services business and the significant consolidation that has
been occurring among the providers of banking services in Olympus' banking
market and throughout the United States, in general. Olympus is and has been
aware that larger entities that emerge from consolidations may acquire
substantial competitive advantages, including greater diversity in their loan
portfolios, cost savings through the integration of overlapping operations and
support functions, improved access to capital and funding and the ability to
spread costs of new products, services and research and development over a
wider customer base.
During the first half of 1993, Olympus received unsolicited inquiries
regarding the possibility of merging Olympus with two larger financial
institutions. Neither of these inquiries resulted in any negotiations
concerning a possible business combination involving Olympus.
On September 23, 1993, the Olympus Board engaged Goldman Sachs to
prepare an objective evaluation of various alternatives for maximizing
shareholder value, including, without limitation, (i) continuing to serve its
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<PAGE> 34
customers and communities as an independent savings bank, (ii) expanding
Olympus through acquisitions, (iii) selling parts of Olympus to other financial
institutions, or (iv) entering into a business combination transaction with
another financial institution. At an Olympus Board meeting on October 27,
1993, Goldman Sachs presented its analysis of various strategic alternatives
available to the Olympus Board. Olympus' special counsel also reviewed with
the Board their fiduciary duties and legal considerations that would attend the
choice of the alternatives reviewed by the Board. At the October 27 meeting,
Olympus authorized Goldman Sachs to seek, on an exploratory basis, indications
of interest on Olympus' behalf regarding a possible merger or sale transaction
involving Olympus. The Board made no determination at that time that Olympus
would do anything other than remain independent.
In January 1994, Olympus was contacted by a financial institution that
expressed an interest in a business combination with Olympus. As a result,
Olympus entered into preliminary merger discussions with this financial
institution. On February 11, 1994, Olympus announced publicly that it had
received a preliminary indication of interest from a financial institution
interested in acquiring Olympus in a stock merger, and that the valuation
implicit in the terms of the proposed exchange of stock under discussion was
below the Company's recent trading prices. On February 24, 1994, Olympus
announced the termination of discussions with this financial institution.
On or about May 12, 1994, Washington Mutual contacted Goldman Sachs and
expressed an interest in meeting with Olympus' Chairman and Chief Executive
Officer, Mr. A. Blaine Huntsman, to discuss a possible business combination.
On May 19, 1994, Mr. Huntsman met with representatives of Washington
Mutual and discussed a variety of strategic options. Subsequent to that
meeting, representatives of Washington Mutual expressed an interest in
gathering additional information concerning Olympus.
On June 7, 1994, Washington Mutual's senior management met with
Mr. Huntsman and other members of Olympus' management in Salt Lake City. During
the next three weeks, Mr. Huntsman and other members of Olympus' senior
management responded to a number of inquiries from Washington Mutual's
management regarding Olympus' business.
On June 30, 1994, and again on July 5, 1994, representatives of
Washington Mutual contacted Mr. Huntsman and indicated that Washington Mutual
was interested in pursuing a possible business combination with Olympus.
On July 6, 1994, a special telephonic meeting of the Olympus Board was
convened at which Mr. Huntsman briefed the other directors on the preliminary
discussions that had taken place to date, and the Olympus Board unanimously
authorized Mr. Huntsman to continue negotiations with Washington Mutual.
Thereafter, senior management of Washington Mutual and Olympus conducted
due diligence reviews of each other (subject to confidentiality agreements
executed by each party), reviewed the proposed transaction with their
respective financial advisors, legal counsel and members of their respective
Boards of Directors, negotiated the terms of the Merger Agreement and related
documents and gave consideration to the possible financial basis and other
terms upon which a transaction might be consummated.
At a meeting of the Washington Mutual Board held on July 19, 1994,
members of Washington Mutual's management reviewed the results of their due
diligence and the proposed terms of the Merger, and the Washington Mutual Board
approved the Merger Agreement and the related agreements.
On July 22, 1994, the Olympus Board met with its senior management,
financial advisors and legal counsel and considered in detail the proposed
transaction. During the meeting, directors were provided with drafts of the
Merger Agreement, the Stock Option Agreement and related documents. The
Olympus directors were informed that Washington Mutual had conditioned its
offer to acquire Olympus on (i) receipt of an irrevocable option to acquire
from Olympus shares representing approximately 9.9% of the then outstanding
Olympus Common Stock exercisable under certain circumstances, (ii) receipt of a
$250,000 break-up fee payable upon termination of the transaction under certain
circumstances and (iii) the agreement by directors, executive officers and
certain
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<PAGE> 35
shareholders of Olympus to vote in favor of the transaction and take certain
actions intended to preserve the desired accounting treatment of the Merger.
Representatives of Goldman Sachs made a presentation to the Olympus Board
regarding the financial terms of the Merger. Olympus' special legal counsel
conducted a detailed review with the Board of the transaction documents and
related issues. At the conclusion of the meeting, the Olympus Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of Olympus and its shareholders and
directed that the Merger Agreement be submitted to the shareholders of Olympus
for their approval.
The Merger Agreement is the result of arm's length negotiations between
Olympus and Washington Mutual. There is no affiliation between any of the
directors and officers of the respective companies.
The original merger agreement was entered into on July 22, 1994 and
contemplated that Olympus would be merged with and into WMSB and that shares of
Olympus Common Stock would be converted into shares of common stock of WMSB.
The original agreement also contemplated that, at the option of WMSB, the
transaction might be restructured provided that the amount and form of the
Merger Consideration or tax consequences of the transaction to Olympus
shareholders were not modified. On November 29, 1994, WMSB reorganized into a
holding company structure, with Washington Mutual as the holding company for
WMB (the successor to WMSB in the Reorganization), WMFSB and other
subsidiaries. In order to provide for changes necessitated by the change in
Washington Mutual's structure and certain other modifications, the Merger
Agreement was amended and restated in the form attached hereto as Appendix A.
RECOMMENDATION OF THE OLYMPUS BOARD
The Olympus Board has carefully considered the terms of the Merger
Agreement, has approved it as being in the best interests of Olympus and its
shareholders, and recommends that Olympus Shareholders vote FOR the proposal
to approve the Merger Agreement.
The recommendation of the Olympus Board is based upon a number of
factors, including the terms of the Merger, the Merger Agreement and the Stock
Option Agreement, the substantial benefits expected to result from the
combination of Olympus and Washington Mutual, information concerning the
financial condition, results of operations and prospects of Washington Mutual
and Olympus on a stand-alone and combined basis, the Board's view of the
relative merits of other opportunities presented to the Board or that the Board
believed would be available, including the possibility of remaining
independent, the market price of Olympus Common Stock and the fairness opinion
of Goldman Sachs as financial advisor to Olympus. See "THE MERGER --
Background of and Reasons for the Merger" and "-- Opinion of Financial
Advisor."
The Olympus Board believes that the Merger would provide holders of
Olympus Common Stock with the opportunity to receive a premium over the prices
per share of Olympus Common Stock at which individual trades have occurred in
the recent past and, generally to the extent that shareholders receive solely
Washington Mutual Common Stock in the Merger, enable them to participate as
Washington Mutual shareholders, on a tax-deferred basis, in the expanded
opportunities for growth and profitability made possible by the Merger. The
Olympus Board also believes that the Merger would result in a combined entity
that is capable of competing more effectively with larger financial
institutions that have exerted increasing competitive pressure on Olympus.
In considering the recommendations of the Olympus Board, shareholders
should be aware that certain directors and executive officers of Olympus may be
deemed to have interests in the Merger in addition to their interests, if any,
as Olympus Shareholders. See "THE MERGER - Interest of Certain Persons in the
Merger" and "THE MERGER AGREEMENT--Effect on Employee Benefit Plans and Stock
Plans."
OPINION OF FINANCIAL ADVISOR
Goldman Sachs has delivered a written opinion to the Olympus Board to
the effect that, as of the date of this Proxy Statement/Prospectus, the
consideration to be received by Olympus Shareholders pursuant to the
terms of the Merger Agreement is fair to such holders. Goldman Sachs' opinion
is directed only to the fairness of the Merger Consideration from a financial
point of view and does not constitute a recommendation to any Olympus
Shareholder as to how such shareholder should vote at the Special Meeting. The
full text of Goldman Sachs' written opinion, which sets forth the
assumptions made, matters considered and limits on its review, is attached
hereto as Appendix B. The summary of the Goldman Sachs' opinion in this proxy
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statement/prospectus is qualified in its entirety by reference to the full text
of such opinion. HOLDERS OF SHARES OF OLYMPUS COMMON STOCK ARE URGED TO READ
SUCH OPINION IN ITS ENTIRETY.
In connection with its written opinion dated March _, 1995, Goldman
Sachs reviewed, among other things, the Merger Agreement; the Registration
Statement, including this Proxy Statement/Prospectus; Annual Reports to
Stockholders and Form 10-K Annual Reports of Olympus for the five years ended
December 31, 1993; Annual Reports to stockholders and Annual Reports to the
FDIC on Form F-2, of Washington Mutual for the five years ended December 31,
1993 and the Annual Report on Form 10-K for the year ended December 31, 1994;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
Olympus; certain interim reports to stockholders and Quarterly Reports to the
FDIC, Form F-4, of Washington Mutual; certain other communications from
Olympus and Washington Mutual to their respective stockholders; and certain
internal financial analyses and forecasts for Olympus prepared by its
management. Goldman Sachs held discussions with members of the senior
managements of Olympus and Washington Mutual regarding the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price
and trading activity for the Olympus Common Stock and the Washington Mutual
Common Stock, compared certain financial and stock market information with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the banking industry specifically and in other industries
generally and performed such other studies and analyses as Goldman Sachs
considered appropriate.
In conducting its review and in arriving at its opinion, Goldman Sachs
relied, without independent verification, upon the accuracy and completeness of
all of the financial and other information reviewed by them for purposes of
its opinion. In that regard, Goldman Sachs assumed, with the consent of the
Olympus Board, that the financial forecasts, including, without limitation,
projections regarding underperforming and nonperforming assets and net
chargeoffs were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of Olympus and that such forecasts would be
realized in the amounts and at the times contemplated thereby. Goldman Sachs
also assumed, with the consent of the Olympus Board, that the allowances for
losses with respect to the loan and lease portfolios for each of Olympus and
Washington Mutual are in the aggregate adequate to cover all such losses.
Goldman Sachs did not review individual credit files nor did they make an
independent evaluation or appraisal of the assets and liabilities of Olympus or
Washington Mutual or any of their respective subsidiaries.
The following is a summary of the material financial analyses utilized
by Goldman Sachs in connection with their presentation to the Olympus Board on
July 22, 1994.
Pro Forma Analysis. Goldman Sachs analyzed certain pro forma
effects for 1995 resulting from the Merger based on (a) financial
forecasts for Olympus in 1994 prepared by management and grown at a
rate of 12.0% from 1994 to 1995 and assuming an effective tax rate of
40%, (b) projected earnings for Washington Mutual based on the median
of institutional brokers' estimates compiled by SNL Securities, L.P.
as of July 15, 1994 (SNL Securities, L.P. is a data firm that monitors
and publishes a compilation of earnings estimates produced by selected
research analysts), and (c) cost savings, equal to 15% of Olympus
estimated 1994 noninterest expenses, estimated by management of
Olympus to be attainable in the Merger. Such analysis indicated that
1995 earnings per share for Washington Mutual following the Merger
would be slightly lower than were forecasted for Washington Mutual as
a stand-alone entity.
Selected Transaction Analysis. Goldman Sachs analyzed certain
information relating to 24 banks and thrift acquisitions, including
six acquisitions by Washington Mutual announced since January 1, 1987
(the "Washington Mutual Acquisitions"), eight bank acquisitions in the
states of Arizona, Colorado, Idaho, New Mexico, Nevada, Oregon, Utah,
Washington and Wyoming (collectively, the "Rocky Mountain States")
announced since 1989 in which the aggregate consideration was greater
than $25 million and less than $100 million (the "Rocky Mountain Bank
Acquisitions") and eight acquisitions of savings and loans in the
Rocky Mountain States since 1989 in which the aggregate consideration
was greater than $25 million and less than $100 million (the "Rocky
Mountain Thrift Acquisitions"). Such analysis indicated that, for the
Washington Mutual Acquisitions, the Rocky Mountain Bank Acquisitions
and the Rocky Mountain Thrift Acquisitions,
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the median values of the consideration paid as a multiple of tangible
book value were 1.5x, 1.7x and 1.9x, respectively, as compared to a
corresponding value for the consideration payable pursuant to the
Merger as a multiple of Olympus' tangible book value of 1.5x. In
addition, such analysis indicated that for the Washington Mutual
Acquisitions, the Rocky Mountain Bank Acquisitions and the Rocky
Mountain Thrift Acquisitions, the median value of the consideration
paid as a multiple of the acquired banking organizations' latest
twelve months' ("LTM") after-tax earnings were 14.1x, 10.1x and 14.9x,
respectively, as compared to the corresponding value for the
consideration paid pursuant to the Merger as a multiple of Olympus'
after tax LTM earnings of 8.9x. Goldman Sachs also compared such
multiples of LTM after-tax earnings to multiples of Olympus' LTM
earnings, assuming full taxation, of 14.8x.
Selected Company Analysis. Goldman Sachs reviewed and compared
actual and estimated selected financial, operating and stock market
information for Olympus and Washington Mutual with corresponding
information for selected regional banking organizations, including
Glacier Bancorp, Security Bancorp, United Savings Bank and WesterFed
Financial (collectively, the "Selected Group One Banks"), and for
selected savings and loans organizations with significant consumer
banking businesses, including H.F. Ahmanson & Co, Golden West
Financial, Great Western Financial and Washington Federal Savings and
Loan (collectively, the "Selected Group Two Banks"), based on publicly
available information, consensus analysts' estimates for Washington
Mutual, the Selected Group One Banks and the Selected Group Two Banks
and financial forecasts for Olympus prepared by Olympus management.
Such analysis indicated that, for the Selected Group One Banks and the
Selected Group Two Banks, (i) the median estimated 1994 price-earnings
multiples were 11.0x and 10.0x, respectively, as compared to
corresponding values of 9.1x for Olympus and 7.7x for Washington
Mutual, (ii) the median values of price as a multiple of book value
per share were 1.08x and 1.45x, respectively, as compared to
corresponding values of 1.32x for Olympus and 1.58x for Washington
Mutual, (iii) the median ratios of nonperforming assets as a
percentage of total assets were 0.25% and 1.78%, respectively, as
compared to corresponding values of 0.29% for Olympus and 0.71% for
Washington Mutual, (iv) the median ratios of reserves as a percentage
of nonperforming assets were 286% and 49%, respectively, as compared
to corresponding values of 568% for Olympus and 103% for Washington
Mutual, (v) the median after-tax returns on equity were 10.07% and
12.39%, respectively, as compared to corresponding values of 12.46%
for Olympus and 14.34% for Washington Mutual and (vi) the median
ratios of tangible common equity as a percentage of tangible assets
were 13.75% and 7.43%, respectively, as compared to corresponding
values of 8.34% for Olympus and 4.86% for Washington Mutual.
Present Value Analysis. Goldman Sachs reviewed and analyzed
certain internal financial analyses and projections as prepared by
Olympus management and assumed, at the request of management of
Olympus, growth rates of 6.6%, 11.6% and 16.6% of pre-tax, pre-gain
income for Olympus. Based on the projected earnings developed
thereby, Goldman Sachs analyzed the discounted present value of a
share of Olympus Common Stock assuming a range of discount values of
10.0%, 12.5% and 15.0% and terminal multiples of 1999 estimated
earnings of 10.0x, 12.0x, 14.0x, 16.0x, 18.0x and 20.0x. Such
analysis suggested the present value per share of Olympus to be in a
range between $5.81 per share and $22.08 per share.
Selected Washington Mutual Information Analysis. Goldman Sachs
reviewed and analyzed certain financial and other information for
Washington Mutual, including (1) historical and current loan portfolio
by type of loan and origination volumes by type of loan, (2)
sensitivity of Washington Mutual to changes in the interest rate
environment, (3) selected research reports on, and earnings estimates
for Washington Mutual, (4) historical trading prices per share of
Washington Mutual Common Stock, on a daily basis from July 15, 1993
through July 15, 1994 and on a weekly basis from July 1991 through
July 1994, (5) the daily stock price performance of Olympus Common
Stock and Washington Mutual Common Stock, indexed from July 15, 1993
to July 15, 1994, as compared to the Standard & Poor's 56 financial
Stock Index and a Washington Mutual peer composite including the
Selected Group Two Banks.
Other Analyses. Goldman Sachs also reviewed selected investment
research reports on, and earnings estimates for, Olympus and
Washington Mutual and analyzed available information regarding the
ownership and ownership profiles of shares of Olympus Common Stock and
Washington Mutual Common Stock.
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The foregoing is a summary of the material financial analyses performed
by Goldman Sachs, but does not purport to be a complete description of the
analyses performed by Goldman Sachs. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analysis as a whole, could create an
incomplete view of the processes underlying Goldman Sachs' opinion. In
arriving at its fairness determination, Goldman Sachs considered the results
of all such analyses. No Selected Group One Bank or Selected Group Two Bank is
identical to Olympus or to Washington Mutual and none of the Washington Mutual
Acquisitions, the Rocky Mountain Bank Acquisitions and the Rocky Mountain
Thrift Acquisitions is identical to the Merger. Accordingly, Goldman Sachs
indicated to the Olympus Board that analyses of the results described above
under Selected Company Analysis and Selected Transaction Analysis are not
mathematical, but rather involve complex considerations and judgments
concerning differences in operating and financial characteristics, including,
among other things, differences in revenue composition and earnings performance
among Olympus, Washington Mutual and the selected companies and transactions
reviewed. The analyses were prepared solely for purposes of Goldman Sachs
providing its opinion to the Olympus Board as to the fairness of the
consideration to be received by Olympus Common Stockholders, and do not purport
to be appraisals or necessarily reflect the prices at which Olympus or its
securities actually may be sold. Analyses based upon forecast of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Olympus retained Goldman Sachs as its exclusive financial advisor
pursuant to an engagement letter dated October 11, 1993 (the "Engagement
Letter") in connection with reviewing Olympus' strategic alternatives including
a possible sale of Olympus. Goldman Sachs is an internationally recognized
investment banking firm and is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Goldman Sachs is familiar with Olympus, having
acted as financial advisor in connection with, and having participated in
certain of the negotiations leading to, the Merger Agreement. Goldman Sachs
has also provided certain investment banking services to Washington Mutual from
time to time and may provide investment banking services to Washington Mutual
in the future. The Olympus Board selected Goldman Sachs to act as Olympus'
exclusive financial advisor based on Goldman Sachs' substantial experience in
mergers and acquisitions and in securities valuation generally.
In connection with its opinion dated March __, 1995, Goldman
Sachs confirmed the appropriateness of their reliance on the analyses described
above by performing procedures to update certain of such analyses and reviewing
the assumptions on which such analyses were based and the factors considered in
connection therewith.
Pursuant to the terms of the Engagement Letter, Olympus has paid Goldman
Sachs a fee of $75,000 and has agreed to pay Goldman Sachs a transaction fee
equal to the sum of (a) 1.5% of the aggregate consideration paid in such
transaction for the first $51,200,000 in aggregate consideration, plus 3.0% of
the aggregate consideration paid in such transaction in excess of $51,200,000,
minus (b) any other fees already paid pursuant to the Engagement Letter.
Twenty-five percent of the transaction fee became payable upon the mailing of
this Proxy Statement/Prospectus and the remaining seventy-five percent of the
transaction fee will be payable upon the consummation of the Merger. In
addition, Olympus has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursement of its
counsel, plus any sales, use or similar taxes arising in connection with its
engagement, and to indemnify Goldman Sachs against certain liabilities relating
to or arising out of its engagement, including liabilities under the federal
securities law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Olympus Board, shareholders
should be aware that certain directors and executive officers of Olympus may be
deemed to have interests in the Merger in addition to their interests, if any,
as Olympus Shareholders.
Ownership of Olympus Common Stock. As of the Record Date, directors and
executive officers of Olympus, together with their affiliates, beneficially
owned an aggregate of 456,399 shares of Olympus Common Stock (or
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approximately 14.6% of the then outstanding shares of Olympus Common Stock)
excluding shares that may be acquired upon the exercise of outstanding stock
options.
Stock Options. As of the Record Date, directors and executive officers
of Olympus held options to purchase 205,600 shares of Olympus Common Stock at an
average exercise price of $5.32 per share. Under the terms of the Option Plan,
all of these options became immediately exercisable upon the execution of the
Merger Agreement and, upon consummation of the Merger, any unexercised options
will terminate. Under the terms of the Merger Agreement, if Washington Mutual
does not elect the Partial Cash Consideration Option, then any options which
remain unexercised immediately prior to the Effective Time will be deemed to
have been exercised at the Effective Time through the conversion of such
options into that number of shares of Washington Mutual Common Stock equal to
the "net option value" divided by the Average Price. "Net option value" means
the aggregate Merger Consideration related to the number of shares issuable
upon exercise of such options, less the aggregate exercise price of such
options less the aggregate amount of tax and other withholdings required with
respect to such exercise.
If the Option Plan Amendment is approved by Olympus Shareholders and
Washington Mutual elects the Partial Cash Consideration Option, then any
options outstanding at the Effective Time will be converted into options to
purchase shares of Washington Mutual Common Stock, adjusted as to the number of
options and the exercise price by the Exchange Ratio. See "THE OPTION PLAN
AMENDMENT" and "INFORMATION CONCERNING OLYMPUS -- Beneficial Ownership of
Olympus Common Stock."
Indemnification and Insurance. Washington Mutual has agreed, from and
after the Effective Time, to indemnify the current and former directors and
officers of Olympus as though they had been directors and/or officers of
Washington Mutual, for acts and omissions occurring prior to and including the
Effective Time. Washington Mutual and WMFSB have also agreed to use all
reasonable efforts, in cooperation with Olympus and Olympus Bank, to arrange
for insurance coverage for officers and directors of Olympus and Olympus Bank
following the Effective Time with at least as much dollar coverage as such
officers and directors have under their current policy.
Cash Incentive Plan. Under Olympus' Cash Incentive Plan, upon
consummation of the Merger, R. Gibb Marsh, K. John Jones, Gary L. Matern and
Kathy K. Hale will be entitled to receive 31%, 23%, 23% and 23%, respectively,
of an amount equal to two percent of the greater of (i) the fair market value
of the issued and outstanding Olympus Common Stock or (ii) the tangible net
worth of Olympus, in either case on the date immediately prior to the Merger.
Assuming that, at the Effective Time, 3,363,139 shares of Olympus Common Stock
are outstanding (i.e., that all outstanding options are exercised before the
Effective Time) and that the fair market value of Olympus Common Stock is
$15.50 per share, an aggregate of approximately $1,042,573 will be payable to
the four participating executive officers as follows: $323,198 to R. Gibb
Marsh; and $239,792 to each of K. John Jones, Gary L. Matern and Kathy K. Hale.
Consulting and Non-Competition Agreement. The Merger Agreement provides
that Washington Mutual and A. Blaine Huntsman will enter into a Consulting and
Non-Competition Agreement, pursuant to which Mr. Huntsman will serve as a
consultant to Washington Mutual for a period of 18 months after the Effective
Time. During the term of the Consulting and Non-Competition Agreement,
Mr. Huntsman will advise Washington Mutual generally in regard to its Utah
operations and perform such other functions as reasonably requested by the
President and CEO of Washington Mutual. In addition, Mr. Huntsman will agree
not to work for or serve any other financial institution as an employee,
officer, director, consultant or advisor during the term of the Consulting and
Non-Competition Agreement. As compensation for his consulting services and
agreement not to compete, Mr. Huntsman will be entitled to receive $225,000
over the 18 month term of the agreement.
Deferred Compensation Arrangement. Pursuant to a deferred compensation
arrangement between Olympus and Mr. Huntsman, Olympus credits $1,250 per month
to a deferred compensation account for Mr. Huntsman to be invested in
investments approved by him. Upon consummation of the Merger, Mr. Huntsman's
employment will be terminated and Washington Mutual (as successor to Olympus)
will be required to pay to Mr. Huntsman the fair market value of his deferred
compensation account in five annual installments. As of December 31, 1994, the
balance of Mr. Huntsman's deferred compensation account was $141,357.74
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Severance Payments. The Merger Agreement provides that Washington
Mutual will make severance payments (in an amount equal to two weeks' salary
for each full year of service with Olympus up to a maximum of six months' total
pay) to any officer of Olympus whose employment is terminated without cause
within one year after the Effective Date.
AFFILIATE LETTERS
As a condition to the execution of the Merger Agreement, each director
and executive officer of Olympus and certain shareholders of Olympus
(collectively, the "Affiliates") beneficially owning in the aggregate 996,290
shares of Olympus Common Stock (31.8% of the shares of Olympus Common Stock
outstanding as of the Record Date) and holding in the aggregate options to
acquire 205,600 shares of Olympus Common Stock (6.2% of the shares of Olympus
Common Stock outstanding as of the Record Date) delivered to Washington Mutual a
letter (the "Affiliate Letter"), pursuant to which, among other things, the
Affiliates agreed to vote the shares of Olympus Common Stock held by them in
favor of approval of the Merger Agreement. In addition, pursuant to the
Affiliate Letters, each Affiliate agreed not to (i) sell or otherwise dispose of
(x) any shares of Olympus Common Stock during the 30 days preceding the
Effective Date or (y) any shares of Washington Mutual Common Stock until such
time as consolidated financial results covering at least 30 days of post-Merger
combined operations of Washington Mutual and Olympus have been published, or
(ii) sell or transfer any shares of Olympus Common Stock except in open market
transactions or in privately negotiated transactions in which the ultimate
beneficial owner will acquire fewer than 30,000 shares. The Affiliate Letters
do not restrict any director or officer of Olympus from voting on any matter, or
otherwise from acting in his or her capacity as a director or officer with
respect to any matters, including but not limited to, the general management of
Olympus or any other exercise of fiduciary responsibilities.
The Affiliate Letters are intended to increase the likelihood that the
Merger will be consummated according to the terms set forth in the Merger
Agreement and may tend to discourage competing offers by other parties to
acquire Olympus.
REGULATORY APPROVALS
OTS Approval. The Merger and the Bank Merger are subject to the
approval of the OTS under Section 10 of the Home Owners' Loan Act of 1933, as
amended ("HOLA") and under Section 18(c) of the Federal Deposit Insurance Act
(the "Bank Merger Act"). Olympus and Washington Mutual qualify as savings and
loan holding companies under HOLA and are subject to OTS regulation,
supervision and reporting requirements. Section 10 of the HOLA requires that
the OTS take into consideration, among other factors, the financial and
managerial resources and future prospects of the institutions, the effect of
the acquisition on the savings associations, the insurance risk to the Savings
Association Insurance Fund or the Bank Insurance Fund and the convenience and
needs of the communities to be served. The HOLA prohibits the OTS from
approving the Merger (i) if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
savings and loan business in any part of the United States or (ii) if its
effect in any section of the country may be substantially to lessen competition
or to tend to create a monopoly, or it if would in any other manner be a
restraint of trade, unless the OTS finds that the anti- competitive effects of
the Merger are clearly outweighed by the public interest and the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served. Generally, under the Bank Merger Act, a bank
merger may not be consummated until the 30th day following the date of OTS
approval, during which time the United States Department of Justice may
challenge the Bank Merger on antitrust grounds. The Community Reinvestment Act
of 1978 ("CRA") also requires that the OTS, in deciding whether to approve the
Merger, assess the record of performance of the bank subsidiaries of
Washington Mutual and Olympus in meeting the credit needs of their
communities, including low and moderate income neighborhoods, served by such
bank subsidiaries.
On November 21, 1994, Washington Mutual submitted an application
seeking OTS approval of the Merger. There can be no assurance that the OTS
will approve the Merger, and if the Merger is approved, there can be no
assurance as to the date of such approvals or as to what conditions, if any,
may be imposed in such approvals. Washington Mutual's obligation to consummate
the Merger is conditioned upon receipt of all required regulatory approvals and
consents, without any term or condition that (i) has not normally been imposed
in transactions of this type and would have a material adverse effect
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on Olympus or Washington Mutual or (ii) would require Washington Mutual to
contribute additional capital to WMFSB (other than to increase its leverage
capital to a level no higher than 5%). There can be no assurance that the
Department of Justice or a state attorney general will not challenge the Bank
Merger or, if challenged, what the result of such a challenge would be.
On January 19, 1995, the OTS notified Washington Mutual that a protest
to the merger application by the Washington Association of Community
Organizations for Reform Now ("ACORN") was deemed "substantial" by the OTS. The
OTS finding is not a comment on the merits of the protest. The ACORN protest
raises questions regarding Washington Mutual's record of performance under the
CRA. Because Washington Mutual and ACORN had not resolved the issues privately
or made significant progress toward that end by February 9, 1995, the OTS held
a hearing to review Washington Mutual's CRA record on February 13, 1995. If the
OTS finds that Washington Mutual has not performed adequately under the CRA,
the OTS may refuse to approve the Merger. Washington Mutual believes that it is
in full compliance with the CRA and, in their most recent CRA performance
evaluations, one Washington Mutual bank subsidiary received a "satisfactory"
CRA performance rating from the FDIC and another received an "outstanding" CRA
performance rating from the OTS. Nonetheless, the ACORN protest may
significantly delay OTS approval of the Merger.
Washington Mutual and Olympus are not aware of any other governmental
approvals that are required for consummation of the Merger or the Bank Merger
except as described above. Should any other approval or action be required, it
is presently contemplated that such approval would be sought. There can be no
assurance whether or when any such approval, if required, could be obtained.
FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to constitute a "reorganization" under the Code.
The following discussion summarizes the material federal income tax
consequences relating to the Merger, assuming the Merger is so treated. No
ruling from the Internal Revenue Service (the "IRS") will be applied for with
respect to the federal income tax consequences of the Merger. Thus, THERE CAN
BE NO ASSURANCE THAT THE IRS WILL AGREE WITH THE CONCLUSIONS SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS.
Consummation of the Merger is conditioned upon, among other things,
receipt by Olympus and Washington Mutual of an opinion from Foster Pepper &
Shefelman, counsel to Washington Mutual, dated as of the Effective Date,
substantially to the effect that the Merger will qualify as a "reorganization"
for federal income tax purposes and that the attendant tax consequences will be
as discussed below. Such opinion is conditioned upon the continued accuracy of
certain factual representations made by Washington Mutual and Olympus. The
opinion will not, however, be binding upon the IRS or the courts.
Gain or loss will not be recognized by an Olympus Shareholder on the
exchange of all of such shareholder's shares of Olympus Common Stock solely for
Washington Mutual Common Stock in the Merger.
Each of an Olympus Shareholder who, if Washington Mutual elects the
Partial Cash Consideration Option, receives solely cash in the Merger for all
of such shareholder's shares of Olympus Common Stock, an Olympus Shareholder
who receives cash in lieu of a fractional share of Washington Mutual Common
Stock and an Olympus Shareholder who receives cash in connection with the
perfection of dissenters' rights will be treated as receiving a distribution in
redemption of such share interest. In general, such distribution in redemption
will be treated as a payment in exchange for such share interest, subject to
the provisions and limitations of Code Section 302 (which in certain
circumstances could result in the receipt of cash being treated as a dividend).
If treated as a payment in exchange for such share interest, gain or loss will
be measured by the difference between the tax basis of Olympus Common Stock
surrendered in the Merger, allocable to the fractional share, or of the
dissenters' shares tendered, as the case may be, and the amount of cash
received therefor. Such gain or loss will be a capital gain or loss if the
Olympus Common Stock was held as a capital asset as of the Effective Date.
With respect to an Olympus Shareholder who, if Washington Mutual elects
the Partial Cash Consideration Option, exchanges shares of Olympus Common Stock
partially for Washington Mutual Common Stock and partially for a cash payment
(a) any gain realized on the Olympus shares surrendered in the Merger will be
recognized but not in excess of the amount of cash received; (b) subject to the
provisions of Code Section 302 (which in certain circumstances could result in
the receipt of cash being treated as a dividend), such gain will be capital
gain for a shareholder who holds such shares as capital assets; and (c)
pursuant to Code Section 356(c), no loss will be allowed.
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The gain or loss will be treated as a long-term capital gain or loss if
the Olympus Common Stock which resulted in the receipt of such cash was held by
the shareholder for more than one year, and otherwise will be short-term
capital gain or loss.
The aggregate tax basis of the Washington Mutual Common Stock received
by each Olympus Shareholder in the Merger will equal the aggregate tax basis of
such shareholder's Olympus Common Stock exchanged therefore, reduced by (a) the
basis of the Olympus Common Stock allocable to any fractional share of
Washington Mutual Common Stock in lieu of which cash is received and (b) the
amount of any cash payment received (other than cash received in lieu of a
fractional share), if Washington Mutual elects the Partial Cash Consideration
Option, and increased by the amount of gain recognized due to the receipt of
any such cash payment. The holding period for the Washington Mutual Common
Stock received by each shareholder in the Merger will include the period the
shareholder held the Olympus Common Stock exchanged therefore, provided such
shares of Olympus Common Stock were held as capital assets at the Effective
Time.
The cash payments, if any, due holders of Olympus Common Stock (other
than certain exempt entities and persons) pursuant to the Merger will be
subject to a 31% backup withholding tax by the Exchange Agent under federal
income tax law unless certain requirements are met. Generally, the Exchange
Agent will be required to deduct and withhold the tax if (i) the shareholder
fails to furnish a taxpayer identification number ("TIN") to the Exchange Agent
or fails to certify under penalty of perjury that such TIN is correct, (ii) the
IRS notifies the Exchange Agent that the shareholder has failed to report
interest, dividends or original issue discount in the past, or (iii) there has
been a failure by the shareholder to certify under penalty of perjury that such
shareholder is not subject to the 31% backup withholding tax. Any amounts
withheld by the Exchange Agent in collection of the 31% backup withholding tax
will generally reduce the federal income tax liability of the shareholder from
whom such tax was withheld. The TIN of an individual shareholder is the
shareholder's Social Security Number.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO OLYMPUS SHAREHOLDERS UNDER CURRENTLY
EXISTING FEDERAL INCOME TAX LAWS, WITHOUT CONSIDERATION OF THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH SHAREHOLDER'S SITUATION. EACH OLYMPUS SHAREHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO SUCH
SHAREHOLDER'S OWN SITUATION, INCLUDING ANY ESTATE, GIFT, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER AND/OR ANY SALE THEREAFTER
OF WASHINGTON MUTUAL COMMON STOCK RECEIVED IN THE MERGER.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be treated as a
pooling-of-interests for accounting purposes, unless Washington Mutual elects
the Partial Cash Consideration Option. Accordingly, under generally accepted
accounting principles, the assets and liabilities of Olympus will be recorded
on the books of Washington Mutual at their values on the books of Olympus at
the time of consummation of the Merger. No goodwill will be created in the
Merger if it is accounted for as a pooling-of-interests.
If Washington Mutual elects the Partial Cash Consideration Option, the
Merger will be treated as a purchase for accounting purposes. In that event,
the assets and liabilities of Olympus will be recorded on the books of
Washington Mutual at their respective fair market values at the time of
acquisition. Goodwill, the excess of purchase price over the net fair value of
the assets and liabilities, will be recorded and amortized on a straight-line
basis.
Olympus has agreed to make certain accounting adjustments upon the
request of Washington Mutual. If the Merger closing conditions have been met,
Washington Mutual waives certain other conditions to the Merger and Olympus'
1994 year end financial statements have not been published, Olympus will make
income statement adjustments regarding the treatment of (i) certain real estate
property values; (ii) costs incurred in connection with the Merger; and (iii)
charges for severance and other payments to employees resulting from the
Merger. Adjustments will be made only to the extent permissible under
generally accepted accounting principles and applicable federal regulations.
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DISSENTERS' RIGHTS
Under Part 13 of the URBCA, Olympus Shareholders will not be entitled to
dissent from the Merger and obtain payment of the fair value of shares held by
them, unless Washington Mutual elects the Partial Cash Consideration Option.
Under the Merger Agreement, Washington Mutual may elect the Partial Cash
Consideration Option only if the Average Price is less than $18 per share. The
Average Price is determined three trading days prior to the Effective Date. At
the time of the Special Meeting, it is not likely to be known if the Partial
Cash Consideration Option will be available to Washington Mutual, or, if
available, whether it would be elected by Washington Mutual. Therefore,
Olympus Shareholders should assume, for purposes of exercising dissenters'
rights, that Washington Mutual will elect the Partial Cash Consideration
Option. Dissenting Olympus Shareholders should follow the procedures for
perfecting such rights described in "THE MERGER -- Dissenters' Rights" and in
Part 13 of the URBCA. If Washington Mutual does not elect the Partial Cash
Consideration Option, however, Olympus Shareholders will not be entitled to
dissenters' rights.
If Olympus Shareholders perfect dissenters' rights with respect to more
than 5% of the outstanding shares of Olympus Common Stock, Washington Mutual
may elect not to consummate the Merger. See "THE MERGER AGREEMENT --
Conditions to the Merger."
If Olympus Shareholders become entitled to dissenters' rights and have
exercised dissenters' rights in connection with the Merger in accordance with
the provisions of Part 13, any Dissenting Shares (as defined below) will not be
converted into Washington Mutual Common Stock but will entitle the holder
thereof to receive payment therefor in cash pursuant to Part 13. The following
summary of the provisions of Part 13 is not intended to be a complete statement
of such provisions and is qualified in its entirety by reference to the full
text of Part 13, a copy of which is attached to this Proxy Statement/Prospectus
as Appendix D and is incorporated herein by reference. Olympus and Washington
Mutual will require strict compliance with the statutory procedures.
If the Merger is approved by the required vote of shareholders and is
not abandoned or terminated, each Olympus Shareholder who does not vote in
favor of the Merger and who follows the procedures set forth in Part 13 will be
entitled to have his shares of Olympus Common Stock purchased by Olympus for
cash at their Fair Value (as defined below). The "Fair Value" of shares of
Olympus Common Stock is to be determined immediately before effectuation of the
Merger, excluding any appreciation or depreciation in anticipation of the
proposed Merger. The shares of Olympus Common Stock with respect to which
holders have perfected their purchase demand in accordance with Part 13 and
have not effectively withdrawn or lost such rights are referred to in this
Proxy Statement/Prospectus as the "Dissenting Shares." It is the current
intention of Washington Mutual to estimate the Fair Value of Olympus Common
Stock to be $13.6125 per share, the average closing sales price for the ten
trading days up to and including the day prior to the date the Merger Agreement
was signed and announced to the public.
Prior to the vote taken to approve the proposed Merger at the Special
Meeting, a stockholder who wishes to assert dissenters' rights must (a) deliver
written notice to Olympus of his intent to demand payment for shares if the
proposed Merger is approved and (b) not vote any of his shares in favor of the
proposed Merger. The failure of an Olympus Shareholder to vote against the
Merger will not constitute a waiver of dissenters' rights. A vote against the
Merger will not satisfy the notice requirements. Within ten days after approval
of the Merger by Olympus' shareholders, Olympus must mail a notice of such
approval (the "Approval Notice") to all the shareholders who are entitled to
demand payment for their shares under Part 13, together with a statement of the
price determined by Olympus to represent the Fair Value of the applicable
Dissenting Shares (determined in accordance with the immediately preceding
paragraph), a brief description of the rights, a copy of Part 13, and a form
for demanding payment. The statement of price by Olympus constitutes an offer
by Olympus to purchase all Dissenting Shares at the stated amount. Only a
holder of record of shares of Olympus Common Stock as of the date of the
Special Meeting (or his duly appointed representative) is entitled to
assert a purchase demand for the shares registered in that holder's name.
An Olympus Shareholder electing to exercise dissenters' rights must,
within 30 days after the date on which the Approval Notice is mailed to such
shareholder, demand in writing from Olympus the purchase of his Dissenting
Shares and payment to the shareholder of their Fair Value and must submit a
certificate representing the Dissenting Shares to Olympus, or Washington Mutual
as the survivor, if the Merger has been consummated (the "Surviving Company"),
in accordance with the terms of the Approval Notice. A shareholder who does
not demand payment
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and deposit share certificates as required by the date set forth in the
Approval Notice, is not entitled to payment for shares under Part 13. A holder
who elects to exercise dissenter's rights should mail or deliver his written
demand for payment to the Surviving Company at 115 South Main Street, Salt Lake
City, Utah 84111, directed to the attention of the Dissenters' Rights
Administrator. The demand should specify the holder's name and mailing
address, the number of shares of Olympus Common Stock owned by such shareholder
and state that such holder is demanding purchase of his shares in payment of
their Fair Value. Upon the later of the Effective Time and receipt by the
Surviving Company of each payment demand made pursuant to Part 13, the
Surviving Company shall pay the amount it estimates to be the Fair Value of the
Dissenting Shares, plus interest at the legal rate of interest, to each
dissenter who acquired Dissenting Shares before the date of the first public
announcement of the terms of the Merger and who has complied with the
requirements of Part 13 and has not yet received payment. As to those
dissenters who acquired Dissenting Shares on or after the date of such
announcement and who comply with the requirements of Part 13, the Surviving
Company need not make such payment, but may offer to make payment if the
dissenter agrees to accept it in full satisfaction of the dissenter's demand.
Any holder of Dissenting Shares who has not accepted an offer made by
the Surviving Company may, within 30 days after the Surviving Company first
offered payment for his shares, notify the Surviving Company in writing of his
own estimate of the Fair Value of his shares and demand payment of the
estimated amount, plus interest, less any payment made under Part 13, if (i)
the holder of Dissenting Shares believes that the amount offered or paid by the
Surviving Company under Part 13 is less than the Fair Value of the shares, (ii)
the Surviving Company fails to make payment within 60 days after demand, or
(iii) the Surviving Company, having failed to consummate the proposed Merger,
does not return share certificates deposited by a holder as required by Part
13. If the Surviving Company denies that the shares are Dissenting Shares, or
if the Surviving Company and the shareholder fail to agree upon the fair value
of the Dissenting Shares, then within 60 days after receiving the payment
demand the Surviving Company must petition the District Court of Salt Lake
County (the "Court") to determine whether the shares are Dissenting Shares or
to determine the Fair Value of such Dissenting Shares or both. If the
Surviving Company does not commence the proceeding within the 60-day period, it
shall pay each holder of Dissenting Shares whose demand remains unresolved the
amount demanded. The Surviving Company shall make all holders of Dissenting
Shares whose demands remain unresolved parties to the proceeding as an action
against their shares. The Court may appoint one or more persons as appraisers
to receive evidence and recommend a decision on the question of Fair Value.
Each holder of Dissenting Shares made a party to the proceeding is entitled to
judgment for the amount, if any, by which the Court finds that the Fair Value
of his shares, plus interest, exceeds the amount paid by the Surviving Company.
If any holder of shares of Olympus Common Stock who demands the purchase
of his shares under Part 13 fails to perfect, or effectively withdraws or loses
his right to, such purchase, the shares of such holder will be converted into
the right to receive the Merger Consideration in accordance with the Merger
Agreement. Dissenting Shares lose their status as Dissenting Shares if (a) the
Merger is abandoned; (b) the shares are transferred after the Special Meeting;
(c) the shareholder fails to make a written demand for purchase; (d) the
shareholder votes to approve and adopt the Merger Agreement; (e) the
shareholder and the Surviving Company do not agree on the status of the shares
as Dissenting Shares or do not agree on the purchase price, but neither the
Surviving Company nor the shareholder files a complaint within 60 days after
the mailing of the Approval Notice; or (f) with the Surviving Company's
consent, the shareholder delivers to the Surviving Company a written withdrawal
of such shareholder's demand for purchase of his shares.
RESALES OF WASHINGTON MUTUAL COMMON STOCK BY OLYMPUS SHAREHOLDERS
The shares of Washington Mutual Common Stock issuable to shareholders of
Olympus upon consummation of the Merger have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Olympus or Washington
Mutual as that term is defined in the rules and regulations under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by, or are under common control with, Olympus at the time of the
Special Meeting (generally, executive officers, directors and certain
beneficial owners). Affiliates may not sell their Washington Mutual Common
Stock acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 (or Rule 144 under the Securities Act in the case of
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persons who become affiliates of Washington Mutual) or another applicable
exemption from the registration requirements of the Securities Act. In
general, under Rule 145, for two years following the Effective Time, an
affiliate (together with certain related persons) would be entitled to sell
Washington Mutual Common Stock acquired in connection with the Merger only
through unsolicited "broker transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Additionally, the
number of shares to be sold by an affiliate (together with certain related
persons and certain persons acting in concert) within any three-month period
for purposes of Rule 145 may not exceed the greater of 1% of the outstanding
shares of Washington Mutual Common Stock or the average weekly trading volume
of such stock during the four calendar weeks preceding such sale. Rule 145
would only remain available, however, to affiliates if Washington Mutual
remained current with its informational filings with the Securities and
Exchange Commission (the "Commission") under the Exchange Act. Two years after
the Effective Time, an affiliate would be able to sell such Washington Mutual
Common Stock without such manner of sale or volume limitations provided that
Washington Mutual was current with its Exchange Act informational filings and
such affiliate was not then an affiliate of Washington Mutual. Three years
after the Effective Time, an affiliate would be able to sell such Washington
Mutual Common Stock without any restrictions so long as such affiliate had not
been an affiliate of Washington Mutual for at least three months prior thereto.
THE MERGER AGREEMENT
EFFECTIVE DATE AND TIME OF THE MERGER
The Merger will become effective at the time of the occurrence of both
(a) the filing of the articles of merger with the Secretary of State of
Washington (the "Secretary") and (b) delivery to the Division of Corporations
and Commercial Code of the State of Utah (the "Division") of the articles of
merger, or at such later time after such filing and delivery as is provided in
the articles of merger. As used herein, the term "Effective Date" means the
day on which the Effective Time occurs. It is intended that the Effective Time
will occur after the close of business on or about April 28, 1995, assuming
the satisfaction of the conditions discussed below. The parties are unable
to predict when or if the Effective Time will occur.
CONDITIONS TO THE MERGER
The obligations of Olympus and Washington Mutual to consummate the
Merger are subject to, among other things, the satisfaction of the following
conditions: (i) the approval of the Merger Agreement by the requisite vote of
Olympus Shareholders; (ii) the receipt of all applicable regulatory or
governmental approvals or consents and the expiration of all statutory or
regulatory waiting periods; (iii) the absence of any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger; (iv) receipt of an opinion of counsel
to Washington Mutual to the effect that the Merger will qualify as a
"reorganization" as defined by the Code and neither Washington Mutual nor
Olympus nor any stockholder of Olympus will recognize any gain or loss for
federal income tax purposes (with the exception of cash paid for fractional
shares, cash paid as a result of Washington Mutual electing the Partial Cash
Consideration Option or cash paid as a result of any Olympus Shareholder
perfecting dissenters' rights) as a result of the Merger; (v) compliance with
applicable pre-merger notification provisions of Section 7A of the Clayton Act
and the absence of pending or threatened proceedings under any applicable
antitrust law of the State of Washington; and (vi) the effectiveness of the
Registration Statement and the absence of any stop order suspending the
effectiveness thereof or any proceedings for that purpose initiated by the
Commission.
The obligation of Washington Mutual to consummate the Merger is subject
to the satisfaction or waiver of certain additional conditions, including,
without limitation, the following: (i) the continued accuracy of
representations and warranties of Olympus and the performance by Olympus of its
covenants and agreements made in the Merger Agreement, except where the failure
of such representations and warranties to be accurate or the failure to perform
such covenants or agreements shall not, in the aggregate, have a negative
economic effect of $500,000 or more on Olympus and its subsidiaries or, when
adjusted to present value, have such an effect on Washington Mutual; (ii) the
receipt of all regulatory or governmental approvals or consents required in
connection with the transactions contemplated by the Merger Agreement without
the imposition of any condition which (a) has
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not normally been imposed in such transactions and would have a material
adverse effect on Olympus or Washington Mutual or (b) would require Washington
Mutual to raise additional capital other than to raise its leverage capital to
a level no higher than 5% (as adjusted to account for the Merger); (iii) the
receipt of an opinion, dated the date of the closing, from Kimball, Parr,
Waddoups, Brown & Gee, counsel to Olympus; (iv) the absence of any material
adverse change in the overall financial condition, businesses or results of
operations of Olympus and its subsidiaries taken as a whole; (v) the receipt of
consents necessary for the assignment of certain real property leases to the
successor by merger to Olympus Bank; (vi) the receipt of resignations of the
directors of Olympus and each Olympus subsidiary; (vii) unless Washington
Mutual elects the Partial Cash Consideration Option, the receipt of an opinion
of Deloitte & Touche LLP that the Merger will qualify for pooling of interests
accounting treatment or, in the event it does not so qualify, that neither
Olympus nor its shareholders, directors, or officers shall have taken any
action that would disqualify the Merger from being treated as a pooling of
interests for accounting purposes; (viii) the receipt of a certificate of
officers of Olympus and such other documents necessary to evidence fulfillment
of the conditions precedent to the closing of the Merger; (ix) evidence that
dissenters' rights have not been preserved with respect to more than 5% of the
outstanding shares of Olympus Common Stock and that each party which executed
an Affiliate Letter has voted in favor of the Merger; and (x) the amendment of
certain indemnification agreements between Olympus and current directors.
The obligation of Olympus to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions, including, without
limitation, the following: (i) the continued accuracy of the representations
and warranties of Washington Mutual, except where the failure to be accurate
would not have a material adverse effect on Washington Mutual, and the
performance by Washington Mutual of its covenants and agreements made in the
Merger Agreement; (ii) the receipt of an opinion from Foster Pepper &
Shefelman, counsel to Washington Mutual; (iii) the absence of any material
adverse change in the overall financial condition, businesses or results of
operations of Washington Mutual and its subsidiaries taken as a whole; (iv) the
receipt of a certificate of officers of Washington Mutual and such other
documents necessary to evidence fulfillment of the conditions precedent to the
closing of the Merger; (v) the receipt of a fairness opinion from Goldman
Sachs, dated the date of this Proxy Statement/Prospectus; and (vi) Washington
Mutual shall have instructed its transfer agent with respect to the issuance of
Washington Mutual Common Stock to the Olympus Shareholders at least two days
prior to closing.
BUSINESS OF OLYMPUS PENDING THE MERGER
Under the Merger Agreement, until the Effective Time, Olympus is
generally obligated to conduct its business in the ordinary course and
consistent with past practice and prudent banking practice. In addition,
Olympus and Olympus Bank have agreed to use their best efforts to preserve
their business organizations, keep available the present services of their
employees and preserve the goodwill of their customers and other business
relationships. The Merger Agreement also provides that, prior to the Effective
Time, except as otherwise consented to by Washington Mutual, permitted by the
Merger Agreement or required by law, Olympus will not, and will not permit any
of its subsidiaries to: (i) change any provisions of its articles of
incorporation or by-laws, (ii) issue any shares of capital stock except upon
the exercise of certain existing options, (iii) issue, grant or amend any
options, warrants or other rights to purchase capital stock, (iv) split,
combine or reclassify any shares of its capital stock, (v) declare or pay any
dividends on its capital stock, (vi) redeem or otherwise acquire any shares of
its capital stock, (viii) grant any severance or termination pay or enter into
or amend any employment agreement or increase the amount of payments or fees to
its employees, officers or directors, (ix) make capital expenditures in excess
of $40,000 per project or $200,000 in the aggregate, (x) open, close or
relocate any branches, (xi) change in any material manner its lending,
investment or asset/liability policies or any other material banking policies,
(xii) make loans or issue loan commitments other than in the ordinary course of
business consistent with past practice at rates not less than prevailing market
rates, (xiii) acquire, sell, transfer, assign, encumber or otherwise dispose of
assets other than in the ordinary course of business, (xiv) enter into or amend
certain contracts having a term of one year or more or calling for the payment
of $25,000 or more, (xv) make any contributions to Olympus' Employee Stock
Bonus Plan or other benefit plans except in amounts consistent with past
practice, (xvi) increase the number of full-time employees, (xvii) foreclose
upon or otherwise acquire any real property (other than 1-to-4 family
residential properties in the ordinary course of business) or (xviii) agree to
do any of the foregoing.
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WAIVER AND AMENDMENT
At any time prior to the consummation of the Merger, the parties to the
Merger Agreement may (i) amend the Merger Agreement, (ii) extend the time for
the performance of any of the obligations or other acts of any other party
thereto, (iii) waive any inaccuracies in the representations and warranties of
any other party contained therein or in any document delivered pursuant
thereto, or (iv) waive compliance with any of the agreements or conditions
contained therein; provided, however, that after any approval of the Merger by
the Olympus Shareholders, there may not be, without further approval of such
shareholders, any amendment or waiver of the Merger Agreement that changes the
amount or the form of consideration to be delivered to the Olympus
Shareholders.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the Olympus
Shareholders:
(a) by mutual written consent of all the parties to the Merger
Agreement;
(b) by any party to the Merger Agreement (i) if the Effective Time
shall not have occurred on or prior to June 30, 1995 unless the failure of such
occurrence is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its agreements and conditions set forth in the
Merger Agreement; or (ii) 31 days after the date on which any application for
regulatory approval prerequisite to the consummation of the Merger shall have
been denied or withdrawn at the request of the applicable regulatory authority;
provided, that, if prior to the expiration of such 31-day period Washington
Mutual is engaged in litigation or an appeal procedure relating to an attempt
to obtain such approval, Olympus may not terminate the Merger Agreement until
the earlier of (A) June 30, 1995 and (B) 31 days after the completion of such
litigation and appeal procedures, and of any further regulatory or judicial
action pursuant thereto, including any further action by a government agency as
a result of any judicial remand, order or directive or otherwise; or (iii) ten
days after written certification of the vote of the Olympus Shareholders is
delivered to Washington Mutual indicating that the Olympus Shareholders failed
to approve the Merger Agreement and the Merger at the Special Meeting (or any
adjournment thereof);
(c) by Washington Mutual if (i) at the time of such termination
there shall have been a material adverse change in the consolidated financial
condition of Olympus from that set forth in Olympus' Quarterly Report on Form
10-Q for the three month period ended March 31, 1994 (except for changes
resulting from market and economic conditions which generally affect the
savings industry as a whole, including changes in regulation) or (ii) there
shall have been any material breach of any obligation of Olympus under the
Merger Agreement and such breach shall have not been remedied within 45 days
after receipt by Olympus of notice in writing from Washington Mutual specifying
the nature of such breach and requesting that it be remedied or (iii) Olympus
or Olympus Bank or either of their boards of directors enters into an agreement
or recommends to Olympus' shareholders an agreement (other than the Merger
Agreement) pursuant to which any person or group would (a) merge or consolidate
with, acquire 51% or more of the assets or liabilities of, or enter into any
similar transaction with Olympus or Olympus Bank or (b) acquire ten percent or
more of the voting shares of Olympus or Olympus Bank; or (iv) the Olympus Board
withdraws its recommendation that shareholders vote for approval of the Merger
or the Olympus Shareholders fail to approve the Merger after any person or
group announces publicly, or communicates in writing, to Olympus a proposal to
(a) acquire Olympus or Olympus Bank (by merger, consolidation or purchase of
51% of assets), (b) purchase or otherwise acquire securities representing 25%
of the voting shares of Olympus or (c) change the composition of the Olympus
Board; or
(d) by Olympus if (i) at the time of such termination there shall
have been a material adverse change in the consolidated financial condition of
Washington Mutual from that set forth in Washington Mutual's Quarterly Report
on Form F-4 for the quarter ended March 31, 1994 (except for changes resulting
from market and economic conditions which generally affect the savings industry
as a whole), or (ii) there shall have been any material breach of any
obligation of Washington Mutual under the Merger Agreement and such breach
shall have not been remedied within 45 days after receipt by Washington Mutual
of notice in writing from Olympus specifying the nature of such breach and
requesting that it be remedied, or (iii) the directors of Olympus, after
receiving advice of counsel,
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determine in their good faith judgment to withdraw or modify or resolve to
withdraw or modify their recommendation that shareholders vote in favor of the
Merger in order to discharge their fiduciary duties.
BREAK-UP FEES
As part of the Merger Agreement, Washington Mutual and Olympus agreed to
pay liquidated damages to each other under certain circumstances. To
compensate Olympus for certain costs incurred in connection with the Merger and
to induce Olympus to forego initiating discussions with other potential
acquirors (i) if Washington Mutual terminates the Merger Agreement for any
reason other than the mutual consent of the parties, expiration of the term of
the Merger Agreement, or any material change in the financial condition of
Olympus, or (ii) if the Merger Agreement terminates because Washington Mutual
did not use all reasonable efforts to consummate the Merger, or (iii) if
Olympus terminates the Merger Agreement because of a material breach of any
covenant of Washington Mutual and such breach is not remedied within 45 days
after receipt by Washington Mutual of notice in writing from Olympus specifying
the nature of such breach and requesting that it be remedied, then Washington
Mutual will pay to Olympus on demand $250,000.
To compensate Washington Mutual for certain costs incurred in connection
with the Merger and to induce it to forego initiating discussions regarding
other potential acquisitions (i) if Olympus terminates the Merger Agreement for
any reason other than the mutual consent of the parties, expiration of the term
of the Merger Agreement, or any material change in the financial condition of
Washington Mutual, or (ii) if the Merger Agreement terminates because Olympus
did not use all reasonable efforts to consummate the Merger, or (iii) if
Olympus, Olympus Bank or either of their respective boards enter into a merger,
consolidation or similar transaction with another person, entity or group, or
(iv) if the Olympus Board fails to recommend, or it withdraws its prior
recommendation of the Merger to Olympus' Shareholders, or (v) if Olympus'
Shareholders fail to approve the Merger after any person publicly announces or
communicates in writing to Olympus a proposal to (a) acquire by merger,
consolidation or purchase 51% or more of Olympus' assets or liabilities (or any
similar transaction), (b) purchase or otherwise acquire 25% or more of the
voting shares of Olympus, or (c) change the composition of the Olympus Board,
then Olympus shall pay to Washington Mutual on demand $250,000, and in addition
Washington Mutual shall be entitled to receive any benefits under the Stock
Option Agreement. See "THE MERGER AGREEMENT -- Stock Option Agreement." The
liquidated damages described above could increase the likelihood that the
Merger will be consummated on the terms set forth in the Merger Agreement.
STOCK OPTION AGREEMENT
As a condition to Washington Mutual entering into the Merger Agreement,
Olympus and Washington Mutual have entered into a Stock Option Agreement,
pursuant to which Olympus has granted to Washington Mutual the Option to
purchase an aggregate of 306,864 authorized but unissued shares of Olympus
Common Stock at a per share price of $13.6125, which was the average closing
price of Olympus Common Stock on the Nasdaq National Market for the ten trading
days prior to and including July 21, 1994. The Option will become exercisable
under any of the following circumstances: (a) Olympus or Olympus Bank or either
of their boards of directors enters into an agreement or recommends to Olympus
Shareholders an agreement (other than the Merger Agreement) pursuant to which
any person or group would (i) merge or consolidate with, acquire 51% or more of
the assets or liabilities of, or enter into any similar transaction with
Olympus or Olympus Bank or (ii) acquire ten percent or more of the voting
shares of Olympus or Olympus Bank; (b) any person or group (other than
Washington Mutual, WMFSB or any other person owning ten percent of Olympus as
of July 22, 1994) acquires the beneficial ownership of ten percent or more of
the voting shares of Olympus (unless the person or group acquires less than 25%
of the voting shares of Olympus, and files a complete rebuttal of control
submission with the OTS prior to acquiring beneficial ownership of 10% and such
submission is accepted by the OTS); (c) the Olympus Board withdraws its
recommendation that shareholders vote for approval of the Merger or the Olympus
Shareholders fail to approve the Merger after any person or group announces
publicly, or communicates in writing, to Olympus a proposal to (i) acquire
Olympus or Olympus Bank (by merger, consolidation or purchase of 51% of the
assets), (ii) purchase or otherwise acquire securities representing 25% of the
voting shares of Olympus or (iii) change the composition of the Olympus Board.
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The Stock Option Agreement and the Option will terminate upon the
earliest of (i) June 30, 1995; (ii) the mutual agreement of the parties hereto;
(iii) thirty-one (31) days after the date on which any application for
regulatory approval for the Merger shall have been denied; provided, however,
that if prior to the expiration of such 31-day period, Olympus, Washington
Mutual or WMFSB is engaged in litigation or an appeal procedure relating to an
attempt to obtain approval of the Merger or the Bank Merger, the Stock Option
Agreement will not terminate until the earlier of (a) June 30, 1995, or (b)
thirty-one (31) days after the completion of such litigation and appeal
procedure; (iv) the thirtieth (30th) day following the termination of the
Merger Agreement for any reason other than a material noncompliance or default
by Washington Mutual with respect to its obligations thereunder; or (v) the
date of termination of the Merger Agreement if such termination is due to a
material noncompliance or default by Washington Mutual with respect to its
obligations thereunder.
The foregoing summary of the terms of the Stock Option Agreement, is not
intended to be complete and is subject to, and qualified in its entirety by
reference to, the copy of the Stock Option Agreement which is attached as
Appendix C to this Proxy Statement/Prospectus and is incorporated herein by
reference.
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement, and may discourage persons from proposing a competing offer to
acquire Olympus. The existence of the Stock Option Agreement could
significantly increase the cost to a potential acquiror of acquiring Olympus,
compared to its cost had Olympus not entered into the Stock Option Agreement.
PREFERENCE AND ALLOCATION PROCEDURES
If the Average Price is less than $18.00, then Washington Mutual may
elect the Partial Cash Consideration Option. In such case and subject to
certain allocation procedures, each Olympus Shareholder will be eligible to
receive such shareholders' preference as to the form of the Merger
Consideration to be paid. On March 6, 1995, the closing sales price of
Washington Mutual Common Stock on The Nasdaq Stock Market was $20.125.
However, it is impossible to predict whether the Average Price will or will not
be less than $18.00 or whether, even if it were less than $18.00, Washington
Mutual would elect the Partial Cash Consideration Option. It is anticipated
that a Preference Form and other appropriate transmittal materials will be sent
to each holder of record of Olympus Common Stock 27 days prior to the expected
Effective Time, as described below, through which each Olympus Shareholder can
indicate their preference to receive either Washington Mutual Common Stock or
cash with respect to such holder's Olympus Common Stock, or indicate no such
preference. If Washington Mutual waives its right to elect the Partial Cash
Consideration Option, no Preference Form will be sent to Olympus Shareholders.
Although Olympus Shareholders will be asked to complete Preference
Forms prior to the Effective Time, such Preference Forms will only be utilized
under circumstances where Washington Mutual elects the Partial Cash
Consideration Option. If necessary, the allocation of Washington Mutual Common
Stock or cash in the Merger will be conducted by an exchange agent in
accordance with the preferences indicated by shareholders on the preference
forms and pursuant to certain allocation procedures described below. During
the period after an Olympus Shareholder delivers a Preference Form and such
Shareholder's stock certificates and before such shareholder receives
Washington Mutual Common Stock and/or cash in the Merger, such Olympus
Shareholder will not be able to sell his shares or liquidate his investment in
Olympus Common Stock. However, an Olympus Shareholder may revoke a Preference
Form prior to the Preference Deadline (as defined below) and promptly receive a
return of such shareholders' stock certificate.
Indications of Preference. Unless Washington Mutual waives the Partial
Cash Consideration Option, each Olympus Shareholder of record will have
the right to submit a Preference Form specifying the kind of consideration
sought to be received. The Preference Form and other appropriate transmittal
materials will be mailed by the Exchange Agent on the Mailing Date (27 days
before the expected Effective Date, or on such other date as is mutually
agreed) to each Olympus Shareholder of record as of five business days before
the Mailing Date. Holders of record of such shares of Olympus Common Stock who
hold such shares as nominees, trustees, or in other representative capacities
may submit multiple Preference Forms that cover all the shares of Olympus
Common Stock held by such record holder for each beneficial owner thereof. See
"THE MERGER -- Federal Income Tax Consequences." The Preference Form will
permit Olympus Shareholders (1) to indicate that they prefer to receive in
exchange for their Olympus shares (a) only Washington Mutual Common Stock
(Stock Preference Shares) or (b) only cash (Cash Preference Shares) or (2) to
indicate they have no preference as to the receipt of Washington Mutual Common
Stock or cash (No Preference Shares). The Preference Form,
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together with stock certificates representing all shares of Olympus Common
Stock covered thereby, must be completed, signed and returned to the Exchange
Agent no later than the Preference Deadline (5:00 p.m., Mountain Time, on the
date that is 20 days after the Mailing Date). If a certificate for Olympus
Common Stock has been lost, stolen or destroyed, a Preference Form will be
properly completed only if accompanied by appropriate evidence as to such loss,
theft or destruction, appropriate evidence as to the ownership of such
certificate by such Olympus Shareholder and appropriate and customary
indemnification. Olympus shares for which a Preference Form has not been
properly completed and received, together with the certificates representing
such shares, by the Exchange Agent by the Preference Deadline will be deemed No
Preference Shares. The Preference Forms will be accompanied by instructions
specifying other details of the exchange. OLYMPUS SHAREHOLDERS SHOULD NOT SEND
THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A PREFERENCE FORM.
If Washington Mutual elects the Partial Cash Consideration Option, the
aggregate number of shares of Washington Mutual Common Stock to be issued (the
"Stock Limit") and the total amount of cash payable in the Merger will be
fixed. Accordingly, there can be no assurance that each Olympus Shareholder
will receive the form of consideration that such holder prefers. In the event
that the Preference Forms result in an aggregate preference of either
Washington Mutual Common Stock or cash, the procedures for allocating
Washington Mutual Common Stock and cash, described below under "Allocation
Procedures," will be followed by the Exchange Agent.
Any Preference Form may be revoked or changed by written notice from the
person submitting such Preference Form to the Exchange Agent, but to be
effective such notice must actually be received by the Exchange Agent at or
before the Preference Deadline. The Exchange Agent will have reasonable
discretion to determine when any preference, modification or revocation is
received and whether any such election, modification or revocation has been
properly made, and such determination shall be final.
Persons who become shareholders of Olympus after the date five days
before the Mailing Date and before the close of business on the day before the
Preference Deadline, or any other shareholders who need a Preference Form, may
obtain copies of the Preference Form upon request from Washington Mutual either
in writing at Washington Mutual, Washington Mutual Tower, 1201 Third Avenue,
12th Floor, Seattle, Washington, Attention: Ms. JoAnn DeGrande, Vice President
of Investor Relations, or by telephone at (206) 461-3187.
Allocation Procedures. If Washington Mutual elects the Partial Cash
Consideration Option, then within five business days after the Preference
Deadline, the Exchange Agent will allocate among Olympus Shareholders rights to
receive Washington Mutual Common Stock or cash as follows (provided that in no
event will the Exchange Agent be required to effectuate the allocation before
the Effective Date):
(a) If the number of Washington Mutual Common Stock shares to
be issued for Stock Preference Shares is less than the Stock Limit, then
(i) all Stock Preference Shares will be converted into Washington Mutual
Common Stock, (ii) a sufficient number of No Preference Shares and then,
if necessary, Cash Preference Shares will be selected randomly by the
Exchange Agent to receive Washington Mutual Common Stock, so that the
total of Washington Mutual Common Stock shares to be issued will equal
as closely as practicable the Stock Limit and (iii) the Cash Preference
Shares and No Preference Shares not so selected will be converted into
cash.
(b) If the number of Washington Mutual Common Stock shares to
be issued for Stock Preference Shares exceeds the Stock Limit, then (i)
all Cash Preference Shares and No Preference Shares will be converted
into cash, (ii) a sufficient number of Stock Preference Shares will be
selected randomly by the Exchange Agent to receive cash so that the
total of Washington Mutual Common Stock shares to be issued will equal
as closely as practicable the Stock Limit and (iii) the Stock Preference
Shares not so selected will be converted into Washington Mutual Common
Stock.
(c) If the number of Washington Mutual Common Stock shares to
be issued on conversion of Stock Preference Shares equals or is nearly
equal to (as determined by the Exchange Agent) the Stock Limit, Stock
Preference Shares will receive Washington Mutual Common Stock, and all
Cash Preference Shares and No Preference Shares will receive cash.
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(d) If the number of Washington Mutual Common Stock shares to
be issued on conversion of Stock Preference Shares and No Preference
Shares equals or is nearly equal to (as determined by the Exchange
Agent) the Stock Limit, all Cash Preference Shares will receive cash and
all Stock Preference Shares and No Preference Shares will receive
Washington Mutual Common Stock.
No assurance can be given that a preference by any Olympus Shareholder
will be honored. Because the number of shares of Washington Mutual Common
Stock to be issued and the total amount of cash to be paid in the Merger will
be fixed after Washington Mutual elects the percentage of aggregate Merger
Consideration to be paid in cash pursuant to the Merger Agreement, the extent
to which elections will be accommodated will depend upon the numbers of shares
which elect cash and stock and as to which no preference is indicated.
Accordingly, an Olympus Shareholder who prefers to receive cash may instead
receive shares of Washington Mutual Common Stock (plus cash in lieu of a
fractional share) and an Olympus Shareholder who prefers to receive shares of
Washington Mutual Common Stock (plus cash in lieu of a fractional share) may
instead receive all cash. In addition, it is possible, in such cases, that a
beneficial owner of Olympus Common Stock who holds his shares in more than one
record ownership could receive both cash (in addition to cash received in lieu
of fractional shares) and Washington Mutual Common Stock in the Merger.
Because the tax consequences of receiving cash, Washington Mutual Common Stock
or a combination of cash and Washington Mutual Common Stock will differ,
shareholders of Olympus are urged to read carefully the information under "THE
MERGER -- Federal Income Tax Consequences" in this Proxy Statement/Prospectus,
and to consult with their own tax advisors before returning the Preference
Form.
If Washington Mutual does not elect the Partial Cash Consideration
Option, all Preference Forms will be disregarded and all of the outstanding
shares of Olympus Common Stock will be converted into the right to receive
$15.50 per share, subject to adjustment, to be paid in shares of Washington
Mutual Common Stock, as described herein.
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Date, the Exchange Agent will mail written
transmittal materials concerning the exchange of stock certificates to each
record holder of shares of Olympus Common Stock outstanding at the Effective
Date who did not deliver their stock certificates with a Preference Form. The
transmittal materials will contain instructions with respect to the proper
method of surrender of certificates formerly representing shares of Olympus
Common Stock in exchange for the Merger Consideration. OLYMPUS SHAREHOLDERS
SHOULD NOT SEND STOCK CERTIFICATES AT THIS TIME.
Upon surrender to the Exchange Agent of certificates formerly
representing shares of Olympus Common Stock for cancellation, together with
properly completed transmittal material, an Olympus Shareholder will be
entitled to receive the Merger Consideration. Olympus Shareholders will not be
entitled to receive interest on any cash payment received in the Merger.
Until surrendered, each certificate which, prior to the Effective Date
of the Merger, represented Olympus Common Stock (other than shares exchanged or
canceled at the Effective Date pursuant to the exercise of dissenters' rights)
will be deemed for all corporate purposes to evidence ownership of the number
of whole shares of Washington Mutual Common Stock into which the shares of
Olympus Common Stock formerly represented thereby were converted and/or the
right to receive cash for such shares. However, until such outstanding Olympus
certificates are so surrendered, no dividend payable to holders of record of
Washington Mutual Common Stock will be paid to any holders of such outstanding
certificates. Upon surrender of such outstanding certificates, there shall be
paid to the holder thereof the amount of any dividends, without interest,
theretofore paid with respect to such whole shares of Washington Mutual Common
Stock, but not paid to such holder, and which dividends had a record date
occurring on or subsequent to the Effective Date of the Merger and the amount
of any cash, without interest, payable to such holder. After the Effective
Date, there will be no further registration or transfers of outstanding
certificates formerly representing shares of Olympus Common Stock, and, if a
certificate formerly representing such shares is presented to Washington
Mutual, it shall be canceled and exchanged for certificates representing whole
shares of Washington Mutual Common Stock and/or cash.
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If any new certificate for Washington Mutual Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefore is registered, it shall be a condition of the issuance
thereof that the certificate surrendered in exchange shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
transfer pay any transfer or other taxes required by reason of the issuance of
a new certificate for shares of Washington Mutual Common Stock in any name
other than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of Washington Mutual that such tax has been paid
or is not payable.
Fractional shares of Washington Mutual Common Stock will not be issued
in the Merger. Instead, each Olympus Shareholder who would otherwise be
entitled to a fractional share will receive cash in lieu thereof.
EFFECT ON EMPLOYEE BENEFIT PLANS AND STOCK PLANS
Following the Merger, all employees of Olympus and its subsidiaries will
become, at least temporarily, employees of WMFSB. Pursuant to the Merger
Agreement, Washington Mutual or WMFSB will make severance payments to any
employee whose employment is subsequently terminated by Washington Mutual or
WMFSB without "cause" within one year after the Effective Date, as follows:
(i) non-officer employees will receive one- half month's salary for each full
year of service with Olympus and Olympus Bank, up to a maximum of three months
total pay; (ii) officers will receive two weeks salary for each full year of
service with Olympus and/or Olympus Bank, up to a maximum of six months' total
pay; and (iii) regular part-time employees will receive the same severance
payments, but their per month compensation shall be based on one-twelfth of the
actual number of hours worked in 1994. Severance payments will be made on the
first regular pay date following the date that any termination is effective.
All employees of Olympus who continue as employees of Washington Mutual
or WMFSB for twelve months and one day after the Effective Time shall receive
service credit for employment at Olympus for purposes of meeting all
eligibility and vesting requirements for all Washington Mutual retirement
plans. Employees who receive such service credit shall be considered for
eligibility under the Washington Mutual retirement plans effective as of the
Effective Time. Prior to enrollment in a Washington Mutual retirement plan,
all employees of Olympus or its subsidiaries shall either (i) be covered by the
existing Olympus retirement plans or (ii) in the event of termination of
employment with Washington Mutual or WMFSB prior to enrollment in the
Washington Mutual retirement plans, receive an additional after tax payment
substantially equivalent to the benefits that would have been accrued under the
Olympus retirement plans (as reasonably determined by Washington Mutual),
without regard to service requirements for active participation, and based on
compensation earned from the Effective Time until termination of employment.
Under the Merger Agreement, Olympus will be required to make certain
amendments to its Employee Benefit and Stock Plans. Olympus shall amend the
Olympus stock bonus plan to eliminate offering new or extending existing
participant loans and also to eliminate salary deferral elections after the
Effective Time. Olympus may not amend or authorize any action not permitted
under the terms of the stock bonus plan as of July 15, 1994. To the extent
permissible under federal law, Olympus shall amend the Olympus money purchase
pension plan, effective by the Effective Time, so that participants do not
accrue benefits. If any portion of the money purchase pension plan is invested
in Olympus Common Stock, the plan shall not be terminated. Olympus will have
to amend or terminate any benefit plan so that no individual can receive an
"excess parachute payment" as defined by the Code. In addition, Olympus shall
amend or terminate any benefit plan that is an "employee welfare benefit plan"
under ERISA so that no participant is entitled to receive benefits after
termination of employment except for those specifically enumerated in the
Merger Agreement.
Washington Mutual will have the discretion to decide if Olympus
employees will continue to participate in Olympus benefit plans in effect
before the Effective Time or will become participants in similar Washington
Mutual plans. All vacation accrued and not used by Olympus employees before
the Effective Time shall be maintained by Washington Mutual.
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EXPENSES
All legal and other costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be borne by the
party incurring such costs and expenses unless otherwise specified in the
Merger Agreement.
POST-MERGER DIVIDEND POLICY
Dividends may be paid on the Washington Mutual Common Stock as and when
declared by the Washington Mutual Board out of funds legally available for the
payment of dividends. Each quarter, the Washington Mutual Board considers the
payment of dividends. The factors affecting this determination include
Washington Mutual's long-term interests, current and projected earnings,
adequacy of capitalization, expected asset and deposit growth as well as other
financial conditions, legal, regulatory and contractual restrictions, and tax
considerations.
According to Washington law, Washington Mutual dividends may be paid
only if, after giving effect to the dividend, Washington Mutual will be able to
pay its debts as they become due in the ordinary course of business and
Washington Mutual's total assets will not be less than the sum of its total
liabilities plus the amount that would be needed, if Washington Mutual were to
be dissolved at the time of the dividend, to satisfy the preferential rights of
persons whose right to payment is superior to those receiving the dividend.
Washington Mutual's ability to pay dividends is also dependent on the ability
of WMFSB and other subsidiary operations to pay Washington Mutual dividends.
See "COMPARATIVE RIGHTS OF SHAREHOLDERS -- Dividend Rights."
The Washington Mutual Preferred Stock ranks prior to the Washington
Mutual Common Stock and to all other classes and series of equity securities of
Washington Mutual, other than any classes or series of equity securities of
Washington Mutual ranking on a parity with the Washington Mutual Preferred
Stock.
The right of holders of Washington Mutual Preferred Stock to receive
dividends is noncumulative. Accordingly, if the Washington Mutual Board fails
to declare a dividend payment date, the holders of Washington Mutual Preferred
Stock will have no right to receive a dividend in respect of the dividend
period ending on such dividend payment date and Washington Mutual will have no
obligation to pay the dividend accrued for such period, whether or not
dividends are declared payable on any future dividend payment dates.
Full dividends on Washington Mutual Preferred Stock must be declared and
paid or set apart for payment for the most recent dividend period ended before
(i) any dividend (other than in Washington Mutual Common Stock or stock junior
to the Washington Mutual Preferred Stock ("Junior Stock") may be declared or
paid or set aside for payment or other distribution made upon the Washington
Mutual Common Stock or on any other Junior Stock or (ii) Junior Stock is
redeemed (or any moneys are paid to or made available for a sinking fund for
the redemption of any share of any such stock) or any Junior Stock or stock on
a parity with Washington Mutual Preferred Stock ("Parity Stock") is purchased
or otherwise acquired by Washington Mutual for any consideration except by
conversion into or exchange for Junior Stock as to dividends and upon
liquidation.
The Washington Mutual Board may issue Washington Mutual Preferred Stock
which is entitled to such dividend rights as the Washington Mutual Board may
determine, including priority over Washington Mutual Common Stock in the
payment of dividends.
COMPARATIVE RIGHTS OF SHAREHOLDERS
If the Merger is consummated, Olympus Shareholders receiving Washington
Mutual Common Stock in the Merger will become shareholders of Washington
Mutual. The rights of holders of Olympus Common Stock are governed by the
URBCA and the Articles of Incorporation and Bylaws of Olympus. The rights of
holders of Washington Mutual Common Stock are governed by the WBCA (RCW Chapter
23B) and the Articles of Incorporation and Bylaws of Washington Mutual.
Certain provisions of the Washington Mutual Articles could render more
difficult or discourage a merger, tender offer, proxy contest or other attempt
to obtain control of
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Washington Mutual. The following is a summary of the material differences
between the rights of holders of Olympus Common Stock and the rights of holders
of Washington Mutual Common Stock. This summary does not purport to be a
complete discussion of and is qualified in its entirety by reference to the
URBCA, the WBCA, Washington Mutual's Articles of Incorporation and Bylaws and
Olympus' Articles of Incorporation and Bylaws.
AUTHORIZED CAPITAL
WASHINGTON MUTUAL. Washington Mutual is authorized to issue 100,000,000
shares of Washington Mutual Common Stock and 10,000,000 shares of Preferred
Stock. As of March 8, 1995, Washington Mutual had 62,098,684 shares of
Washington Mutual Common Stock issued and outstanding and 2,800,000 shares of
9.12% Noncumulative Perpetual Preferred Stock, Series C ("Series C Preferred
Stock"), 1,400,000 shares of $6.00 Noncumulative Convertible Perpetual
Preferred Stock, Series D ("Series D Preferred Stock") and 2,000,000 shares of
7.60% Noncumulative Perpetual Preferred Stock, Series E ("Series E Preferred
Stock") issued and outstanding. At March 16, 1995, options to purchase
963,135 shares of Washington Mutual Common Stock under Washington Mutual's
stock option plans had been granted, but not exercised or terminated and
3,559,000 shares were available for future grants under such plans.
OLYMPUS. Olympus is authorized to issue 10,000,000 shares of Olympus
Common Stock of which 3,134,539 shares were outstanding as of the Record Date,
held by 11,414 holders of record. As of the Record Date, options to purchase
303,000 shares of Olympus Common Stock under the Option Plan had been granted
or exercised, leaving 197,000 shares available for future grants under the
Option Plan.
COMPARISON OF VOTING RIGHTS
WASHINGTON MUTUAL. Each holder of Washington Mutual Common Stock is
entitled to one vote for each share held on all matters voted upon by
shareholders. Washington Mutual Shareholders ("Washington Mutual
Shareholders") are not permitted to cumulate their votes in the election of
directors. The Washington Mutual Board is authorized to determine the voting
rights of any Washington Mutual Preferred Stock. None of the Series C, D or E
Preferred Stock has general voting rights. The holders of Series C, D and E
Preferred Stock have the right to elect two directors for newly created
directorships if dividends are not paid for six quarterly dividend periods,
whether or not consecutive.
OLYMPUS. Each holder of Olympus Common Stock is entitled to one vote
for each share held on all matters voted upon by shareholders, except that
shareholders are permitted to cumulate their votes in the election of
directors.
LIQUIDATION RIGHTS
WASHINGTON MUTUAL. In the event of the liquidation of Washington
Mutual, holders of Washington Mutual Common Stock will be entitled to receive
any remaining assets of Washington Mutual, in cash or in kind, after payment of
all liabilities. In the event of liquidation, the Washington Mutual Series C,
D and E Preferred Stock ranks prior to the Washington Mutual Common Stock, and
to all other classes and series of equities securities of Washington Mutual
other than any classes or series of equities securities Washington Mutual
ranking on a parity with the Washington Mutual Preferred Stock. The Washington
Mutual Preferred Stock is also subject to creation of Parity Stock and Junior
Stock to the extent not expressly prohibited by the Washington Mutual Articles
of Incorporation. All Washington Mutual Preferred Stock as described above is
"Parity Stock." The rights of the holders of Washington Mutual Preferred Stock
are subordinate to the rights of Washington Mutual's general creditors, and
there is no sinking fund with respect to Washington Mutual Preferred Stock.
The Washington Mutual Board is authorized to determine the liquidation rights
of any Washington Mutual Preferred Stock which may be issued in the future,
including priority over the liquidation rights of holders of Washington Mutual
Common Stock.
OLYMPUS. In the event of the liquidation of Olympus, holders of Olympus
Common Stock shall be entitled to receive, in cash or in kind, the assets of
Olympus available for distribution remaining after discharging or making
provisions for discharging its liabilities.
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DIVIDEND RIGHTS
WASHINGTON MUTUAL. Washington Mutual's ability to pay dividends on its
Common Stock is restricted by Washington law. Additionally, Washington
Mutual's ability to pay dividends to shareholders is dependent on the ability
of its subsidiaries to pay Washington Mutual dividends. Washington Mutual's
most significant subsidiary, WMB, is precluded from paying Washington Mutual
dividends if to do so would cause (i) the regulatory capital levels of WMB to
be reduced below the regulatory capital requirements or (ii) its net worth to
be reduced below the amount required for its liquidation accounts or any limits
imposed by the Director of Financial Institutions for the State of Washington
(the "Director"). In addition, WMB is precluded from paying dividends in an
amount greater than its retained earnings without the approval of the Director.
Washington Mutual is restricted by Washington law with respect to the payment
of dividends. Washington law provides that dividends may be paid only if,
after giving effect to the dividend, Washington Mutual will be able to pay its
debts as they become due in the ordinary course of business and Washington
Mutual's total assets will not be less than the sum of its total liabilities
plus the amount that would be needed, if Washington Mutual were to be dissolved
at the time of dividend, to satisfy the preferential rights of persons whose
right to payment is superior to those receiving the dividend.
OLYMPUS. No dividends have been paid to shareholders of Olympus since
1981 and no determination has been made as to when, if at all, dividends may be
paid to shareholders of Olympus in the future. As a unitary savings and loan
holding company, Olympus' ability to pay dividends depends, in large part, on
the dividends it receives from Olympus Bank and on income from other activities
in which Olympus may engage either directly or through other subsidiaries. As
a condition of the February 1983 approval of the reorganization in which
Olympus Bank became a subsidiary of Olympus, dividends paid by Olympus Bank are
limited to Olympus Bank's net income for each year, but such dividends may be
deferred to a subsequent year. However, no dividend may be paid from net
income for a year prior to 1983 or if the payment of such dividends would
reduce Olympus Banks' regulatory capital below the regulatory minimum set by
the OTS. To the extent dividends have been paid by Olympus Bank to Olympus,
such funds have been used in the conduct of the business of Olympus.
Under Utah law, distributions (other than share dividends) may be paid
only if, after giving effect to the distribution, Olympus will be able to pay
its debts as they become due in the ordinary course of business and Olympus'
total assets will not be less than the sum of its total liabilities plus the
amount that would be needed, if Olympus were to be dissolved at the time of
distribution, to satisfy the preferential rights of persons, if any, whose
right to payment is superior to those receiving the distribution.
BOARD OF DIRECTORS
WASHINGTON MUTUAL. Washington Mutual's Articles of Incorporation
provide that its Board of Directors shall consist of not less than five
members, with the exact number to be set by Washington Mutual's Bylaws.
Washington Mutual's Board currently consists of 15 members which are divided
into three classes. Members of each class serve for three-year "staggered
terms" pursuant to which approximately one-third of Washington Mutual's Board
is elected annually. Vacancies on the Washington Mutual Board may be filled by
the affirmative vote of four-fifths of the remaining directors and any director
so appointed is to serve until the next annual meeting of shareholders.
Washington Mutual's Articles provide that a director may be removed by the
shareholders only with good cause.
OLYMPUS. Olympus' Articles of Incorporation and Bylaws provide that
Olympus' Board shall consist of not less than three or more than fifteen
members and shall be divided into three classes as nearly equal in number as is
possible. Members of each class serve for three-year "staggered terms,"
pursuant to which approximately one-third of Olympus' Board is elected
annually. Presently, Olympus' Board is comprised of seven members.
AMENDMENTS OF ARTICLES AND BYLAWS
WASHINGTON MUTUAL. Washington Mutual's Articles of Incorporation may be
amended by a vote of its shareholders representing two-thirds of its issued
capital stock; provided, however, that Article XI, relating to business
combinations, may not be repealed or amended unless such action is approved by
holders of at least 95%
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of the outstanding stock or other securities entitled to vote upon any action
to be taken in connection with any business combination or entitled to vote
generally in the election of directors, including stock convertible into such
stock ("voting stock") beneficially owned by shareholders other than a Major
Stockholder. The term "Major Stockholder" means generally any individual,
corporation, partnership or other person, group or entity, together with its
affiliates and associates and persons acting in concert with it, that is the
beneficial owner of 5% or more of the votes held by the holders of the
outstanding shares of the Voting Stock of Washington Mutual. The Washington
Mutual Board also may amend the Articles of Incorporation for the purpose of
determining, with respect to each new series of authorized Washington Mutual
Preferred Stock that may be issued, the rights, preferences, voting powers,
privileges and other rights of such Washington Mutual Preferred Stock. The
Washington Mutual Board has the power to amend or repeal Washington Mutual's
Bylaws, subject to the concurrent power of the Washington Mutual Shareholders,
by at least two-thirds affirmative vote of the shares of Washington Mutual
entitled to vote thereon.
OLYMPUS. Under the URBCA, the Articles of Incorporation of Olympus may
be amended in any manner prescribed or permitted by law. The URBCA provides
that a corporation may amend its articles of incorporation at any time to add,
change or delete provisions which are permitted, required or not required in
the articles of incorporation. A board of directors may adopt specified
ministerial amendments without shareholder approval. Other amendments may be
proposed to the shareholders and must be approved by a majority of votes
entitled to be cast on the amendment by any voting group with respect to which
the amendment would create dissenters' rights. Approval is also conditional on
receiving the majority of votes entitled to be cast on the amendment by each
voting group whose rights would be adversely affected by the amendment. Any
amendment which would impact personal liability of shareholders must be
approved by all of the shares affected.
Olympus' Bylaws, pursuant to Article IX therein, may be amended at any
time by a two-thirds vote of the full Board of Directors or a majority of the
votes eligible to be cast by the shareholders at any legal meeting.
ANTI-TAKEOVER PROVISIONS
WASHINGTON MUTUAL.
Classified Board of Directors. Article IV of Washington Mutual's
Articles provides that the Washington Mutual Board is to be divided into three
classes which shall be as nearly equal in number as possible. A classified
Board of Directors could make it more difficult for Washington Mutual
Shareholders, including those holding a majority of the outstanding Common
Stock, to force an immediate change in the composition of the majority of the
Washington Mutual Board. Since the terms of only one-third of the incumbent
directors expire each year, at least two annual elections are required for the
Washington Mutual Shareholders to change a majority, whereas a majority of a
non-classified board may be changed in one year. In the absence of such
provision, all directors would be elected each year. Thus, a staggered board
of directors makes it more difficult for Washington Mutual Shareholders to
change the majority of directors even when the only reason for the change is
their performance.
Restriction of Maximum Number of Directors in Filling Vacancies of the
Board of Directors. Article VI of Washington Mutual's Articles provides that
the number of directors of Washington Mutual shall not be less than five, as
provided from time to time in accordance with Washington Mutual's Bylaws.
Additionally, the power to determine the number of directors within the
numerical limitations and the power to fill vacancies, whether occurring by
reason of an increase in the number of directors or by resignation, is vested
in Washington Mutual's Board. The overall effect of such provisions may be to
prevent a person or entity from immediately acquiring control of Washington
Mutual through an increase in the number of Washington Mutual's directors and
election of his, her or its nominees to fill the newly created vacancies, thus
allowing existing management to continue in office.
Advance Notice Requirements for Nomination of Directors and Presentation
of New Business at Meetings of Shareholders. Article 3.13 of Washington
Mutual's Bylaws generally provides that any Shareholder desiring to make a
nomination for the election of directors or a proposal for new business which
is a proper matter for action at a meeting of Washington Mutual Shareholders
must submit written notice not less than 90 days in advance of the anniversary
date of the mailing of the proxy statement in connection with the previous
year's annual meeting. This
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advance notice requirement gives management time to solicit its own proxies in
an attempt to defeat any dissident slate of nominations, should management
determine that doing so is in the best interests of Washington Mutual
Shareholders generally. Similarly, adequate advance notice to shareholder
proposals will give management time to study such proposals and to determine
whether to recommend to the Washington Mutual Shareholders that such proposals
be adopted. In certain instances, such provision could make it more difficult
to oppose management's nominees or proposals, even if Washington Mutual
Shareholders believe such nominees or proposals are in the company's best
interests.
Approval of Mergers, Consolidations, Sale of Substantially All Assets
and Dissolution. Article IX of Washington Mutual's Articles provides that if
pursuant to the WBCA, Washington Mutual's Shareholders are required to approve
a merger, and if two-thirds of the Washington Mutual Board vote to recommend
the merger to the Washington Mutual Shareholders, then the merger may be
approved by a vote of the Washington Mutual Shareholders holding a majority of
the outstanding voting shares. See "CERTAIN DIFFERENCES BETWEEN WASHINGTON AND
UTAH CORPORATE LAWS -- Provisions Affecting Control Share Acquisitions and
Business Combinations."
The Articles of Incorporation of Washington Mutual contain provisions
which, except under specified circumstances discussed below, generally prohibit
Washington Mutual (or any subsidiary of Washington Mutual) from becoming a
party to (i) any merger or consolidation with a Major Stockholder, (ii) any
sale, lease, exchange, transfer, distribution to stockholders or other
disposition to or with a "Major Stockholder" of all or substantially all of the
assets or business of Washington Mutual or a subsidiary or a portion of such
assets or business having a value of more than 5% of the assets of Washington
Mutual and its subsidiaries; (iii) the purchase, exchange, lease or other
acquisition by Washington Mutual or any subsidiary of all or substantially all
the assets or business of a "Major Stockholder" or a portion of such assets or
business having a value of more than 5% of the value of the assets of
Washington Mutual and its subsidiaries; (iv) the issuance of any securities, or
of any rights, warrants or options to acquire any securities, of Washington
Mutual, or a subsidiary to a "Major Stockholder" or the acquisition by
Washington Mutual, or a subsidiary, of any securities, or of any rights,
warrants, or options to acquire any securities of a "Major Stockholder," or (v)
any reclassification of voting stock, recapitalization or other transaction
that has the effect of increasing the proportionate amount of voting stock of
Washington Mutual or any subsidiary beneficially owned by a "major
stockholder," or any partial or complete liquidation, spin off, split off or
split up of Washington Mutual or any subsidiary (except that any transaction
specified in this subparagraph (v) shall not be prohibited if approved by a
majority of Washington Mutual's "continuing directors"). The term "continuing
director" means (x) a member of Washington Mutual's Board of Directors
immediately prior to the time that any then-existing "Major Stockholder" became
a Major Stockholder or (y) a member of such board designated, before becoming a
director, as a continuing director by a majority of the then-continuing
directors.
The above prohibition does not apply if the specific transaction is
approved by: (A) a majority of the Board of Directors prior to the major
stockholder involved in the transaction becoming such; (B) a majority of the
continuing directors if the Major Stockholder involved obtained prior unanimous
approval of the board to become such; (C) 80% of the continuing directors; or
(D) 95% of Washington Mutual's outstanding voting stock and a majority of such
shares beneficially owned by stockholders other than any Major Stockholder.
The above prohibitions also do not apply if the specific transaction is
approved by a majority of the outstanding voting stock and of such shares
beneficially owned other than by any Major Stockholder provided that holders of
Common Stock receive at least the higher of (a) the highest price paid by the
involved Major Stockholder in acquiring any of Washington Mutual's Common Stock
and (b) an amount which bears the same percentage relationship to the market
price of Washington Mutual's Common Stock immediately prior to the announcement
of the transaction as the highest per share price paid by the involved major
stockholder in acquiring any of Washington Mutual's Common Stock bears to the
market price of Washington Mutual's Common Stock immediately prior to the
commencement of acquisition of Washington Mutual's Common Stock by such major
stockholder (but in no event in excess of two times the highest per share price
determined in (a) above), and provided certain other conditions are met. The
Articles of Incorporation also provide that during the time a Major Stockholder
exists, Washington Mutual may
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<PAGE> 58
voluntarily dissolve only upon the unanimous consent of its stockholders or an
affirmative vote of at least two-thirds of its directors and the holders of at
least two-thirds of both the shares entitled to vote on such a dissolution and
of each class of shares entitled to vote on such a dissolution as a class, if
any. Amendments to these provisions of the Articles of Incorporation require
the affirmative vote of 95% of Washington Mutual Shareholders holding voting
stock beneficially owned by stockholders other than any Major Stockholder. This
provision is designed to inhibit hostile takeovers and encourage potential
acquirors to negotiate with the Board. Without the approval of the Washington
Mutual Board, a potential acquiror would find it extremely difficult to
assemble the votes required to effect a transaction pursuant to the terms of
this provision.
OLYMPUS.
Classified Board of Directors. Article V of Olympus' Articles provides
that the Olympus Board is to be divided into three classes which shall be as
nearly equal in number as possible. A classified board of directors could make
it more difficult for Olympus Shareholders, or holders of proxies to vote
Olympus Common Stock, to force an immediate change in the composition of a
majority of Olympus' Board. Since the terms of only one-third of the incumbent
directors expire each year, at least two annual elections are required, in the
ordinary course of events, for the Olympus Shareholders to change a majority,
whereas a majority of a nonclassified board may be changed in one year. In the
absence of the provision of Olympus' Articles classifying Olympus' Board, all
the directors would be elected each year. The provision for a staggered board
of directors affects every election of directors and is not triggered by the
occurrence of a particular event such as a hostile merger. Thus, a staggered
board of directors makes it more difficult for the Olympus Shareholders to
change the majority of directors even when the only reason for the change is
their performance.
Restriction of Maximum Number of Directors and Filling Vacancies of the
Board of Directors. Article V of Olympus' Articles and Article II of Olympus'
Bylaws provide that the number of directors of Olympus shall not be less than
three nor more than fifteen, as shall be provided from time to time in
accordance with Olympus' Bylaws. Additionally, the power to determine the
number of directors within the numerical limitations and the power to fill
vacancies, whether occurring by reason of an increase in the number of
directors or by resignation, is vested in Olympus' Board. The overall effect
of such provisions may be to prevent a person or entity from immediately
acquiring control of Olympus through an increase in the number of Olympus'
directors and election of his, her or its nominees to fill the newly created
vacancies, thus allowing existing management to continue in office.
Advance Notice Requirements for Nomination of Directors and Presentation
of New Business at Meetings of Shareholders. Article I of Olympus' Bylaws
generally provides that any Olympus Shareholder desiring to make a nomination
for the election of directors or a proposal for new business which is a proper
matter for action at a meeting of Olympus Shareholders must submit written
notice not less than 60 nor more than 90 days in advance of the anniversary
date of the preceding year's annual meeting. This advance notice requirement
gives management time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should management determine that doing so is in
the best interests of Olympus Shareholders generally. Similarly, adequate
advance notice of shareholder proposals will give management time to study such
proposals and to determine whether to recommend to the Olympus Shareholders
that such proposals be adopted. In certain instances, such provisions could
make it more difficult to oppose management's nominees or proposals, even if
Olympus Shareholders believe such nominees or proposals are in their best
interests.
Cumulative Voting. Olympus Shareholders are permitted to cumulate their
votes in the election of directors. Cumulative voting allows a stockholder to
cast a number of votes for the election of directors by multiplying the number
of shares held times the number of directors to be elected. A stockholder may
cast all of his or her votes for one nominee or distribute their votes among
two or more nominees, as desired. Cumulative voting may allow a group of
shareholders, who do not possess the power to vote a majority of the shares to
be voted, to elect one or more directors. Utah law provides that if cumulative
voting is in effect, a director may not be removed if the number of votes
sufficient to elect the director under cumulative voting is voted against
removal. Cumulative voting may make it more difficult for Olympus Shareholders
holding a majority of shares to elect their entire slate of directors or to
remove certain directors.
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<PAGE> 59
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
Washington Mutual. Under Article XIII of Washington Mutual's Articles,
a Washington Mutual director shall not be personally liable to Washington
Mutual or its shareholders for monetary damages for conduct as a director
("Protected Conduct"). Protected Conduct, however, excludes (i) acts or
omissions which involve intentional misconduct by the director or knowing
violation of laws by the director; (ii) any conduct violating RCW 23B.08.310;
and (iii) any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not legally
entitled. If Washington law is amended to authorize corporate action which
further eliminates or limits the liability of Washington Mutual directors, then
the liability of Washington Mutual directors shall be eliminated or limited to
the fullest extent permitted by Washington law, as so amended. Pursuant to
Article X of Washington Mutual's Articles and Article VIII of Washington
Mutual's Bylaws, Washington Mutual must, subject to certain exceptions,
indemnify and defend its directors against any liability arising from or in
connection with service for or at the request of Washington Mutual, including
without limitation, liability under the Securities Act. Washington Mutual is
not obligated to indemnify a director from acts of such director which are
finally adjudged to be intentional misconduct, conduct in violation of RCW
23B.08.310, or a knowing violation of the law or if such director received an
economic benefit from a transaction to which he or she was not entitled.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Washington Mutual
pursuant to the provisions described above, Washington Mutual has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Olympus. Article IX of Olympus' Articles provides that to the fullest
extent permitted by Utah law, a director of Olympus shall not be personally
liable to Olympus or the Olympus Shareholders for monetary damages for any
action taken or failure to take any action as a director. Under current Utah
law, a corporation may eliminate the liability of a director to the corporation
and its stockholders for monetary damages for any action taken or any failure
to take any action, as a director, except for: (i) the amount of a financial
benefit received by a director to which he is not entitled; (ii) an intentional
infliction of harm on the corporation or the stockholders; (iii) a violation of
the section of the URBCA which prohibits unlawful distributions by a
corporation to its stockholders; or (iv) an intentional violation of criminal
law. Olympus' Bylaws contain provisions relating to indemnification of
officers and directors of Olympus. Olympus has also entered into individual
indemnification agreements with most of the directors. Olympus' Bylaws and the
individual indemnification agreements provide generally that directors are
entitled to reimbursement from Olympus for their damages, amounts paid in
settlement and legal costs incurred in any claim or lawsuit in which they are
involved as a result of serving as a director and in certain other capacities
at the request of Olympus. Indemnification is not permitted unless a director
is determined to have acted in good faith and in a manner he reasonably
believed to be in the best interests of Olympus. In addition, a director may
not be indemnified if he has been adjudged liable to Olympus and only to the
extent that the court in which such action was brought determines that the
director, based on all the evidence, is fairly and reasonably entitled to be
indemnified. The ability of directors, however, to assert successfully
indemnity claims under Olympus' Bylaws or the indemnification agreements may be
limited by public policy considerations, the insolvency of Olympus, or the risk
of revocation or denial of indemnification by a successor Board of Directors.
WASHINGTON MUTUAL SHAREHOLDER RIGHTS PLAN
In October 1990, WMB's predecessor's Board of Directors adopted a
shareholders rights plan and declared a dividend of one right for each
outstanding share of WMB's Common Stock to shareholders of record on October
31, 1990. Washington Mutual has assumed the shareholders rights plan. The
rights have certain anti-takeover effects and are intended to discourage
coercive or unfair takeover tactics and to encourage any potential acquiror to
negotiate a price fair to all stockholders. The rights may cause substantial
dilution to an acquiring party that attempts to acquire Washington Mutual on
terms not approved by the Washington Board, but they will not interfere with
any friendly merger or other business combination. The plan was not adopted in
response to any specific effort to acquire control of Washington Mutual.
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<PAGE> 60
The rights are not exercisable until the tenth day after a party
acquires beneficial ownership of 20% or more of the outstanding Washington
Mutual Common Stock or announces a tender offer to do so. Each right entitles
the holder to purchase one share of Common Stock for $26.67. In the event that
an acquiring party thereafter gains control of 30% or more of the Washington
Mutual Common Stock, any rights held by that party will be void and for the
next 60 days, all other holders of rights can receive that number of shares of
Washington Mutual Common Stock having a market value of two times the exercise
price of the right. The rights which expire on November 15, 2000, may be
redeemed by Washington Mutual for $.0044 per right prior to being exercisable.
Until a right is exercised, the holder of that right will have no rights as a
Washington Mutual Shareholder, including, without limitation, the right to
vote or to receive dividends.
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CERTAIN DIFFERENCES BETWEEN WASHINGTON AND UTAH CORPORATE LAWS
The WBCA governs the rights of Washington Mutual Shareholders and will
govern the rights of Olympus Shareholders who become shareholders of Washington
Mutual pursuant to the Merger. The WBCA and the URBCA differ in many respects.
Certain of the significant differences between the provisions of the WBCA and
the URBCA that could materially affect the rights of Washington Mutual
Shareholders are discussed below.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
The WBCA provides that a special meeting of shareholders of the
corporation may be called by its board of directors, by holders of at least 10%
of all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting, or by other persons authorized to do so by the
articles of incorporation or bylaws of the company. However, the WBCA allows
the right of shareholders to call a special meeting to be limited or denied to
the extent provided in the articles of incorporation. The Washington Mutual
Articles provide that the written request of holders of at least 25% of the
outstanding Washington Mutual Common Stock entitled to vote at the meeting is
required to call a special meeting.
The provisions of the URBCA relating to the rights to call special
meetings of shareholders are similar to the provisions of the WBCA described
above. Olympus has not enacted any provision limiting the rights of
shareholders to call special meetings of shareholders.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
The WBCA imposes restrictions on certain transactions between a
corporation and certain significant shareholders. First, subject to certain
exceptions, pursuant to the fair price provision, a merger, share exchange,
sale of assets other than in the regular course of business or dissolution of a
corporation involving a shareholder holding more than 20% of the corporation's
outstanding voting stock ("Interested Shareholder") must be approved by the
holders of two-thirds of the corporation's outstanding securities, other than
those of the Interested Shareholder. This restriction does not apply if a
majority of disinterested directors determines that the fair market value of
the consideration to be received by shareholders other than the Interested
Shareholder as a result of the transaction is not less than the highest fair
market value of the consideration paid by any Interested Shareholder for the
shares of the same class of the corporation's stock during the preceding 24
months or if the transaction is approved by a majority of disinterested
directors. A Washington corporation may, in its articles of incorporation,
exempt itself from coverage of this provision; Washington Mutual has not done
so.
Second, Chapter 23B.19 of the WBCA prohibits a "target corporation,"
with certain exceptions, from engaging in certain "significant business
transactions" with a person or group of persons who beneficially own 10% or
more of the voting securities of a target corporation (an "acquiring person")
for a period of five years after the acquisition of such securities, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the date of the
acquisition. The significant business transactions include, among others,
merger or consolidation with, disposition of assets to or with or issuance or
redemption of stock to or from, the acquiring person, termination of 5% or more
of the employees of the target corporation employed in Washington State as a
result of the acquiring person's acquisition of 10% or more of the shares or
allowing the acquiring person to receive any disproportionate benefit as a
shareholder. The target corporations include domestic corporations with their
principal executive offices in Washington and either a majority or over 1,000
of their employees resident in Washington. Washington Mutual believes that it
currently meets these standards and is subject to this statute. Washington
Mutual's Articles contain provisions similar to this statute. See "COMPARATIVE
RIGHTS OF SHAREHOLDERS -- Anti-Takeover Provisions."
Utah's Control Shares Acquisition Act (the "Act") provides that any
person or entity which acquires 20% or more of the outstanding voting shares of
a Utah corporation meeting certain criteria is denied voting rights with
respect to the acquired shares, unless a majority of the disinterested
shareholders of the corporation elects to restore such voting rights. The Act
provides that a person or entity acquires such "control shares" whenever it
acquires shares that, but for the operation of the Act, would bring its voting
power within any of the following three ranges:
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<PAGE> 62
(i) 20 to 33 1/3%, (ii) 33 1/3 to 50%, or (iii) 50% or more. A "control share
acquisition" is generally defined as the direct or indirect acquisition of
either ownership or voting power associated with issued and outstanding control
shares. If such disinterested shareholders do not vote to restore voting
rights to the control shares, the corporation may, if its articles of
incorporation so provide, redeem the control shares at any time within 60 days
of the acquiror's last acquisition of control shares, regardless of the
decision of the shareholders to restore voting rights. Olympus' Articles of
Incorporation and Bylaws do not provide for such redemption. Unless otherwise
provided in the articles of incorporation or bylaws of a corporation,
shareholders are entitled to dissenters' rights if the control shares are
accorded full voting rights and the acquiror has obtained a majority or more
control shares. Olympus' Articles of Incorporation and Bylaws do not deny such
dissenters' rights to the Company's shareholders. The shareholders of a
corporation may elect to exempt the stock of the corporation from the
provisions of the Act through adoption of a provision to that effect in the
articles of incorporation or bylaws of the corporation. Olympus' Articles of
Incorporation and Bylaws do not exempt Olympus from the Act.
The provisions of the Act may discourage companies interested in
acquiring a significant interest in or control of Olympus.
TRANSACTIONS WITH OFFICERS OR DIRECTORS
The WBCA sets forth a safe harbor for transactions between a corporation
and one or more of its directors. A conflicting interest transaction may not
be enjoined, set aside or give rise to damages if: (i) it is approved by a
majority of qualified directors (but no fewer than two); (ii) it is approved by
the affirmative vote of the majority of all qualified shares after notice and
disclosure to the shareholders; or (iii) at the time of the commitment, the
transaction is established to have been fair to the corporation. For purposes
of this provision, a qualified director is one who does not have either: (a) a
conflicting interest respecting the transaction or (b) a familial, financial,
professional or employment relationship with a second director who does not
have a conflicting interest respecting the transaction, which relationship
would, in the circumstances, reasonably be expected to exert an influence on
the first director's judgment when voting on the transaction. "Qualified
Shares" are defined generally as shares other than those beneficially owned, or
the voting of which is controlled, by a director (or an affiliate of the
director) who has a conflicting interest respecting the transaction.
The URBCA sets forth a safe harbor for transactions between a Utah
corporation and one or more of its directors or persons or entities closely
related to the director. A conflicting interest transaction may not be
enjoined, set aside or give rise to damages or other sanctions in a proceeding
by a shareholder of the corporation or by or in right of the corporation if:
(i) it is approved by a majority of qualified directors after appropriate
disclosure; (ii) it is approved by the affirmative vote of the majority of all
qualified shares after notice and disclosure to the shareholders; or (iii) at
the time of the commitment, the transaction is established to have been fair to
the corporation. For purposes of this provision, a qualified director is one
who does not have either: (a) a conflicting interest respecting the
transaction or (b) a familial, financial, professional or employment
relationship with a second director who does have a conflicting interest
respecting the transaction, which relationship would, in the circumstances,
reasonably be expected to exert an influence on the first director's judgment
when voting on the transaction. "Qualified shares" are defined generally as
shares other than those beneficially owned, or the voting of which is
controlled, by a director (or an affiliate of the director) who has a
conflicting interest respecting the transaction.
DISSENTERS' RIGHTS
Under the WBCA, a shareholder is entitled to dissent from, and, upon
perfection of the shareholder's appraisal right, to obtain the fair value of
his or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and certain amendments to the corporation's articles of incorporation that
materially and adversely affect shareholder rights.
Under the URBCA, a shareholder is entitled to dissent from, and, upon
perfection of the shareholder's appraisal right, to obtain the fair value of
his or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and certain amendments to the
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corporation's articles of incorporation that materially and adversely affect
shareholder rights. Dissenters' rights with respect to shares of certain Utah
corporations whose shares are listed on certain securities exchanges or
quotation systems may not be available in certain types of corporate actions.
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<PAGE> 64
INFORMATION CONCERNING OLYMPUS
Olympus is a publicly held savings and loan holding company organized
under the laws of Utah. At September 30, 1994, Olympus had total assets of
approximately $392.3 million and stockholders' equity of approximately $33.8
million. Olympus' principal business activities are conducted through Olympus
Bank.
Olympus Bank provides a broad range of financial services in Utah and
Montana. The principal business activities of Olympus Bank include obtaining
funds from savings and transaction account deposits and borrowings, investing
in real estate loans, mortgage-backed securities and debt securities, and
providing related financial services. Olympus Bank also makes commercial and
consumer loans.
Since 1989, Olympus Bank has changed its business emphasis from that of
a wholesale banking institution to that of a community-based retail banking
institution. Olympus Bank has significantly decreased its reliance upon
brokered and "jumbo" certificates of deposit, Federal Home Loan Bank borrowings
and repurchases agreements. Olympus Bank has significantly expanded its
services to individual and small business customers, including checking
accounts, credit cards, consumer loans and an expanded emphasis upon
residential mortgages and small business lending. To support and enhance its
retail banking operations, since 1989 Olympus Bank has invested in new
facilities and systems, including eight new branch facilities (five additions
and three relocations), a state-of-the-art mortgage servicing system and a data
processing system which will accommodate the more diverse commercial banking
operations of Olympus Bank.
In recent years Olympus Bank has also focused on resolving
unsatisfactory commercial real estate loans originated by Olympus Bank in
several western states, including California, prior to 1990. Actions taken
have included reviewing and updating credit files, implementing more thorough
loan monitoring and more responsive loan collection procedures and actively
pursuing borrower negotiations and foreclosure proceedings where necessary.
On the Record Date, 3,134,539 shares of Olympus Common Stock were
outstanding and entitled to vote, which were held by 11,414 holders of
record. Holders of shares of Olympus Common Stock will be entitled to
one vote exercisable in person or by properly executed proxy, for each share
held of record at the close of business on the Record Date on each proposal
described herein and on any other matter that may be presented for
consideration and action by the shareholders at the Special Meeting.
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RECENT EVENTS
The following table highlights results of operations and earnings per share of
Olympus for the three-month period and year ended December 31, 1994 compared to
the same period and year-end in 1993.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Net interest income $3,396,307 $3,518,365 $13,762,114 $12,994,773
Provisions for loan losses 22,129 (152,870) 1,048,461 (966,412)
Other income 726,872 778,622 3,731,010 4,553,470
Other expense 2,711,955 3,296,086 11,733,391 12,166,950
Net income 1,389,095 1,484,851 4,711,272 6,342,776
Primary earnings per share $ 0.42 $ 0.46 $ 1.45 $ 1.97
Fully diluted earnings per share $ 0.42 $ 0.46 $ 1.44 $ 1.95
</TABLE>
Other expenses for the year ended December 31, 1994 includes $336,000
of professional fees for legal and accounting matters related to the
proposed Merger.
The following table highlights net interest income for the three-month
period and the year ended December 31, 1994 compared to the same period and year
end in 1993.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Interest income $7,099,135 $6,871,322 $27,592,148 $27,429,545
Interest expense 3,702,828 3,352,957 13,830,034 14,484,772
Net interest income 3,396,307 3,518,365 13,762,114 12,944,773
Total interest income/average 7.43% 7.04% 7.18% 7.32%
interest earning assetes
Total interest expense/average 4.15% 3.65% 3.87% 4.12%
costing liability
Net interest spread 3.28% 3.39% 3.31% 3.20%
Net interest margin includes loan 3.58% 3.60% 3.58% 3.45%
origination fees
</TABLE>
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<PAGE> 66
The modest increase in interest income for the three months ended
December 31, 1994 as compared to the same period in 1993 is primarily from
higher interest earned on investments, the result of adjustable interest rates
resetting higher in 1994. Increase in interest expense is attributed to a
rise in the cost of borrowing for the Bank from both deposits and other
borrowed money.
The following table is a condensed balance sheet for December 31, 1994 and
1993.
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and investments $134,505,886 $153,313,064
Loan receivables, net 236,233,684 242,469,876
Real estate acquired in settlement
loans, net - 3,054,916
Other assets 21,513,401 15,331,557
------------ ------------
TOTAL ASSETS $392,252,971 $414,169,413
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $286,598,971 $294,560,648
Advances from the Federal Home Loan
Bank 46,820,820 36,649,913
Securities sold under agreement to
repurchase 20,470,047 44,996,245
Other liabilities and accrued expenses 3,331,123 4,599,067
Stockholders' equity 35,032,010 33,363,540
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS'EQUITY $392,252,971 $414,169,413
============ ============
</TABLE>
The decline in assets from December 31, 1993 to December 31, 1994 is
largely attributed to the collection of principal on investment securities
available for sale of approximately $16 million. Additionally, loan receivables
declined approximately $6 million as a result of scheduled and unscheduled
principal payments exceeding loan originations. Other assets increased from
December 31, 1993 to December 31, 1994 primarily as the result of additional
purchases of mortgage servicing rights.
The decline in liabilities results from an $8 million decrease in deposits
and a $14 million decrease in other borrowed money which includes advances and
securities sold under agreement to repurchase.
Further information with respect to the loan portfolio is shown in the
following table.
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<PAGE> 67
Type of Loan and Balances
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Real estate - mortgage $222,561,730 $232,740,378
Real estate - construction 10,952,370 7,045,708
Commercial 7,857,681 7,091,863
Installment loans to individuals 1,032,922 768,173
Other loans 1,531,622 1,470,588
------------ ------------
Total loans 243,936,325 249,116,710
Less unamortized loan fees (1,020,773) (1,036,834)
Less allowance for possible loss (6,681,868) (5,610,010)
------------ ------------
Net loans $236,233,684 $242,469,876
============ ============
</TABLE>
Of the loans described, the following table sets forth the aggregate principal
amount of loans that are non-accrual as of December 31, 1994 and December 31,
1993.
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
-------- ----------
<S> <C> <C>
Non-accrual loans $949,704 $2,241,647
</TABLE>
A summary of the loan loss experience for 1994 as compared to 1993 is presented
in the following table.
Summary of Loan Loss Experience
Changes in the allowance for losses are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
Balance, beginning of year $5,610,010 $6,677,783
Loans charged off:
Real estate - mortgage - 391,418
Real estate - construction - -
Commercial 20,568 45,358
Installment loans to individuals 7,532 1,527
Other loans 16,873 8,263
---------- ----------
Total loans charged off 44,973 446,566
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
<S> <C> <C>
Recoveries
Real estate-mortgage $ 15,290 $ 308,354
Real estate-construction - -
Commercial 48,483 66,518
Installment loans to individuals - -
Other loans 4,597 333
---------- ----------
Total recoveries 68,370 375,205
Provision charged (credited) to expense 1,048,461 (996,412)
---------- ----------
Balance, end of year $6,681,868 $5,610,010
========== ==========
Net charge offs to average loans 0.02% 0.18%
</TABLE>
For additional information concerning Olympus, including information
regarding its directors and executive officers, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "APPENDIX E" and "APPENDIX
F."
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<PAGE> 69
BENEFICIAL OWNERSHIP OF OLYMPUS COMMON STOCK
The following table sets forth information as of December 31, 1994, with
respect to shares of Olympus Common Stock beneficially owned (i) by each
director of Olympus, (ii) by all directors and executive officers of Olympus as
a group and (iii) by all persons believed by management to own beneficially
more than 5% of the Olympus Common Stock(1):
<TABLE>
<CAPTION>
PERCENT OF
TOTAL SHARES
NAME SHARES OPTIONS TOTAL OUTSTANDING
---- ------ ------- ----- ------------
<S> <C> <C> <C> <C>
A. Blaine Huntsman . . . . . . . . . . 120,936(2) 125,000 245,936 7.6%
Richard N. Hokin . . . . . . . . . . . 304,000(3) -- 304,000 9.8
James K. Loebbecke . . . . . . . . . . 2,000 -- 2,000 *
R. Gibb Marsh . . . . . . . . . . . . . 10,200 28,500 38,700 1.2
Richard G. Price . . . . . . . . . . . 100 -- 100 *
Ramon E. Johnson . . . . . . . . . . . 713 -- 713 *
K. John Jones . . . . . . . . . . . . . 7,202 18,500 25,702 *
All directors and executive officers
as a group (9 persons) . . . . . . . . 456,399 205,600 661,999 20.0
Century Partners
800 Post Road
Darien, CT 06820 . . . . . . . . . . . 304,000(3) -- 304,000 9.8
Charter National Life Insurance Company
8301 Maryland Ave.
St. Louis, MO 63105 . . . . . . . . . . 85,900(4) -- 85,900 2.8
LNC Investments, Inc.
529 East South Temple
Salt Lake City, UT 84102 . . . . . . . 453,991(4) -- 453,991 14.6
Evergreen Investments, Ltd.
1910 East 3060 South
Salt Lake City, UT 84106 . . . . . . . 120,936(2)(4) -- 120,936 3.9
</TABLE>
________________________
* Less than one percent.
(1) The above table does not include shares held for the account of
the indicated persons and group by the Employee Stock Bonus Plan
which on November 30, 1994 held 130,656 shares.
(2) Includes 46,536 shares owned by Mr. Huntsman and 74,400 shares
owned by Evergreen Investments, Ltd., a limited partnership, in
which Mr. Huntsman is a limited partner with a 37% ownership
interest. Mr. Huntsman and Evergreen Investments, Ltd. could be
deemed to be members of a "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act, which owns 5%
or more of the common stock of Olympus. This information was
obtained from a Form 4 filed with the Securities and Exchange
Commission on or about March 7, 1994.
(3) The general managing partner of Century Partners, a New York
limited partnership, is Mr. Hokin, who is currently a director.
(4) These persons could be deemed to be members of a "group" as that
term is used in Section 13(d) of the Securities Exchange Act
which owns 5% or more of the common stock of Olympus. This
information was obtained from a Schedule 13 D filed with the
Securities and Exchange Commission on or about July 21, 1994.
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<PAGE> 70
INFORMATION CONCERNING WASHINGTON MUTUAL
WASHINGTON MUTUAL, INC.
Washington Mutual is a corporation, organized under the laws of the
state of Washington. Washington Mutual provides a broad range of financial
services in Washington, Oregon and Idaho through WMFSB and other subsidiary
operations. These services include the traditional savings bank activities of
accepting deposits from the general public and making residential loans,
consumer loans and limited types of commercial real estate loans, primarily
multi-family. As part of its consumer banking focus, Washington Mutual also
underwrites and markets insurance annuities and offers mutual funds through
various subsidiaries. At September 30, 1994, Washington Mutual had total
assets of $17.8 billion, total deposits of $9.4 billion and stockholders'
equity of $1.3 billion and owns the largest independent depository institution
headquartered in the state of Washington. The principal asset of Washington
Mutual is the capital stock of its subsidiaries.
The principal executive offices of Washington Mutual are located in the
Washington Mutual Tower, 1201 Third Avenue, Suite 1500, Seattle, Washington
98101, and its telephone number is (206) 461-2000.
Certain information relating to the business, management, executive
compensation, voting securities and the principal holders thereof, certain
relationships and related transactions and other related matters as to
Washington Mutual is set forth in: (1) Washington Mutual's Annual Reports on
Form F-2 for the year ended December 31, 1993 and on Form 10-K for the year
ended December 31, 1994; (2) Washington Mutual's Annual Reports to Stockholders
for the year ended December 31, 1993; and (3) Washington Mutual's Quarterly
Reports on Form F-4 for the quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994; and (4) Washington Mutual's Proxy Statement for the Annual
Meeting of Stockholders held on April 19, 1994. Each of these documents is
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION."
THE REORGANIZATION
On August 17, 1994, WMSB formed Washington Mutual for the purpose of
serving as a holding company for WMSB and the other subsidiary operations of
WMSB. Thereafter, WMSB caused Washington Mutual to form WMB. On November 29,
1994, WMSB merged with and into WMB (the "Reorganization Merger"). WMB is the
survivor of the Reorganization Merger and, as of the date of the Reorganization
Merger, WMSB no longer exists. After the Reorganization Merger, Washington
Mutual is the sole shareholder of WMB.
The effect of the Reorganization Merger is that Washington Mutual was
reorganized into a holding company structure with Washington Mutual as the
holding company. Washington Mutual serves as the holding company for WMB,
WMFSB and other banking and nonbanking subsidiaries. Washington Mutual
qualifies as a savings and loan holding company for purposes of federal laws
and regulations governing holding companies of depository institutions.
Washington Mutual effected the Reorganization to provide certain business
advantages, including improving access to the capital markets, improving
operating flexibility and enhancing its ability to retire and repurchase
corporate securities.
Pursuant to the Reorganization Merger, WMSB's Common Stock and its three
classes of Preferred Stock (9.12% Noncumulative Perpetual Preferred Stock,
Series C; $6.00 Noncumulative Convertible Perpetual Preferred Stock, Series D;
and 7.60% Noncumulative Perpetual Preferred Stock, Series E) have been
converted on a share-for-share basis into Washington Mutual Common Stock and
series of Washington Mutual Preferred Stock that have rights, privileges and
preferences substantially identical to those of WMSB.
WASHINGTON MUTUAL'S OPERATING SUBSIDIARIES
Organized as a building loan association in 1889, WMB (WMB and its
predecessor, WMSB, are hereafter referred to as "WMB") operated as a Washington
state-chartered mutual savings bank from 1917 until its conversion to a stock
savings bank in 1983. At September 30, 1994, WMB was the largest independently
owned depository institution headquartered in the State of Washington.
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<PAGE> 71
WMB's principal business is providing a broad range of financial
services, primarily to consumers. These services include the traditional
savings bank activities of accepting deposits from the general public and
making residential loans, consumer loans and limited types of commercial real
estate loans, primarily multi-family. In 1988, WMB acquired a federal savings
bank, which it renamed Washington Mutual, a Federal Savings Bank (the "FSB").
On April 15, 1994, the FSB established an operating subsidiary, WMFSB, to
participate in a supervisory acquisition. The principal business of FSB and
WMFSB includes the traditional savings association activity of accepting
deposits from the general public, as well as the brokering of residential real
estate loans to WMB. FSB also makes consumer loans, and WMFSB brokers consumer
loans to FSB. During the 1980's, WMB expanded its range of financial services
by acquiring a group of nonbanking subsidiaries. These include Murphey Favre,
Inc., a registered securities broker-dealer; Composite Research & Management
Co., a registered investment advisor that manages mutual funds and offers
investment advisory services; Washington Mutual Insurance Services, Inc.,
Columbia Services, Inc. and WM Life Insurance Company, which offer an array of
insurance services and products; and Mutual Travel, Inc., a full-service travel
agency. Washington Mutual recently announced its agreement to sell Mutual
Travel, Inc.
WMB operates under Title 32 (Mutual Savings Banks) of the Revised Code
of Washington. Its deposits are insured by the FDIC, principally through the
Bank Insurance Fund. The FSB and WMFSB operate as federal stock savings banks
chartered under the HOLA. The FDIC insures the deposits of FSB and WMFSB
through the Savings Association Insurance Fund. Because WMB owns the FSB, WMB
is a non-diversified savings and loan holding company under federal law and, as
such, is also subject to regulation by the OTS.
Washington Mutual, through its subsidiaries, operates, as of December
31, 1994, a total of 232 full-service financial centers and 22 home loan
centers. WMB itself currently operates 73 full-service financial centers, 40
in the greater Seattle metropolitan area and 33 elsewhere in Washington and ten
home loan centers in Washington. The FSB operates 158 full-service financial
centers, 38 in the greater Seattle metropolitan area, 41 elsewhere in
Washington, 76 in Oregon, and three in Idaho. The FSB also operates 12 home
loan centers in Washington, Oregon and Idaho. Most of the FSB's branches have
been acquired as a result of acquisitions completed in the past several years.
WMFSB
WMFSB, a wholly-owned subsidiary of Washington Mutual, is a federal
savings bank, formed in 1994 to participate in a supervisory acquisition of a
federal savings bank branch. WMFSB's principal business includes traditional
savings association activity of accepting deposits from the public, as well the
brokering of loans to other Washington Mutual subsidiaries. WMFSB also makes
consumer loans. WMFSB operates one full-service financial center in Lake
Oswego, Oregon.
RECENT ACQUISITIONS
On March 1, 1993, WMB merged with Pioneer Savings Bank ("Pioneer"). As
of the date of such merger ("Pioneer Merger"), Pioneer operated 17 branches and
one mortgage lending center and had assets of $926.5 million, deposits of
$659.5 million, and stockholders' equity of $114.4 million. The Pioneer Merger
was treated as a pooling-of-interests for accounting purposes. Accordingly,
under generally accepted accounting principles, the assets and liabilities of
Pioneer were recorded on the books of the resulting institution at their values
as reported on the books of Pioneer immediately prior to the time of the
consummation of the Pioneer Merger. No goodwill was created in the Pioneer
Merger.
On April 9, 1993, WMB completed the acquisition of Pacific First Bank
("Pacific First") from RT Holdings, Inc., a subsidiary of Royal Trustco Limited
of Toronto, Canada ("Pacific First Acquisition"). At the time of the Pacific
First Acquisition, Pacific First operated 129 branches and 14 home loan centers
in Washington and Oregon. At March 31, 1993, Pacific First had assets of
$5,847.5 million and deposits of $3,825.7 million.
The Pacific First Acquisition was treated as a purchase for accounting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of Pacific First have been recorded on the books of WMB
at their respective fair market values at the time of the consummation of the
Pacific First Acquisition, April 1, 1993. Goodwill, the excess of the purchase
price over the net fair value of the assets and liabilities,
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<PAGE> 72
including identified intangible assets, was recorded for $178.2 million.
Amortization of goodwill over a ten-year period will result in a charge to
earnings of approximately $17.8 million per year.
As a result of the Pacific First Acquisition and Pioneer Merger, WMB
became substantially larger, with significant operations in Oregon as well as
Washington. From December 31, 1992 (prior to the effect of the Pioneer
Merger), to December 31, 1993, as a result of the acquisitions, total assets
increased by 76% ($9.0 billion to $15.8 billion), loans increased by 79% ($6.1
billion to $10.9 billion) and deposits increased by 74% ($5.4 billion to $9.4
billion).
On April 15, 1994, WMFSB acquired three branches and approximately $42
million in deposits from the Resolution Trust Corporation as the receiver for
Far West Federal Savings Bank of Portland, Oregon. On the same day, WMFSB sold
two of these branches and approximately $34.7 million in deposits to FSB.
On November 14, 1994, WMB merged (the "Summit Merger") with Summit
Bancorp, Inc. ("Summit"). As of June 30, 1994, Summit, through its banking
subsidiary, operated four branches and had assets of $197.9 million, deposits
of $172.5 million, and stockholders' equity of $16.6 million. After the Summit
Merger, Summit's banking subsidiary was merged with and into WMB. The Summit
Merger was treated as a pooling-of-interests for accounting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of Summit were recorded on the books of the resulting institution
at their values as reported on the books of Summit immediately prior to the
time of the consummation of the Summit Merger. No goodwill was created in the
Summit Merger.
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<PAGE> 73
RECENT EVENTS
The following table, discussion and analysis is qualified in its entirety
by and should be read in conjunction with the consolidated financial statements
and notes thereto, and other documents incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1992 1993 1994
---------- ----------- -----------
<S> <C> <C> <C>
SUMMARIZED STATEMENTS OF INCOME:
Net interest income $ 329,558 $ 529,431 $ 571,225
Provision for loan losses(1) 14,000 35,000 20,000
Other income 90,692 143,862 107,838
Other expense 230,896 369,264 384,312
Income taxes 60,247 93,765 102,447
Extraordinary items, net of federal income tax effect (4,638) (8,953) -
Cumulative effect of change in tax accounting method - 13,365 -
---------- ----------- ----------
Net income(1) $ 110,469 $ 179,676 $ 172,304
========== =========== ==========
Net income attributable to common stock $ 105,594 $ 166,118 $ 153,720
========== =========== ==========
Net income per share:
Primary $2.01 $2.82 $2.54
Fully diluted 1.91 2.67 2.46
SUMMARIZED STATEMENTS OF FINANCIAL POSITION:
Total assets $9,911,602 $15,827,228 $18,457,682
Loans 6,719,680 10,891,102 12,406,589
Trading, available-for-sale and held-to maturity securities 2,587,476 4,013,098 5,143,603
Deposits 6,058,112 9,351,402 9,777,912
Borrowings (includes annuities) 2,735,652 5,050,645 7,211,479
Stockholders' equity 995,036 1,195,704 1,304,568
</TABLE>
____________________________________
(1) In 1990, Washington Mutual modified its reserving methodology from a
"loan-by-loan" analysis of providing for losses to one of "general
reserving" and accordingly increased its provision for loan losses by
$48.0 million.
During 1994, the increase in interest rates had an adverse effect not only
on the results of operations but also on the market value of the Company's net
financial assets. Other than available-for-sale securities, financial assets
and liabilities were reported at historical cost and accordingly the financial
statements do not reflect changes in market value.
RESULTS OF OPERATIONS. Washington Mututal's net income of $172.3 million
for 1994 was down from $179.7 million in 1993, but above 1992's earnings of
$110.5 million. Fully diluted earnings per share were $2.46 in 1994, compared
with $2.67 in 1993 and $1.91 in 1992. Washington Mutual's return on average
assets ("ROA") for 1994
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<PAGE> 74
equaled 1.02% down from 1.31% in 1993 and 1.24% in 1992. Its return on average
common stockholders' equity ("ROE") of 14.24% for 1994 was also down from the
previous two years -- 17.73% in 1993 and 15.17% in 1992. During 1992 and 1993,
Washington Mutual operated in a highly favorable interest rate environment.
However, an increase of approximately 250 basis points in short-term interest
rates in 1994 led to a compression of the net interest margin and a
corresponding pressure on net interest income. Although Washington Mutual
takes steps to protect itself from significant increases in short-term interest
rates, any further increases in 1995 will continue to adversely affect net
interest income.
Net Interest Income. Net interest income of $571.2 million for 1994
was up 8% from $529.4 million in 1993, which in turn was 61% higher than the
$329.6 million earned during 1992. Most of the growth in net interest income
was due to the increase in average interest-earning assets resulting from
planned growth in 1994 and the acquisition of Pacific First. Although average
interest-earning assets were up 23 percent during 1994, a decline in the net
interest margin (net interest income divided by average interest-earning
assets) limited the potential increase in net interest income.
Other Income. Other income of $107.8 million in 1994 was down from $143.9
million in 1993, but above the $90.7 million reported in 1992. Other income in
1993 included $41.7 million in gains on the sale of loans and other assets.
The significant level of asset gains during 1993 resulted from asset
restructurings to accommodate the acquisition of Pacific First. In addition,
loans were sold during 1993 to take advantage of record loan origination volume
fueled by home loan refinancing and a declining interest rate environment which
enabled the Company to sell these loans at a gain.
Other Expense. Total other expense of $384.3 million in 1994 was up from
$369.3 million in 1993 and $230.9 million in 1992. This increase reflected the
growth in total assets and particularly the growing number of financial
centers. One commonly accepted measure of a bank's operating efficiency is the
ratio of its operating expenses to revenues (net interest income and other
income). The Company has established a long-term operating efficiency goal of
50% Washington Mutual's operating efficiency ratios were 56.6% in 1994 versus
54.8% for 1993 and 54.9% for 1992.
Nonbanking Subsidiary Operations. Nonbanking subsidiary operations
generally comprise approximately 5% of the Company's total profitability.
Pretax operating income (net income before amortization of goodwill and
intangible assets and elimination of intercompany transactions) was $14.4
million in 1994, compared with $18.6 million in 1993 and $13.4 million in 1992.
The securities and insurance operations typically account for more than 90% of
nonbanking pretax operating income.
REVIEW OF FINANCIAL CONDITION. Assets grew substantially in 1994 as
they did in 1993. During 1994, total assets grew $2,630.5 million to end the
year at $18,457.7 million. At December 31, 1993, total assets were $15,827.2
million, an increase of $5,915.6 million from December 31, 1992. Approximately
three-quarters of the growth in 1993 resulted from the acquisition of Pacific
First. In addition to the acquisition of Pacific First, growth these past two
years has come from retaining originated loans and acquiring investment-grade
securities.
Investment Activities. In 1994, Washington Mutual leveraged its
capital and increased its investment securities by 28 percent to $5,143.6
million at December 31, 1994, from $4,012.0 million at December 31, 1993. The
increase was funded mostly through borrowings. By leveraging the balance sheet
through the use of these wholesale activities, Washington Mutual generated
additional net interest income.
Loans. Loans grew 14% during 1994 to $12,406.6 million at December
31, 1994, up from $10,891.1 million at December 31, 1993.
Deposits. Total deposits increased to $9,777.9 million at December 31,
1994, from $9,351.4 million at December 31, 1993. Retail deposits were up
$200.4 million to $9,049.1 million. Wholesale activities -- predominately
deposits greater than $100,000 -- were up $226.1 million. Wholesale deposits
are an alternative to other borrowings and their levels are determined by
management's decisions as to the most economic funding sources. The deposit
market continued to be difficult but showed improvement as short-term interest
rates rose throughout the year.
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<PAGE> 75
BORROWINGS. Washington Mutual's borrowings primarily take the form of
securities sold under agreements to repurchase and advances from the FHLB.
These two borrowing sources grew to $2,595.7 million and $3,737.6 million,
respectively, by year-end 1994 from a combined level of $4,253.6 million at
December 31, 1993. The increase was used to fund the Company's asset growth.
ASSET QUALITY. Classified assets, which consist of nonaccrual loans,
loans under foreclosure, REO and performing loans (including troubled debt
restructurings) and securities that exhibit credit quality weaknesses,
decreased to $253.8 million at the end of 1994 from $306.0 million at December
31, 1993.
Nonperforming assets decreased to $79.9 million at the end of 1994 from
$111.1 million at December 31, 1993. Nonperforming assets as a percentage of
total assets also declined substantially to 0.43% at December 31, 1994, from
0.70% at December 31, 1993. All asset categories reflected lower nonperforming
asset levels.
PROVISION FOR LOAN LOSSES AND RESERVE LOAN LOSSES. The provision for loan
losses during 1994 was $20.0 million compared with $35.0 million in 1993 and
$14.0 million in 1992. The 1994 provision reflected the Company's strong level
of reserves and continued improvement in asset quality. The growth in the
provision during 1993 was determined necessary by management because of
uncertainty about the economic conditions in some lending markets as well as
caution about the asset quality of the loans acquired from Pacific First.
The reserve for loan losses increased to $128.0 million at December 31,
1994, from $115.2 million at December 31, 1993. Loan charge-offs, net of
recoveries for 1994 totaled $8.1 million. This was less than half the level of
net charge-offs in 1993 and 1992 of $19.8 million and $17.7 million,
respectively. During 1993 and 1992, net charge-offs of commercial real estate
loans accounted for $13.3 million and $14.4 million, respectively, of total net
charge-offs. However, with the improved performance of the commercial real
estate portfolio, net charge-offs on commercial real estate loans dropped to
$318,000 during 1994. Of the $8.1 million of net charge-offs taken in 1994,
$4.3 million was the result of consumer loan activity in large part due to
loans acquired from Pacific First. Net charge-offs on consumer loans have
grown to the current level from $2.1 million in 1993 and $883,000 in 1992.
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<PAGE> 76
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK
Washington Mutual is authorized by its Articles of Incorporation to
issue up to 100,000,000 shares of Washington Mutual Common Stock and up to
10,000,000 shares of Preferred Stock, par value $1.00 per share. As of
March 8, 1995, there were issued and outstanding 62,098,684 shares of
Washington Mutual Common Stock, 2,800,000 shares of Series C Preferred Stock,
1,400,000 shares of Series D Preferred Stock and 2,000,000 shares of Series E
Preferred Stock.
COMMON STOCK. Each holder of Washington Mutual Common Stock is entitled
to one vote for each share held on all matters voted upon by shareholders.
Shareholders are not permitted to cumulate their votes for the election of
directors.
In the unlikely event of liquidation of Washington Mutual, holders of
Washington Mutual Common Stock will be entitled to receive any remaining assets
of Washington Mutual, in cash or in kind, after payment of all liabilities.
Holders of Washington Mutual Common Stock are not entitled to preemptive
rights with respect to any additional shares that may be issued.
The authorized but unissued and unreserved shares of Washington Mutual
Common Stock will be available for general corporate purposes, including but
not limited to possible issuance in exchange for capital notes, as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment plan, for employee benefit plans, or in a future
underwritten or other public offering. Except as described above or as
otherwise required to approve the transactions in which the additional
authorized shares of Washington Mutual Common Stock would be issued, no
shareholder approval will be required for the issuance of these shares.
At March 16, 1995, options to purchase 963,135 shares of Washington
Mutual Common Stock under Washington Mutual's stock option plans had been
granted, but not exercised, leaving 3,559,000 shares available for further
grants under such plans.
PREFERRED STOCK. The Preferred Stock is prior to Common Stock as to
dividends and liquidation, but does not confer general voting rights.
The Series C Preferred Stock has a liquidation preference of $25.00 per
share plus dividends accrued and unpaid for the then-current dividend period,
and is not convertible into any other Washington Mutual securities. Dividends
on the Series C Preferred Stock, if and when declared by the Washington Mutual
Board, are noncumulative and are payable quarterly. Washington Mutual may at
its option redeem the Series C Preferred Stock. The Series C Preferred Stock
is prior to the Washington Mutual Common Stock as to dividends and liquidation,
but does not confer general voting rights.
The Series D Preferred Stock has a liquidation preference of $100.00 per
share plus dividends accrued and unpaid for the then-current dividend period,
and is convertible into shares of Washington Mutual Common Stock. Dividends on
the Series D Preferred Stock, if and when declared by the Washington Mutual
Board, are noncumulative and are payable quarterly. Washington Mutual may at
its option redeem the Series D Preferred Stock. The Series D Preferred Stock
is prior to the Washington Mutual Common Stock as to dividends and liquidation,
but does not confer general voting rights.
The Series E Preferred Stock has a liquidation preference of $25.00 per
share plus dividends accrued and unpaid for the then-current dividend period,
and is not convertible into any other Washington Mutual securities. Dividends
on the Series E Preferred Stock, if and when declared by the Washington Mutual
Board, are noncumulative and are payable quarterly. Washington Mutual may at
its option redeem the Series E Preferred Stock. The Series E Preferred Stock
is prior to the Washington Mutual Common Stock as dividends and liquidation,
but does not confer general voting rights.
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<PAGE> 77
THE OPTION PLAN AMENDMENT
GENERAL
The Option Plan currently provides that all outstanding options of
Olympus shall become immediately exercisable upon execution of the Merger
Agreement and that any options not exercised at the Effective Time of the
Merger shall terminate. The Merger Agreement contemplates that, in the event
Washington Mutual elects the Partial Cash Consideration Option, the Option Plan
shall be amended to provide that outstanding options of Olympus shall not
terminate as of the Effective Time but shall instead be converted into
fully-exercisable options to acquire Washington Mutual Common Stock, adjusted
as to number of shares of Washington Mutual Common Stock to be acquired and the
exercise price by the Exchange Ratio. (By way of example only, if the Exchange
Ratio were .50 and if a person had an option to acquire 1,000 shares of Olympus
Common Stock at $7.00 per share, then at the Effective Time, the option would
be converted into an option to acquire 500 shares of Washington Mutual at
$14.00.)
The Olympus Board has adopted the Option Plan Amendment to the Option
Plan to effectuate the change contemplated by the Merger Agreement, the text of
which is set forth on Appendix G to this Proxy Statement/Prospectus. The
effectiveness of the Option Plan Amendment is conditioned on (i) shareholder
approval and (ii) the election by Washington Mutual of the Partial Cash
Consideration Option. If Olympus Shareholders approve the Option Plan
Amendment and if Washington Mutual elects the Partial Cash Consideration
Option, then, at the Effective Time, the Option Plan shall become a separate
plan of Washington Mutual and the options to acquire Olympus Common Stock shall
convert solely into options to acquire Washington Mutual Common Stock, adjusted
as described above. IF WASHINGTON MUTUAL DOES NOT ELECT THE PARTIAL CASH
CONSIDERATION OPTION, THE OPTION PLAN AMENDMENT WILL NOT BECOME EFFECTIVE,
NOTWITHSTANDING ADOPTION BY OLYMPUS' BOARD AND APPROVAL BY THE OLYMPUS
STOCKHOLDERS. The following description of the Option Plan does not purport to
be complete and is qualified in its entirety by reference to the full text
thereof.
DESCRIPTION OF THE PLAN
Purpose. The purpose of the Option Plan is to promote and advance the
interests of Olympus and its stockholders by strengthening the ability of
Olympus to attract, motivate and retain directors, managerial and other
employees and to strengthen the mutuality of interests between such persons and
Olympus' Shareholders.
Administration. The Option Plan is administered by a committee of a
sufficient number of disinterested members of the Olympus Board (the
"Committee") so as to qualify the Committee to administer the Option Plan as
contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Executive Compensation Committee of
the Olympus Board currently serves as the Committee; however, the Olympus Board
may, in its discretion, replace the members of the Committee at any time. The
Committee administers the Option Plan and has the authority, in its sole
discretion, to adopt such rules and regulations and impose such conditions upon
the exercise of stock options as it deems appropriate. Among other things, the
Committee shall determine, subject to the requirements set forth in the Option
Plan, who shall receive stock options, the number of such stock options, and
the time when such awards shall be granted.
Duration of the Plan. The Option Plan became effective as of July 7,
1988, was amended effective as of November 18, 1992 and will remain in effect
until terminated by the Olympus Board, except that no Incentive Stock Options
(as defined below) may be granted after November 18, 2002.
Shares Subject to Plan. The Option Plan provides for the issuance of
incentive stock options ("Incentive Stock Options"), as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonqualified stock options which are not governed by Section 422 of the Code
("Nonqualified Stock Options"). Incentive Stock Options and Nonqualified Stock
Options are collectively referred to herein as "Stock Options." The stock
subject to the Stock Options consists of shares of Olympus's authorized but
unissued common stock or shares of common stock that have been reacquired by
Olympus. On November 30, 1994, the closing price
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<PAGE> 78
per share of Olympus Common Stock was $15.00. In addition to the 303,000
shares of common stock that have been issued under the Option Plan or are
reserved for issuance upon exercise of Stock Options presently outstanding, the
maximum number of shares of common stock for which Stock Options may be granted
is 197,000.
In the event the number of outstanding shares of common stock should be
increased or decreased, or if common stock underlying Stock Options issued
under the Option Plan should be changed into or exchanged for a different
number or kind of shares or securities of Olympus through reorganization,
merger, recapitalization, reclassification, stock dividend, stock split or
reverse stock split, upon authorization by the Committee, an appropriate
adjustment shall be made in the terms and conditions of all Stock Options
issued pursuant to the Option Plan, including the exercise price of each Stock
Option issued thereunder. Should the Committee determine, however, upon the
advice of counsel, that any such adjustment could result in the recognition of
federal taxable income by holders of Stock Options granted under the Option
Plan, or by holders of common stock or other securities of Olympus, no such
adjustment need be made.
Eligibility. Directors, managerial, professional and other employees
who are, in the discretion of the Committee, key employees are eligible to
receive Stock Options under the Option Plan. The Committee may also, in its
discretion, select other individuals who have made or are expected to make
significant contributions to Olympus to receive Nonqualified Stock Options.
Only employees of Olympus are eligible to receive Incentive Stock Options. As
of November 30, 1994, approximately 9 employees of Olympus and its subsidiaries
were considered eligible to receive Incentive Stock Options under the Option
Plan.
Stock Options. The Committee may grant both Nonqualified Stock Options
and Incentive Stock Options from time to time. The Committee has complete
authority, subject to the terms of the Option Plan, to determine the persons to
whom and the time or times at which grants of Stock Options will be made. The
terms of each Stock Option are set forth in a Stock Option Agreement,
including, without limitation, the exercise price of the Stock Options,
restrictions upon the exercise of Stock Options and restrictions on the
transferability of shares issued upon the exercise of Stock Options, as the
Committee, in its sole discretion, shall determine. In no event, however,
shall the exercise price of an Incentive Stock Option be less than the fair
market value of a share of common stock on the date of the grant. The exercise
price of a Nonqualified Stock Option shall be the greater of (i) the mean daily
average of the bid and ask prices of a share of common stock for the thirty
(30) days preceding the date of grant, (ii) the closing price of a share of
common stock as reported on any national securities exchange on the date of
grant and (iii) the average of the bid and ask prices on the date of grant if
the common stock is not reported on a national exchange. The Committee, in its
sole discretion, shall determine the time or times when each Stock Option vests
and becomes exercisable. In no event, however, shall any Stock Option be
exercisable before six months have elapsed from the date of the grant (except
in the case of death or disability), and no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date of grant. During
the lifetime of the employee receiving the Stock Option (the "Optionee"), the
Stock Option shall be exercisable only by the Optionee and shall not be
assignable or transferable. Each Stock Option Agreement shall set forth the
extent to which the Optionee shall have the right to exercise the Option
subsequent to the termination of the Optionee's employment with Olympus. Such
termination provisions, to the extent allowed by the Option Plan, shall be
determined in the sole discretion of the Committee and need not be uniform
among all Optionees. There have been 303,000 Stock Options granted under the
Option Plan. Stock Options for 228,600 shares which have been granted under
the Option Plan are presently outstanding.
Payment. Stock Options may be exercised by giving written notice to
Olympus accompanied by payment in full of the exercise price in cash or in any
other manner satisfactory to the Committee, consistent with applicable law,
regulations and rules.
Application of Securities Laws. The federal securities laws subject a
corporation's executive officers, directors and certain beneficial owners of
more than 10% of a class of registered equity securities (collectively referred
to as "Insiders") to the reporting and liability provisions of Section 16 of
the Exchange Act.
Section 16(b) of the Exchange Act generally requires that any profit
realized by an Insider from any purchase and sale, or any sale and purchase, of
any equity security of a corporation within six months is recoverable by
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<PAGE> 79
Olympus. Rules adopted by the Commission expand the short-swing trading
restrictions to derivative securities, such as stock options, stock
appreciation rights and other convertible securities. Therefore, transactions
by Insiders of Olympus in any equity or derivative securities, including Stock
Options, are subject to the short-swing liability provisions under Section
16(b), unless an exemption is available thereunder. Under the Section 16
rules, a derivative security is deemed to be the same class of equity security
as the underlying security for short-swing trading purposes.
Under the Section 16 rules, the grant of a stock option or other
derivative security is treated as a purchase of the underlying security, unless
the stock option or other derivative security was granted pursuant to an
employee benefit plan meeting the requirements of Rule 16b-3 under the Exchange
Act. Such requirements include, among other things, stockholder approval and
disinterested administration of the employee benefit plan, restrictions on
transferability and a six-month holding period from the date of grant of a
stock option or other derivative security to the date of sale of the underlying
security.
Under the Section 16 rules, the acquisition of underlying securities
upon the exercise or conversion of a stock option or other derivative security
is exempt from short-swing liability, independent of Rule 16b-3. The rules do,
however, require that the exercise or conversion be "in-the-money" (i.e., at an
exercise or conversion price that is equal to or less than the market price of
the underlying security).
Amendment to the Option Plan. The Olympus Board may, insofar as
permitted by law, suspend or discontinue the Option Plan or revise or amend it
in any respect whatsoever, except that no amendment may be effected without the
approval of Olympus's Stockholders if giving effect to such amendment would
cause the Option Plan to fail to satisfy the requirements of Rule 16b-3 under
the Exchange Act or other applicable law or if it would cause Stock Options
granted as Incentive Options to fail to meet the requirements of incentive
stock options as defined in Section 422 of the Code. In no event, however,
shall any amendment, suspension or termination of the Option Plan that would
adversely affect the rights of any Optionee be effective without the written
consent of the affected Optionee.
General Provisions. Neither the Option Plan nor any grant of Stock
Options thereunder shall be deemed to give any individual the right to remain
employed by Olympus. Participants in the Option Plan shall have no rights with
respect to dividends, voting or any other privileges accorded to Olympus'
Stockholders prior to the issuance of stock certificates for shares of Common
Stock. Recipients of Stock Options under the Option Plan have no obligation to
exercise such Stock Options. All costs and expenses of administering the
Option Plan shall be borne by Olympus.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified Stock Options. A recipient of Nonqualified Stock Options
under the Option Plan incurs no income tax liability, and Olympus obtains no
tax deduction, from the grant of such Stock Options. Under current accounting
practice, however, the grant of a Nonqualified Stock Option with an exercise
price less than the fair market value of the common stock on the date of grant
will result in a charge to Olympus's income in an amount equal to the
difference between the exercise price and such fair market value.
Upon the exercise of a Nonqualified Stock Option, the amount by which
the fair market value of the shares on the date of exercise exceeds the
exercise price will be taxed to the Optionee as ordinary compensation income.
Olympus generally will be entitled to a tax deduction in the same amount,
provided it makes all required wage withholdings. In general, the Optionee's
tax basis in the shares acquired by exercising a Nonqualified Stock Option will
be equal to the fair market value of such shares on the date of exercise. Upon
a subsequent sale of any such shares in a taxable transaction, the Optionee
will generally realize capital gain or loss (long-term or short-term, depending
on the applicable holding period) in an amount equal to the difference between
his or her basis in the shares and the sale price.
Special rules apply if an Optionee pays the exercise price of
Nonqualified Stock Options with previously acquired shares of common stock.
Such a transaction is generally treated as a tax-free exchange of the old
shares
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<PAGE> 80
for the same number of new shares. To the extent of the number of shares
exchanged, the Optionee's basis in the new shares is the same as his or her
basis in the old shares, and the capital gain holding period runs without
interruption from the date when the old shares were acquired. With respect to
the number of shares received on exercise of a Nonqualified Stock Option that
exceeds the number of shares exchanged, the Optionee will recognize ordinary
compensation income on the fair market value of the shares received. The
Optionee's basis in the additional shares is equal to the fair market value of
such shares on the date the shares were transferred, and the capital gain
holding period commences on the same date. The general effect of these rules
is to defer the date when any gain on the old shares that are used to buy new
shares must be recognized for tax purposes.
Incentive Stock Options. The holder of an Incentive Stock Option will
not be subject to income tax upon the grant or the exercise of the Incentive
Stock Option, and Olympus will not be entitled to a tax deduction by reason of
such grant or exercise, provided that the holder is still employed by Olympus
(or terminated employment no longer than three months before the exercise
date). Additional exceptions to this exercise timing requirement apply upon
the death or disability of the Optionee. A sale of the shares received upon
the exercise of an Incentive Stock Option which occurs both more than one year
after the exercise of the Incentive Stock Option and more than two years after
the grant of the Incentive Stock Option will result in the realization of
long-term capital gain or loss in the amount of the difference between the
amount realized on the sale and the option price for such shares. Generally,
upon an earlier disposition of the shares, the Optionee will recognize ordinary
compensation income, and Olympus will receive a corresponding deduction, equal
to the lesser of (i) the excess of the fair market value of the shares on the
date of transfer to the Optionee over the Stock Option price or (ii) the excess
of the amount realized on the disposition over the Stock Option price for such
shares.
The excess of the fair market value of the shares of common stock at the
time of the exercise of an Incentive Stock Option over the Stock Option price
will increase the Optionee's alternative minimum taxable income subject to the
alternative minimum tax, unless a subsequent disqualifying disposition occurs
in the same taxable year of the Optionee in which the common stock was
purchased.
If an Optionee pays the exercise price of Incentive Stock Options with
previously acquired shares of common stock, the transaction will generally be
treated as a tax-free exchange of the old shares for the same number of new
shares in a similar manner as for Nonqualified Stock Options, as discussed
above. However, if the Optionee exchanges stock that was acquired through the
exercise of an Incentive Stock Option that has not been held for the statutory
holding period, the exchange will be treated as a disqualifying disposition of
the exchanged shares and will result in ordinary compensation income, and the
Company will be entitled to a corresponding deduction, as described above.
Withholding Tax Obligations. To the extent required by applicable law,
the recipient of any payment or distribution under the Option Plan must make
arrangements satisfactory to Olympus for the satisfaction of any withholding
tax obligations arising as a result of such a payment or distribution. Olympus
shall not be required to make such payment or distribution until such
obligations are satisfied. The exercise of an Stock Option by an Optionee
shall constitute the Optionee's agreement that Olympus may withhold any taxes
attributable to taxable income realized under the Option Plan from any other
compensation or other payment payable to such Optionee by Olympus. Generally,
Olympus is required to withhold taxes upon the exercise of a Nonqualified Stock
Option.
The preceding discussion is based upon federal tax laws and regulations
presently in effect, which are subject to change, and does not purport to be
complete description of the federal income tax aspects of the Option Plan.
Optionees may also be subject to state and local taxes in connection with the
grant of Stock Options and the sale or other disposition of shares acquired
upon the exercise of Stock Options.
VALUE OF BENEFITS
The following table summarizes, as of March 6, 1995, the value of
outstanding options that have been granted under the Option Plan to the
individuals and groups of individuals set forth below:
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<PAGE> 81
PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION DOLLAR VALUE (1) STOCK OPTIONS (2)
----------------- ---------------- -----------------
<S> <C> <C>
A. Blaine Huntsman, Chief Executive Officer $1,365,625 125,000(3)
R. Gibb Marsh, President 204,608 28,500(4)
K. John Jones, Sr. VP, Chief Financial Officer 135,488 18,500(5)
Kathy K. Hale, Sr. VP, Chief Lending Officer 39,563 11,700(6)
Gary L. Matern, Sr. VP, Retail Banking 168,213 21,900(7)
Executive Officers as a group 1,913,495 205,600
Non-Executive Directors as a group -- --
Non-Executive Officer Employees as a group 71,960 8,000(8)
</TABLE>
_________________________
(1) Dollar value is determined by the spread between the exercise
price of the options and the price of the underlying security as of
March 6, 1995. The market price of a share of common stock as
reported on the Nasdaq National Market on March 6, 1995 was
$14.625.
(2) All options granted under the Option Plan have been Nonqualified
Stock Options. Stock Options granted prior to November 18, 1992 are generally
exercisable one year from the date of grant and all options granted on or after
November 18, 1992 vest 20% after two years, 40% after 3 years, 60% after 4
years and 100% after 5 years. Stock Options are generally exercisable for a
period of 10 years from the date of grant unless terminated earlier in
accordance with the provisions of the Option Plan.
(3) Consists of 100,000 Stock Options granted on February 4, 1991 at
an exercise price of $3.25 per share and 25,000 Stock Options granted on
January 30, 1990 at an exercise price of $5.50 per share.
(4) Consists of 3,500 Stock Options granted on March 12, 1992 at an
exercise price of $5.63 per share, 15,000 Stock Options granted on November 18,
1992 at an exercise price of $5.50 per share and 10,000 Stock Options granted
on May 25, 1994 at an exercise price of $11.00 per share.
(5) Consists of 2,500 Stock Options granted on March 12, 1992 at an
exercise price of $5.63; 10,000 Stock Options granted on November 18, 1992 at
an exercise price of $5.50; and 6,000 Stock Options granted on May 25, 1994 at
an exercise price of $11.00.
(6) Consists of 5,700 Stock Options granted on July 29, 1993 at an
exercise price of $11.50 and 6,000 Stock Options granted on May 25, 1994 at an
exercise price of $11.00.
(7) Consists of 900 Stock Options granted on February 4, 1991 at an
exercise price of $3.25; 5,000 Stock Options granted on March 12, 1992 at an
exercise price of $5.63; 10,000 Stock Options granted on November 18, 1992
at an exercise price of $5.50; and 6,000 Stock Options granted on May 25, 1994
at an exercise price of $11.00.
(8) Stock Options to purchase 8,000 shares were granted on March 12,
1992 at an exercise price of $5.63 per share.
LEGAL MATTERS
The validity of the shares of Washington Mutual Common Stock to be
issued in connection with the Merger will be passed upon by Foster Pepper &
Shefelman, counsel to Washington Mutual. As of March 15, 1995, individual
members of Foster Pepper & Shefelman owned an aggregate of 50,764; 160; and 100
shares of Washington Mutual Common Stock, Series C Preferred Stock, and Series
D Preferred Stock, respectively.
INDEPENDENT AUDITORS
The consolidated statements of financial position of Washington Mutual
and its subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1993, incorporated in this
Proxy Statement/Prospectus by reference to Washington Mutual's Annual Report to
Shareholders for the year ended December 31, 1993 attached as an exhibit to the
Form F-2 have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report with respect thereto.
The consolidated statements of financial position of Washington Mutual
and its subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994, incorporated in this
Proxy Statement/Prospectus by reference to Washington Mutual's Annual Report to
Shareholders for the year ended December 31, 1994 attached as an exhibit to the
Form 10-K have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report with respect thereto.
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<PAGE> 82
The consolidated statements of financial condition of Olympus and its
subsidiaries as of December 31, 1992 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1993, incorporated in this Proxy
Statement/Prospectus by reference to Olympus' Annual Report on Form 10-K have
been audited by Deloitte & Touche LLP, independent auditors, as set forth in
their report with respect thereto.
It is expected that representatives of Deloitte & Touche LLP will be
present at the Special Meeting to respond to appropriate questions of
shareholders and to make a statement if they desire.
SHAREHOLDER PROPOSALS
Any proposal intended to be presented by any shareholder for action at
the 1995 Annual Meeting of Shareholders of Olympus must be received by the
Corporate Secretary of Olympus at 115 South Main Street, Salt Lake City, Utah
84111, not later than March 29, 1995, in order for the proposal to be
considered for inclusion in the proxy statement and proxy relating to the 1995
Annual Meeting. Nothing in this paragraph shall be deemed to require Olympus to
include in its proxy statement and proxy relating to the 1995 Annual Meeting
any shareholder proposal that does not meet all of the requirements for
inclusion established by the Commission in effect at the time.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Olympus Board
knows of no matters to be brought before the Special Meeting other than those
specifically listed in the Notice of Special Meeting of Shareholders. However,
if any other matters should properly come before the Special Meeting, the proxy
holders will vote the proxies on such matters in accordance with the
determination of the Olympus Board . The Olympus Board urges each shareholder,
whether or not he or she intends to be present at the Special Meeting, to
complete, sign and return the enclosed proxy as promptly as possible.
BY ORDER OF THE BOARD OF DIRECTORS
OF OLYMPUS CAPITAL CORPORATION
/S/ A. Blaine Huntsman
Chairman of the Board and Chief Executive Officer
Salt Lake City, Utah
______________, 1995
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<PAGE> 83
PROXY
OLYMPUS CAPITAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RAMON E. JOHNSON, JAMES K. LOEBBECKE
and RICHARD G. PRICE, and each of them, as proxies, with full power of
substitution, with authority to represent and vote, as designated below, all
shares of common stock of Olympus Capital Corporation held of record by the
undersigned on March 13, 1995 at the Special Meeting of Shareholders to
be held at 115 South Main Street, Second Floor, Salt Lake City, Utah, on
April 24, 1995, at 11:00 a.m., local time, or at any adjournment or
postponement thereof, upon the matters set forth below, all in accordance with
and as more fully described in the Notice of Special Meeting and Joint Proxy
Statement and Prospectus dated March __, 1995.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
The Board of Directors recommends a vote "FOR" the following proposals:
(Continued, and to be dated and signed, on reverse side)
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<PAGE> 84
Please mark boxes [ ] or [x] in blue or black ink.
1. Proposal to approve the Amended and Restated Agreement for Merger
(including the alternative Plans of Merger) dated as of January 20,
1995 among Washington Mutual, Inc., Washington Mutual Bank,
Washington Mutual Federal Savings Bank, Olympus Capital Corporation
and Olympus Bank, a Federal Savings Bank, pursuant to which, among
other things, (i) Olympus Capital Corporation will merge with and
into Washington Mutual, Inc., and (ii) all of the outstanding shares of
Olympus common stock held by each holder thereof immediately before the
effective time of the merger will be converted into the right to receive
$15.50 per share, subject to adjustment, to be paid in shares of common
stock, no par value per share, of Washington Mutual, Inc.; provided if
the average price of Washington Mutual common stock for the ten trading
days immediately prior to the third trading day before the effective
time of the merger is less than $18.00, subject to certain adjustments,
Washington Mutual, Inc. may elect to pay up to 49% of the aggregate
consideration to be paid in the merger with cash.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve the amendment to the Olympus Capital Corporation
Nonqualified Stock Option Plan And Incentive Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please sign exactly as your name appears on the
proxy card. When shares are held jointly, each
party should sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please
sign in full corporate name, by president or other
authorized officer. If a partnership, please sign
in partnership name by authorized person.)
Date: ___________________________________, 1995
Signed: _________________________________________
_________________________________________
Please Mark, Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
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<PAGE> 85
APPENDIX A
(CONFORMED COPY)
AMENDED AND RESTATED
AGREEMENT FOR MERGER
AMONG
WASHINGTON MUTUAL INC.,
WASHINGTON MUTUAL BANK,
WASHINGTON MUTUAL FEDERAL SAVINGS BANK
AND
OLYMPUS CAPITAL CORPORATION
OLYMPUS BANK, A
FEDERAL SAVINGS BANK
DATED AS OF
JANUARY 20, 1995
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
------
2. Effective Time; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
-----------------------
3. Option to Purchase Certain Shares . . . . . . . . . . . . . . . . . . . . . . . . . -7-
---------------------------------
4. Representations and Warranties of Olympus and Olympus Bank . . . . . . . . . . . . -7-
----------------------------------------------------------
4.1 Organization, Power, Good Standing, Etc. . . . . . . . . . . . . . . . . . . . -8-
----------------------------------------
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
--------------
4.3 Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
--------------
4.4 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
-------
4.5 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
---------
4.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
------------
4.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
----------------------
4.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
--------------------
4.9 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
---------
4.10 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . -14-
------------------------------------
4.11 Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
----------------
4.12 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
---------------------
4.13 Employees; Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . -15-
---------------------------------
4.14 Olympus and Olympus Bank Information . . . . . . . . . . . . . . . . . . . . . -19-
------------------------------------
4.15 Compliance With Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . -19-
------------------------------
4.16 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
------------------------
4.17 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
----------------------
4.18 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
----------
4.19 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
-----------------
4.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
---------
4.21 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
------------------
4.22 Employee Stock Bonus Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
-------------------------
4.23 Community Reinvestment Act Compliance . . . . . . . . . . . . . . . . . . . . . -23-
-------------------------------------
4.24 Agreements with Bank Regulators . . . . . . . . . . . . . . . . . . . . . . . . -23-
-------------------------------
5. Representations and Warranties of WMI, WM Bank and NFSB . . . . . . . . . . . . . . -24-
-------------------------------------------------------
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
----------------------
5.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
---------
5.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
------------
5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
----------------------
5.5 WMI Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
---------------
5.6 Sufficient Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
--------------------
5.7 Capitalization, Investments . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
---------------------------
5.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
--------------------
5.9 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . -29-
----------------------------------
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
----------
5.11 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
---------
5.12 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
-------
5.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
----------
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.14 CRA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
--------------
5.15 Agreements With Bank Regulators . . . . . . . . . . . . . . . . . . . . . . . . -30-
-------------------------------
5.16 Compliance With Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . -30-
------------------------------
6. Covenants of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
------------------------
6.1 Conduct of the Business of Olympus . . . . . . . . . . . . . . . . . . . . . . -31-
----------------------------------
6.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
---------------
6.3 Current Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
-------------------
6.4 Access to Properties and Records; Confidentiality . . . . . . . . . . . . . . . -35-
-------------------------------------------------
6.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
-------
6.6 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
------------------
6.7 Approval of Olympus Stockholders . . . . . . . . . . . . . . . . . . . . . . . -37-
--------------------------------
6.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
------------------
6.9 Disclosure Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
----------------------
6.10 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
--------------------
6.11 Failure to Fulfill Conditions . . . . . . . . . . . . . . . . . . . . . . . . . -38-
-----------------------------
6.12 Assignment of Contract Rights . . . . . . . . . . . . . . . . . . . . . . . . . -39-
-----------------------------
6.13 Employees; Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . -39-
---------------------------------
6.14 Indemnification of Olympus Directors and Officers . . . . . . . . . . . . . . . -41-
-------------------------------------------------
6.15 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
------------------
6.16 Post-Closing Financial Statements . . . . . . . . . . . . . . . . . . . . . . . -43-
---------------------------------
6.17 Consulting and Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . -43-
---------------------------------------
6.18 Post-Merger Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
-------------------
6.19 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
--------------------------
7. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
------------------
7.1 Conditions to Each Party's Obligations Under This Agreement . . . . . . . . . . -43-
-----------------------------------------------------------
7.2 Conditions to the Obligations of WMI under this Agreement . . . . . . . . . . . -45-
---------------------------------------------------------
7.3 Conditions to the Obligations of Olympus Under This Agreement . . . . . . . . . -47-
-------------------------------------------------------------
8. Termination, Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . -48-
---------------------------------
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
-----------
8.2 Break-Up Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
------------
8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-
---------------------
8.4 Amendment, Extension and Waiver . . . . . . . . . . . . . . . . . . . . . . . . -51-
-------------------------------
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
-------------
9.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
--------
9.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
--------
9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
-------
9.4 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
-------------------
9.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
----------------
9.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
------------
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
-------------
9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
--------
</TABLE>
<PAGE> 88
EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 Plan of Merger
Exhibit A-2 Plan of Merger
(Stock and Cash Transaction)
Exhibit B-1 "Affiliates" List
Exhibit B-2 Form of "Affiliate" Letter
Exhibit C-1 Stock Option Agreement
Exhibit C-2 Assignment of Stock Option Agreement
Exhibit D Consulting and Noncompetition Agreement
Exhibit E Kimball, Parr, Waddoups, Brown &
Gee Opinion
Exhibit F Foster Pepper & Shefelman Opinion
</TABLE>
<PAGE> 89
SCHEDULES
<TABLE>
<S> <C>
Disclosure Schedule 4.1(b) (Subsidiaries & Investment Entities)
Disclosure Schedule 4.1(d) (Equity Securities Owned)
Disclosure Schedule 4.2 (Outstanding Stock Options)
Disclosure Schedule 4.3(a) (Defenses to Loans)
Disclosure Schedule 4.3(b) (Loans in Excess of $250,000)
Disclosure Schedule 4.3(c) (Delinquent Loans)
Disclosure Schedule 4.3(f) (Loan Participation Information)
Disclosure Schedule 4.6 (Agreements Requiring Third Party Consent to Transfer)
Disclosure Schedule 4.10 (Changes From the March 1994 Financial Statements)
Disclosure Schedule 4.11 (Litigation Report)
Disclosure Schedule 4.13(a)(i) (Employment Contracts)
Disclosure Schedule 4.13(a)(ii) (Benefit Plans Containing Change of Control Provisions)
Disclosure Schedule 4.13(b) (Employees Receiving Compensation in Excess of $50,000)
Disclosure Schedule 4.13(c) (Claims Regarding Employment Practices)
Disclosure Schedule 4.13(e)(i) (Benefit Plans)
Disclosure Schedule 4.13(e)(ii) (Audits and Investigations of Benefit Plans)
Disclosure Schedule 4.13(e)(iii) (Plan Qualification)
Disclosure Schedule 4.13(e)(viii) (Post-Retirement Benefit Plans)
Disclosure Schedule 4.13(e)(ix)(A) (Severance Pay Plans)
Disclosure Schedule 4.13(e)(ix)(B) (Termination Payments)
Disclosure Schedule 4.15(b) (Olympus Compliance With Applicable Laws)
Disclosure Schedule 4.16(b) (Material Contracts)
Disclosure Schedule 4.17 (Affiliated Party Transactions)
Disclosure Schedule 4.19(a) (Title to and Leases of Real Property)
Disclosure Schedule 4.19(b) (Environmental Disclosure)
Disclosure Schedule 4.19(c) (Personal Property)
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
Disclosure Schedule 4.20 (Insurance Policies)
Disclosure Schedule 5.9 (WMSB Changes Since March 31, 1994)
Disclosure Schedule 5.10 (WMSB Litigation Report)
Disclosure Schedule 5.16(b) (WMSB Compliance With Applicable Laws)
Disclosure Schedule 6.13(b) (List of Officers)
</TABLE>
<PAGE> 91
AMENDED AND RESTATED
AGREEMENT FOR MERGER
This Amended and Restated Agreement for Merger (the "Agreement") is made and
entered into as of the 20th day of January, 1995 by and among Washington Mutual,
Inc., a Washington corporation ("WMI"), Washington Mutual Bank, a Washington
stock savings bank ("WM Bank"), Washington Mutual Federal Savings Bank, a
federal savings association ("NFSB"), Olympus Capital Corporation, a Utah
corporation ("Olympus") and Olympus Bank, a Federal Savings Bank, a federal
savings bank ("Olympus Bank").
Washington Mutual Savings Bank, formerly a Washington stock savings bank
("WMSB"), NFSB, Olympus and Olympus Bank entered into an Agreement for Merger
dated July 22, 1994 (the "Original Agreement"), which provided for Olympus to
be acquired by WMSB on the basis of a merger of Olympus with and into WMSB,
which would be the surviving institution. Section 1(f) of the Original
Agreement provided, in part, that the transaction could be restructured at
WMSB's request, provided that no such restructuring would modify the amount or
the form of the Merger Consideration (as defined in the Original Agreement) or
the tax consequences to shareholders of Olympus from those contemplated by, and
described in Section 7.1(d) of, the Original Agreement.
The corporate structure of WMSB and its affiliates has been reorganized (the
"Restructuring") into a holding company structure, with WMI as the holding
company. The Restructuring was effected by merging WMSB with and into WM Bank,
with WM Bank as the surviving bank. The merger was effective at 6:01 p.m.,
Pacific time, on November 29, 1994 (the "Restructure Time"). Prior to such
merger, WMI owned, and continues to own after the merger, all of the issued and
outstanding shares of WM Bank. At the Restructure Time, shares of WMSB stock
outstanding immediately prior to the Restructure Time were automatically
converted into an equal number of shares of WMI stock. WMI now owns, directly
or indirectly, all of the corporations which, prior to the Restructuring, were
owned, directly or indirectly, by WMSB. As a result of the merger of WMSB with
and into WM Bank, all of WMSB's rights and interests under the Original
Agreement, together with any and all of its obligations thereunder, are now the
property and obligations of WM Bank as successor by merger to WMSB.
As a result of the Restructuring, WM Bank owns all of the issued and
outstanding shares of stock of Washington Mutual, a Federal Savings Bank
("WMFSB"). Following the Restructuring, WMFSB continued to own all of the
issued and outstanding shares of stock of NFSB. WMI and WMFSB entered into
that certain Stock Purchase Agreement dated October 6, 1994 pursuant to which
WMFSB agreed to sell all the issued and outstanding shares of stock of NFSB to
WMI. The sale was consummated on January 4, 1995.
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<PAGE> 92
The parties now wish to amend and restate the Original Agreement in order to
restructure the transaction contemplated thereby so that Olympus will be merged
with and into WMI, which will be the surviving company (the "Merger") and to
make certain other modifications. WM Bank is a party to this Agreement in its
capacity as the successor of WMSB.
As used hereinafter in this Agreement, the term "WM Bank" shall mean WMSB
with respect to any period prior to the Restructure Time and shall mean
Washington Mutual Bank with respect to any period on or after the Restructure
Time. As used herein, the term "Original Agreement Date" shall mean July 22,
1994.
Therefore, the parties to this Agreement hereby amend and restate the
Original Agreement and agree as follows:
1. Merger. Subject to the terms and conditions of this Agreement, the Merger
is to be accomplished in the manner described herein.
(a) Merger of Olympus and WMI. Olympus shall be merged with and into WMI
in accordance with the Plan of Merger by and between WMI and Olympus,
substantially in the form attached hereto as Exhibit A-1 (the "Plan of
Merger"), at the Effective Time (as defined in Section 2). The Plan of Merger
provides for the terms of the Merger and the manner of carrying it into effect.
The terms and conditions of the Plan of Merger are incorporated herein and made
a part hereof.
(b) Subsequent Merger of Olympus Bank and NFSB. The parties understand
that WMI and NFSB intend, after the Effective Time, to merge Olympus Bank with
and into NFSB, with NFSB as the resulting institution (the "Bank Merger"). The
Bank Merger shall be pursuant to the terms of a plan of merger to be agreed
upon and entered into by Olympus Bank and NFSB and their respective
post-closing directors and shareholders. Olympus and Olympus Bank agree to
take such actions prior to the Effective Time as may be reasonably requested by
WMI and NFSB in order to be able to effect the Bank Merger following the
Effective Time.
(c) Conversion of Olympus Common Stock. Subject to the provisions below
and in the Plan of Merger, at the Effective Time, all of the outstanding shares
of common stock, par value $1.00 per share, of Olympus ("Olympus Common Stock")
shall be converted into the right to receive shares of common stock, no par
value per share, of WMI ("WMI Common Stock"), as described below and in the
Plan of Merger.
(i) Subject to the other provisions of this Section 1(c) and Section
1(h), holders of all outstanding shares of Olympus Common Stock will receive
per share consideration equal to $15.50 per share of Olympus Common Stock
subject to adjustment as provided in Section 1(c)(v) below (the "Merger
Consideration"), such consideration to be paid in newly issued shares of WMI
Common
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<PAGE> 93
Stock, subject to the conditions set forth in this Agreement and in the Plan of
Merger. The per share value of WMI Common Stock for the purpose of paying the
Merger Consideration shall be the arithmetic average of the National Market
System Closing Price of WMI Common Stock for the ten trading days immediately
preceding the third trading day before the Effective Date (the "Average
Price"). The term "National Market System Closing Price" means the price per
share of the last sale of WMI Common Stock reported on the National Market
System at the close of the trading day by the National Association of
Securities Dealers, Inc. The exchange ratio for determining the number of
shares of WMI Common Stock to be issued for each share of Olympus Common Stock
(the "Exchange Ratio") shall be the Merger Consideration divided by the Average
Price. Computations of the Average Price and of the Exchange Ratio shall be
carried to five decimals and then rounded to three decimals, rounding down if
the fourth decimal is four or less or up if it is five or more. Cash will be
paid in lieu of fractional shares as set forth in the Plan of Merger.
(ii) If between the date of this Agreement and the Effective Time,
the shares of WMI Common Stock shall be changed into a different number or
class of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if a stock dividend thereon shall be
declared with a record date within such period, the Average Price specified in
Section 1(c)(i) shall be adjusted accordingly.
(iii) In the event that the Average Price is less than $18.00 (such
amount to be adjusted accordingly if any of the events described in (ii) above
occur), then at WMI's sole option, WMI may elect to pay up to 49% of the
aggregate Merger Consideration in the form of cash. If WMI makes such an
election, then the Plan of Merger shall be substantially in the form of Exhibit
A-2 attached hereto. In the event that WMI makes such an election, each
shareholder of Olympus shall have the opportunity to indicate such
shareholder's preference as to the form of the Merger Consideration to be paid
to such shareholder, such preference to be indicated in the manner and subject
to the limitations set forth in Section 5(a)(i) of Exhibit A-2.
(iv) If Foster Pepper & Shefelman is unwilling to provide the tax opinion
referred to in Section 7.1(d) due solely to the fact that the appropriate
officers of Olympus are unable to make the representation set forth in
paragraph 2 of Section 7.01 of Rev. Proc. 86-42, 86-2 C.B. 722, then WMI
shall, to the extent necessary to enable such representation to be rendered,
reduce the percentage of the Merger Consideration to be paid in cash below 49%
provided that in no event shall WMI be required to reduce such percentage below
35%.
(v) In the event that the Merger is not consummated on or before April
30, 1995 (the "Yield Date"), then the Merger Consideration shall be equal to
$15.50 plus the product determined by multiplying (i) $15.50 by (ii) the Extra
Consideration Rate (as
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<PAGE> 94
hereinafter defined) by (iii) a fraction the numerator of which equals the
number of days elapsed between the Yield Date and the Effective Date and the
denominator of which equals 365. For purposes hereof, the Extra Consideration
Rate shall be 5% per annum.
(vi) If no distribution date under WMI's shareholder rights plan shall
have occurred prior to the Effective Time, then each share of WMI Common Stock
issued in the Merger shall also evidence one right under such plan.
(d) Stock Options.
(i) Except to the extent that options have been exercised since the
Original Agreement Date, Disclosure Schedule 4.2 attached hereto sets forth the
holders of valid, outstanding options to purchase Olympus Common Stock under
the Olympus Nonqualified Stock Option Plan and the Olympus Incentive Stock
Option Plan (the "Stock Option Plans") and the exercise price of each such
option. It is understood that if any holder exercises his or her options, that
exercise and any subsequent sale, transfer, pledge or other disposition of the
shares shall be in compliance with any applicable requirements of the
Securities and Exchange Commission's ASR 135 and Section 1(h).
(ii) The Stock Option Plans currently provide that, upon the execution of
this Agreement, all outstanding options shall become immediately exercisable
and that as of the Effective Time any such options then unexercised shall
terminate. Olympus intends to present for shareholder approval an amendment to
the Stock Option Plans which, if approved, will be effective if and only if WMI
elects, pursuant to Section 1(c)(iii) of this Agreement, to pay a portion of
the Merger Consideration in cash. The amendment to the Stock Option Plans will
amend Section 7.02 thereof to delete the provision that unexercised options
will terminate at the Effective Time and to permit unexercised options to
convert into fully vested options to acquire WMI Common Stock. If such an
amendment is adopted and WMI elects to pay a portion of the Merger
Consideration in cash pursuant to Section 1(c)(iii), then the Stock Option
Plans shall become separate plans of WMI, and the outstanding options shall not
terminate as of the Effective Time but shall instead be converted into fully
vested options to acquire WMI Common Stock. Each option to acquire Olympus
Common Stock shall become an option to acquire the number of shares of WMI
Common Stock determined by multiplying (i) the number of shares of Olympus
Common Stock covered by such option by (ii) the Exchange Ratio. The price at
which each option to acquire a share of WMI Common Stock shall be exercisable
shall be determined by dividing (x) the exercise price of the option to acquire
Olympus Common Stock by (y) the Exchange Ratio. Calculation of the number of
shares and the exercise price shall each be carried out to four decimals and
then rounded to two decimals, rounding down if the third decimal is four or
less or up if it is five or more. (So that, by way of example, if the Exchange
Ratio is .50 and a person
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<PAGE> 95
has an option to acquire 1,000 shares of Olympus Common Stock at $7.00 per
share, then at the Effective Time, the option will be converted into an option
to acquire 500 shares of WMI Common Stock at $14.00.)
(iii) If WMI does not elect, pursuant to Section 1(c)(iii) of
this Agreement, to pay a portion of the Merger Consideration in cash, then each
outstanding option to purchase shares of Olympus Common Stock which remains
unexercised immediately prior to the Effective Time, shall be deemed to have
been exercised at the Effective Time through the conversion into that number of
shares of WMI Common Stock equal to the quotient obtained by dividing (i) the
Net Option Value by (ii) the Average Price. For purposes of this Section
1(d)(iii), with respect to any option to purchase shares of Olympus Common
Stock, "Net Option Value" means (x) the aggregate Merger Consideration in
respect of the number of shares of Olympus Common Stock issuable upon exercise
of such option, less (y) the aggregate exercise price payable upon exercise of
such option, less (z) the aggregate amount of federal, state and local income
taxes and other amounts required to be withheld with respect to such exercise.
(e) Olympus Stockholders' Meeting. Subject to Section 6.7, Olympus shall,
as soon as practicable, hold a meeting of its stockholders (the "Olympus
Stockholders' Meeting") to submit for stockholder approval (the "Olympus
Stockholder Approval") this Agreement and the Plan of Merger.
(f) [Intentionally Omitted]
(g) Prospectus/Proxy Statement.
(i) The parties hereto will cooperate in the preparation of an
appropriate prospectus/proxy statement satisfying all applicable requirements
of the Securities Exchange Commission ("SEC") promulgated under the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act"), and the rules
and regulations thereunder and applicable state law (such prospectus/proxy
statement in the form mailed by Olympus to Olympus stockholders, together with
any and all amendments or supplements thereto, being herein referred to as the
"Prospectus/Proxy Statement").
(ii) WMI will furnish such information concerning WMI and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with Section 1(g)(i).
WMI agrees promptly to advise Olympus if at any time prior to the Olympus
Stockholders'
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<PAGE> 96
Meeting any information provided by WMI for inclusion in the Prospectus/Proxy
Statement becomes incorrect or incomplete in any material respect and to
provide the information needed to correct such inaccuracy or omission. WMI
will continue to furnish Olympus with such supplemental information as may be
necessary in order to cause such Prospectus/Proxy Statement, insofar as it
relates to WMI and its subsidiaries, to comply with Section 1(g)(i) after the
mailing thereof to Olympus stockholders.
(iii) WMI will prepare and file with the SEC a registration statement on
Form S-4 (together with amendments thereto, the "Registration Statement")
containing the Prospectus/Proxy Statement in connection with the registration
under the Securities Act of the WMI Common Stock to be issued in connection
with the Merger, use all reasonable efforts to have or cause the Registration
Statement to become effective as promptly as practicable, and take any other
action required to be taken under any applicable federal or state securities
laws in connection with the issuance of WMI Common Stock in the Merger. WMI
will advise Olympus promptly when the Prospectus/Proxy Statement has been
approved for use in all necessary states.
(h) Accounting Treatment.
(i) The parties hereto intend for the Merger to be treated as a pooling
of interests for accounting purposes. From and after the Original Agreement
Date and until the Effective Time, neither WMI, WM Bank nor Olympus nor any of
their respective subsidiaries or other affiliates (i) knowingly has taken or
shall take any action, or knowingly has failed or shall fail to take any
action, that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes; or (ii) has entered into or shall enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing; provided, however, that no action or omission by any party shall
constitute a breach of this sentence if such action or omission is permitted by
the terms of this Agreement or is made with the written consent of the other
parties hereto. The persons specified on Exhibit B-1 hereto may be deemed to
be "affiliates" of Olympus for purposes of the Securities and Exchange
Commission's ASR 135. WMI has received from each person so identified, a
written agreement in the form of Exhibit B-2 hereof. Prior to the Effective
Time, Olympus shall use all reasonable efforts to cause any additional person
who becomes or is identified as an "affiliate" to execute such an agreement.
(ii) WMI shall have the right to place a restrictive legend on all
shares of WMI Common Stock to be received by an "affiliate" so as to preclude
their transfer or disposition in violation of such letters, to instruct its
transfer agent not to permit the transfer of any such shares and/or to take any
other steps reasonably necessary to ensure compliance with ASR 135. Prior to
30 days before the Effective Time, stock certificates evidencing ownership of
all Olympus Common Stock by Olympus "affiliates" shall be delivered to Olympus
and Olympus (prior to
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<PAGE> 97
the Effective Time) and WMI (after the Effective Time) shall retain such
certificates or certificates of WMI Common Stock into which they are exchanged
until such time as financial results covering at least 30 days of combined
operations of the merged party shall have been published, at which time such
certificates shall be released.
(iii) Notwithstanding the above, WMI, in its sole discretion, may elect
at any time not to proceed with qualifying the Merger to be treated as a
pooling of interests for accounting purposes in which case the restrictions in
this Section 1(h) shall no longer be applicable.
2. Effective Time; Closing. The Merger shall become effective at the time
(not earlier than January 1, 1995) of the occurrence of both (a) the filing of
the articles of merger with the Secretary of State of the State of Washington
(the "Secretary") and (b) delivery to the Division of Corporations and
Commercial Code of the State of Utah (the "Division") of the articles of
merger, or at such later time after such filing and delivery as is provided in
the articles of merger. As used herein, the term "Effective Time" shall mean
the date and time when the Merger becomes effective. As used herein, the term
"Effective Date" shall mean the day on which the Effective Time occurs. The
parties intend that the Effective Time shall occur after the close of business
on the first Friday which is at least ten business days following the
satisfaction of the conditions set out in Section 7.1(a) and (b) below. A
closing (the "Closing") shall take place prior to the Effective Time at the
offices of Foster Pepper & Shefelman, 1111 Third Avenue, Suite 3400, Seattle,
Washington, or at such other place as the parties hereto may mutually agree
upon for the Closing to take place.
3. Option to Purchase Certain Shares. As a condition of the execution of the
Original Agreement, WMSB required the delivery by Olympus of an option (the
"Option Agreement"), dated the Original Agreement Date, a copy of which is
attached hereto as Exhibit C-1, entitling WMSB to purchase shares of Olympus
Common Stock at a price per share stated therein. Concurrent with the
execution of this Agreement, WM Bank shall assign its rights under the Option
Agreement to WMI pursuant to an assignment (the "Option Assignment")
substantially in the form attached hereto as Exhibit C-2.
4. Representations and Warranties of Olympus and Olympus Bank. The "Olympus
Disclosure Schedules" shall mean all of the disclosure schedules required by
this Agreement, dated as of the Original Agreement Date, which were delivered
to WMSB and NFSB. Olympus and Olympus Bank hereby jointly and severally
represent and warrant to WMI and WM Bank as follows (it being understood that,
except as otherwise provided below, the following representations and
warranties are being made by Olympus and Olympus Bank as of the Original
Agreement Date; provided, however, that the reference in this parenthetical to
the "Original Agreement Date" shall be deemed not to be an earlier date to
which the representations and
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<PAGE> 98
warranties below related for purposes of the parenthetical in Section 7.2(a)):
4.1 Organization, Power, Good Standing, Etc.
(a) Olympus is a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah. Olympus Bank is a federally
chartered savings bank duly organized and validly existing under the laws of
the United States, the charter of which is in full force and effect and for
which no conservator or receiver has been appointed. Each of Olympus and
Olympus Bank has all the requisite corporate power and authority to own, lease
and operate all of its properties and assets and to carry on its business as
currently conducted. Each of Olympus and Olympus Bank is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it makes such licensing or
qualification necessary and where the failure to be so qualified would,
individually or in the aggregate, have a Material Adverse Effect (as defined
below) on Olympus. Olympus Bank accounts are insured by the Savings
Association Insurance Fund (the "SAIF") administered by the Federal Deposit
Insurance Corporation (the "FDIC") in accordance with the Federal Insurance
Deposit Act. Olympus Bank is a member in good standing of the Federal Home
Loan Bank of Seattle. Olympus is a savings and loan holding company duly
registered with the Office of Thrift Supervision (the "OTS"). Olympus Bank is
a qualified thrift lender pursuant to Section 10(m) of the Home Owners' Loan
Act ("HOLA"). Each of Olympus and Olympus Bank has heretofore delivered or
made available to WMI or WM Bank true and correct copies of its Articles of
Incorporation or Charter, as the case may be, (together, the "Articles") and
its bylaws as in effect on the Original Agreement Date. As used in this
Agreement, the term "Material Adverse Effect" with respect to a party shall
mean any change or effect that is reasonably likely to be materially adverse to
the business, operations, properties, condition (financial or otherwise),
assets or liabilities of such party and such party's subsidiaries taken as a
whole.
(b) Disclosure Schedule 4.1(b) correctly sets forth a list of each firm,
corporation, partnership, joint venture or similar organization which is
consolidated with Olympus for financial reporting purposes and each corporation
a majority of the outstanding capital stock of which is owned by Olympus,
including Olympus Bank and any subsidiary thereof, (each, including Olympus
Bank and any subsidiaries thereof, a "Olympus Subsidiary"). Disclosure
Schedule 4.1(b) also sets forth as to each Subsidiary, the jurisdiction of its
incorporation and the percentage of capital stock owned by Olympus or Olympus
Bank, as the case may be. Except as set forth on Disclosure Schedule 4.1(b),
each Olympus Subsidiary has the corporate power and authority to own, lease and
operate all of its properties and assets and to carry on its business as
currently conducted, if any, and is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or
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location of the properties and assets owned, leased or operated by it make such
qualification necessary and where the failure to be so licensed or qualified
would individually or in the aggregate, have a Material Adverse Effect on
Olympus. Disclosure Schedule 4.1(b) also correctly sets forth a list of each
firm, corporation, partnership, joint venture or similar organization (other
than any entity which is a Olympus Subsidiary) in which Olympus or any Olympus
Subsidiary has a direct or indirect controlling, or 10 percent or greater,
equity interest (an "Investment Entity").
(c) The minute books of Olympus and Olympus Bank contain materially
complete and accurate records of all meetings held and other corporate action
taken, since December 31, 1990, by each company's stockholders and Board of
Directors.
(d) Except as set forth on Disclosure Schedule 4.1(d), Olympus does not
own (beneficially or otherwise) any capital stock or other equity interest in
any corporation or other entity which is not a Subsidiary or Investment Entity.
(e) Each of Olympus and Olympus Bank has each previously delivered to, or
made available for inspection by, WMI or WM Bank true and complete copies of
all agreements to which it is a party or by which it or any of its assets may
be bound, other than loans, credit facility agreements or accounts in the
ordinary course, (i) which relate to any ownership interest by Olympus or
Olympus Bank of an equity interest in any partnership, joint venture, or
similar enterprise, (ii) pursuant to which either Olympus or Olympus Bank may
be required to transfer funds in respect of an equity interest to, make an
investment in, or guarantee or assume any debt, dividend or other obligation
of, any person or entity, partnership, joint venture or similar enterprise, or
(iii) pursuant to which they are or may become an equity investor in a real
estate project.
(f) Olympus owns all of the issued and outstanding shares of stock of
Olympus Bank.
4.2 Capitalization. The authorized capital stock of Olympus consists of
10,000,000 shares of common stock, par value $1.00 per share ("Olympus Common
Stock"). As of the Original Agreement Date, 3,099,639 shares of Olympus Common
Stock were issued and outstanding. No shares of stock are held in Olympus's
treasury. All of the issued and outstanding shares of Olympus Common Stock
have been duly authorized, validly issued, and are fully paid and
non-assessable, with no personal liability attaching to the ownership thereof.
Except to the extent reduced as the result of the exercise of options since the
Original Agreement Date, there are 455,500 shares of Olympus Common Stock
reserved for issuance upon the exercise of outstanding employee and director
stock options but not for any other reason. Except to the extent that options
have been exercised since the Original Agreement Date, Disclosure Schedule 4.2
sets forth a list of all individuals who hold stock options, the number of
shares for which options have been granted to such individuals and the exercise
price for each
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option. Except as set forth in Disclosure Schedule 4.2, neither Olympus nor
any Olympus Subsidiary is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase, or issuance of any shares of its capital stock or any
securities representing the right to purchase or otherwise receive any shares
of its capital stock or any securities convertible into or representing the
right to purchase or subscribe for any such shares, and there are no agreements
or understandings to which Olympus or any Olympus Subsidiary is a party with
respect to voting any such shares. Except as otherwise set forth on Disclosure
Schedule 4.1(b), all of Olympus's Subsidiaries' capital stock, which is issued
and outstanding, is owned by Olympus.
4.3 Loan Portfolio.
(a) All evidences of indebtedness in current principal amount in excess of
$150,000 reflected as assets in Olympus's March 1994 Financial Statements (as
hereinafter defined) were, as of March 31, 1994, in all respects binding
obligations of the respective obligors named therein and no such indebtedness
is subject to any defenses which have been asserted on or prior to the Original
Agreement Date, or, to the best knowledge of Olympus, may be asserted, except
as set forth on Disclosure Schedule 4.3(a), and except for defenses arising
from applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity. To the
knowledge of Olympus, except for a loan to LifeCare Centers of America with a
principal balance of $556,454, a loan to Jolene Company, Inc. with a principal
balance of $660,219 and a loan to Eugene Barrango in the principal balance of
$649,738, in each case as of June 30, 1994, all such indebtedness in a current
principal amount in excess of $25,000 that is primarily secured by an interest
in real property is secured by a valid and perfected first lien (other than
consumer loans, which include home equity and second mortgage loans).
(b) All loans with a balance in excess of $250,000 as of June 30, 1994
which are secured by property other than 1-4 family residences are listed on
Disclosure Schedule 4.3(b), which indicates, for each such loan, the loan
number, the borrower's name and the unpaid balance as of June 30, 1994.
(c) Except as disclosed on Disclosure Schedule 4.3(c), no loan, all or any
part of which is an asset of Olympus Bank was, as of June 30, 1994, more than
30 days delinquent.
(d) To the knowledge of Olympus, the documentation for each loan (the
"Loan File") is correct and complete to the extent that all Loan Files contain
those documents necessary for Olympus Bank to enforce the loans and realize
upon the security, if any, therefor, including but not limited to properly
executed notes or credit agreements and security documents. In addition, the
Loan Files for all loans secured primarily by real property also contain
evidence of property casualty insurance (or are covered by a
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mortgage protection policy) and, where required by the OTS or other
governmental regulators, appraisals, policies of title insurance (or, in the
case of loans closed within the past three months, commitments therefor) and
policies of flood insurance.
(e) With isolated minor exceptions, each outstanding loan or commitment
to extend credit was solicited and originated and is administered in accordance
with the relevant loan documents and in material compliance with all
requirements of federal, state and local laws and regulations applicable at the
time the loan was originated or modified.
(f) Disclosure Schedule 4.3(f) sets forth as of July 15, 1994, as to each
loan in which Olympus Bank has sold participation interests, the total loan
balance, the percentage of interest sold, the identity of the purchaser and an
indication of whether or not there are any buy-back or guarantee obligations
and whether the percentage of interest retained by Olympus Bank is subordinated
to the percentage of interest sold; provided, however, as to 1-4 family
residential loans such information is provided by loan package sold instead of
individual loans. The same sets forth, as of June 30, 1994, as to each
participation purchased, the total loan balance, the percentage of interest
purchased, the identity of the seller and an indication of whether or not there
are any put-back rights or indemnifications and whether the percentage of
interest purchased by Olympus Bank is superior to the percentage of interest
retained by the seller.
(g) There are no employee, officer, director or other affiliate loans on
which the borrower is paying a rate other than that reflected on the note or
the relevant credit agreement.
4.4 Reports.
(a) Olympus and Olympus Bank have duly filed with the SEC, the FDIC and the
OTS, in correct form in all material respects, the monthly, quarterly,
semiannual and annual reports required to be filed by them under applicable
regulations for all periods subsequent to December 31, 1990. Olympus and
Olympus Bank have previously delivered or made available to WMI or WM Bank
accurate and complete copies of such reports.
(b) Olympus and Olympus Bank have previously delivered or made available to
WMI or WM Bank an accurate and complete copy of each (a) final registration
statement, prospectus, report and definitive proxy statement filed by Olympus
since January 1, 1991 with the SEC, and (b) communication (other than general
advertising materials) mailed by Olympus or Olympus Bank to its stockholders
since January 1, 1991 and no such registration statement, prospectus, report,
proxy statement or communication, as of its date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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4.5 Authority.
(a) Olympus has requisite corporate power and authority to execute and
deliver the Original Agreement, the Plan of Merger and the Option Agreement
and, subject to the Olympus Stockholder Approval and applicable regulatory
approvals, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of the Original Agreement, this Agreement, the Plan of
Merger, and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by the
Board of Directors of Olympus. The Original Agreement, this Agreement and the
Option Agreement have been duly and validly executed and delivered by Olympus.
Assuming the due authorization, execution and delivery hereof and thereof by
the other parties hereto and thereto, this Agreement and the Option Agreement
(as assigned by the Option Assignment) constitute valid and binding obligations
of Olympus, enforceable against it in accordance with their respective terms.
(b) Olympus Bank has requisite corporate power and authority to execute and
deliver the Original Agreement and this Agreement and, subject to applicable
regulatory approvals, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of the Original Agreement and this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly approved by the Board of Directors of
Olympus Bank. The Original Agreement and this Agreement have been duly and
validly executed and delivered by Olympus Bank and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto, constitutes a valid and binding obligation of Olympus Bank, enforceable
against it in accordance with its terms.
4.6 No Violation. Neither the execution and delivery of this Agreement,
the Plan of Merger or the Option Agreement nor the consummation by Olympus or
Olympus Bank of the transactions contemplated hereby and thereby, nor
compliance by Olympus or Olympus Bank with any of the terms or provisions
hereof or thereof, will (i) assuming Olympus Stockholder Approval, violate any
provision of the Articles or bylaws of Olympus, or the Charter or bylaws of
Olympus Bank, (ii) assuming the consents and approvals referred to in Section
7.1 hereof are duly obtained, violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Olympus
or any Olympus Subsidiary, or any of its respective properties or assets, or
(iii) except as set forth on Disclosure Schedule 4.6, violate, conflict with,
result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by, or
result in the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Olympus or any Olympus
Subsidiary, under any of the terms, conditions or provisions of any note, bond,
mortgage indenture, deed of trust, license, lease,
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agreement or other instrument or obligation to which Olympus or any Olympus
Subsidiary is a party, or by which it or any of its properties or assets may be
bound or affected, except with respect to (iii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations and encumbrances
which would not in the aggregate have a Material Adverse Effect on Olympus.
4.7 Consents and Approvals. Except for (i) consents and approvals of or
filings, deliveries or registrations with the SEC, the OTS, the FDIC, the
Director, the Secretary, the Division, the United States Department of Justice
(the "Justice Department"), the Federal Reserve Board or other applicable
governmental authorities, (ii) the approval of the stockholders of Olympus and
(iii) the consents, approvals, filings or registrations set forth on Disclosure
Schedule 4.6, no consents or approvals of or filings or registrations with any
third party or public body or authority, except for consents, approvals,
filings or registrations where the failure to obtain such consents or approvals
or to make such filings or registrations would not prevent or delay the Merger
and would not in the aggregate have a Material Adverse Effect on Olympus, are
necessary in connection with the execution and delivery by Olympus or Olympus
Bank of this Agreement and the consummation of the transactions contemplated
hereby.
4.8 Financial Statements.
(a) Olympus has previously delivered or made available to WMI or WM Bank
copies of (i) the consolidated statements of financial condition of Olympus and
the Olympus Subsidiaries as of December 31, in each of the three fiscal years
1991, 1992 and 1993, and the related consolidated statements of income,
statements of stockholders' equity and statements of cash flows for each of the
three year periods ending, respectively, on December 31, 1991, 1992 and 1993,
as reported in Olympus's Annual Reports filed with the SEC under the Securities
Exchange Act, in each case accompanied by the Olympus audit reports of Deloitte
& Touche, independent public accountants, with respect to Olympus (the "Olympus
1991, 1992 and 1993 Financial Statements," respectively), and (ii) the
unaudited consolidated balance sheet of Olympus as of March 31, 1994 and the
related unaudited consolidated statements of income and statements of cash
flows for the three-month period then ended as reported in Olympus's Quarterly
Reports on Form 10-Q filed with the SEC under the Securities Exchange Act (the
"Olympus March 1994 Financial Statements"). The consolidated statements of
condition of Olympus referred to herein (including the related notes) fairly
present the consolidated financial position of Olympus as of the respective
dates set forth therein, and the other financial statements referred to herein
(including the related notes) fairly present the results of the consolidated
operations and changes in stockholders' equity and cash flows of Olympus for
the respective fiscal periods or as of the respective dates set forth therein,
except that interim unaudited financial statements are subject to normal
year-end adjustments.
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(b) Each of the financial statements referred to in Section 4.8(a)
(including the related notes) has been prepared in accordance with generally
accepted accounting principles consistently applied during the periods involved
(except as indicated in the notes thereto). The books and records of Olympus
have been, and are being, maintained in accordance with applicable legal and
accounting requirements and reflect only actual transactions.
4.9 Brokerage. Except for amounts owed to Goldman, Sachs & Co., there
are no claims for investment banking fees, brokerage commissions, finder's fees
or similar compensation arising out of or due to any act of Olympus or of any
Olympus Subsidiary in connection with the transactions contemplated by this
Agreement or the Original Agreement.
4.10 Absence of Certain Changes or Events. As of the Original Agreement
Date, except as disclosed in Disclosure Schedule 4.10, there had not been any
material adverse change in the business, operations, properties, assets or
financial condition of Olympus and the Olympus Subsidiaries, taken as a whole,
from that described in the 1993 Annual Report or the Olympus March 1994
Financial Statements (except for changes resulting from market and economic
conditions which generally affect the savings industry as a whole, including,
without limitation changes in law or regulation, and changes in generally
accepted accounting principles or interpretations thereof) and, to the best of
Olympus's knowledge, no fact or condition existed as of the Original Agreement
Date that Olympus had reason to believe would cause such a material adverse
change after the Original Agreement Date.
4.11 Litigation, Etc. As of the Original Agreement Date, except as
disclosed on Disclosure Schedule 4.11, there were no actions, suits, claims,
inquiries, proceedings or, to the knowledge of Olympus, investigations before
any court, commission, bureau, regulatory, administrative or governmental
agency, arbitrator, body or authority pending or, to the knowledge of Olympus,
threatened against Olympus or any Olympus Subsidiary which would reasonably be
expected to result in any liabilities, including defense costs, in excess of
$250,000 in the aggregate. Except as disclosed on Disclosure Schedule 4.11,
neither Olympus nor any Olympus Subsidiary is subject to any order, judgment or
decree and neither Olympus nor any Olympus Subsidiary is in default with
respect to any such order, judgment or decree.
4.12 Taxes and Tax Returns.
(a) The amounts set up as provisions for taxes on the Olympus March 1994
Financial Statements are sufficient for all material accrued and unpaid
federal, state, county and local taxes, interest and penalties of Olympus and
all Olympus Subsidiaries, whether or not disputed, for the period ended March
31, 1994 and for all fiscal periods prior thereto. Only the federal income tax
returns of Olympus and Olympus Bank for the fiscal years ending in
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1990, 1991, 1992 and 1993 are subject to audit or adjustment by the Internal
Revenue Service or the applicable taxing authorities. Complete and correct
copies of the income tax returns of Olympus and each Olympus Subsidiary for the
five fiscal years ending December 31, 1993, as filed with the Internal Revenue
Service and all state and local taxing authorities, together with all related
correspondence and notices, have previously been delivered or made available to
WMI or WM Bank.
(b) Each of Olympus and each Olympus Subsidiary has timely and correctly
filed all federal, state, county and local tax and other returns and reports
(collectively, "Returns") required by applicable law to be filed (including,
without limitation, estimated tax returns, income tax returns, excise tax
returns, sales tax returns, use tax returns, property tax returns, franchise
tax returns, information returns and withholding, employment and payroll tax
returns), except to the extent that the failure to timely or correctly file
such returns does not result in aggregate penalties or assessments of more than
$25,000 or a reduction in federal income tax net operating loss carryforward
deductions of more than $75,000, and have paid all taxes, levies, license and
registration fees, charges or withholdings of any nature whatsoever shown by
such Returns to be owed, or which are otherwise due and payable (hereinafter
called "Taxes"), and to the extent any material liabilities for Taxes have not
been fully discharged, full and complete reserves have been established on the
Olympus 1993 Financial Statements. Neither Olympus nor any Olympus Subsidiary
is in default in the payment of any Taxes due or payable or any assessments
received in respect thereof except for Taxes which are being contested in good
faith. No additional assessments of Taxes are known to Olympus or any Olympus
Subsidiary to be proposed, pending or threatened, other than Taxes for periods
for which returns are not yet filed.
(c) Olympus has not filed a consent to the application of Section 341(f)
of the Internal Revenue Code of 1986, as amended.
4.13 Employees; Employee Benefit Plans.
(a) As of the Original Agreement Date, except as set forth in Disclosure
Schedule 4.13(a)(i) neither Olympus nor any Olympus Subsidiary was a party to
or bound by any contract, arrangement or understanding (whether written or
oral) with respect to the employment or compensation of any officers, employees
or consultants and except as provided herein, and under those Benefit Plans (as
defined below) set forth in Disclosure Schedule 4.13(a)(ii), consummation of
the transactions contemplated by this Agreement will not (either alone or upon
the occurrence of any additional acts or events) result in any payment (whether
of severance pay or otherwise) becoming due from Olympus or any Olympus
Subsidiary to any officer or employee thereof. Olympus has previously
delivered or made available to WMI or WM Bank true and complete copies of all
employment, consulting and deferred
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compensation agreements that are in writing, to which Olympus or any Olympus
Subsidiary is a party.
(b) Except as set forth on Disclosure Schedule 4.13(b), as of the Original
Agreement Date, no officer or employee of Olympus or any Olympus Subsidiary was
receiving aggregate remuneration (bonus, salary and commissions) at a rate
which, if annualized, would exceed $50,000 in 1994.
(c) Except as disclosed on Disclosure Schedule 4.13(c), as of the Original
Agreement Date, there were not, and had not been at any time in the past three
years, any actions, suits, claims or proceedings before any court (which have
been served on Olympus or Olympus Bank), commission, bureau, regulatory,
administrative or governmental agency, arbitrator, body or authority pending
or, to the best of Olympus's knowledge, threatened by any employees, former
employees or other persons relating to the employment practices or activities
of Olympus or any Olympus Subsidiary (except for threatened actions which had
subsequently been resolved as of the Original Agreement Date). Neither Olympus
nor any Olympus Subsidiary is a party to any collective bargaining agreement,
and no union organization efforts are pending or, to the best of Olympus's
knowledge, threatened nor have any occurred during the last three years.
(d) Olympus and Olympus Bank have made available to WMI or WM Bank true
and complete copies of all personnel codes, practices, procedures, policies,
manuals, affirmative action programs and similar materials.
(e) With respect to all employee benefit plans, Olympus and Olympus Bank
represent and warrant as follows:
(i) All employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any
other pension, bonus, deferred compensation, stock bonus, stock purchase,
post-retirement medical, hospitalization, health and other employee benefit
plan, program or arrangement, whether formal or informal, under which Olympus
or any Olympus Subsidiary has any obligation or liability, or under which any
employee or former employee has any rights to benefits (the "Benefit Plans")
are set forth on Disclosure Schedule 4.13(e)(i). All Benefit Plans that are
subject to the funding requirements in Title I, Subtitle B, Part 3 of ERISA or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"), are
in compliance with such funding standards, and no waiver or variance from such
funding requirements has been obtained or applied for under Section 412(d) of
the Code. None of the Benefit Plans is subject to Title IV of ERISA or is a
"multiemployer plan," as such term is defined in Section 3(37) and 4001(a)(3)
of ERISA and Section 414(f) of the Code.
(ii) In all material respects, the terms of the Benefit Plans are, and the
Benefit Plans have been administered, in
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accordance with the requirements of ERISA, the Code, applicable law and the
respective plan documents. Except as disclosed on Disclosure Schedule
4.13(e)(ii), none of the Benefit Plans is under audit or is the subject of an
investigation by the Internal Revenue Service, the U.S. Department of Labor or
any other federal or state governmental agency. Except as disclosed on
Disclosure Schedule 4.13(e)(ii), all material reports and information required
to be filed with, or provided to, the United States Department of Labor,
Internal Revenue Service, the Pension Benefit Guaranty Corporation (the "PBGC")
and plan participants and beneficiaries with respect to each Benefit Plan have
been timely filed or provided. With respect to each Benefit Plan for which an
annual report has been filed, no material change has occurred with respect to
the matters covered by the most recent annual report since the date thereof.
(iii) Except as disclosed on Disclosure Schedule 4.13(e)(iii) neither
Olympus nor Olympus Bank is aware of any facts regarding any Benefit Plan which
is an "employee pension benefit plan" as defined in Section 3(2) of ERISA
(collectively, the "Employee Pension Benefit Plans") that would present a
significant risk that any Employee Pension Benefit Plan would not be determined
by the appropriate District Director of the Internal Revenue Service to be
"qualified" within the meaning of Section 401(a) of the Code, or with respect
to which any trust maintained pursuant thereto is not exempt from federal
income taxation pursuant to Section 501 of the Code, or with respect to which a
favorable determination letter could not be issued by the Internal Revenue
Service with respect to each such Employee Pension Benefit Plan.
(iv) Prior to the Closing, Olympus and Olympus Bank shall deliver or make
available to WMI or WM Bank complete and correct copies (if any) of (w) the
most recent Internal Revenue Service determination letter relating to each
Employee Pension Benefit Plan intended to be tax qualified under Section 401(a)
and 501(a) of the Code, (x) the most recent annual report (Form 5500 Series)
and accompanying schedules of each Benefit Plan, filed with the Internal
Revenue Service or an explanation of why such annual report is not required,
(y) the most current summary plan description for each Benefit Plan, and (z)
the most recent audited financial statements of each Benefit Plan.
(v) With respect to each Benefit Plan, all contributions, premiums or
other payments due or required to be made to such plans as of the Effective
Time have been or will be made or accrued prior to the Effective Time.
(vi) To the best of Olympus's and Olympus Bank's knowledge, there are not
now, nor have there been, any "prohibited transactions", as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, involving Olympus,
Olympus Bank, or any officer, director or employee of Olympus or Olympus Bank,
with respect to the Benefit Plans that could subject Olympus or Olympus Bank or
any other party-in-interest to the penalty or tax imposed under Section 502(i)
of ERISA and Section 4975 of the Code.
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(vii) As of the Original Agreement Date, no claim, lawsuit, arbitration or
other action has been instituted, asserted (and no such lawsuit has been served
on Olympus or Olympus Bank) or, to the best of Olympus and Olympus Bank's
knowledge, threatened by or on behalf of such Benefit Plan or by any employee
alleging a breach or breaches of fiduciary duty or violations of other
applicable state or federal law with respect to such Benefit Plans, which could
result in liability on the part of Olympus or any Olympus Subsidiary or a
Benefit Plan under ERISA or any other law, nor is there any known basis for
successful prosecution of such a claim, and WMI or WM Bank will be notified
promptly in writing of any such threatened or pending claim arising between the
date hereof and the Closing.
(viii) Except (A) as set forth on Disclosure Schedule 4.13(e)(viii) (such
disclosure being made in accordance with the principles of Financial Accounting
Standard No. 106 of the Financial Accounting Standards Board), (B) as may be
required by the Consolidated Omnibus Budget and Reconciliation Act of 1985, as
amended ("COBRA") or (C) as to medical coverage in place as of the Original
Agreement Date for John Adams, Brent Shaw and Joan Wagner, no Benefit Plan
which is an employee welfare benefit plan (within the meaning of Section 3(1)
of ERISA) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment
nor does Olympus or any Olympus Subsidiary have any current or projected
liability under any such plans.
(ix) Except as set forth on Disclosure Schedule 4.13(e)(ix)(A), Olympus
and the Olympus Subsidiaries have not maintained or contributed to, and do not
currently maintain or contribute to, any severance pay plan. All payments
(other than regular wages and vacation pay) made to employees of Olympus or the
Olympus Subsidiaries coincident with or in connection with termination of
employment since January 1, 1993 are disclosed on Disclosure Schedule
4.13(e)(ix)(B).
(x) Except as provided in Sections 6.13 and 6.14, and under Disclosure
Schedule 4.13(a)(ii) no individual will accrue or receive any additional
benefits, service, or accelerated rights to payment or vesting of benefits
under any Benefit Plan as a result of the transactions contemplated by this
Agreement.
(xi) Olympus and each Olympus Subsidiary has complied in all material
respects with all of the requirements of COBRA.
(xii) All amendments required to bring all Benefit Plans into conformity
with any of the applicable provisions of ERISA and the Code have been duly
adopted or will be duly adopted as of the Effective Date, subject to further
revisions that may be required by the Internal Revenue Service.
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(xiii) Except as set forth on Disclosure Schedule 4.13(a)(ii), there are
no Benefit Plans or other arrangements of Olympus or the Olympus Subsidiaries
under which any individual can or will receive an "excess parachute payment" as
defined in Section 280G(b)(1) of the Code.
4.14 Olympus and Olympus Bank Information. The information relating to
Olympus to be contained in the Prospectus/Proxy Statement contemplated by
Section 1(g) hereof will not, at the time it is filed with the applicable
governmental authorities, as of the date thereof, or at the date actions of
Olympus shareholders are taken with respect to the transactions contemplated
therein, contain any untrue statement of a material fact or omit to state a
material fact necessary to make such statements, in light of the circumstances
under which such statements were made, not misleading.
4.15 Compliance With Applicable Law.
(a) Olympus and each Olympus Subsidiary hold all licenses, certificates,
franchises, permits and other governmental authorizations ("Permits") necessary
for the lawful conduct of their respective businesses and such Permits are in
full force and effect, and Olympus and each Olympus Subsidiary are in all
respects complying therewith, except where the failure to possess or comply
with such Permits would not have a Material Adverse Effect on Olympus.
(b) Except as set forth on Disclosure Schedule 4.15(b), each of Olympus
and each Olympus Subsidiary is and for the past three years has been in
compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules, regulations and orders applicable to the operation, conduct
or ownership of its business or properties except for any noncompliance which
is not reasonably likely to have in the aggregate a Material Adverse Effect on
Olympus.
4.16 Contracts and Agreements.
(a) Olympus and Olympus Bank have previously delivered to, or made
available for inspection by, WMI and WM Bank each insurance policy to which
Olympus or any Olympus Subsidiary is a party (other than insurance policies
under which Olympus or Olympus Bank is named as a loss payee or additional
insured as a result of its position as a secured lender).
(b) As of the Original Agreement Date, except as disclosed in Disclosure
Schedule 4.16(b), (i) except with respect to deposits or other borrowings in
the ordinary course, neither Olympus nor any Olympus Subsidiary was a party to
or bound by any commitment, contract, agreement or other instrument which
involves or could involve aggregate future payments by Olympus or any Olympus
Subsidiary of more than $25,000, (ii) neither Olympus nor any Olympus
Subsidiary was a party to nor was it bound by any
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commitment, contract, agreement or other instrument which is material to the
business, operations, properties, assets or financial condition of Olympus and
the Olympus Subsidiaries taken as a whole and (iii) no commitment, contract,
agreement or other instrument other than Olympus or Olympus Bank's charter
documents, to which Olympus or any Olympus Subsidiary was a party or by which
it was bound, limited the freedom of Olympus or any Olympus Subsidiary to
compete in any line of business or with any person.
4.17 Affiliate Transactions.
(a) Except as disclosed in Disclosure Schedule 4.17 or in Olympus's proxy
statements relating to its annual meetings of shareholders, and except as
specifically contemplated by this Agreement, since January 1, 1990, neither
Olympus nor Olympus Bank has engaged in, or is currently obligated to engage in
(whether in writing or orally), any transaction with any Affiliated Person (as
defined below) involving aggregate payments by or to Olympus or Olympus Bank of
$60,000 or more during any consecutive 12 month period other than transactions
between or among Olympus or any Olympus Subsidiary which are not in violation
of Sections 23A and 23B of the Federal Reserve Act.
(b) For purposes of this Section 4.17, Affiliated Person means:
(i) a director, executive officer or Controlling Person (as defined
below) of either Olympus or Olympus Bank;
(ii) a spouse of a director, executive officer or Controlling Person of
either Olympus or Olympus Bank;
(iii) a member of the immediate family of a director, executive
officer, or Controlling Person of either Olympus or Olympus Bank who has the
same home as such person;
(iv) any corporation or organization (other than Olympus or a Olympus
Subsidiary) of which a director, executive officer or Controlling Person of
Olympus or Olympus Bank (w) is a chief executive officer, chief financial
officer, or a person performing similar functions; (x) is a general partner;
(y) is a limited partner who, directly or indirectly, either alone or with his
spouse and the members of his immediate family who are also Affiliated Persons,
owns an interest of five percent or more in the partnership (based on the value
of his contribution) or who, directly or indirectly through other directors,
executive officers and Controlling Persons of Olympus or Olympus Bank and their
spouses and their immediate family members who are also Affiliated Persons,
owns an interest in 25 percent or more of the partnership; or (z) directly or
indirectly either alone or with his spouse and the members of his immediate
family who are also Affiliated Persons, owns or controls ten percent or more of
any class of equity securities, or owns or controls, with other directors,
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executive officers, and Controlling Persons of Olympus or Olympus Bank and
their spouses and their immediate family members who are also Affiliated
Persons, 25 percent or more of any class of equity securities;
(v) any trust or estate in which a director, executive officer, or
Controlling Person of Olympus or Olympus Bank or the spouse of such person has
a substantial beneficial interest or as to which such person or his spouse
serves as trustee or in a similar fiduciary capacity.
(c) For purposes of this Section 4.17 a Controlling Person is any person
or entity which, either directly or indirectly, or acting in concert with one
or more other persons or entities owns, controls or holds with power to vote,
or holds proxies representing ten percent or more of the outstanding Olympus
Common Stock.
(d) For purposes of this Section 4.17, the term "director" means any
director, trustee, or other person performing similar functions with respect to
any organization whether incorporated or unincorporated.
(e) For purposes of this Section 4.17, the term "executive officer" means
the president, any executive vice president, any senior vice president, the
secretary, the treasurer, the comptroller, and any other person performing
similar functions with respect to any organization whether incorporated or
unincorporated.
4.18 Disclosure. To the knowledge of Olympus, no representation or warranty
of Olympus or Olympus Bank contained in this Agreement, and no statement
contained in the Disclosure Schedules delivered by Olympus or Olympus Bank
hereunder, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make a statement herein or therein, in
light of the circumstances under which it was made, not misleading.
4.19 Title to Property.
(a) Real Property. Disclosure Schedule 4.19(a) contains a description
of all interests in real property (other than real property security interests
received in the ordinary course of business), whether owned, leased or
otherwise claimed, including a list of all leases of real property, in which
Olympus and any Olympus Subsidiary had or claimed an interest as of the
Original Agreement Date and any guarantees of any such leases by any of such
parties. True and complete copies of such leases have previously been
delivered or made available to WMI or WM Bank, together with all amendments,
modifications, agreements or other writings related thereto. Except as
disclosed on Disclosure Schedule 4.19(a), each such lease is legal, valid and
binding as between Olympus, or a Olympus Subsidiary and the other party or
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parties thereto, and the occupant is a tenant or possessor in good standing
thereunder, free of any default or breach whatsoever and quietly enjoys the
premises provided for therein. Except as disclosed on Disclosure Schedule
4.19(a), Olympus and each Olympus Subsidiary had good, valid and marketable
title to all real property owned by them on the Original Agreement Date, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever, except liens for current taxes not yet due and payable, and
such encumbrances and imperfections of title, if any, as do not materially
detract from the value of the properties and do not materially interfere with
the present or proposed use of such properties or otherwise materially impair
such operations. All real property and fixtures material to the business,
operations or financial condition of Olympus and each Olympus Subsidiary are in
substantially good condition and repair.
(b) Environmental Matters. Except as set forth on Disclosure Schedule
4.19(b), to the knowledge of Olympus, the real property owned or leased by any
of Olympus or any Olympus Subsidiary on the Original Agreement Date did not
contain any underground storage tanks, asbestos, ureaformaldehyde, uncontained
polychlorinated biphenyls, or, except for materials which are ordinarily used
in office buildings and office equipment such as janitorial supplies and do not
give rise to financial liability therefor under the hereafter defined
Environmental Laws, releases of hazardous substances as such terms may be
defined by all applicable federal, state or local environmental protection laws
and regulations ("Environmental Laws"). As of the Original Agreement Date (i)
no part of any such real property had been listed, or to the knowledge of
Olympus, proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or on a registry or inventory of inactive hazardous waste sites maintained by
any state, and, (ii) except as set forth on Disclosure Schedule 4.19(b), no
notices had been received alleging that Olympus or any Olympus Subsidiary was a
potentially responsible person under CERCLA or any similar statute, rule or
regulation. Neither Olympus nor any Olympus Subsidiary knows of any violation
of law, regulation, ordinance (including, without limitation, laws, regulations
and ordinances with respect to hazardous waste, zoning, environmental, city
planning or other similar matters) relating to its respective properties, which
violations could have in the aggregate a Materially Adverse Effect on Olympus.
(c) Tangible Personal Property. Disclosure Schedule 4.19(c) contains (i)
a list of each item of machinery, equipment, or furniture, including without
limitation computers and vehicles, of Olympus or any Olympus Subsidiary,
included on the consolidated financial statements on March 31, 1994 at a
carrying value of, or, if acquired after March 31, 1994, for a purchase price
of, more than $25,000, (ii) a list of each lease or other agreement under which
any such item of personal property is leased, rented, held or operated and
(iii) a list of all trademarks, trade
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names or service marks currently used, owned, or registered for use by Olympus
or any Olympus Subsidiary.
4.20 Insurance. Disclosure Schedule 4.20 contains a true and complete list
and a brief description (including name of insurer, agent, coverage and
expiration date) of all insurance policies in force on the Original Agreement
Date with respect to the business and assets of Olympus and each Olympus
Subsidiary (other than insurance policies under which Olympus or Olympus Bank
is named as a loss payee or additional insured as a result of its position as a
secured lender). Olympus and each Olympus Subsidiary are in compliance with
all of the material provisions of its insurance policies and are not in default
under any of the terms thereof. Each such policy is outstanding and in full
force and effect and, except as set forth on Disclosure Schedule 4.20, Olympus
is the sole beneficiary of such policies. All premiums and other payments due
under any such policy have been paid.
4.21 Powers of Attorney. Neither Olympus nor any Olympus Subsidiary has any
powers of attorney outstanding other than those issued pursuant to the
requirements of regulatory authority or in the ordinary course of business with
respect to routine matters.
4.22 Employee Stock Bonus Plan. Olympus does not issue or contribute new
shares of Olympus Common Stock to the Employee Stock Bonus Plan, all shares of
Olympus Common Stock owned by the Employee Stock Bonus Plan are purchased in
the open market or through private transactions with third parties, and the
Plan has an independent trustee.
4.23 Community Reinvestment Act Compliance. Olympus Bank is in substantial
compliance with the applicable provisions of the Community Reinvestment Act of
1977 and the regulations promulgated thereunder (collectively, "CRA"). Neither
Olympus nor Olympus Bank has been advised of the existence of any fact or
circumstance or set of facts or circumstances which, if true, would cause
Olympus Bank to fail to be in substantial compliance with such provisions or to
have its current rating lowered. Any change in the current rating which would
prohibit the Merger from being consummated shall be a material adverse change
in the business of Olympus and Olympus Bank.
4.24 Agreements with Bank Regulators. Neither Olympus nor Olympus Bank is a
party to or is subject to any written order, decree, agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is a recipient of any currently applicable extraordinary supervisory
letter from, any federal or state governmental agency or authority charged with
the supervision or regulation of depository institutions or the insurance of
deposits therein which is outside the ordinary course of business or not
generally applicable to entities engaged in the same business. Neither Olympus
nor Olympus Bank has been advised within the last 18 months by any such
regulatory authority that such authority is contemplating issuing,
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requiring or requesting (or is considering the appropriateness of issuing,
requiring or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter or submission.
5. Representations and Warranties of WMI, WM Bank and NFSB. WMI, WM Bank and
NFSB hereby jointly and severally represent and warrant to Olympus and Olympus
Bank as follows:
5.1 Corporate Organization.
(a) WMI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington. WMI has all the requisite
power and authority to own, lease and operate all of its properties and assets
and to carry on its business as it is currently conducted, and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of business conducted by it makes such licensing or
qualification necessary and where failure to be so qualified would,
individually or in the aggregate, have a Material Adverse Effect on WMI. WMI
owns, directly or indirectly, all of the outstanding capital stock of WM Bank,
NFSB and WMFSB. WMI is a savings and loan holding company duly registered and
in good standing with the OTS.
(b) WM Bank is a state-chartered stock savings bank duly organized, validly
existing and in good standing under the laws of the state of Washington. WM
Bank has all the requisite power and authority to own, lease and operate all of
its properties and assets and to carry on its business as it is currently
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such licensing or qualification necessary and where failure to be so
qualified would, individually or in the aggregate, have a Material Adverse
Effect on WM Bank. WM Bank accounts are insured by the Bank Insurance Fund and
the SAIF, both administered by the FDIC, to the fullest extent permitted by
law. WM Bank is a savings and loan holding company duly registered and in good
standing with the OTS. WM Bank is a qualified thrift lender pursuant to
Section 10(m) of HOLA.
(c) The Restructuring was consummated in accordance with all applicable
law. All consents or approvals of or filings or registrations with any third
parties, shareholders, or any public body or authority necessary to be obtained
or made by WMI, WM Bank or WMSB in order to effect the Restructuring were
obtained or made.
(d) NFSB is, and at the Original Agreement Date was, a federally chartered
savings association. NFSB has the corporate power and authority to own, lease
and operate all of its properties and assets and to carry on its business as it
is currently conducted, and is, and at the Original Agreement Date was, duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by
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it makes such licensing or qualification necessary and where failure to be so
qualified would, individually or in the aggregate, materially adversely affect
the financial ability of WMI to consummate the Merger. NFSB accounts are, and
at the Original Agreement Date were, insured by the SAIF administered by the
FDIC. NFSB is, and at the Original Agreement Date was, a member in good
standing of the Federal Home Loan Bank of Seattle. NFSB is, and at the
Original Agreement Date was, a qualified thrift lender pursuant to Section
10(m) of HOLA.
(e) Each of WMI, WMSB and NFSB has heretofore delivered to Olympus true and
correct copies of its Charter and its bylaws as in effect on the date hereof.
5.2 Authority.
(a) WMI has full corporate power and authority to execute and deliver
this Agreement, the Plan of Merger and the Option Assignment, and, subject to
applicable regulatory approvals, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, the Plan of Merger and
the Option Assignment and consummation of the transactions contemplated hereby
have been duly and validly approved by the Board of Directors of WMI. This
Agreement and the Option Assignment have been duly and validly executed and
delivered by WMI and, assuming the due authorization, execution and delivery
thereof by the other parties thereto, constitute valid and binding obligations
of WMI, enforceable against it in accordance with their respective terms.
(b) WMSB had full corporate power and authority to execute and deliver
the Original Agreement and the Option Agreement, and, subject to applicable
regulatory approvals, to consummate the transactions contemplated by the
Original Agreement. The execution and delivery of the Original Agreement and
the Option Agreement and the consummation of the transactions contemplated
thereby were duly and validly approved by the Board of Directors of WMSB. The
Original Agreement and the Option Agreement were duly and validly executed and
delivered by WMSB and, assuming the due authorization, execution and delivery
thereof by the other parties thereto, constituted valid and binding obligations
of WMSB, enforceable against it in accordance with their respective terms.
(c) WM Bank has full corporate power and authority to execute and deliver
this Agreement and the Option Assignment, and, subject to applicable regulatory
approvals, to consummate the transactions relating to WM Bank contemplated
hereby. The execution and delivery of this Agreement and the Option Assignment
and consummation of the transactions relating to WM Bank contemplated hereby
have been duly and validly approved by the Board of Directors of WM Bank. This
Agreement and the Option Assignment have been duly and validly executed and
delivered by WM Bank and, assuming the due authorization, execution and
delivery thereof by the other parties thereto, constitute valid and binding
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obligations of WM Bank, enforceable against it in accordance with their
respective terms.
(d) (i) NFSB has full corporate power and authority to execute and
deliver this Agreement and, subject to applicable regulatory approvals, at the
Effective Time to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of NFSB (excepting only the Bank Merger). This Agreement
has been duly and validly executed and delivered by NFSB and, assuming the due
authorization, execution and delivery thereof by Olympus and Olympus Bank,
constitutes a valid and binding obligation of NFSB, enforceable against it in
accordance with its terms.
(ii) NFSB had full corporate power and authority to execute and deliver
the Original Agreement, and, subject to applicable regulatory approvals, to
consummate the transactions contemplated thereby. The execution and delivery
of the Original Agreement and consummation of the transactions contemplated
thereby were duly and validly approved by the Board of Directors of NFSB
(excepting only the Bank Merger). The Original Agreement was duly and validly
executed and delivered by NFSB and, assuming the due authorization, execution
and delivery thereof by the other parties thereto, constituted a valid and
binding obligation of NFSB, enforceable against it in accordance with its
terms.
5.3 No Violation. Neither the execution and delivery of this Agreement,
the Option Assignment and the Plan of Merger by WMI and NFSB nor the
consummation by WMI, WM Bank and NFSB of the transactions contemplated hereby
and thereby, nor compliance by WMI, WM Bank and NFSB with any of the terms
hereof or thereof, will (i) violate any provision of the Articles of
Incorporation or charter or bylaws of WMI, WM Bank or NFSB, or (ii) assuming
that the consents and approvals referred to in Section 7.1 are duly obtained,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to WMI, WM Bank or NFSB or any of their
respective properties or assets, or (iii) violate, conflict with, result in the
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any
of the respective properties or assets of WMI, WM Bank or NFSB under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which WMI, WM Bank or NFSB is a party, or by which they or any of their
respective properties or assets may be bound or affected, except with respect
to (iii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or encumbrances which in the aggregate will not
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prevent or delay the consummation of the transactions contemplated hereby.
5.4 Consents and Approvals. Except for consents and approvals of or
filings or registrations with the OTS, the FDIC, the Director, the Secretary,
the Division, the Justice Department and other applicable governmental
authorities, no consents or approvals of or filings or registrations with any
third party or any public body or authority are necessary in connection with
the execution and delivery by WMI of this Agreement and the Plans of Merger.
5.5 WMI Information. The information relating to WMI and its subsidiaries
supplied by WMI for inclusion in the Prospectus/Proxy Statement contemplated by
Section 1(g) hereof will not, at the time the Prospectus/Proxy Statement is
filed with the applicable governmental authorities, as of the date of such
Prospectus/Proxy Statement or at the date stockholder action is taken with
respect to the transactions contemplated therein, contain any untrue statement
of a material fact or omit to state a material fact necessary to make such
statements, in light of the circumstances under which they were made, not
misleading.
5.6 Sufficient Resources. WMI has and will have available at the
Effective Time authorized but unissued shares of WMI Common Stock, and
sufficient funds if WMI elects to pay cash pursuant to Section 1(c)(iii), to
enable it lawfully to satisfy its payment obligations pursuant to this
Agreement. WMI has and will have sufficient management and financial resources
to obtain the required regulatory approvals for the Merger and the Bank Merger.
On the date of this Agreement, there is no pending or, to the knowledge of WMI
or WM Bank, threatened legal or governmental proceeding against WMI or any
subsidiary or affiliate thereof which would affect WMI's or NFSB's ability to
obtain any of the required regulatory approvals or satisfy any of the other
conditions required to be satisfied in order to consummate the transactions
contemplated by this Agreement. WMI will promptly notify Olympus if any of the
representations contained in this Section 5.6 ceases to be true and correct.
5.7 Capitalization, Investments. The authorized capital stock of WMI
consists of 100,000,000 shares of common stock, no par value per share, of
which 61,970,704 shares were, as of December 31, 1994, duly issued and
outstanding, fully paid and non-assessable, and 10,000,000 shares of preferred
stock, of which 6,200,000 shares were, as of November 30, 1994, issued and
outstanding. As used herein, "WMI Subsidiaries" shall mean WM Bank, Washington
Mutual, a Federal Savings Bank, Washington Mutual Federal Savings Bank, WM
Financial, Inc., Murphey Favre, Inc., Composite Research & Management Co., WM
Life Insurance Co., Washington Mutual Insurance Services, Inc. and Mutual
Travel, Inc. Substantially all of the business of WMI and its subsidiaries is
done through WMI and the WMI Subsidiaries. All of the WMI Subsidiaries'
Capital Stock, which is issued and outstanding, is
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owned by WMI directly or indirectly through wholly-owned subsidiaries. There
are outstanding no options, convertible securities, warrants or other rights to
purchase or acquire Capital Stock from any of the WMI Subsidiaries, there is no
commitment of any of the WMI Subsidiaries to issue any of the same and, other
than by operation of law, there are no outstanding agreements, restrictions,
contracts, commitments or demands of any character of which either WMI or any
of the WMI Subsidiaries is aware which relate to the transfer or restrict the
transfer of any shares of the WMI Subsidiaries' Capital Stock owned by WMI or
by any of the WMI Subsidiaries. The common stock of WMI to be issued in the
Merger will have been duly authorized and, when issued in accordance with the
Plan of Merger, (i) will be validly authorized and issued and fully paid and
nonassessable and no shareholder of WMI will have any preemptive rights thereto
and (ii) will be registered under the Securities Act of 1933 and listed for
trading on a national securities exchange or the NASDAQ National Market System.
5.8 Financial Statements. WM Bank made available to Olympus audited
consolidated statements of financial condition for WM Bank and its subsidiaries
as of the end of WM Bank's last three fiscal years, and audited consolidated
statements of (i) operations, (ii) stockholders' equity, and (iii) cash flows
for each of the last three fiscal years, including the notes to such audited
consolidated financial statements, together with the reports of WM Bank's
independent certified public accountants, pertaining to such audited
consolidated financial statements. WM Bank has also furnished Olympus with WM
Bank's unaudited consolidated statements of financial condition for WM Bank and
its subsidiaries as of March 31, 1994, and unaudited consolidated statements of
(i) operations and (ii) cash flows for the interim periods ended March 31, 1993
and 1994, including the notes to such unaudited condensed consolidated
financial statements. For purposes of this Agreement, the "WM Bank Statement"
shall mean the unaudited condensed consolidated statement of financial
condition for WM Bank and its subsidiaries as of March 31, 1994 (including the
notes thereto). The aforesaid audited consolidated statements of financial
condition and the WM Bank Statement present fairly the financial condition of
the companies indicated on a consolidated basis at the dates thereof, using
generally accepted accounting principles consistently applied. Such audited
and unaudited consolidated statements of (i) operations, (ii) stockholders'
equity, (iii) cash flows, and (iv) financial position present fairly the
results of the operations of the companies indicated on a consolidated basis
for the periods or at the dates indicated, using generally accepted accounting
principles consistently applied. Except as and to the extent reflected or
reserved against in the WM Bank Statement, or as otherwise disclosed pursuant
to this Agreement, neither WM Bank nor any of its subsidiaries had, at the date
thereof, any material liabilities or obligations, or any other liabilities or
obligations which in the aggregate would be material, secured or unsecured
(whether accrued, absolute, contingent or otherwise), including, without
limitation, any tax
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liabilities, which should be reflected in the WM Bank Statement in accordance
with generally accepted accounting principles consistently applied. The books
and records of WM Bank and its subsidiaries are maintained in accordance with
generally accepted accounting principles consistently applied.
5.9 Absence of Material Adverse Change. Since March 31, 1994, except as
set forth on Disclosure Schedule 5.9 hereto, there has been (i) no material
adverse change in the financial condition, business or results of operations of
WMI or WM Bank and their affiliates taken as a whole (except for changes
resulting from market and economic conditions which generally affect the
savings industry as a whole), (ii) no loss, destruction or damage to the
properties of WMI or WM Bank or any of their affiliates, which loss,
destruction, or damage is material to WMI or WM Bank and their affiliates taken
as a whole and is not adequately covered by insurance; and (iii) no change in
any of the accounting methods or practices or revaluation of any of the assets
of WMI or WM Bank or their affiliates which is material to WMI or WM Bank and
their affiliates taken as a whole. Since such date, WMI and WM Bank and their
affiliates taken as a whole, have conducted their businesses, in all material
respects, in compliance with applicable federal, state and local laws,
statutes, ordinances and regulations.
5.10 Litigation. Except as set forth on Disclosure Schedule 5.10 hereto,
no action, suit, counterclaim or other litigation, investigation or proceeding
to which WMI or any of its subsidiaries is a party is pending, or is known by
the executive officers of WMI or any of its subsidiaries to be threatened,
against WMI or any of its subsidiaries before any court or governmental or
administrative agency, domestic or foreign which would be reasonably expected
to result in any liabilities which would, in the aggregate, have a Material
Adverse Effect on WMI. Neither WMI nor any of its subsidiaries is subject to
any order, judgment or decree nor is it a party to any supervisory agreement or
arrangement, consensual or otherwise, with any regulatory authority. Neither
WMI nor any of its subsidiaries is in default with respect to any such order,
judgment, decree, agreement or arrangement.
5.11 Brokerage. There are no claims for investment banking fees, brokerage
commissions, finder's fees or similar compensation arising out of or due to any
act of WMI or any of its subsidiaries in connection with the transactions
contemplated by this Agreement or the Original Agreement.
5.12 Reports. WMI, WM Bank and NFSB have duly filed with the Director (or
his predecessor), the FDIC and the OTS, in correct form, the monthly,
quarterly, semi-annual and annual reports required to be filed by them under
applicable regulations for all periods subsequent to December 31, 1991. WMI,
WM Bank and NFSB have previously delivered or made available to Olympus
accurate and complete copies of such reports. WMI and WM Bank have each timely
filed all reports required to be filed by each of them pursuant to
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the Securities Exchange Act and the rules and regulations promulgated
thereunder. WMI, WM Bank and NFSB have previously delivered or made available
to Olympus an accurate and complete copy of each (i) offering circular,
definitive proxy statement filed by each of them since January 1, 1991 with the
FDIC or the SEC, and (ii) communication (other than general advertising
materials) mailed by each of them to its stockholders since January 1, 1991 and
no such offering circular, proxy statement or communication, as of its date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
5.13 Disclosure. To the knowledge of WMI and WM Bank, no representation or
warranty of WMI, WM Bank or NFSB contained in this Agreement, and no statement
contained in the Disclosure Schedules delivered by WMI, WM Bank or NFSB,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make a statement herein or therein, in light of the
circumstances under which it was made, not misleading.
5.14 CRA Compliance. Each of WM Bank and NFSB is in substantial compliance
with the applicable provisions of CRA. Neither WM Bank nor NFSB has been
advised of the existence of any fact or circumstance or set of circumstances
which, if true, would cause WM Bank or NFSB to fail to be in substantial
compliance with such provisions or to have its current rating (if any) lowered.
5.15 Agreements With Bank Regulators. Neither WMI, WM Bank nor NFSB has
been a party to or has been subject to any written order, decree, agreement or
memorandum of understanding with, or any commitment letter or similar
undertaking to, or has been a recipient of any extraordinary supervisory letter
from, any federal or state governmental agency or authority charged with the
supervision or regulation of depository institutions or the insurance of
deposits therein which is outside the ordinary course of business or not
generally applicable to entities engaged in the same business. Neither WMI, WM
Bank nor NFSB has been advised by any such regulatory authority that such
authority is contemplating issuing, requiring or requesting (or is considering
the appropriateness of issuing, requiring or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or
submission.
5.16 Compliance With Applicable Law.
(a) WMI and each WMI Subsidiary holds all Permits necessary for the lawful
conduct of their respective businesses and such Permits are in full force and
effect, and WMI and each WMI Subsidiary are in all material respects complying
therewith, except where the failure to possess or comply with such Permits
would not have a Material Adverse Effect on WMI.
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(b) Except as set forth on Disclosure Schedule 5.16(b), each of WMSB
(prior to the Restructure Time), WMI and each WMI Subsidiary is and since June
30, 1991 has been in compliance with all foreign, federal, state and local
laws, statutes, ordinances, rules, regulations and orders applicable to the
operation, conduct or ownership of its business or properties except for any
noncompliance which has not and will not have in the aggregate a Material
Adverse Effect on WMSB (prior to the Restructure Time) or on WMI (after the
Restructure Time).
6. Covenants of the Parties.
6.1 Conduct of the Business of Olympus. During the period from the
Original Agreement Date to the Effective Time, Olympus has conducted and will
conduct the business of Olympus and any Olympus Subsidiary and has engaged and
will engage in transactions only in the ordinary course and consistent with
past practice and with prudent banking practice, except with the written
consent of WMI (which will not be unreasonably withheld, delayed or
conditioned). During such period, Olympus and Olympus Bank have used or will
use their best efforts to (x) preserve the business organizations of Olympus
and each Olympus Subsidiary intact, (y) keep available to them and to WMI the
present services of the employees of Olympus and each Olympus Subsidiary, and
(z) preserve for themselves and for WMI the goodwill of the customers of
Olympus and Olympus Bank and others with whom business relationships exist. In
addition, without limiting the generality of the foregoing, Olympus agrees that
from the date hereof to the Effective Time, except as otherwise consented to or
approved by WMI in writing (which consent or approval shall not be unreasonably
withheld, delayed or conditioned) or as permitted or required by this Agreement
or as required by law (in which case Olympus or Olympus Bank shall notify WMSB
in writing), Olympus will not, and will not cause or permit any Olympus
Subsidiary to:
(a) change any provisions of its Articles or bylaws or any similar
governing documents of Olympus or any Olympus Subsidiary;
(b) change the number of shares of its authorized or issued capital stock
(other than issuance of stock as a result of the exercise of options issued as
of the Original Agreement Date and described on Disclosure Schedule 4.2 or as a
result of the exercise of options pursuant to the Option) or issue, grant or
amend any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to the authorized or issued capital stock
of Olympus or any Olympus Subsidiary, or any securities convertible into shares
of such stock, or split, combine or reclassify any shares of its capital stock,
or declare, set aside or pay any dividend, or other distributions (whether in
cash, stock or property or any combination thereof) in respect of the capital
stock of Olympus or any Olympus Subsidiary, or redeem or otherwise acquire any
shares of such capital stock, it being understood that the restrictions in this
Section 6.1(b) shall not
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apply to the amendment to Olympus's stock option plan contemplated by Section
1(d)(ii) and to any transaction solely between Olympus and a Olympus
Subsidiary;
(c) except pursuant to agreements disclosed on Disclosure Schedule
4.13(a)(i), grant any severance or termination pay to or enter into or amend
any employment agreement with, or increase the amount of payments or fees to,
any of its employees, officers or directors;
(d) make any capital expenditures in excess of (i) $40,000 per project or
related series of projects or (ii) $200,000 in the aggregate, other than
pursuant to binding commitments existing on the date hereof, expenditures
necessary to maintain existing assets in good repair and the expenditures
necessary to furnish and equip the two in-store branches referred to in
subsection (e) below herein;
(e) make application for the opening of any, or open any, new branches
except for the two in-store branches Olympus Bank currently intends to open in
Dan's grocery stores located in Park City and in the general vicinity of 39th
So. and Wasatch Boulevard in Salt Lake City (the "Proposed Branches");
(f) make application for the relocation or closing of any, or relocate or
close any, branches;
(g) change in any material manner its lending or pricing policies or
approval policies for making loans, its investment policies, its
asset/liability management policies or any other material banking policies;
(h) make any loan or issue a commitment for any loan except for loans and
commitments that are made in the ordinary course of business consistent with
past practice at rates not less than prevailing market rates or issue or agree
to issue any letters of credit or otherwise guarantee the obligations of any
other persons;
(i) acquire assets other than those necessary in the conduct of its
business in the ordinary course (except in connection with the Proposed
Branches);
(j) sell, transfer, assign, encumber or otherwise dispose of assets other
than has been customary in its ordinary course of business;
(k) enter into or amend or terminate any long-term (one-year or more)
contracts (including real property leases) (except in connection with the
Proposed Branches, except for contracts of deposit at Olympus Bank not
otherwise restricted under this Agreement which are in the ordinary course of
business consistent with past practice and not in excess of prevailing market
rates and except for agreements for Olympus Bank to lend money not otherwise
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restricted under this Agreement which are in the ordinary course of business
consistent with past practice and provide for not less than prevailing market
rates of interest);
(l) enter into or amend any contract (other than contracts for deposits at
Olympus Bank or agreements for Olympus Bank to lend money not otherwise
restricted under this Agreement) that calls for the payment by Olympus of
$25,000 or more after the date of this Agreement (a "Material Contract") that
cannot be terminated on not more than 30 days' notice without cause and without
payment or loss of any material amount as a penalty, bonus, premium or other
compensation for termination except in connection with the Proposed Branches;
(m) engage or participate in any material transaction or incur or sustain
any material obligation except for transactions otherwise permitted under this
Section 6.1 which are in the ordinary course of business consistent with past
practices and which are of similar kinds and involve similar amounts;
(n) make any contributions to the Employee Stock Bonus Plan or any other
Benefit Plans except in such amounts and at such times as consistent with past
practice;
(o) increase the number of full time equivalent employees of Olympus from
June 30, 1994, except for reasonable staffing for the Proposed Branches;
(p) except after having followed reasonable procedures with respect to the
investigation of potential environmental problems, which procedures have been
approved in writing by WMSB (which approval shall not be unreasonably withheld,
delayed or conditioned), foreclose upon or otherwise acquire (whether by deed
in lieu of foreclosure or otherwise) any real property (other than 1-to-4
family residential properties in the ordinary course of business); or
(q) agree to do any of the foregoing.
During the period from the Original Agreement Date to the date of this
Agreement, Olympus did not do, and did not cause or permit any Olympus
Subsidiary to do, any of the foregoing.
6.2 No Solicitation. Neither Olympus, Olympus Bank nor any of their
directors, officers, representatives, agents or other persons controlled by any
of them, shall, directly or indirectly encourage or solicit, or (except to the
extent that the directors of Olympus in their good faith judgment after receipt
of advice of counsel determine that such response is reasonably required in
order to discharge their fiduciary duties) hold discussions or negotiations
with, or provide any information to, any person, entity or group other than WM
Bank or WMI concerning any merger, sale of substantial assets not in the
ordinary course of business, sale of shares of capital stock or similar
transactions involving
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Olympus, any division or any Olympus Subsidiary, and none of the foregoing has
taken any such action since the Original Agreement Date. Olympus and Olympus
Bank will promptly communicate to WMI the terms of any proposal that it may
receive in respect of any such transaction. Notwithstanding the foregoing two
sentences, if the board of directors of Olympus receives an unsolicited offer
or inquiry with respect to such a transaction, the board may respond to such
offer if the board determines in its good faith judgment (after receiving
advice of counsel) that such response is reasonably required in order to
discharge its fiduciary duties.
6.3 Current Information.
(a) Subsequent to the Original Agreement Date, Olympus and WM Bank
each designated an individual acceptable to the other party (a "Designated
Representative" and, together, the "Designated Representatives") to be the
primary point of contact between the parties. From the date hereof, the
Designated Representative of WM Bank shall be the Designated Representative of
WMI (the "WMI Designated Representative"). During the period from the date of
their designation to the Effective Time, the Designated Representatives or
their representatives have conferred and shall confer on a regular basis so
that WM Bank and WMI are kept advised as to the general status of the ongoing
operations of Olympus and Olympus Bank. Without limiting the foregoing,
Olympus and Olympus Bank have conferred and agree to confer with the WMI
Designated Representative regarding any proposed significant changes to Olympus
Bank's asset/liability management policies and objectives. Olympus and Olympus
Bank will promptly notify the WMI Designated Representative or his or her
representatives of any material change in the normal course of business or in
the operation of the properties of Olympus or Olympus Bank or of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) or the institution or the threat
of any litigation involving Olympus or Olympus Bank, and have kept and will
keep the WMI Designated Representative or his or her representatives fully
informed of such events and the progress of any already existing litigation.
Olympus and Olympus Bank agree not to settle the class action lawsuit captioned
Richard Madsen vs. Prudential Federal Savings and Loan Association, Third
Judicial District Court of Salt Lake County, State of Utah, Civil No. 226073,
filed February 1975 without the approval of WMI (which approval will not be
unreasonably withheld, delayed or conditioned).
(b) WMI shall immediately notify the Olympus Designated Representative if
it appears that there has occurred any change in its financial or other
condition or any other event that will or may affect WMI's ability to complete
the Merger or have a Material Adverse Effect on WMI.
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6.4 Access to Properties and Records; Confidentiality.
(a) Each of Olympus and Olympus Bank has permitted WM Bank and shall
permit WMI reasonable access to its properties, and has disclosed and made
available to WM Bank and shall disclose and make available to WMI all books,
papers and records relating to the assets, stock, ownership, properties,
obligations, operations and liabilities of Olympus and any Olympus Subsidiary,
including but not limited to, all books of account (including the general
ledger), tax records, minute books of directors and stockholders meetings,
organizational documents, bylaws, material contracts and agreements, filings
with any regulatory authority, accountants work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which WM
Bank or WMI may have a reasonable interest, including without limitation, all
commercial and commercial real estate loan files in each case during normal
business hours and upon reasonable notice. Olympus and Olympus Bank shall not
be required to provide access to or disclose information where such access or
disclosure would jeopardize the attorney-client privilege of Olympus or any
Olympus Subsidiary or would contravene any law, rule, regulation, order,
judgment, decree or binding agreement entered into prior to the date hereof.
The parties will use all reasonable efforts to make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) All information furnished by Olympus or any Olympus Subsidiary to WM
Bank or WMI or the representatives or affiliates of either pursuant to, or in
any negotiation in connection with, this Agreement or the Original Agreement
shall be treated as the sole property of Olympus or any Olympus Subsidiary
until consummation of the Merger and, if the Merger shall not occur, WM Bank,
WMI and their affiliates, agents and advisers shall return to Olympus or any
Olympus Subsidiary, as appropriate, all documents or other materials
containing, reflecting, referring to such information, and shall keep
confidential all such information and shall not disclose or use such
information for competitive purposes. The obligation to keep such information
confidential shall not apply to (i) any information which (w) WM Bank or WMI
can establish by convincing evidence was already in its possession (subject to
no obligations of confidentiality) prior to the disclosure thereof by Olympus
or such Olympus Subsidiary; (x) was then generally known to the public; (y)
becomes known to the public other than as a result of actions by WMI or WM Bank
or by the directors, officers or employees or agents of either; or (z) was
disclosed to WMI or WM Bank, or to the directors, officers or employees of
either, solely by a third party not bound by any obligation of confidentiality;
or (ii) disclosure in accordance with the federal securities laws, federal
banking laws, or pursuant to an order of a court of competent jurisdiction.
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6.5 Reports.
(a) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the Original Agreement Date
(other than the last quarter of any fiscal year), Olympus has delivered or will
deliver to WM Bank or WMI its quarterly report on Form 10-Q, as filed under the
Securities Exchange Act. As soon as reasonably available but in no event more
than 120 days after the end of each fiscal year ending after the Original
Agreement Date, Olympus will deliver to WMI its annual report on Form 10-K, as
filed under the Securities Exchange Act.
(b) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the Original Agreement Date
and prior to the date of this Agreement (other than the last quarter of any
fiscal year), WM Bank delivered to Olympus its quarterly report on Form F-4 as
filed with the FDIC. As soon as reasonably available, but in no event more
than 45 days after the end of each fiscal quarter ending after the Original
Agreement Date (other than the last quarter of any fiscal year), WMI will
deliver to Olympus its quarterly report on Form 10-Q, as filed under the
Securities Exchange Act. As soon as reasonably available, but in no event more
than 120 days after the end of each fiscal year ending after the date of this
Agreement, WMI will deliver to Olympus its annual report on Form 10-K as filed
under the Securities Exchange Act.
6.6 Regulatory Matters.
(a) The parties hereto will cooperate with each other and use all
reasonable efforts to prepare all necessary documentation, to effect all
necessary filings and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement including, without
limitation, those that may be required from the SEC, the FDIC, the OTS, the
Justice Department, other regulatory authorities, or the holders of capital
stock. WMI and Olympus shall each have the right to review reasonably in
advance all information relating to WMI or Olympus, as the case may be, and any
of their respective subsidiaries, together with any other information
reasonably requested, which appears in any filing made with or written material
submitted to any governmental body in connection with the transactions
contemplated by this Agreement.
(b) WMI and Olympus shall furnish each other with all reasonable
information concerning themselves, their subsidiaries, directors, officers and
stockholders and such other matters as may be necessary or advisable in
connection with the Prospectus/Proxy Statement, or any other statement or
application made by or on behalf of WMI or Olympus, or any of their respective
subsidiaries to any governmental body in connection with the Merger and the
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other transactions, applications or filings contemplated by this Agreement.
(c) WMI and Olympus will promptly furnish each other with copies of
written communications received by WMI or Olympus or any of their respective
subsidiaries from, or delivered by any of the foregoing to, any governmental
body in respect of the transactions contemplated hereby.
6.7 Approval of Olympus Stockholders. Olympus will (a) take all steps
necessary duly to call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable for the purpose of voting on this Agreement
and the transactions contemplated hereby and with the consent of WMI (which
consent shall not be unreasonably withheld, delayed or conditioned), for such
other purposes as may be necessary or desirable, (b) include in the Proxy
Statement the recommendation of Olympus's Board of Directors that the
stockholders approve this Agreement and the other transactions contemplated
hereby and such other matters as may be submitted to its stockholders in
connection with this Agreement, (c) cooperate and consult with WMI with respect
to each of the foregoing matters, and (d) use all reasonable efforts to obtain,
as promptly as practicable, the necessary approvals by Olympus stockholders of
this Agreement and the transactions contemplated hereby, except, in each case,
where the directors of Olympus determine in their good faith judgment (after
receiving advice of counsel) that they are required to do otherwise in order to
discharge their fiduciary duties.
6.8 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case of any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all necessary action,
subject to the terms and conditions of this Agreement.
6.9 Disclosure Supplements.
(a) As soon as practicable after the end of each calendar quarter ending
after the Original Agreement Date and prior to the date hereof, Olympus and
Olympus Bank have promptly supplemented or amended the Disclosure Schedules
delivered in connection with the Original Agreement with respect to any matter
thereafter arising which, if existing, occurring or known at the Original
Agreement Date would have been required to be set forth or described in such
Schedules or which was necessary to correct any information in such Schedules
rendered inaccurate thereby. As soon as practicable after the end of each
calendar quarter ending after the date hereof, at such other times as WMI may
reasonably request
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and at least five business days prior to Closing, Olympus and Olympus Bank will
promptly supplement or amend the Disclosure Schedules delivered in connection
herewith with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules which has been rendered inaccurate thereby.
Notwithstanding this provision, no supplement or amendment to such Schedules
shall have any effect for the purpose of determining satisfaction of the
conditions hereinafter set forth in Section 7.2 or the compliance by Olympus or
Olympus Bank with the covenants set forth in Section 6 hereof, nor shall the
delivery of any such supplement or amendment in and of itself be deemed to
constitute an admission by Olympus of any omission from, or any incorrectness
or inaccuracy of, any information previously delivered pursuant hereto.
(b) As soon as practicable after the end of each calendar quarter ending
after the Original Agreement Date and prior to the date hereof, WM Bank and
NFSB have promptly supplemented or amended the Disclosure Schedules delivered
in connection with the Original Agreement with respect to any matter thereafter
arising which, if existing, occurring or known at the Original Agreement Date
would have been required to be set forth or described in such Schedules or
which was necessary to correct any information in such Schedules rendered
inaccurate thereby. As soon as practicable after the end of each calendar
quarter ending after the date hereof, at such other times as Olympus may
reasonably request and at least five business days prior to Closing, WMI and
NFSB will promptly supplement or amend the Disclosure Schedules delivered in
connection herewith with respect to any matter hereafter arising which, if
existing, occurring or known at the date of this Agreement would have been
required to be set forth or described in such Schedules or which is necessary
to correct any information in such Schedules which has been rendered inaccurate
thereby. Notwithstanding this provision, no supplement or amendment to such
Schedules shall have any effect for the purpose of determining satisfaction of
the conditions hereinafter set forth in Section 7.3 or the compliance by WMI,
WM Bank or NFSB with the covenants set forth in Section 6 hereof.
6.10 Public Announcements. The parties will cooperate and consult with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law.
6.11 Failure to Fulfill Conditions. In the event that WMI or Olympus
determines that a condition to its obligation to consummate the transactions
contemplated hereby cannot be, or is not likely to be, fulfilled on or prior to
June 30, 1995 and that it will not waive that condition, it will promptly
notify the other party.
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6.12 Assignment of Contract Rights. Olympus and Olympus Bank shall obtain
any consents, waivers or revisions necessary to allow WMI or NFSB to accede to
all of the rights of Olympus, or Olympus Bank as the case may be, under all
existing real property and personal property leases, licenses and other
contracts, including without limitation loan servicing contracts, which WMI
wishes to have continue in effect after the Effective Time without incurring
substantial costs in connection therewith. WMI will offer its reasonable
cooperation with Olympus and Olympus Bank in obtaining such consents, waivers
and revisions, it being understood that the obligation to obtain such consents,
waivers and revisions shall nevertheless be the obligation of Olympus and
Olympus Bank.
6.13 Employees; Employee Benefit Plans.
(a) Except as otherwise provided herein, all employees of Olympus and any
Olympus Subsidiary as of the Effective Time will at least temporarily continue
as employees of NFSB after the Effective Time.
(b) WMI or NFSB will provide severance payments to employees of Olympus
and any Olympus Subsidiary whose employment is terminated without cause by WMI
or NFSB within one year after the Effective Date in the amount set forth below.
Such payments shall be paid on the first regular pay date following the date
that any termination is effective. Such severance payments shall be computed
as follows:
Non-officer: 1/2 month per year of service; maximum 3 months total pay.
Officer (as set out on Disclosure Schedule 6.13(b)): two weeks per year of
service; maximum 6 months total pay.
As used above in this Section 6.13(b), the term "year of service" shall mean
a full year of service, except that any person having at least six months of
service shall be deemed to have one full year of service (it being understood,
for example, that a person with eighteen months shall be treated as only having
one year). In computing such severance payments for regular part-time
employees, their per month compensation shall be based on one-twelfth of the
actual number of hours worked by any such employee in 1994. Olympus or Olympus
Subsidiary employees who are terminated "for cause" shall receive no severance
payments.
As used in this Section 6.13(b) "termination" shall occur when WMI or NFSB
gives an employee a notice of termination.
As used in this Section 6.13(b), termination "for cause" shall mean
termination because (i) the employee engages in abusive use of alcohol or other
drugs on a continuing or recurring basis, (ii) the employee is convicted of a
crime (other than a traffic violation), or (iii) WMI or NFSB determines in good
faith that the employee has engaged in dishonesty, fraud, destruction or theft
of WMI or NFSB
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property, physical attack resulting in injury to a fellow employee, willful
malfeasance or gross negligence in the performance of his or her duties, or
misconduct materially injurious to WMI or NFSB. WMI shall interpret and
administer the term "for cause" consistently with its application for similarly
situated WM Bank employees under the WM Bank severance plan.
(c) All employees of Olympus or the Olympus Subsidiaries who continue as
employees of WMI, NFSB or any other subsidiary of WMI shall receive service
credit for employment at Olympus and any Olympus Subsidiary for purpose of
meeting all eligibility and vesting requirements for vesting in all WMI
retirement plans; provided that such persons are continually employed by WMI,
NFSB or any other subsidiary of WMI on a date that is no later than 12 months
and one day after the Effective Time. Employees who receive such service
credit shall be considered for eligibility under the WMI retirement plans
effective as of the Effective Time. Prior to enrollment in the WMI retirement
plans, employees of Olympus shall either (i) be covered by the existing Olympus
retirement plans or (ii) in the event of termination of employment with WMI or
WMI Subsidiaries prior to enrollment in the WMI retirement plans, then such
employees shall receive an additional after tax payment substantially
equivalent to the benefits that would have been accrued under the Olympus
retirement plans (as reasonably determined by WMI), without regard to the
service requirements for active participation, and based on compensation earned
from the Effective Time until termination of employment.
(d) With the consultation and approval of WMI, Olympus shall take all
necessary and appropriate action to amend the Olympus Stock Bonus Plan to (i)
eliminate new participant loans, or any extension or renewal of existing loans,
and (ii) eliminate salary deferral elections after the Effective Time. Olympus
shall not amend the Olympus Stock Bonus Plan or otherwise authorize any action
to terminate such plan or to provide distributions therefrom that are not
permitted or required under the terms thereof on July 15, 1994.
(e) To the extent permissible under the Code and ERISA, and with the
consultation and approval of WMI, Olympus shall take all necessary and
appropriate action to amend the Olympus money purchase pension plan, effective
as of the Effective Time, and provide the notices required under Section 204(h)
of ERISA, so that participants do not accrue benefits thereunder after the
Effective Time. Notwithstanding the foregoing, if any portion of the money
purchase pension plan is invested in the common stock of Olympus, Olympus shall
not terminate the plan.
(f) Prior to the Effective Time, Olympus and the Olympus Subsidiaries
shall take all necessary and appropriate action to amend or terminate any
Benefit Plan or other arrangement of Olympus or the Olympus Subsidiaries so
that no individual can or will receive an "excess parachute payment," as
defined in Section
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280G(b)(1) of the Code, as a result of the Closing or any change described in
Section 280G(b)(2)(A)(i) of the Code.
(g) Prior to the Effective Time, Olympus and the Olympus Subsidiaries
shall amend or terminate, as appropriate, any Benefit Plan which is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) so that no
participant, beneficiary or dependent is entitled to benefits or continuing
coverage thereunder after such participant's termination of employment, except
for (i) continuing coverage required under COBRA; (ii) the retired life reserve
arrangement disclosed on Disclosure Schedule 4.13(e)(viii); and (iii) medical
coverage currently in place for John Adams, Brent Shaw and Joan Wagner.
(h) Effective as of the Effective Time, all employees of Olympus or the
Olympus Subsidiaries shall, at the option of WMI, either continue to
participate in the Benefit Plans that are employee welfare benefit plans
(within the meaning of Section 3(1) of ERISA) or "cafeteria plans" (within the
meaning of Section 125 of the Code) and are in effect immediately prior to the
Effective Time or become participants in similar WMI employee benefit plans,
practices and policies (the "WMI Welfare Benefit Plans") on the same terms and
conditions as similarly situated employees of WMI or its subsidiaries. If any
of the employees of Olympus or the Olympus Subsidiaries shall become eligible
to participate in any WMI Welfare Benefit Plans that provide medical,
hospitalization or dental benefits, WMI and NFSB shall waive any pre-existing
condition exclusions and actively at work requirements (but shall not waive
general requirements of formal employment with WMI or NFSB).
(i) All vacation accrued and not used by employees of Olympus and the
Olympus Subsidiaries prior to the Effective Time shall be maintained by WMI or
NFSB after the Effective Time; provided, however, that such vacation shall
accrue at the same rate as for similarly situated WM Bank employees (counting
service credit earned prior to the Effective Time.) Up to 5 days of sick leave
or short-term disability accrued by employees of Olympus and the Olympus
Subsidiaries prior to the Effective Time shall be maintained by WMI after the
Effective Time.
6.14 Indemnification of Olympus Directors and Officers.
(a) WMI and NFSB will use all reasonable efforts, in cooperation with
Olympus and Olympus Bank to arrange for insurance coverage (with at least as
much dollar coverage as Olympus' and Olympus Bank's directors and officers have
under their current policy) for prior acts for all current and former directors
and officers of Olympus and Olympus Bank, provided that such coverage must be
available from normal carriers at a reasonable cost in light of the cost of
similar policies under similar circumstances. Subject to the foregoing, it is
contemplated that Olympus and Olympus Bank will purchase "tail" coverage to
cover the first 6 months following the Effective Date, and WMI and NFSB will
purchase
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"prior acts" coverage for subsequent periods. WMI and NFSB shall not cancel
such prior acts coverage for 3 years after the Effective Date.
(b) From and after the Effective Time, WMI will, to the extent permitted
by then applicable law, indemnify current and former directors and officers of
Olympus (each an "Indemnified Party") as though they had been directors and/or
officers of WMI, for acts or omissions occurring prior to, and including, the
Effective Time.
Any Indemnified Party wishing to claim indemnification under this provision
shall, upon learning of any claim, action, suit, proceeding or investigation
(hereinafter a "Claim"), promptly notify WMI thereof. WMI shall have the right
to assume the defense of any such Claim and upon so doing shall not thereafter
be liable to such Indemnified Party for any expenses, of other counsel or
otherwise, subsequently incurred by such Indemnified Party in connection with
such Claim. If WMI elects not to assume such defense, or counsel for the
Indemnified Party advises that there are issues which raise conflicts of
interest between WMI and the Indemnified Party, the Indemnified Party may
retain counsel satisfactory to him and WMI will pay all reasonable fees and
expenses of such counsel incurred in defending the Claim; provided, however,
that (i) in the event that more than one Indemnified Party is involved in the
same Claim, WMI shall not be obligated to pay for more than one firm of counsel
for all Indemnified Parties in any one jurisdiction (unless counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Indemnified Parties), (ii) the Indemnified Parties will
cooperate in the defense of the Claim, and (iii) WMI shall not be liable for
any settlement effected without its prior written consent. If, upon the
conclusion of the proceedings in any Claim, it is determined by WMI that the
Indemnified Party was not entitled to such indemnification, such party shall be
required to reimburse WMI for all cost expended in defending such Indemnified
Party.
(c) This Section 6.14 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on WMI and its successors and assigns.
6.15 Stock Option Plans. Except as contemplated by Section 1(d)(iii) of
this Agreement, Olympus shall cause the Stock Option Plan committee to not
allow any Optionee to receive cash, property or other consideration (other than
shares received upon exercise of an option) in exchange for the surrender of
any options. Nothing in this Section 6.15 shall prevent an Option holder from
exercising his options prior to Closing, provided that any exercise and any
subsequent sale, transfer, pledge or other disposition of the shares shall be
in compliance with applicable requirements of the Securities and Exchange
Commission's ASR 135 and Section 1(h) hereof.
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6.16 Post-Closing Financial Statements. WMI agrees to use all reasonable
efforts to file an 8-K with the SEC within 20 calendar days after the end of
the first full calendar month deemed by Deloitte & Touche to satisfy the
requirement of ASR 135 with respect to the time period required for post-Merger
financial results following the Effective Time (except if such month is the
last month of a calendar quarter), which 8-K shall include financial results
covering at least 30 days of post-merger combined operations of WMI and Olympus
in accordance with ASR 135.
6.17 Consulting and Noncompetition Agreement. At or prior to Closing, WMI
shall enter into a consulting agreement with Blaine Huntsman substantially in
the form of Exhibit D hereto which agreement shall provide that Mr. Huntsman
will be a consultant to WMI for a period of 18 months from and after the
Effective Time, that Mr. Huntsman will receive $225,000 over such period
(payments to be monthly), that he shall advise WMI generally in regard to its
Utah operations and shall perform such other functions as reasonably requested
by the President and CEO of WMI, that during the term of the consulting
agreement, he shall not work for or serve any other financial institution as an
employee, officer, director, consultant or advisor, that he shall have
reasonable access to office space and secretarial support and that he shall be
entitled to no employee benefits.
6.18 Post-Merger Actions. Following the Merger, neither WMI nor any of its
affiliates shall take any action which will adversely affect the tax treatment
of the transaction to the shareholders of Olympus including, without limitation
failing to continue at least one significant historic business line of Olympus
Bank or to use at least a significant portion of Olympus Bank's historic assets
in a business, in each case within the meaning of Treas. Reg. Section
1.368-1(d).
6.19 Current Public Information. WMI shall continue to satisfy the current
public information requirements of Rules 144 and 145 of the SEC with respect to
the WMI Common Stock, and to provide affiliates of Olympus with such
information as they may reasonably require and to otherwise cooperate with them
to facilitate sales of WMI Common Stock in compliance with Rules 144 and 145
of the SEC.
7. Closing Conditions.
7.1 Conditions to Each Party's Obligations Under This Agreement. The
respective obligations of each party under this Agreement to consummate the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of the stockholders of Olympus.
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(b) All necessary regulatory or governmental approvals and consents
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory or
regulatory waiting periods in respect thereof shall have expired.
(c) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
(d) Tax Ruling or Opinion. An opinion shall be obtained from Foster Pepper
& Shefelman in a form reasonably satisfactory to WMI and Olympus with respect
to federal income tax laws substantially to the effect that:
(i) The Merger will qualify as a "reorganization" under Section 368(a)
of the Code.
(ii) No gain or loss will be recognized by Olympus or WMI by reason of
the Merger.
(iii) No gain or loss will be recognized by a stockholder of Olympus
who, pursuant to the Agreement, exchanges shares of Olympus Common Stock solely
for shares of WMI Common Stock.
(iv) Subject to the provisions of Section 302 of the Code, gain or loss
will be recognized with respect to each shareholder of Olympus who holds shares
of Olympus Common Stock and who, pursuant to the exercise of dissenter rights,
exchanges such shares solely for cash.
(v) The payment of cash to a Olympus shareholder in lieu of a fractional
share of WMI Common Stock will be treated as a distribution in redemption of
the fractional share interest, such shareholder will be taxed on the cash
received in accordance with the provisions and limitations of Section 302 of
the Code and, in general, such distribution in redemption will be treated as a
payment in exchange for such fractional share interest.
(vi) The aggregate basis of the WMI Common Stock received by a Olympus
stockholder who exchanges Olympus Common Stock for WMI Common Stock will be the
same as the aggregate basis of the Olympus Common stock surrendered in exchange
therefor (reduced by the basis allocable to any fractional share for which cash
is received).
(vii) The holding period of the WMI Common Stock received by a Olympus
stockholder will include the period during which the Olympus Common Stock
surrendered in exchange therefore was held (if such Olympus Common Stock was
held by such Olympus stockholder as a capital asset at the Effective Time).
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(viii) Gain or loss recognized in exchange for a fractional share or by
Olympus Shareholders if Olympus Common Stock is converted into cash by exercise
of dissenter rights generally will be capital gain or loss if the shares of
Olympus Common Stock were held by the Olympus Shareholder as a capital asset.
For such shareholders, if the shares had been held for more than one year, the
gain or loss will be long-term capital gain or loss. Whether or not the
character of any taxable gain or loss is material to a Olympus Shareholder
depends upon the particular circumstances of the shareholder.
Appropriate modifications to the opinion shall be made in the event that WMI
elects to pay a portion of the Merger Consideration in cash pursuant to Section
1(c)(iii); provided that no such modification shall affect the opinion under
(i) or (ii) above or under (iii) above to the extent a stockholder receives WMI
Common Stock pursuant to the Merger.
(e) Antitrust Law. Any applicable pre-merger notification provisions of
Section 7A of the Clayton Act shall have been complied with by the parties
hereto, and no other statutory or regulatory requirements with respect to the
Clayton Act shall be applicable other than Section 18(c) of the Federal Deposit
Insurance Act and rules and regulations in connection therewith. There shall
be no pending or threatened proceedings under any applicable antitrust law of
the State of Washington.
(f) Securities Laws. The shares of WMI Common Stock to be issued to the
stockholders of Olympus in exchange for their shares shall be exempt or shall
have been qualified or registered for offering and sale under the federal
securities law and the state securities or Blue Sky laws of each jurisdiction
in which stockholders of Olympus reside, and no order suspending the sale of
such shares of WMI Common Stock in any such jurisdiction shall have been issued
prior to the Effective Time and no proceedings for that purpose shall have been
instituted or shall be contemplated; provided, that WMI shall not have been
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not
qualified. As soon as reasonably practicable, Olympus shall advise WMI of each
jurisdiction in which stockholders of Olympus reside.
7.2 Conditions to the Obligations of WMI under this Agreement. The
obligations of WMI under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by WMI.
(a) Each of the obligations or covenants of Olympus and the Olympus
Subsidiaries required to be performed by them at or prior to the Closing
pursuant to the terms of this Agreement shall have been duly performed and
complied with and each of the representations and warranties of Olympus and the
Olympus Subsidiaries contained in this Agreement shall be true and correct
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as of the Original Agreement Date and as of the Effective Time as though made
at and as of the Effective Time (except as to any representation or warranty
that specifically relates to an earlier date, which shall be true and correct
as of such earlier date), except where the failure of such representations to
be true and correct or the failure of Olympus or any Olympus Subsidiary to have
performed the obligations and covenants as required by Section 6 hereof, shall
not in the aggregate have had a negative economic effect of $500,000 or more on
Olympus and the Olympus Subsidiaries or will, when adjusted to their present
value, have such an effect on WMI; provided, however, that the representations
and covenants contained in Sections 6.1(a), 6.1(b) and 6.2 shall not be subject
to the foregoing materiality exception and must be fully complied with.
(b) Any consents, waivers, clearances, approvals and authorizations of
regulatory or governmental bodies that are necessary in connection with the
consummation of the transactions contemplated hereby shall have been obtained,
and none of such consents, waivers, clearances, approvals or authorizations
shall contain any term or condition that (i) is a term or condition that has
not heretofore been normally imposed in such transactions and which would have
a Material Adverse Effect on Olympus or WMI, or (ii) would require WMI to
contribute additional capital to NFSB other than to increase the leverage
capital ratio of NFSB (as defined in 12 C.F.R. Part 567 as proposed or adopted
by the OTS) to a level no higher than 5.0 percent (as adjusted to account for
the Merger). It is hereby agreed that any term or condition contained in any
previous approval granted to WMSB for a merger or acquisition transaction shall
be deemed a "normal" condition for purposes of this Section 7.2(b). For
purposes of Section 8 hereof, any "approval" which contains any of the
foregoing unacceptable terms or conditions shall be deemed to be a regulatory
"denial."
(c) WMI shall have received an opinion, dated the date of the Closing,
from Kimball, Parr, Waddoups, Brown & Gee, counsel to Olympus, substantially to
the effect set forth in Exhibit E hereto.
(d) Since the date of this Agreement there shall have been no material
adverse change in the overall financial condition, businesses or results of
operations of Olympus and the Olympus Subsidiaries taken as a whole (except for
changes resulting from market and economic conditions which generally affect
the savings industry as a whole including, without limitation, changes in law
or regulation or changes in generally accepted accounting principles or
interpretations thereof); provided, however, that the following expenses and
adjustments shall be excluded in determining whether a material adverse change
has occurred: (i) fees and expenses relating to the consummation of the
transactions contemplated hereby, (ii) charges for severance and other payments
to officers and employees made or expected to be made in connection with the
transactions contemplated hereby, and (iii) costs and expenses related to any
transactions of the type set forth in
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Section 6.1 undertaken by Olympus with the prior written consent of WMI or WM
Bank (including without limitation, the opening of the Proposed Branches).
(e) Olympus shall have obtained at or prior to the Effective Time consents
to the assignment of the real property leases for the One Utah Center and
Woodlands branches to the successor by merger to Olympus Bank.
(f) Except as otherwise requested, the directors of Olympus and each
Olympus Subsidiary shall have resigned effective on or prior to the Effective
Time.
(g) Unless WMI elects to pay a portion of the Merger Consideration in the
form of cash pursuant to Section 1(c)(iii) hereof, WMI shall have received an
opinion in form reasonably satisfactory to it from Deloitte & Touche that the
Merger shall qualify for pooling of interests accounting treatment or, in the
event it does not so qualify, that neither Olympus, nor its shareholders,
directors or officers shall have taken any action (other than actions or events
permitted by the Original Agreement or this Agreement) that would disqualify
the Merger from being treated as a pooling of interests for accounting
purposes.
(h) Olympus shall have furnished WMI with such certificates of its
officers and such other documents to evidence fulfillment of the conditions set
forth in this Section 7.2 as WMSB may reasonably request.
(i) Dissenters' rights shall not have been preserved by stockholders of
Olympus with respect to more than 5 percent of the outstanding shares of
Olympus Common Stock, each affiliate of Olympus has delivered to Olympus
certificates evidencing all shares of Olympus Common Stock owned by such
affiliate as provided in Section 1(h) hereof, and that such affiliate has not
voted against the Merger, together with any other assurances, requested by WMI
that such affiliates will not have dissenter's rights.
(j) Olympus shall have delivered to WMI amendments of all indemnification
agreements entered into by Olympus (other than the agreement with persons who
were directors at Olympus but are no longer directors as of the date of this
Agreement) which amendment shall provide that the agreement shall commit WMI to
indemnify only to the extent permitted under the laws of the State of
Washington.
7.3 Conditions to the Obligations of Olympus Under This Agreement. The
obligations of Olympus and Olympus Bank under this Agreement shall be further
subject to the satisfaction, at or prior to the Effective Time, of the
following conditions, any one or more of which may be waived by Olympus:
(a) Each of the obligations of WMI, WM Bank and NFSB required to be
performed by them at or prior to the Closing
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pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects.
(b) Each of the representations and warranties of WMI, WM Bank and NFSB
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made at
and as of the Effective Time except as to any representation or warranty which
specifically relates to an earlier date, which shall be true and correct as of
such earlier date, except in the case of such representations and warranties,
where the failure to be true would not have a Material Adverse Effect on WMI.
(c) Olympus shall have received an opinion, dated the date of the Closing,
from Foster Pepper & Shefelman, counsel to WMI, substantially to the effect set
forth in Exhibit F hereto.
(d) Since the date of this Agreement, there shall have been no material
adverse change in the overall financial condition, businesses or results of
operations of WMI and its Subsidiaries taken as a whole.
(e) WMI shall have furnished Olympus with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 7.3 as Olympus may reasonably request.
(f) Olympus shall have received an opinion reasonably satisfactory to it
from Goldman, Sachs & Co., a financial advisory firm, dated as of the date of
the Prospectus/Proxy Statement, as to the fairness, from a financial point of
view, of the consideration to be received by the stockholders of Olympus
pursuant to this Agreement.
(g) WMI shall have instructed its transfer agent with respect to the
issuance of WMI Common Stock to the Olympus stockholders at least two days
prior to Closing.
8. Termination, Amendment and Waiver.
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
Olympus stockholders:
(a) by mutual written consent of all the parties hereto;
(b) by any party hereto (i) if the Effective Time shall not have occurred
on or prior to June 30, 1995 unless the failure of such occurrence shall be due
to the failure of the party seeking to terminate this Agreement to perform or
observe its agreements and conditions set forth herein to be performed or
observed by such
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party at or before the Effective Time; or (ii) 31 days after the date on which
any application for regulatory approval prerequisite to the consummation of the
transactions contemplated hereby shall have been denied or withdrawn at the
request of the applicable regulatory authority; provided, that, if prior to the
expiration of such 31-day period WMI is engaged in litigation or an appeal
procedure relating to an attempt to obtain such approval, Olympus may not
terminate this Agreement until the earlier of (A) June 30, 1995 and (B) 31 days
after the completion of such litigation and appeal procedures, and of any
further regulatory or judicial action pursuant thereto, including any further
action by a government agency as a result of any judicial remand, order or
directive or otherwise; or (iii) 10 days after written certification of the
vote of the Olympus's stockholders is delivered to WMI indicating that such
stockholders failed to adopt the resolution to approve this Agreement and the
transactions contemplated hereby at the stockholders' meeting (or any
adjournment thereof) contemplated by Section 1(e) hereof;
(c) by WMI (i) if at the time of such termination there shall have been a
material adverse change in the consolidated financial condition of Olympus from
that set forth in Olympus's Quarterly Report on Form 10-Q for the three-month
period ended March 31, 1994 (except for changes resulting from market and
economic conditions which generally affect the savings industry as a whole,
including changes in regulation), it being understood that any of the matters
set forth in Olympus's Disclosure Schedules as of the date of this Agreement or
any of the matters described in clauses (i), (ii) or (iii) of Section 7.2(d)
are not deemed to be a material adverse change for purposes of this paragraph
(c); (ii) if there shall have been any material breach of any covenant of
Olympus hereunder and such breach shall not have been remedied within 45 days
after receipt by Olympus of notice in writing from WMI specifying the nature of
such breach and requesting that it be remedied; or (iii) any of the events or
circumstances described in Section 2(a) or 2(c) of the Option occurs;
(d) by Olympus (i) if at the time of such termination there shall have
been a material adverse change in the consolidated financial condition of WMI
from that of WMSB set forth in WMSB's Quarterly Report on Form F-4 for the
three-month period ended March 31, 1994 (except for changes resulting from
market and economic conditions which generally affect the savings industry as a
whole), it being understood that any of the matters set forth in WMI's
Disclosure Schedules as of the date of this Agreement are not deemed to be a
material adverse change for purposes of this paragraph (d); or (ii) if there
shall have been any material breach of any covenant of WMI, WM Bank or NFSB
hereunder and such breach shall have not been remedied within 45 days after
receipt by WMSB of notice in writing from Olympus specifying the nature of such
breach and requesting that it be remedied or (iii) if the directors of Olympus,
after receiving advice of counsel, determines in their good faith judgment that
they are required to do so in order to discharge their fiduciary duties, shall
withdraw or modify or
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resolve to withdraw or modify its recommendation that shareholders vote in
favor of the transactions contemplated hereby.
8.2 Break-Up Fee.
(a) The parties hereby acknowledge that, in negotiating and executing the
Original Agreement, this Agreement and the Option and in taking the steps
necessary or appropriate to effect the transactions contemplated hereby,
Olympus has incurred and will incur direct and indirect monetary and other
costs (including without limitation attorneys' fees and costs, costs of Olympus
management and employee time and potential damage to Olympus's business and
franchises as a result of the announcement of the pending Merger), will forego
discussions with other potential acquirors and will forego various business
activities which it would have otherwise undertaken if it remained an
independent institution. To compensate Olympus for such costs and to induce it
to forego initiating discussions with other potential acquirors, (i) if this
Agreement terminates because WMI, WM Bank or NFSB does not use all reasonable
efforts to consummate the transactions contemplated by this Agreement in
accordance with the terms of this Agreement (unless a condition set forth in
Section 7.3 is not satisfied and such nonsatisfaction has not been the result
of the failure of WMI, WM Bank or NFSB to use all reasonable efforts to
consummate this Agreement in accordance with the terms of this Agreement), (ii)
if WMI terminates this Agreement for any reason other than the grounds for
termination set out in Sections 8.1(a), 8.1(b) or 8.1(c) or (iii) if Olympus
terminates this Agreement pursuant to Section 8.1(d)(ii), then WMI shall pay to
Olympus on demand (and in no event more than three days after such demand) in
immediately available funds, Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00).
(b) The parties hereby acknowledge that, in negotiating and executing the
Original Agreement, this Agreement and the Option and in taking the steps
necessary or appropriate to effect the transaction contemplated hereby, WMI and
WM Bank have incurred and will incur direct and indirect monetary and other
costs (including without limitation attorneys' fees and costs and costs of WMI
and WM Bank employee and management time) and will forego discussions with
respect to other potential acquisitions. To compensate WMI for such costs and
to induce it to forego initiating discussions regarding other acquisitions, if
(i) this Agreement terminates because Olympus does not use all reasonable
efforts to consummate the transactions contemplated by this Agreement in
accordance with the terms of this Agreement (unless a condition set forth in
Section 7.3 is not satisfied and such nonsatisfaction has not been the result
of the failure of Olympus or Olympus Bank to use all reasonable efforts to
consummate this Agreement in accordance with the terms of this Agreement) or
any of the events or circumstances described in Section 2(a) or 2(c) of the
Option occurs; (ii) Olympus terminates this Agreement for any reason other than
the grounds for termination set out in Sections 8.1(a), 8.1(b) or 8.1(d); or
(iii) WMI terminates this Agreement pursuant to Section
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8.1(c)(iii), then Olympus shall be obligated to pay WMI on demand (and in no
event more than three days after such demand) in immediately available funds
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), and in addition
WMI shall be entitled to receive any benefits under the Option. It is
understood and agreed that this Section 8.2(b) does not limit or restrict in
any way the events or circumstances upon which WMI may exercise its options
under the Option Agreement.
If (a) each of the conditions set forth in Section 7.1 has been satisfied,
(b) WMI has delivered to Olympus a written waiver of the conditions set forth
in Section 7.2 hereof, and (c) Olympus has not yet published its financial
statements for the year ended December 31, 1994, then, upon the written request
of WMI, Olympus and/or Olympus Bank shall, to the extent (i) permissible under
generally accepted accounting principles (in the judgment of Olympus'
accountants) and (ii) permissible under applicable federal regulations and not
objectionable to Olympus' regulators, reflect the following changes or
adjustments on its income statement for the year ended December 31, 1994:
(i) adjustments to reflect a reduction of the market value of the real
property located at 115 South Main Street, Salt Lake City, Utah 84111 below
book value;
(ii) costs and expenses incurred or expected to be incurred in
connection with the transactions contemplated hereby; and
(iii) charges for severance and other payments to officers and
employees made or expected to be made in connection with the transactions
contemplated hereby.
8.3 Effect of Termination. In the event of termination of this Agreement
by any party, this Agreement shall forthwith become void (other than Section
6.4(b) hereof, which shall remain in full force and effect) and, except as and
to the extent provided in Section 8.2, there shall be no further liability on
the part of any party or its officers or directors except for the liability of
WMI, WM Bank and NFSB under Section 6.4(b), it being understood and agreed that
termination of this Agreement shall not affect the rights of WMI under the
Option Agreement except as and to the extent expressly provided in the Option
Agreement.
8.4 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the consummation of the Merger, whether before or after approval
thereof by the stockholders of Olympus, the parties may (a) amend this
Agreement (including the Plans of Merger incorporated herein), (b) extend the
time for the performance of any of the obligations or other acts of any other
party hereto, (c) waive any inaccuracies in the representations and warranties
of any other party contained herein or in any document delivered pursuant
hereto, or (d) waive
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compliance with any of the agreements or conditions contained herein; provided,
however, that after any approval of the Merger by the Olympus stockholders,
there may not be, without further approval of such stockholders, any amendment
or waiver of this Agreement (or the Plans of Merger) that changes the amount or
changes the form of consideration to be delivered to the Olympus stockholders
(it being understood that any election by WMSB pursuant to Section 1(c)(iii)
does not constitute an amendment or waiver). This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Any agreement on the part of a party hereto to any extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party, but such waiver or failure to insist on strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
9. Miscellaneous.
9.1 Expenses. All legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be borne by the party incurring such costs and expenses unless otherwise
specified in this Agreement.
9.2 Survival. Except for the covenants of Sections 6.4(b), 6.13, 6.14,
6.16, 6.17, 6.18 and 6.19 the respective representations and warranties,
covenants and agreements set forth in this Agreement and all Disclosure
Schedules shall not survive the Effective Time.
9.3 Notices. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by delivery, by registered or
certified mail (return receipt requested) or by cable, telecopier, or telex to
the respective parties as follows:
(a) If to WMI, WM Bank or NFSB, to:
Washington Mutual, Inc.
1201 Third Avenue, Suite 1500
Seattle, Washington 98101
Attn: Craig E. Tall, Executive Vice President
With a copy to:
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attn: Fay L. Chapman
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(b) If to Olympus or Olympus Bank, to:
Olympus Capital Corporation
115 South Main Street
Salt Lake City, Utah 84111
Attn: A. Blaine Huntsman
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue N.W., Suite 800
Washington, D. C. 20004-2505
Attn: Thomas P. Vartanian
or such other address as shall be furnished in writing by any party to the
others in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
9.4 Parties in Interest. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other parties. Nothing in this
Agreement is intended to confer, expressly or by implication, upon any other
person any rights or remedies under or by reason of this Agreement (except for
Sections 1, 6.13, 6.14, 6.16, 6.17, 6.18 and 6.19, which are intended to
benefit third party beneficiaries).
9.5 Entire Agreement. This Agreement, including the documents and other
writings referred to herein or delivered pursuant hereto, contains the entire
agreement and understanding of the parties with respect to its subject matter.
There are no restrictions, agreements, promises, warranties, covenants or
undertakings between the parties other than those expressly set forth herein or
therein. Except for the Option Agreement, this Agreement supersedes all prior
agreements and understandings between the parties, both written and oral, with
respect to its subject matter.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.7 Governing Law. This Agreement, in all respects, including all matters
of construction, validity and performance, is governed by the internal laws of
the state of Washington as applicable to contracts executed and delivered in
Washington by citizens of such state to be performed wholly within such state
without giving effect to the principles of conflicts of laws thereof. This
Agreement is being delivered in Seattle, Washington.
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9.8 Headings. The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
WASHINGTON MUTUAL, INC.
By: /s/ Craig E. Tall
Its Executive Vice President
WASHINGTON MUTUAL BANK
By: /s/ Craig E. Tall
Its Executive Vice President
WASHINGTON MUTUAL FEDERAL SAVINGS BANK
By: /s/ Craig E. Tall
Its Executive Vice President
OLYMPUS CAPITAL CORPORATION
By: /s/ A. Blaine Huntsman
Its Chairman of the Board and
Chief Executive Officer
OLYMPUS BANK, A FEDERAL SAVINGS BANK
By: /s/ A. Blaine Huntsman
Its Chairman of the Board and
Chief Executive Officer
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Exhibit A-1
PLAN OF MERGER
(OLYMPUS WITH AND INTO WM, INC.)
This Plan of Merger is made by and between Olympus Capital Corporation, a
Utah corporation ("Olympus") and Washington Mutual, Inc., a Washington
corporation ("WM, Inc.") in connection with the transactions described in an
Amended and Restated Agreement for Merger dated January 20, 1995 (the "Merger
Agreement") among WM, Inc., Washington Mutual Bank, a Washington chartered
stock savings bank ("WM Bank"), Washington Mutual Federal Savings Bank, a
federal savings association ("NFSB"), Olympus and Olympus' wholly-owned
subsidiary, Olympus Bank, a Federal Savings Bank ("Olympus Bank"). WM Bank and
NFSB are wholly-owned subsidiaries of WM, Inc. Capitalized terms not otherwise
defined herein shall have the meaning given them in the Merger Agreement. This
Plan of Merger, including related documents, is intended to constitute a "Plan
of Reorganization" as that term is used in section 354 of the Code. Further,
this Merger is intended to constitute a "Reorganization" as defined in section
368(a)(1)(A) of the Code.
As of the date hereof, Olympus has authorized capital stock of [INSERT
THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER] (_________) shares of common
stock, par value $1.00 per share (the "Olympus Common Stock"). As of the date
hereof, [INSERT THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER]
(_____________) shares of Olympus Common Stock are issued and outstanding. As
of the date hereof, WM, Inc. has authorized capital stock of [INSERT THE NUMBER
OF SHARES AS OF THE DATE OF THE MERGER] (___________) shares of common stock,
no par value (the "WM, Inc. Common Stock"), and [INSERT THE NUMBER OF SHARES AS
OF THE DATE OF THE MERGER] (__________) shares of preferred stock, of which
[INSERT THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER] (_____________)
shares of WM, Inc. Common Stock and [INSERT THE NUMBER OF SHARES AS OF THE DATE
OF THE MERGER] (___________) shares of WM, Inc. preferred stock are issued and
outstanding.
The boards of directors of Olympus and WM, Inc. have approved this Plan of
Merger (the "Plan of Merger") under which Olympus shall be merged with and into
WM, Inc. The Plan of Merger has been approved by the shareholders of Olympus.
Olympus and WM, Inc. hereby agree as follows:
1. Merger. At and on the Effective Time of the Merger, Olympus shall be
merged with and into WM, Inc. in accordance with the terms hereof. WM, Inc.
shall be the surviving corporation.
<PAGE> 146
2. Effective Time. The effective time ("Effective Time") of this
Merger shall be the time and date the articles of merger are both (a) filed
with the Secretary of State of the State of Washington and (b) delivered to the
Division of Corporations and Commercial Code of the State of Utah, or at such
later time or date after such filing and delivery as specified in such
articles.
3. Name. The name of the surviving corporation shall continue
to be "Washington Mutual, Inc."
4. Directors and Principal Officers. The directors and the
principal officers of WM, Inc. immediately prior to the Effective Time shall
continue to serve as directors and principal officers of the surviving
corporation after the Effective Time.
5. Terms and Conditions of Merger. At the Effective Time of the
Merger:
(a) Conversion of Olympus Common Stock. Subject to the
provisions below, at the Effective Time, all of the outstanding shares of
common stock, par value $1.00 per share, of Olympus ("Olympus Common Stock")
shall be converted into the right to receive shares of common stock, no par
value per share, of WM, Inc. ("WM, Inc. Common Stock"), as described below.
Subject to the provisions hereof, holders of all outstanding shares of Olympus
Common Stock will receive per share consideration equal to [INSERT $15.50, BUT
IF THE MERGER CONSIDERATION HAS BEEN ADJUSTED PURSUANT TO SECTION 1(C)(V) OF
THE AGREEMENT, THEN INSERT ADJUSTED MERGER CONSIDERATION] per share of Olympus
Common Stock (the "Merger Consideration"), such consideration to be paid in
newly issued shares of WM, Inc. Common Stock. The per share value of WM, Inc.
Common Stock for the purpose of paying the Merger Consideration shall be the
arithmetic average of the National Market System Closing Price of WM, Inc.
Common Stock for the ten (10) trading days immediately preceding the third
trading day before the Effective Time (the "Average Price"). The term
"National Market System Closing Price" means the price per share of the last
sale of WM, Inc. Common Stock reported on the National Market System at the
close of the trading day by the National Association of Securities Dealers,
Inc. The exchange ratio for determining the number of shares of WM, Inc.
Common Stock to be issued for each share of Olympus Common Stock (the "Exchange
Ratio") shall be $[INSERT DOLLAR AMOUNT OF MERGER CONSIDERATION] divided by the
Average Price. Computations of the Average Price and of the Exchange Ratio
shall be carried to five decimals and then rounded to three decimals, rounding
down if the fourth decimal is four or less or up if it is five or more. Cash
will be paid in lieu of fractional shares as provided in Section 5(c) below.
[If between the date of the Merger Agreement and the Effective Time,
the shares of WM, Inc. Common Stock shall be changed into a different number or
class of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if a stock dividend thereon shall be
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declared with a record date within such period, the Average Price shall be
adjusted accordingly.]
(b) WM, Inc. Common Stock. Each share of WM, Inc. Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain outstanding and unchanged and shall continue to be owned by the
stockholder thereof.
(c) No Fractional Shares. Notwithstanding any term or
provision hereof, no fractional shares of WM, Inc. Common Stock, and no
certificates or scrip therefor, or other evidence of ownership thereof, shall
be issued in exchange for any shares of Olympus Common Stock or unexercised
options for Olympus Common Stock; no dividend or distribution with respect to
WM, Inc. Common Stock shall be payable on or with respect to any fractional
share interests; and no such fractional share interest shall entitle the owner
thereof to vote or to any other rights of a stockholder of WM, Inc. In lieu of
such fractional share interests, any holder of Olympus Common Stock or
unexercised options for Olympus Common Stock who would otherwise be entitled to
a fractional share of WM, Inc. Common Stock will, upon surrender of his
certificate or certificates representing Olympus Common Stock outstanding
immediately prior to the Effective Time, in the case of holders of Olympus
Common Stock, and on the Effective Date, in the case of holders of unexercised
options for Olympus Common Stock, be paid the cash value of such fractional
share interest, which shall be equal to the product of the fraction multiplied
by the Average Price. For the purposes of determining any such fractional
share interests, all shares of Olympus Common Stock owned by an Olympus
stockholder and all such unexercised options shall be combined so as to
calculate the maximum number of whole shares of WM, Inc. Common Stock issuable
to such Olympus stockholder.
(d) Options to Acquire Olympus Common Stock. Each
option to purchase shares of Olympus Common Stock which is outstanding
and remains unexercised immeditately prior to the Effective Time shall be
deemed to have been exercised at the Effective Time through conversion into
that number of shares of WM, Inc. Common Stock equal to the quotient obtained
by dividing (i) the Net Option Value by (ii) the Average Price. For purposes
of this Section 5(d), with respect to any option to purchase shares of Olympus
Common Stock, "Net Option Value" means (x) the aggregate Merger Consideration
in respect of shares of Olympus Common Stock issuable upon exercise of such
option, less (y) the aggregate exercise price payable upon the exercise of such
option, less (z) the aggregate amount of federal, state and local income taxes
and other amounts required to be withheld with respect to such exercise.
6. Method of Effectuation; Exchange of Certificates. Prior to
the Effective Time, WM, Inc. shall designate a bank or trust company to act as
an exchange agent (the "Exchange Agent") in connection with the Merger. Prior
to or at the Effective Time, WM, Inc. shall deposit with the Exchange Agent
certificates representing the shares of WM, Inc. Common Stock to be received by
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shareholders and optionholders of Olympus, together with cash sufficient to pay
fractional shares as provided in Section 5(a).
As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each person who was, at the Effective Time, a holder of record of
Olympus Common Stock a letter of transmittal (which shall specify that delivery
of certificates which immediately prior to the Effective Time represented
outstanding shares of Olympus Common Stock (the "Certificates") shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
receipt of the Certificates by the Exchange Agent) and, for holders of Olympus
Common Stock who have not previously delivered Certificates, instructions for
effecting the surrender of the Certificates. Upon surrender to the Exchange
Agent of the Certificates, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may be reasonably requested, the Exchange Agent shall
promptly deliver to the person entitled thereto a certificate representing the
number of shares of WM, Inc. Common Stock (and cash in lieu of any fractional
shares of WM, Inc. Common Stock) such holder is entitled to receive pursuant to
this Plan of Merger. All Certificates so surrendered shall be cancelled.
Until so surrendered and exchanged, each Certificate shall, after the Effective
Time, be deemed to evidence only the right to receive the number of shares of
WM, Inc. Common Stock (and cash in lieu of any fractional shares of WM, Inc.
Common Stock) to which such holder is entitled pursuant to Section 5 hereof.
No dividends or other distributions declared after the Effective Time
with respect to shares of WM, Inc. Common Stock and payable to the holders of
record thereof after the Effective Time shall be paid to the holder of any
unsurrendered Certificate until the holder thereof surrenders such Certificate.
Subject to the effect of any applicable escheat laws and unclaimed property
laws, after the subsequent surrender and exchange of a Certificate, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to the WM, Inc. Common Stock for which such Certificate
was exchangeable.
If delivery of shares of WM, Inc. Common Stock (and any cash in lieu
of fractional shares) is to be made to a person other than the person in whose
name a surrendered Certificate is registered, it shall be a condition of such
delivery that the Certificate so surrendered be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise be in
proper form for transfer and that the person requesting such delivery shall
have paid any transfer and other taxes required by reason of such delivery to a
person other than the registered holder of the surrendered Certificate or shall
have established to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
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At the Effective Time, the stock transfer books of Olympus shall be
closed and there shall be no further registration of transfers of shares of
Olympus Common Stock thereafter on the records of Olympus. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to the shares of Olympus Common Stock represented thereby immediately
prior to the Effective Time except as provided herein.
No interest shall be paid or accrue on or in respect of any portion of
the WM, Inc. Common Stock, or the cash in lieu of fractional shares, to be
delivered in exchange for the surrendered Certificates.
The Exchange Agent shall return to WM, Inc. all shares of WM, Inc.
Common Stock and cash not previously paid to Olympus shareholders 90 days
following the Effective Time, and thereafter all former shareholders of Olympus
shall only be entitled to receive shares of WM, Inc. Common Stock (and any
cash in lieu of fractional shares) from WM, Inc. upon proper surrender of their
Certificates. Notwithstanding anything to the contrary herein, neither the
Exchange Agent nor WM, Inc. shall be liable to a holder of Olympus Common Stock
for any amount properly paid to a public official pursuant to any applicable
property, escheat or similar laws.
Notwithstanding anything in this Plan of Merger to the contrary,
shares of Olympus Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by holders who have voted their
shares against the Merger and shall have complied with the provisions of Part
13 of the Utah Revised Business Corporation Act relating to dissenting
shareholders shall not, if such Part 13 grants dissenter rights in the Merger
transaction, be converted into the right to receive the per share Merger
Consideration, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost the right to payment under such Part
13, in which case each such share shall thereupon be deemed to have been
converted at the Effective Time into the right to receive the per share Merger
Consideration, without any interest thereon.
7. Articles and Bylaws. At and after the Effective Time, the
Articles of Incorporation and Bylaws of WM, Inc. as in effect immediately prior
to the Effective Time shall continue to be the Articles of Incorporation and
Bylaws of the surviving corporation until amended in accordance with law.
8. Rights and Duties of the Surviving Corporation.
At the Effective Time, Olympus shall be merged with and into
WM, Inc., which shall be the surviving corporation and which shall continue to
be a Washington corporation. All assets, rights, privileges, powers,
franchises and property (real, personal and mixed) of Olympus shall be
automatically transferred to and vested in WM, Inc. as the surviving
corporation by virtue of the Merger
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without any deed or other document of transfer. The surviving corporation,
without any order or action on the part of any court or otherwise and without
any documents of assumption or assignment, shall hold and enjoy all of the
properties, franchises and interests, including appointments, powers,
designations, nominations and all other rights and interests as agent or other
fiduciary in the same manner and to the same extent as such rights, franchises
and interests and powers were held or enjoyed by WM, Inc. and Olympus,
respectively. The surviving corporation shall be responsible for all the
liabilities of every kind and description of both WM, Inc. and Olympus
immediately prior to the Effective Time, including liabilities for all debts,
obligations and contracts of WM, Inc. and Olympus, respectively, matured or
unmatured, whether accrued, absolute, contingent or otherwise and whether or
not reflected or reserved against on balance sheets, books or accounts or
records of either WM, Inc. or Olympus. All rights of creditors and other
obligees and all liens on property of either WM, Inc. or Olympus shall be
preserved and shall not be released or impaired.
8. Execution. This Plan of Merger may be executed in any number
of counterparts each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument.
Dated as of _______________, 1995.
Washington Mutual, Inc.
By ___________________________________
__________________, President
By ___________________________________
__________________, Secretary
Olympus Capital Corporation
By ___________________________________
__________________, President
By ___________________________________
__________________, Secretary
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Exhibit A-2
PLAN OF MERGER
(STOCK AND CASH TRANSACTION)
(OLYMPUS WITH AND INTO WM, INC.)
This Plan of Merger is made by and between Olympus Capital Corporation, a
Utah corporation ("Olympus") and Washington Mutual, Inc., a Washington
corporation ("WM, Inc.") in connection with the transactions described in an
Amended and Restated Agreement for Merger dated January 20, 1995 (the "Merger
Agreement") among WM, Inc., Washington Mutual Bank, a Washington chartered
stock savings bank ("WM Bank"), Washington Mutual Federal Savings Bank, a
federal savings association ("NFSB"), Olympus and Olympus' wholly-owned
subsidiary, Olympus Bank, a Federal Savings Bank ("Olympus Bank"). WM Bank and
NFSB are wholly-owned subsidiaries of WM, Inc. Capitalized terms not otherwise
defined herein shall have the meaning given them in the Merger Agreement. This
Plan of Merger, including related documents, is intended to constitute a "Plan
of Reorganization" as that term is used in section 354 of the Code. Further,
this Merger is intended to constitute a "Reorganization" as defined in section
368(a)(1)(A).
As of the date hereof, Olympus has authorized capital stock of [INSERT
THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER] (_________) shares of common
stock, par value $1.00 per share (the "Olympus Common Stock"). As of the date
hereof, [INSERT THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER]
(_____________) shares of Olympus Common Stock are issued and outstanding. As
of the date hereof, WM, Inc. has authorized capital stock of [INSERT THE NUMBER
OF SHARES AS OF THE DATE OF THE MERGER] (___________) shares of common stock,
no par value per share (the "WM, Inc. Common Stock"), and [INSERT THE NUMBER OF
SHARES AS OF THE DATE OF THE MERGER] (__________) shares of preferred stock, of
which [INSERT THE NUMBER OF SHARES AS OF THE DATE OF THE MERGER]
(_____________) shares of WM, Inc. Common Stock and [INSERT NUMBER AS OF DATE
OF MERGER] (___________) shares of WM, Inc. preferred stock are issued and
outstanding.
The boards of directors of Olympus and WM, Inc. have approved this Plan of
Merger (the "Plan of Merger") under which Olympus shall be merged with and into
WM, Inc. The Plan of Merger has been approved by the shareholders of Olympus.
Olympus and WM, Inc. hereby agree as follows:
<PAGE> 152
1. Merger. At and on the Effective Time of the Merger, Olympus shall
be merged with and into WM, Inc. in accordance with the terms hereof. WM, Inc.
shall be the surviving corporation.
2. Effective Time. The effective time ("Effective Time") of this
Merger shall be the date the articles of merger are both (a) filed with the
Secretary of State of the State of Washington and (b) delivered to the Division
of Corporations and Commercial Code of the State of Utah, or such later time or
date after such filing and delivery as specified in such articles.
3. Name. The name of the surviving corporation shall continue to
be "Washington Mutual, Inc."
4. Directors and Principal Officers. The directors and the
principal officers of WM, Inc. immediately prior to the Effective Time shall
continue to serve as directors and principal officers of the surviving
corporation after the Effective Time.
5. Terms and Conditions of Merger. At the Effective Time of the
Merger:
(a) Conversion of Olympus Common Stock. Subject to the
provisions below, at the Effective Time, each of the outstanding shares of
common stock, par value $1.00 per share, of Olympus ("Olympus Common Stock")
shall be converted into the right to receive shares of common stock, no par
value per share, of WM, Inc. ("WM, Inc. Common Stock") or cash, as described
below.
(i) Subject to the provisions hereof, holders of
all outstanding shares of Olympus Common Stock will receive per share
consideration equal to [INSERT $15.50, BUT IF THE MERGER CONSIDERATION HAS BEEN
ADJUSTED PURSUANT TO SECTION 1(C)(V) OF THE AGREEMENT, THEN INSERT THE MERGER
CONSIDERATION AS ADJUSTED] per share of Olympus Common Stock (the "Merger
Consideration"). ___________ percent (___%) (the "Stock Percentage") of the
aggregate Merger Consideration shall be paid in newly issued shares of WM, Inc.
Common Stock and __________ percent (___%) shall be paid in cash. The per
share value of WM, Inc. Common Stock for the purpose of paying the Merger
Consideration shall be the arithmetic average of the National Market System
Closing Price of WM, Inc. Common Stock for the ten (10) trading days
immediately preceding the third trading day before the Effective Date (the
"Average Price"). The term "National Market System Closing Price" means the
price per share of the last sale of WM, Inc. Common Stock reported on the
National Market System at the close of the trading day by the National
Association of Securities Dealers, Inc. The exchange ratio for determining the
number of shares of WM, Inc. Common Stock to be issued for each share of
Olympus Common Stock which is converted into the right to receive WM, Inc.
Common Stock (the "Exchange Ratio") shall be [INSERT DOLLAR AMOUNT OF MERGER
CONSIDERATION] divided by the Average Price. Computations of the Average Price
and of the Exchange Ratio shall be carried to five decimals and then rounded to
three decimals, rounding down if the
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fourth decimal is four or less or up if it is five or more. Cash will be paid
in lieu of fractional shares as provided in Section 5(c) below. The
determination of whether a share of Olympus Common Stock is to be converted
into the right to receive the Merger Consideration in the form of WM, Inc.
Common Stock or cash shall be made as provided in Section 5(a)(ii) below.
[If between the date of the Merger Agreement and the Effective Time,
the shares of WM, Inc. Common Stock shall be changed into a different number or
class of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if a stock dividend thereon shall be
declared with a record date within such period, the Average Price shall be
adjusted accordingly.]
(ii) An election form and other appropriate transmittal
materials as WM, Inc. and Olympus shall mutually agree ("Election Form") will
be sent twenty-seven (27) days before the anticipated Effective Time or on such
other date as WM, Inc. and Olympus shall mutually agree (the "Mailing Date") to
each holder of record of Olympus Common Stock as of five (5) business days
prior to the Mailing Date permitting such holder (or in the case of nominee
record holders, the beneficial owner through proper instructions and
documentation) (i) to elect to receive only WM, Inc. Common Stock with respect
to such holder's Olympus Common Stock as hereinabove provided (the "Stock
Election Shares"), (ii) to elect to receive only cash with respect to such
holder's Olympus Common Stock as hereinabove provided (the "Cash Election
Shares"), or (iii) to indicate that such holder makes no such election (the
"No-Election Shares"). Any shares of Olympus Common Stock with respect to
which the holder thereof shall not, as of the Election Deadline (as defined
below), have submitted to the Exchange Agent (as defined below), an effective,
properly completed Election Form shall be deemed to be No-Election Shares.
The term "Election Deadline", shall mean 5:00 p.m., Pacific Time, on
the 20th day following but not including the Mailing Date or such other date as
Olympus and WM, Inc. shall mutually agree upon. WM, Inc. shall make an
election form available to all persons who become holders of Olympus Common
Stock between the date five (5) business days prior to the Mailing Date and the
close of business on the day five (5) business days prior to the Election
Deadline; provided that Olympus will provide to the Exchange Agent in a timely
manner all information necessary to comply with this provision.
Any election to receive WM, Inc. Common Stock or cash shall have been
properly made only if the Exchange Agent shall have actually received a
properly completed Election Form by the Election Deadline. An Election Form
will be properly completed only if accompanied by certificates (or customary
affidavits and indemnities regarding the loss thereof) representing all shares
of Olympus Common Stock covered thereby. Any Election Form may be revoked or
changed by the person submitting such Election Form to
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the Exchange Agent at or prior to the Election Deadline. The certificate or
certificates representing Olympus Common Stock relating to any revoked Election
Form shall be promptly returned without charge to the person submitting the
Election Form to the Exchange Agent. The Exchange Agent shall have reasonable
discretion to determine when any election, modification or revocation is
received and whether any such election, modification or revocation has been
properly made.
Within five business days after the Election Deadline, the Exchange
Agent shall effectuate the allocation among holders of Olympus Common Stock of
rights to receive WM, Inc. Common Stock or cash in the Merger in accordance
with the Election Forms as follows (provided, however, that in no event shall
the Exchange Agent be required to effectuate the allocation prior to the
Effective Date):
(A) "Stock Limit" shall mean ___________ shares of WM,
Inc. Common Stock [INSERT A NUMBER OF SHARES DETERMINED BY (I)
MULTIPLYING THE STOCK PERCENTAGE BY THE MERGER CONSIDERATION, (II)
MULTIPLYING THAT RESULT BY THE NUMBER OF OLYMPUS COMMON SHARES
OUTSTANDING AT THE EFFECTIVE TIME AND (III) DIVIDING THAT RESULT BY
THE AVERAGE PRICE.] If the number of shares of WM, Inc. Common Stock
that would be issued upon the conversion into WM, Inc. Common Stock of
the Stock Election Shares is less than the Stock Limit, then:
(I) all Stock Election Shares will be converted into
the right to receive WM, Inc. Common Stock;
(II) the Exchange Agent will select first from
among the holders of No-Election Shares and then (if
necessary) from among the holders of Cash Election Shares, by
random selection (as described below), a sufficient number of
such holders ("Stock Designees") such that the number of
shares of WM, Inc. Common Stock that will be issued upon the
conversion into WM, Inc. Common Stock of shares of Olympus
Common Stock held by the Stock Designees will, when added to
the number of shares of WM, Inc. Common Stock that will be
issued upon the conversion of the Stock Election Shares, equal
as closely as practicable the Stock Limit, and all shares held
by the Stock Designees will be converted into the right to
receive WM, Inc. Common Stock, and
(III) the Cash Election Shares and the No-Election
Shares not held by Stock Designees will be converted into the
right to receive cash; or
(B) If the number of shares of WM, Inc. Common Stock that
would be issued upon the conversion into WM, Inc. Common Stock of the
Stock Election Shares is greater than the Stock Limit, then:
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(I) all Cash Election Shares and No-Election
Shares will be converted into the right to receive cash,
(II) the Exchange Agent will select from among the
holders of Stock Election Shares, by random selection (as
described below), a sufficient number of such holders to
receive cash ("Cash Designees") such that the number of shares
of WM, Inc. Common Stock that will be issued upon the
conversion of the Stock Election Shares not held by Cash
Designees will equal as closely as practicable the Stock
Limit, and all shares held by the Cash Designees will be
converted into the right to receive cash, and
(III) all Stock Election Shares not held by the
Cash Designees will be converted into the right to receive WM,
Inc. Common Stock; or
(C) If the number of shares of WM, Inc. Common Stock that
would be issued upon the conversion into WM, Inc. Common Stock of the
Stock Election Shares is equal or nearly equal to the Stock Limit,
then subparagraphs (A) and (B) above and subparagraph (D) below shall
not apply and all Stock Election Shares will be converted into the
right to receive WM, Inc. Common Stock and all Cash Election Shares
and No-Election Shares will be converted into the right to receive
cash; or
(D) If the number of shares of WM, Inc. Common Stock that
would be issued upon the conversion into WM, Inc. Common Stock of the
Stock Election Shares and No-Election Shares would equal or nearly
equal the Stock Limit, then subparagraphs (A), (B) and (C) above shall
not apply and all Cash Election Shares will be converted into the
right to receive cash and all Stock Election Shares and No-Election
Shares will be converted into the right to receive WM, Inc. Common
Stock.
The selection process to be used by the Exchange Agent shall consist
of such processes as shall be mutually determined by Olympus and WM, Inc. as
shall be further described in the Election Form.
(b) WM, Inc. Common Stock. Each share of WM, Inc. Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain outstanding and unchanged and shall continue to be owned by the
stockholder thereof.
(c) No Fractional Shares. Notwithstanding any term or
provision hereof, no fractional shares of WM, Inc. Common Stock, and no
certificates or scrip therefor, or other evidence of ownership thereof, shall
be issued in exchange for any shares of Olympus Common Stock; no dividend or
distribution with respect to WM, Inc. Common Stock shall be payable on or with
respect to any fractional share interests; and no such fractional share
interest shall entitle the owner thereof to vote or to any other rights of
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<PAGE> 156
a stockholder of WM, Inc. In lieu of such fractional share interests, any
holder of Olympus Common Stock who would otherwise be entitled to a fractional
share of WM, Inc. Common Stock will, upon surrender of his certificate or
certificates representing Olympus Common Stock outstanding immediately prior to
the Effective Time, be paid the cash value of such fractional share interest,
which shall be equal to the product of the fraction multiplied by the Average
Price. For the purposes of determining any such fractional share interests,
all shares of Olympus Common Stock owned by a Olympus stockholder shall be
combined so as to calculate the maximum number of whole shares of WM, Inc.
Common Stock issuable to such Olympus stockholder.
(d) [FOLLOWING PROVISION TO BE ADDED IF THE AMENDMENT
DESCRIBED IN SECTION 1(D)(II) OF THE MERGER AGREEMENT IS ADOPTED.] Stock
Options. At the Effective Time, the Stock Option Plans shall become separate
plans of WM, Inc., and each option shall be automatically converted into a
fully vested option to acquire WM, Inc. Common Stock. Each option to acquire
Olympus Common Stock shall become an option to acquire the number of shares of
WM, Inc. Common Stock determined by multiplying (i) the number of shares of
Olympus Common Stock covered by such option by (ii) the Stock Option Exchange
Ratio. The Stock Option Exchange Ratio shall be [INSERT THE DOLLAR AMOUNT OF
MERGER CONSIDERATION] the Merger Consideration divided by the Average Price.
The price at which each option to acquire a share of WM, Inc. Common Stock
shall be exercisable shall be determined by dividing (i) the exercise price of
the option to acquire Olympus Common Stock by (ii) the Stock Option Exchange
Ratio. Calculation of the number of shares and the exercise price shall each be
carried out to four decimals and then rounded to two decimals, rounding down if
the third decimal is four or less or up if it is five or more. (So that, by
way of example, if the Stock Option Exchange Ratio is .50 and a person has an
option to acquire 1,000 shares of Olympus Common Stock at $7.00 per share, then
at the Effective Time, the option will be converted into an option to acquire
500 shares of WM, Inc. Common Stock at $14.00.)
6. Method of Effectuation; Exchange of Certificates. Prior to
the Effective Time, WM, Inc. shall designate a bank or trust company to act as
an exchange and payment agent (the "Exchange Agent") in connection with the
Merger. Prior to or at the Effective Time, WM, Inc. shall deposit with the
Exchange Agent certificates representing the shares of WM, Inc. Common Stock to
be received by shareholders of Olympus, together with cash sufficient to pay
the cash percentage of the aggregate Merger Consideration multiplied by the
number of outstanding shares of Olympus Common Stock in an interest-bearing
account controlled by the Exchange Agent. Upon completion of the allocation
procedures described in Section 5(a)(ii) above, WM, Inc. shall, if necessary,
deposit with the Exchange Agent any additional shares of WM, Inc. Common Stock
in exchange for cash or deposit with the Exchange Agent any additional cash in
exchange for WM, Inc. Common Stock, as may be required to effect the conversion
of Olympus Common Stock as contemplated hereby.
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As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each person who did not submit to the Exchange Agent an
effective, properly completed and unrevoked Election Form and who was, at the
Effective Time, a holder of record of Olympus Common Stock a letter of
transmittal (which shall specify that delivery of certificates which
immediately prior to the Effective Time represented outstanding shares of
Olympus Common Stock (the "Certificates") shall be effected, and risk of loss
and title to the Certificates shall pass, only upon receipt of the Certificates
by the Exchange Agent) and instructions for effecting the surrender of the
Certificates. Upon surrender to the Exchange Agent of the Certificates,
together with such letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, and such other documents as may be
reasonably requested, the Exchange Agent shall promptly deliver to the person
entitled thereto a certificate representing the number of shares of WM, Inc.
Common Stock such holder is entitled to receive pursuant to this Plan of
Merger, and the cash portion of the Merger Consideration that such holder is
entitled to receive pursuant to this Plan of Merger. All Certificates so
surrendered shall be cancelled. Until so surrendered and exchanged, each
Certificate shall, after the Effective Time, be deemed to evidence only the
right to receive the number of shares of WM, Inc. Common Stock and the amount
of cash to which such holder is entitled to pursuant to Section 5 hereof.
No dividends or other distributions declared after the Effective Time
with respect to shares of WM, Inc. Common Stock and payable to the holders of
record thereof after the Effective Time shall be paid to the holder of any
unsurrendered Certificate until the holder thereof surrenders such Certificate.
Subject to the effect of any applicable escheat laws and unclaimed property
laws, after the subsequent surrender and exchange of a Certificate, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to the WM, Inc. Common Stock for which such Certificate
was exchangeable.
If delivery of shares of WM, Inc. Common Stock or any cash is to be
made to a person other than the person in whose name a surrendered Certificate
is registered, it shall be a condition of such delivery that the Certificate so
surrendered be properly endorsed (or accompanied by an appropriate instrument
of transfer) and otherwise be in proper form for transfer and that the person
requesting such delivery shall have paid any transfer and other taxes required
by reason of such delivery to a person other than the registered holder of the
surrendered Certificate or shall have established to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
At the Effective Time, the stock transfer books of Olympus shall be
closed and there shall be no further registration of transfers of shares of
Olympus Common Stock thereafter on the records of Olympus. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to the
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shares of Olympus Common Stock represented thereby immediately prior to the
Effective Time except as provided herein.
No interest shall be paid or accrue on or in respect of any portion of
the WM, Inc. Common Stock or any cash to be delivered in exchange for the
surrendered Certificates.
The Exchange Agent shall return to WM, Inc. all shares of WM, Inc.
Common Stock and cash not previously paid to Olympus shareholders 90 days
following the Effective Time, and thereafter all former shareholders of Olympus
shall only be entitled to receive shares of WM, Inc. Common Stock and cash
from WM, Inc. upon proper surrender of their Certificates. Notwithstanding
anything to the contrary herein, neither the Exchange Agent nor WM, Inc. shall
be liable to a holder of Olympus Common Stock for any amount properly paid to a
public official pursuant to any applicable property, escheat or similar laws.
Notwithstanding anything in this Plan of Merger to the contrary,
shares of Olympus Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by holders who have voted their
shares against the Merger and shall have complied with the provisions of Part
13 of the Utah Revised Business Corporation Act relating to dissenting
shareholders shall not be converted into the right to receive the per share
Merger Consideration, unless and until such holder shall have failed to perfect
or shall have effectively withdrawn or lost the right to payment under such
Part 13, in which case each such share shall thereupon be deemed to have been
converted at the Effective Time into the right to receive the per share Merger
Consideration, without any interest thereon.
7. Articles and Bylaws. At and after the Effective Time, the
Articles of Incorporation and Bylaws of WM, Inc. as in effect immediately prior
to the Effective Time shall continue to be the Articles of Incorporation and
Bylaws of the surviving corporation until amended in accordance with law.
8. Rights and Duties of the Surviving Corporation.
At the Effective Time, Olympus shall be merged with and into
WM, Inc., which shall be the surviving corporation and which shall continue to
be a Washington corporation. All assets, rights, privileges, powers,
franchises and property (real, personal and mixed) of Olympus shall be
automatically transferred to and vested in the surviving corporation by virtue
of the Merger without any deed or other document of transfer. The surviving
corporation, without any order or action on the part of any court or otherwise
and without any documents of assumption or assignment, shall hold and enjoy all
of the properties, franchises and interests, including appointments, powers,
designations, nominations and all other rights and interests as agent or other
fiduciary in the same manner and to the same extent as such rights, franchises
and interests and powers were held or enjoyed by WM, Inc. and Olympus,
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respectively. The surviving corporation shall be responsible for all the
liabilities of every kind and description of both WM, Inc. and Olympus
immediately prior to the Effective Time, including liabilities for all debts,
obligations and contracts of WM, Inc. and Olympus, respectively, matured or
unmatured, whether accrued, absolute, contingent or otherwise and whether or
not reflected or reserved against on balance sheets, books or accounts or
records of either WM, Inc. or Olympus. All rights of creditors and other
obligees and all liens on property of either WM, Inc. or Olympus shall be
preserved and shall not be released or impaired.
8. Execution. This Plan of Merger may be executed in any number
of counterparts each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument.
Dated as of _______________, 1995.
Washington Mutual, Inc.
By ___________________________________
__________________, President
By ___________________________________
__________________, Secretary
Olympus Capital Corporation
By ___________________________________
__________________, President
By ___________________________________
__________________, Secretary
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APPENDIX B
PERSONAL AND CONFIDENTIAL
- -------------------------
March __, 1995
DRAFT 3/2/95
============
Board of Directors
Olympus Capital Corporation
115 South Main Street
Salt Lake City, UT 84111
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"),
of Olympus Capital Corporation (the "Company") of the Consideration, as defined
below, to be received for each Share by such holders pursuant to the Amended
and Restated Agreement for Merger dated as of January 20, 1995 among Washington
Mutual, Inc. ("Washington Mutual"), Washington Mutual Bank and Washington
Mutual Federal Savings Bank, both wholly-owned subsidiaries of Washington
Mutual, the Company and Olympus Bank, a Federal Savings Bank, a wholly-owned
subsidiary of the Company (the "Agreement"). Pursuant to the Agreement, the
Company will be merged with and into Washington Mutual (the "Merger") and
holders of the Shares will receive $15.50 per share, subject to certain
adjustments (the "Consideration"), in shares of Common Stock, no par value, of
Washington Mutual (the "Washington Mutual Common Stock"). The Washington
Mutual Common Stock to be received by holders of the Shares will be determined
by dividing $15.50 by the average price per share of the last sale of
Washington Mutual Common Stock as reported by the National Association of
Securities Dealers, Inc. for the ten trading days immediately preceding the
third trading day before the Merger (the "Average Price"). The Consideration
is subject to increase if the Merger is not consummated by April 30, 1995 by an
amount equal to (i) $0.775 (five percent of $15.50) multiplied by (ii) a
fraction, the numerator of which is the number of days elapsed between April
30, 1995 and the date of the Merger and the denominator of which is 365.
Furthermore, if the Average Price is less than $18.00, then Washington Mutual
may elect to pay up to 49% of the aggregate Consideration with cash. In such
case, holders of the Shares may elect to receive the Consideration in either
cash or Washington Mutual Common Stock, subject to certain allocation
procedures as detailed in the Agreement. No certificates for fractional shares
of Washington Mutual Common Stock will be issued as a result of the Merger.
Instead, each stockholder otherwise entitled to a fractional share will receive
cash in lieu of a fractional share.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwirtings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company, having acted as its financial advisor in connection
with the Merger and having participated in certain of the negotiations leading
to the Agreement. We have also provided certain
<PAGE> 161
Olympus Capital Corporation
March __, 1995
Page Two
investment banking services to Washington Mutual from time to time and may
provide investment banking services to Washington Mutual in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4 under the Securities Act of
1933, including the Proxy Statement/Prospectus; Annual Reports to Stockholders
and Form 10-K Annual Reports of the Company for the five years ended December
31, 1993; Annual Reports to Stockholders and Annual Reports to the FDIC, Form
F-2, of Washington Mutual for the five years ended December 31, 1993; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company; certain interim reports to stockholders and Quarterly Reports to the
FDIC, Form F-4, of Washington Mutual; certain other communications from the
Company and Washington Mutual to their respective stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior
managements of the Company and Washington Mutual regarding the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Shares, compared certain financial and stock market
information for the Company with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the banking industry specifically and
in other industries generally and performed such other studies and analyses as
we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, projections
regarding underperforming and nonperforming assets and net chargeoffs have been
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the Company and that such forecasts will be realized
in the amounts and at the times contemplated thereby. We are not experts in
the evaluation of loan and lease portfolios for the purposes of assessing the
adequacy of the allowances for losses with respect thereto and have assumed,
with your consent, that such allowances for each of the Company and
Washington Mutual are in the aggregate adequate to cover all such losses. In
addition, we have not reviewed individual credit files nor have we made an
independent evaluation or appraisal of the assets and liabilities of the
Company or Washington Mutual or any of their respective subsidiaries.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the
Consideration to be received by the holders of Shares pursuant to the Agreement
is fair to such holders.
Very truly yours,
/s/
------------------------
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APPENDIX C
(CONFORMED COPY)
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), dated as of July 22,
1994, is made by and between Olympus Capital Corporation, a savings and loan
holding company organized under the laws of Utah ("Olympus"), and Washington
Mutual Savings Bank, a Washington stock savings bank ("WMSB").
Concurrently with the execution hereof, Olympus, Olympus Savings Bank,
a Federal Savings Bank ("Olympus Bank"), WMSB and Washington Mutual Federal
Savings Bank, a federal savings association ("NFSB") have executed a certain
Agreement for Merger (the "Merger Agreement") which would result in the merger
of Olympus with and into WMSB (the "Merger") and the subsequent merger of
Olympus Bank with and into NFSB (the "Bank Merger").
It is understood and acknowledged that by negotiating and executing
the Merger Agreement and by taking actions necessary or appropriate to effect
the transactions contemplated by the Merger Agreement, WMSB and NFSB have
incurred and will incur substantial direct and indirect costs (including
without limitation the costs of management and employee time) and will forgo
the pursuit of certain alternative investments and transactions.
THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement, the parties hereto agree as follows:
1. Grant of Option. Subject to the terms and conditions set
forth herein, Olympus hereby irrevocably grants an option (the "Option") to
WMSB to purchase an aggregate of 306,864 authorized but unissued shares of
Olympus' Common Stock, $1.00 par value (the "Common Stock") (which represents
9.9% of total stock issued and outstanding), at a per share price of $13.6125
(the "Option Price"), which was the average closing sales price for the 10
trading days up to and including July 21, 1994 for the Common Stock on the
NASDAQ/National Market System.
2. Exercise of Option. Subject to the provisions of this Section
2 and of Section 14(a) of this Agreement, this Option may be exercised by WMSB
or any transferee as set forth in Section 5 of this Agreement, in whole or in
part, at any time, or from time to time in any of the following circumstances:
(a) Olympus, Olympus Bank or either of their respective
boards of directors enter into an agreement or recommends to their respective
shareholders an agreement (other than the Merger Agreement) pursuant to which
any entity, person or group, within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (any of the
foregoing hereinafter in this Section 2, a "Person") would: (i) merge or
consolidate with, acquire 51 percent (51%) or more of the assets or liabilities
of, or enter into any similar transaction with Olympus or Olympus Bank, or (ii)
purchase or otherwise acquire (including by merger, consolidation, share
exchange or any similar transaction) securities representing ten percent (10%)
or more of the voting shares of Olympus or Olympus Bank;
(b) any Person (other than NFSB or WMSB and other than
any Person owning as of the date hereof ten percent or more of the voting
shares of Olympus) acquires the beneficial ownership or the right to acquire
beneficial ownership of securities representing ten percent (10%) or more of
the voting shares of Olympus (the term "beneficial ownership" for purposes of
this Agreement shall have the meaning set forth in Section 13(d) of the
Exchange Act, and the regulations promulgated thereunder); provided, however,
notwithstanding the foregoing, the Option shall not be exercisable in the
circumstances described above in this subsection (b) if (x) a Person acquires
the beneficial ownership of securities representing ten percent (10%) or more
but less than 25 percent (25%) of the voting shares of Olympus, (y) such Person
files a complete submission in accordance with 12 C.F.R. Section 574.4(e)(1)
prior to acquiring beneficial ownership of securities representing ten percent
(10%) or more of the voting shares of Olympus, and (z) such submission is
accepted or deemed accepted by the Office of Thrift Supervision in accordance
with 12 C.F.R. Section 574.4(e)(3), before such Person acquires beneficial
ownership of securities representing ten percent (10%) or more of the voting
shares of Olympus, that such ownership will not result in control; or
(c) failure of the board of directors of Olympus to recommend,
or withdrawal by the board of directors of a prior recommendation of, the
Merger to the shareholders, or failure of the shareholders to approve the
Merger by the required affirmative vote at a meeting of the shareholders, after
any Person (other than WMSB or NFSB) announces publicly or communicates, in
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writing, to Olympus a proposal to (i) acquire Olympus or Olympus Bank (by
merger, consolidation, the purchase of 51 percent (51%) or more of its assets
or liabilities or any other similar transaction), (ii) purchase or otherwise
acquire securities representing 25 percent (25%) or more of the voting shares
of Olympus or (iii) change the composition of the board of directors of
Olympus.
It is understood and agreed that the Option shall become exercisable
upon the occurrence of any of the above-described circumstances even though the
circumstance occurred as a result, in part or in whole, of the boards of
Olympus or Olympus Bank complying with their fiduciary duties.
Notwithstanding the foregoing, the Option may not be exercised if
either (A) any applicable and required governmental approvals have not been
obtained with respect to such exercise or if such exercise would violate any
applicable regulatory restrictions, or (B) at the time of exercise WMSB or NFSB
is failing in any material respect to perform or observe its covenants or
conditions under the Merger Agreement unless the reason for such failure is
that Olympus is failing to perform or observe its covenants or conditions under
the Merger Agreement.
3. Notice, Time and Place of Exercise. Each time that WMSB or
any transferee wishes to exercise any portion of the Option, WMSB or such
transferee shall give written notice of its intention to exercise the Option
specifying the number of shares as to which the Option is being exercised
("Option Shares") and the place and date for the closing of the exercise (which
date shall be not later than ten (10) business days from the date such notice
is mailed). If any law, regulation or other restriction will not permit such
exercise to be consummated during such ten-day period, the date for the closing
of such exercise shall be within five (5) days following the cessation of such
restriction on consummation.
4. Payment and Delivery of Certificate(s). At any closing for an
exercise of the Option or any portion thereof, (a) WMSB and Olympus will each
deliver to the other certificates of their respective chief executive officers
as to the accuracy, as of the closing date, of their respective representations
and warranties hereunder, (b) WMSB or the transferees will pay the aggregate
purchase price for the shares of Common Stock to be purchased by delivery of a
certified or bank cashier's check in immediately available funds payable to the
order of Olympus, and (c) Olympus will deliver to WMSB or the transferees a
certificate or certificates representing the shares so purchased.
5. Transferability of the Option and Option Shares. Prior to the
time the Option, or a portion thereof, becomes exercisable pursuant to the
provisions of Section 2 of this Agreement, neither the Option nor any portion
thereof shall be transferable. Upon the occurrence of any of the events or
circumstances set forth in Sections 2(a) through (c) above, the Option or any
portion thereof or any of the Option Shares may be freely transferred by WMSB,
subject to applicable federal and state securities laws.
For purposes of this Agreement, a merger or consolidation of WMSB
(whether or not WMSB is the surviving entity) or an acquisition of WMSB shall
not be deemed a transfer.
6. Representations, Warranties and Covenants of Olympus. Olympus
hereby represents, warrants, and covenants to WMSB as follows:
(a) Due Authorization. This Agreement has been duly
authorized by all necessary corporate action on the part of Olympus,has been
duly executed by a duly authorized officer of Olympus and, subject to any
necessary amendments to Olympus' articles of incorporation, constitutes a valid
and binding obligation of Olympus. No shareholder approval by Olympus
shareholders is required by applicable law or otherwise prior to the exercise
of the Option in whole or in part.
(b) Option Shares. Except for any necessary amendments
to its articles of incorporation, Olympus has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and at all
times from the date hereof to such time as the obligation to deliver shares
hereunder terminates will have reserved for issuance, at the closing(s) upon
exercise of the Option, or any portion thereof, the Option Shares (subject to
adjustment, as provided in Section 9 below), all of which, upon issuance
pursuant hereto and after any necessary amendments to Olympus' articles of
incorporation, shall be duly and validly issued, fully paid and nonassessable,
and shall be delivered free and clear of all claims, liens, encumbrances and
security interests, including any preemptive right of any of the shareholders
of Olympus.
(c) No Conflicts. Subject to any necessary amendments to
Olympus' articles of incorporation, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate or result in any violation of or be in conflict with or constitute a
default under any term of the articles of incorporation or bylaws of Olympus or
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any agreement, instrument, judgment, decree, law, rule or order applicable to
Olympus or any subsidiary of Olympus or to which Olympus or any such subsidiary
is a party.
(d) Notification of Record Date. At any time from and
after the date of this Agreement until such time as the Option is no longer
exercisable, Olympus shall give WMSB or any transferee thirty (30) days prior
written notice before setting the record date for determining the holders of
record of the Common Stock entitled to vote on any matter, to receive any
dividend or distribution or to participate in any rights offering or other
matters, or to receive any other benefit or right, with respect to the Common
Stock.
7. Representations, Warranties and Covenants of WMSB. WMSB
hereby represents, warrants and covenants to Olympus as follows:
(a) Due Authorization. This Agreement has been duly
authorized by all necessary corporate action on the part of WMSB, has been duly
executed by a duly authorized officer of WMSB and constitutes a valid and
binding obligation of WMSB.
(b) Transfers of Common Stock. No shares of Common Stock
acquired upon exercise of the Option will be transferred except in a
transaction registered or exempt from registration under any applicable
securities laws.
(c) No Conflicts. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will violate or result in any violation of or be in conflict with or constitute
a default under any term of the charter documents or bylaws of WMSB or any
agreement, instrument, judgment, decree, law, rule or order applicable to WMSB
or any subsidiary of WMSB or to which WMSB or any such subsidiary is a party.
8. Adjustment Upon Changes in Capitalization. In the event of
any change in the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares or the like, the
number and kind of shares or securities subject to the Option and the purchase
price per share of Common Stock shall be appropriately adjusted. If prior to
the termination or exercise of the Option Olympus shall be acquired by another
party, consolidate with or merge into another corporation or liquidate, WMSB or
any transferee shall thereafter receive upon exercise of the Option the
securities or properties to which a holder of the number of shares of Common
Stock then deliverable upon the exercise thereof would have been entitled upon
such acquisition, consolidation, merger or liquidation, and Olympus shall take
such steps in connection with such acquisition, consolidation, merger or
liquidation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be practicable, in
relation to any securities or property thereafter deliverable upon exercise of
the Option.
9. Registration Under Applicable Securities Laws. Upon the
written request of WMSB or any transferee, Olympus agrees (i) to use all
reasonable efforts to effect a registration for WMSB and any transferees under
the Securities Act of 1933 (the "Securities Act"), if applicable, any other
applicable federal law or regulation and any applicable state securities laws
covering any part or all of the Option Shares owned by WMSB or any transferee,
no later than one hundred twenty (120) days after WMSB or any transferee
requests such registration and (ii) to include any part or all of the Option
Shares in any registration filed by Olympus under the Securities Act and any
other applicable federal law or regulation and in any related applicable state
securities laws, registrations or applications in which such inclusion is
appropriate under applicable rules and regulations of the Securities and
Exchange Commission, unless, in the written opinion of securities law counsel
to Olympus, addressed to WMSB or any transferee, (a) WMSB would be able to
dispose of all of the Option Shares owned by it pursuant to Rule 144 or Rule
144A under the Securities Act within three (3) months of such opinion, or (b)
registration is not otherwise required for the sale and distribution of such
Option Shares. The registration effected under this Section 9 shall be
effected at Olympus' expense except for any underwriting commissions, fees and
disbursements of WMSB's counsel and other experts and filing fees attributable
to Option Shares provided that such fees and expenses to be paid by Olympus
shall not exceed $100,000. In connection with registration under this Section
9, the parties agree to indemnify each other in the customary manner, and, in
the case of an organized secondary or primary underwritten offering, Olympus
agrees to indemnify WMSB or any transferee and the underwriters, and WMSB or
any transferee agrees to indemnify Olympus and the underwriters, in the manner
and to such extent as is customary in such secondary or primary underwritten
offering. In the event of any demand for registration pursuant to clause (i)
above, Olympus may delay the filing of such registration statement for a period
of up to ninety (90) days if, in the good faith judgment of Olympus' Board of
Directors, such delay is necessary in order to avoid interference with a
planned material transaction involving Olympus. With respect to any
registration pursuant to clause (ii) above, if such registration relates to a
firm commitment underwriting of securities to be sold by Olympus, Olympus may
decline to include all or any portion of the Option Shares owned by WMSB or any
transferee if the inclusion of such shares would, in the judgment of the
managing underwriter in such underwriting, materially interfere therewith.
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Olympus may also decline to include any portion of the Option Shares owned by
WMSB or any transferee with respect to any registration pursuant to clauses (i)
and (ii) above to the extent necessary to comply with the requirements for
required or incidental registration pursuant to Registration Rights Agreements
among Olympus and certain investors dated November 10, 1992.
10. Nonassignability. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the successors of each of the
undersigned. This Agreement and any right hereunder shall not be assignable by
either party except that WMSB may transfer the Option, the Option Shares or any
portion thereof in accordance with Section 5. A merger or consolidation of
WMSB (whether or not WMSB is the surviving entity) or an acquisition of WMSB
shall not be deemed an assignment or transfer.
11. Regulatory Restrictions. Olympus shall use its best efforts
to obtain or to cooperate with WMSB or any transferee in obtaining all
necessary regulatory consents, approvals, waivers or other action (whether
regulatory, corporate or other) to permit the acquisition of any or all Option
Shares by WMSB or any transferee.
12. Remedies. Olympus agrees that if for any reason WMSB or any
transferee shall have exercised its rights under this Agreement and Olympus
shall have failed to issue the Option Shares to be issued upon such exercise or
to perform its other obligations under this Agreement, unless such action would
violate any applicable law or regulation by which Olympus is bound, then WMSB
or any transferee shall be entitled to specific performance and injunctive and
other equitable relief. WMSB agrees that if it shall fail to perform any of
its obligations under this Agreement, then Olympus shall be entitled to
specific performance and injunctive and other equitable relief. This provision
is without prejudice to any other rights that Olympus or WMSB or any transferee
may have against the other party for any failure to perform its obligations
under this Agreement.
13. No Rights as Stockholder. This Option, prior to the exercise
thereof, shall not entitle the holder hereof to any rights as a stockholder of
Olympus at law or in equity; specifically this Option shall not entitle the
holder to vote on any matter presented to the stockholders of Olympus or to any
notice of any meetings of stockholders or any other proceedings of Olympus.
14. Miscellaneous.
(a) Termination. This Agreement and the Option, to the
extent not previously exercised, shall terminate upon the earliest of (i) June
30, 1995; (ii) the mutual agreement of the parties hereto; (iii) thirty-one
(31) days after the date on which any application for regulatory approval for
the Merger shall have been denied; provided, however, that if prior to the
expiration of such 31-day period, Olympus, WMSB or NFSB is engaged in
litigation or an appeal procedure relating to an attempt to obtain approval of
the Merger or the Bank Merger, this Agreement will not terminate until the
earlier of (a) June 30, 1995, or (b) thirty-one (31) days after the completion
of such litigation and appeal procedure; (iv) the thirtieth (30th) day
following the termination of the Merger Agreement for any reason other than a
material noncompliance or default by WMSB with respect to its obligations
thereunder; or (v) the date of termination of the Merger Agreement if such
termination is due to a material noncompliance or default by WMSB with respect
to its obligations thereunder; provided, however, that if the Option has been
exercised, in whole or in part, prior to the termination of this Agreement,
then such exercise shall close pursuant to Section 4 hereof even though such
closing date is after the termination of this Agreement; and provided, further,
that if the Option is sold prior to the termination of this Agreement, such
Option may be exercised by the transferee at any time within thirty-one (31)
days after the date of termination even though such exercise and/or the closing
of such exercise occurs after the termination of this Agreement.
(b) Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) Severability of Terms. Any provision of this
Agreement that is invalid, illegal, or unenforceable shall be ineffective only
to the extent of such invalidity, illegality, or unenforceability without
affecting in any way the remaining provisions hereof or rendering any other
provisions of this Agreement invalid, illegal or unenforceable. Without
limiting the generality of the foregoing, if the right of WMSB or any
transferee to exercise the Option in full for the total number of shares of
Common Stock or other securities or property issuable upon the exercise of the
Option is limited by applicable law, or otherwise, WMSB or any transferee may,
nevertheless, exercise the Option to the fullest extent permissible.
(d) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if so given) by delivery, by cable,
telecopies, or telex, or by registered or certified mail, postage prepaid,
return receipt requested, to the respective parties as follows:
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If to Olympus:
Olympus Capital Corporation
115 South Main Street
Salt Lake City, Utah 84111
Attention: A. Blaine Huntsman
With copies to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue N.W., Suite 800
Washington, D. C. 20007-2505
Attention: Thomas P. Vartanian
If to WMSB:
Washington Mutual Savings Bank
1201 Third Avenue, Suite 1500
Seattle, Washington 98101
Attention: Craig E. Tall
With copies to:
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attention: Fay L. Chapman
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(e) Governing Law. This Agreement and the Option, in all
respects, including all matters of construction, validity and performance, are
governed by the internal laws of the State of Washington by citizens of such
state to be performed wholly within such state without giving effect to the
principles of conflicts of law thereof. This Agreement is being delivered in
Seattle, Washington.
(f) Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(g) Effects of Headings. The section headings herein are
for convenience only and shall not affect the construction hereof.
DATED as of the day first written above.
OLYMPUS CAPITAL CORPORATION
By: /s/ A. Blaine Huntsman
----------------------------------------
Its Chairman and CEO
-------------------------------------
WASHINGTON MUTUAL SAVINGS BANK
By: /s/ Craig E. Tall
----------------------------------------
Its Executive Vice President
-------------------------------------
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APPENDIX D
UTAH REVISED BUSINESS CORPORATION ACT, PART 13
DISSENTERS' RIGHTS
16-10A-1301. DEFINITIONS.
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholders.
(2) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 16-10a-1302 and who exercises that right
when and in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the statutory rate set forth in
Section 15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent the beneficial owner
is recognized by the corporation as the shareholder as provided in Section
16-10a-723.
16-10A-1302. RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent from, any obtain payment of the fair value of shares held by him in the
event of, any of the following corporate actions:
(a) consummation of a plan of merger to which the
corporation is a party if:
(i) shareholder approval is required for the
merger by Section 16-10-a-1103 or the articles of
incorporation; or
(ii) the corporation is a subsidiary that is
merged with its parent under Section 16-10a-1104;
(b) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired;
(c) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of the
corporation for which a shareholder vote is required under Subsection
16-10a-1202(1), but not including a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of
sale; and
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(d) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of an entity
controlled by the corporation if the shareholders of the corporation
were entitled to vote upon the consent of the corporation to the
disposition pursuant to Subsection 16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the
fair value of his shares in the event of any other corporate action to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors so provides.
(3) Notwithstanding the other provisions of this part, except to
the extent otherwise provided in the articles of incorporation, bylaws, or a
resolution of the board of directors, and subject to the limitations set forth
in Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (10) of the fair value of the shares of any class or series of
shares which either were listed on a national securities exchange registered
under the federal Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of Securities Dealers
Automated Quotation System, or where held of record by more than 2,000
shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to
determine the shareholders entitled to receive notice of the
shareholders' meeting at which the corporation action is submitted to
a vote:
(b) the record date fixed under section 16-10a-704 to
determine shareholders entitled to sign writings consenting to the
proposed corporate action; or
(c) the effective date of the corporate action if the
corporate action is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if
the shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation
of the plan of merger or share exchange;
(b) shares of a corporation which at the effective date
of the plan of merger or share exchange either will be listed on a
national securities exchange registered under the federal Securities
Exchange Act of 1934, as amended, or on the National Market System, or
will be held of record by more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection
(94), or cash in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this party may not challenge the corporate action creating the
entitlement unless the action is unlawful or fraudulent with respect to him or
to the corporation.
16-10A-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name and
address of each person on whose behalf dissenters' rights are being asserted.
The rights of a partial dissenter under this subsection are determined as if
the shares as to which the shareholder dissents and the other shares held of
record by him were registered in the names of different shareholders.
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<PAGE> 169
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) the beneficial shareholder causes the corporation to
receive the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder assets dissenters'
rights; and
(b) the beneficial shareholder dissents with respect to
all shares of which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each beneficial shareholder must certify to the corporation that
both he and the record shareholder of all shares owned beneficially by him have
asserted, or will timely assert, dissenters' rights as to all the shares
unlimited on the ability to exercise dissenters' rights. The certification
requirement must be stated in the dissenters' notice given pursuant to section
16-10a-1322.
16-10A-1320. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is submitted to a vote at a shareholders' meeting,
the meeting notice must be sent to all shareholders of the corporation as of
the applicable record date, whether or not they are entitled to vote at the
meeting. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this part. The notice must be accompanied by a
copy of this part and the materials, if any, that under this chapter are
required to be given the shareholders entitled to vote on the proposed action
at the meeting. Failure to give notice as required by this subsection does not
affect any action taken at the shareholders' meeting for which the notice was
to have been given.
(2) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of shareholders
pursuant to Section 16-10a-704, any written or oral solicitation of a
shareholder to execute a written consent to the action contemplated by Section
16-10a-704 must be accompanied or preceded by a written notice stating that
shareholders are or may be entitled to assert dissenters' rights under this
part, by a copy of this part, and by the materials, if any, that under this
chapter would have been required to be given to shareholders entitled to vote
on the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to given written notice as provided by this
subsection does not affect any action taken pursuant to Section 16-10a-704 for
which the notice was to have been given.
16-10A-1321. DEMAND FOR PAYMENT -- ELIGIBILITY AND NOTICE OF INTENT.
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the
vote is taken, written notice of his intent to demand payment for
shares if the proposed action is effectuated; and
(b) may not vote any of his shares in favor of the
proposed action.
(2) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of shareholders
pursuant to Section 16-10a-704, a shareholder who wishes to assert dissenters'
rights may not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares this part,
unless otherwise provided in the articles of incorporation, bylaws, or a
resolution adopted by the board of directors, a shareholder must have been a
shareholder with respect to the shares for which payment is demanded as of the
date the proposed corporate action creating dissenters' rights under Section
16-10a-1302 is approved by the shareholders, if shareholder approval is
required, or as of the effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
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<PAGE> 170
(4) A shareholder who does not satisfy the requirements of
Subsections (1) through (3) is not entitled to payment for shares under this
part.
16-10A-1322. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent
no later than ten days after the effective date of the corporate action
creating dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and
the effective date or proposed effective date of the corporate action;
(b) state an address at which the corporation will
receive payment demands and an address at which certificates for
certificated shares must be deposited;
(c) inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment
demand is received;
(d) supply a form for demanding payment, which form
requests a dissenter to state an address to which payment is to be
made;
(e) set a date by which the corporation must receive the
payment demand and by which certificates for certificated shares must
be deposited at the address indicated in the dissenters' notice, which
dates may not be fewer than 30 nor more than 70 days after the date
the dissenters' notice required by Subsection (1) is given;
(f) state the requirement contemplated by Subsection
16-10a-1303(3), if the requirement is imposed; and
(g) be accompanied by a copy of this part.
16-10A-1323. PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice described in
Section 16-10a-1322, who meets the requirements of Section 16-10a-1321, and
wishes to assert dissenters' rights must, in accordance with the terms of the
dissenters notice:
(a) cause the corporation to receive a payment demand,
which may be the payment demand form contemplated in Subsection 16-
10a-1322(2)(d), duly completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in
accordance with the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters'
notice described in Section 16-10a-1322, as contemplated by Section
16-10a-1327, certify in writing, in or with the payment demand,
whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before the date of
the first announcement to news media or to shareholders of the terms
of the proposed corporate action creating dissenters' rights under
Section 16-10a-1302.
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<PAGE> 171
(2) A shareholder who demands payment in accordance with
Subsection (1) retains all rights of a shareholder except the right to transfer
the shares until the effective date of the proposed corporate action giving
rise to the exercise of dissenters' rights and has only the right to receive
payment for the shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice,
is not entitled to payment for shares under this part.
16-10A-1324. UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under Section 16-10a-1323
from a shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
of the shares until the proposed corporate action is taken or the restrictions
are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323
apply to shareholders who own uncertificated shares.
16-10A-1325. PAYMENT.
(1) Except as provided in Section 16-10a-1327, upon the later of
the effective date of the corporate action creating dissenters' rights under
Section 16-10a-1302, and receipt by the corporation of each payment demand
pursuant to Section 16-10a-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenters' shares, plus
interest to each dissenter who has complied with Section 16-10a-1323, and who
meets the requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be
accompanied by:
(a) (i) (A) the corporation's balance sheet as
of the end of its most recent fiscal year, or if not available, a
fiscal year ending not more than 16 months before the date of payment;
(B) an income statement for that year;
(C) a statement of changes in
shareholders' equity for that year and a statement of
cash flow for that year, if the corporation
customarily provides such statements to shareholders;
and
(D) the latest available interim
financial statements, if any;
(ii) the balance sheet and statements referred to
in Subsection (i) must be audited if the corporation
customarily provides audited financial statements to
shareholders;
(b) a statement of the corporation's estimate of the fair
value of the shares and the amount of interest payable with respect to
the shares;
(c) a statement of the dissenter's right to demand
payment under Section 16-10a-1328; and
(d) a copy of this part.
16-10A-1326. FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 does not occur within 60 days
after the date set by the corporation as the date by which the corporation must
receive payment demands as provided in Section 16-10a- 1322, the corporation
shall return all deposited certificates and
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<PAGE> 172
release the transfer restrictions imposed on uncertificated shares, and all
shareholders who submitted a demand for payment pursuant to Section 16-10a-1323
shall thereafter have all rights of a shareholder as if no demand for payment
had been made.
(2) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 occurs more than 60 days after the
date set by the corporation as the date by which the corporation must receive
payment demands as provided in Section 16-10a-1322, then the corporation shall
send a new dissenters' notice, as provided in Section 16-10a-1322, and the
provisions of Section 16-10a-1323 through 16-10a-1328 shall again be
applicable.
16-10A-1327. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.
(1) A corporation may, with the dissenters' notice given pursuant
to Section 16-10a-1322, state the date of the first announcement to news media
or to shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not certify in writing, in or with the
payment demand that he or the person on whose behalf the dissenters' rights are
being asserted, acquired beneficial ownership of the shares before that date,
the corporation may, in lieu of making the payment provided in Section 16-10a-
1325, offer to make payment if the dissenter agrees to accept it in full
satisfaction of his demand.
(2) An offer to make payment under Subsection (1) shall include or
be accompanied by the information required by Subsection 16-10a-1325(2).
16-10A-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter who has not accepted an offer made by a
corporation under Section 16-10a-1327 may notify the corporation in writing of
his own estimate of the fair value of his shares and demand payment of the
estimated amount, plus interest, less any payment made under Section
16-10a-1325, if:
(a) the dissenter believes that the amount paid under
Section 16-10a-1325 or offered under Section 16-10a-1327 is less than
the fair value of the shares;
(b) the corporation fails to make payment under Section
16-10a-1325 within 60 days after the date set by the corporation as
the date by which it must receive the payment demand; or
(c) the corporation, having failed to take the proposed
corporate action creating dissenters' rights, does not return the
deposited certificates or release the transfer restrictions imposed on
uncertificated shares as required by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this
section unless he causes the corporation to receive the notice required by
Subsection (1) within 30 days after the corporation made or offered payment for
his shares.
16-10A-1330. JUDICIAL APPRAISAL OF SHARES -- COURT ACTION.
(1) If a demand for payment under Section 16-10a-1328 remains
unresolved, the corporation shall commence a proceeding within 60 days after
receiving the payment demand contemplated by Section 16-10a-1328, and petition
the court to determine the fair value of the shares and the amount of interest.
If the corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unresolved the amount
demanded.
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(2) The corporation shall commence the proceeding described in
Subsection (1) in the district court of the county in this state where the
corporation's principal office, or if it has no principal office in this state,
the county where its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with, or whose shares were acquired by, the
foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied
the requirements of Section 16-10a-1321, 16-10a-1323, and 16-10a- 1328, whether
or note they are residents of this state whose demands remain unresolved,
parties to the proceeding commenced under Subsection (2) as an action against
their shares. All such dissenters who are named as parties must be served with
a copy of the petition. Service on each dissenter may be by registered or
certified mail to the address stated in his payment demand made pursuant to
Section 16-10a-1328. If no address is stated in the payment demand, service
may be made at the address stated in the payment demand given pursuant to
Section 16-10a-1323. If no address is stated in the payment demand, service
may be made at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares.
Service may also be made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under Subsection (2) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraiser have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that
the fair value of his shares, plus interest, exceeds the amount paid
by the corporation pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under Section 16-10a-1327.
16-10A-1331. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under Section
16-10a-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds that the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Section
16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Sections 16-10a-1320 through
16-10a-1328; or
(b) against either the corporation or one or more
dissenters, in favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed act arbitrarily,
vexatiously, or not in good faith with respect to the rights provided
by this part.
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to those counsel reasonable fees to be paid
out of the amounts awarded the dissenters who were benefited.
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APPENDIX E
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-11130
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0166750
- ------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 South Main St. Salt Lake City, Utah 84111
(Address of principal executive offices)
(Zip Code)
(801) 325-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
3,099,639 shares of $1.00 par value common stock of the registrant were
outstanding as of February 28, 1994.
The aggregate market value of the shares of common stock held by non-affiliates
of the registrant based on the closing price as of March 25, 1994 was
$38,311,828. An estimated 2,642,195 shares are held by non-affiliates.
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PART I
Item 1. BUSINESS
Olympus Capital Corporation (the "Corporation") is a publicly held savings and
loan holding company organized under the laws of Utah with approximately $414
million in assets and $33 million in stockholders' equity at December 31, 1993.
The Corporation's principal business activities are conducted through Olympus
Bank, a Federal Savings Bank (the "Bank"). The principal business activities
of the Bank consist of obtaining funds from savings and transaction account
deposits and borrowings, investing in real estate loans, mortgage-backed
securities and debt securities and providing related financial services. The
Bank also makes commercial and consumer loans.
Since 1989 the Bank has changed its business emphasis from that of a wholesale
banking institution to that of a community-based retail banking institution.
The Bank has significantly decreased its reliance upon brokered and "jumbo"
certificates of deposit, Federal Home Loan Bank borrowings and repurchase
agreements. The Bank has significantly expanded its services to individual and
small business customers, including checking accounts, credit cards, consumer
loans and an expanded emphasis upon residential mortgage and small business
lending. To support and enhance its retail banking operations, since 1989 the
Bank has invested in new facilities and systems, including eight new branch
facilities (five additions and three relocations), a state-of-the-art mortgage
servicing system and a data processing system which will accommodate the more
diverse commercial banking operations of the Bank.
In recent years the Bank has also focused on resolving unsatisfactory
commercial real estate loans originated by the Bank prior to 1990. Actions
taken have included reviewing and updating credit files, implementing more
thorough loan monitoring and more responsive loan collection procedures and
actively pursuing borrower negotiations and foreclosure proceedings where
necessary.
SOURCES OF FUNDS
DEPOSITS
Customer deposits are the Bank's primary source of funds. The Bank offers
checking and other demand deposit accounts, passbook accounts, money market
deposit accounts ("MMDA") and certificates of deposit. Deposit inflows and
outflows are significantly influenced by interest rates, money market
conditions and other factors, including conditions in the financial services
industry. The Bank's level of overall deposits has remained relatively stable
for the last four years, although there have been changes among the types of
deposits. Deposits may be affected by developments in future periods and the
conditions and factors referred to above. Reductions in deposits may require
the bank to engage in higher cost borrowings.
Consumer and commercial deposits are attracted principally from within the
Bank's primary market areas along the Wasatch Front in Utah (a 100-mile
corridor from Ogden to Provo, including Salt Lake City) and in Butte, Montana
and the surrounding area.
The composition of the Bank's deposits have a significant impact on the Bank's
cost of funds. Management's current strategy is to attract deposits in
checking and regular savings accounts.
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Checking accounts can provide significant fee income and are a source of low
cost funds for the Bank.
The following table describes the balances and contractual average interest
rates on deposits:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
-------------------------------- -----------------------------
Average Average
Rate Amount Rate Amount
------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Checking and other demand .86% $ 36,656,000 1.06% $ 20,298,000
Statement savings 3.17 49,515,000 3.43 43,158,000
MMDA 2.83 21,864,000 3.00 25,349,000
Certificates of deposit 4.31 186,526,000 4.77 202,846,000
----- ------------ -------- ------------
Total 3.59% $294,561,000 4.16% $291,651,000
===== ============ ======== ============
</TABLE>
Management initiated a three phase program to modify physical facilities,
relocate certain of its branch offices, and selectively acquire new locations
which could provide opportunities for deposit and loan growth. The Bank hopes
to increase the number of new checking accounts at the Bank by providing
additional locations from which customers may transact checking account
business and avail themselves of other banking services. In furtherance of
this program, during 1991 the Bank opened a new branch in the Tamarack Shopping
Mall in Butte, Montana and a new branch on Harrison Boulevard in Ogden, Utah.
The Provo branch was relocated in 1991. In 1992 the Bank relocated its Main
Street, Salt Lake City branch to the main floor of a new commercial building on
Main Street in Salt Lake City and the Woodlands, Salt Lake City branch to a
larger facility located at the same complex as its former facility. In 1993,
the Bank opened two new branches in Salt Lake City, one is inside a supermarket
and the other is a free standing branch with a drive up teller window.
Management anticipates that at least one new branch will be opened in 1994.
Additional branch locations will continue to be reviewed as possible sites are
identified along the Wasatch Front in Utah which can better serve the Bank's
customers and increase the customers available to the Bank. Implementation of
the program has resulted in an increase in compensation, occupancy and
advertising expenses. There can be no assurance that the anticipated benefits
from such program will outweigh the attendant costs.
BORROWINGS
Borrowings in the form of advances from the Federal Home Loan Bank of Seattle
("FHLB") provide an additional source of funds for the Bank. The Bank is a
member and stockholder of the FHLB and as such may borrow from the FHLB,
subject to the credit policy of the FHLB. FHLB advances to the Bank totaled
$36,650,000 at December 1, 1993, compared to $40,000,000 at December 31, 1992.
The FHLB prescribes the acceptable uses of proceeds of FHLB advances under
various programs as well as limitations on the size of advances. Acceptable
uses have included expansion of residential mortgage lending and funding
short-term liquidity needs. The limit on advances is generally based on the
FHLB's assessment of the institutions' creditworthiness. Under Federal law, an
institution's record of lending to low- and moderate-income borrowers may also
be used as a basis on which to determine its ability to borrow from the FHLB.
The FHLB is required to review an institution's credit limitations and
standards at least once each year.
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The cost of FHLB advances may at times be higher than alternate sources of
funds and prepayments of advances entails payment of prepayment penalties.
While the Bank intends to de-emphasize the use of FHLB advances as a secondary
funding source to augment deposits, it will in all likelihood continue to use
these advances in the future.
As an additional source of funds, the Bank periodically sells securities
subject to an obligation to repurchase these securities under repurchase
agreements ("repurchase agreements") with major investment bankers, Butte
Silver Bow, Montana, Treasurer, the Federal National Mortgage Association
("FNMA") or with the Federal Home Loan Mortgage Corporation ("FHLMC"). While
the Bank's obligations on these borrowings is high periodically, the Bank's
reliance on this source of borrowings has declined. Repurchase agreements
totaled $44,996,000 at December 31, 1993, compared to $8,465,000 at December
31, 1992. There is no assurance that such reliance will not increase.
Generally, securities with a value in excess of the amount borrowed are pledged
by the Bank as collateral for its obligations under the repurchase agreements.
Because such excess may be at risk in a repurchase transaction, it has been the
Bank's policy since 1985 to enter into repurchase agreements only with
institutions with a satisfactory credit history. The use of repurchase
agreements may expose the Bank to certain risks not associated with other
sources of funds, including obligations to provide additional collateral under
certain circumstances and the risk that such agreements, which generally
involve short terms and larger amounts, may not be renewed. In the event the
Bank were unable to deliver additional required collateral, existing collateral
could be sold, possibly resulting in a significant loss. If the Bank were no
longer able to obtain repurchase agreement financing, the Bank would be
required to obtain alternative sources of short-term funds. Such alternative
sources of funds, if available, may be more expensive. In addition, since
repurchase agreements are generally short-term, they increase the Bank's
exposure to rising interest rates.
USES OF FUNDS
LENDING ACTIVITIES
The Bank's principal use of funds is lending, with loan and lease receivables
accounting for approximately 58% of the total assets of the bank as of December
31, 1993.
The Bank's aggregate non-residential real estate loans may not exceed 400% of
its capital as determined in accordance with applicable laws and regulations.
Such laws and regulations do not require divestiture of any loan that was
lawful when it was originated. At December 31, 1993, the Bank was in
compliance with the 400% limitation, but its ability to originate additional
non-residential real estate loans is restricted. Additionally, the Bank is
prohibited from originating loans to any one borrower after August 9, 1989 in
excess of 15% of capital, except for loans not to exceed $500,000 or to
facilitate the sale of real estate acquired in settlement of loans. The 15%
limitation results in a dollar limitation of approximately $5,366,000 at
December 31, 1993. The Bank does not believe it has originated a loan which
was in violation of this limitation since it became applicable. The bank has
aggregate loans that were originated prior to August 9, 1989 that exceed this
limit, but the prohibition did not require divestiture of any loan that was
lawful when it was originated.
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RESIDENTIAL REAL ESTATE FUNDING
Residential loan originations consist primarily of first mortgage loans for the
financing and refinancing of 1-to-4 family homes. Mortgage origination centers
are located in the primary geographic markets served by the Bank, the Wasatch
Front area in Utah and the Silver Bow-Butte region in Montana. The Bank makes
both adjustable rate and fixed rate mortgage loans, generally retaining some
conventional fixed rate loans with maturities of fifteen years or less and all
adjustable rate loans in its portfolio and selling longer term fixed rate
loans, Federal Housing Administration ("FHA") and Veterans' Administration
("VA") loans in the secondary market. The Bank's real estate loan portfolio
generally includes loans up to 95% of the value of the property as appraised at
the time the loan was made. FHA and VA guaranteed loans secured by first
mortgages are made at the maximum loan-to-value ratios allowed by the
particular agency and may, in some cases, exceed 100% of the property value.
The Bank generally adheres to FNMA, FHLMC, VA or FHA guidelines in originating
its residential real estate loans. The Bank generally requires that all
conventional loans with loan-to-value ratios in excess of 80% carry private
mortgage insurance in an amount sufficient to reduce the Bank's exposure to 75%
of the appraised value. A limited number of loans were purchased from loan
correspondents. The Bank sells residential real estate loans in the secondary
market primarily on a non-recourse basis which provide additional funds for
loan originations which the Bank may retain servicing rights for loans
originated and sold into the secondary market. The Bank may, from time to
time, purchase or sell servicing rights on residential real estate loan
portfolios. During 1993, the Bank purchased servicing rights for loans in
aggregate principal amount of $192,399,000 and sold servicing rights for loans
in aggregate principal amount of $38,376,000. Purchased servicing rights may
involve loans made in geographic areas outside of the traditional lending area
of the Bank. Servicing rights provide fee income to the Bank but the
possibility that loans in the portfolio will pay off or be refinanced faster
than anticipated, thus reducing the fee income collected and the value of the
servicing rights.
Adjustable rate residential real estate loans originated by the Bank have
various adjustment periods and generally limit periodic adjustments on each
adjustment date as well as aggregate adjustments. The Bank is exposed to the
risk that borrowers of these loans may not be able to make higher payments
resulting from rate adjustments. These adjustments depend upon the magnitude
and frequency of shifts in market interest rates.
The Bank intends to focus the Bank's residential real estate lending activities
geographically in the Wasatch Front in Utah and in the Butte-Silver Bow region
in Montana. During 1992 and 1993, residential real estate loan rates were at
or near historic low levels which resulted in a higher volume of new loan
originations and existing loan refinancings. The volume of residential real
estate loan origination experienced in 1992 and 1993 is unlikely to continue
into 1994 as interest rates rise and refinancings slow down.
Competition for residential real estate lending is primarily with other savings
associations, mortgage banking companies, mortgage brokers, commercial banks,
insurance companies and credit unions. Generally, the competition for mortgage
loans is dependent on interest rates, availability of funds, service and
convenience to customers.
The Bank purchases interests in various types of residential real estate loans
in the form of loan participations or mortgage-backed securities. These loan
participations and mortgage-backed
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securities are generally serviced by others with a portion of the interest paid
by the borrower being retained by the servicer to cover servicing fees and
costs.
CONSTRUCTION LOANS
Construction lending activity consists primarily of first mortgage loans to
construct single family dwellings along the Wasatch Front area of Utah. Loans
are made to either the owner of the home or a licensed general contractor.
Terms are typically an adjustable rate with a maximum 80% loan to value ratio
and a six to nine month term.
Individual home loans are made directly to intended owner/occupants after they
are approved for long term financing. Individual home loans and lines of
credit are also extended to general contractor to build homes for resale.
These homes may be under earnest money contract with a permanent buyer or they
may be unsold at the time the loan is committed. The major risks associated
with single family construction lending include the possibility of interest
rates rising to a level that may slow or curtail home sales, or a change in the
financial status of preapproved buyers, including the impact of rising interest
rates such that they no longer qualify for permanent financing.
Construction lending also includes multi-family, condominium, land acquisition
and development of single family building lots and other commercial real estate
projects. These loan types have constituted only a small portion of the total
construction loan portfolio. Interest rates are adjustable with terms ranging
from twelve to eighteen months. Loan to value ratios range from 75% or less
depending upon the perceived credit risk associated with a given transaction.
The Bank intends to increase its construction lending volume in the future,
which will require additional personnel and training of other personnel.
However, the Bank existing staff with significant construction lending
experience to manage and direct this activity.
MULTI-FAMILY REAL ESTATE LOANS
The Bank will continue to make permanent loans secured by existing multi-family
properties along the Wasatch Front in Utah. The maximum loan to value ratio is
80% of the appraised value or sales price, whichever is lower. The interest
rate is normally adjustable annually. Three-year and five-year adjustments
are also available.
The debt coverage ratio required is a minimum of 120%, typically based upon
historical cash flow from the property. Although our market is experiencing
the rapidly rising rental rates, pro forma cash flow statement has not been a
major factor when underwriting multi-family properties, in an effort to
minimize the risk associated with this type of lending.
COMMERCIAL REAL ESTATE LENDING
Recently, the Bank commenced originating new commercial real estate loans
because the Bank's portfolio of nonresidential real estate loans no longer
exceeded the maximum allowed under applicable federal law. As existing
commercial real estate loans mature, the Bank will consider renewing the loan
as circumstances warrant. Prior to renewal, the borrower's financial condition
will be reviewed and the existing and proposed loan terms will be analyzed.
The Bank may propose modifying the interest rate, the amortization term and
other loan terms as the
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circumstances justify. Loan maturities are generally between five and ten
years. Commercial real estate loans are generally considered to have a higher
level of risk than single family residential loans, due to the concentration of
principal in a limited number of loans and borrowers. In addition, the nature
of these loans is that they are generally less predictable and more difficult
to evaluate and monitor.
Beginning in 1986, the Bank activity offered commercial real estate loans
secured by income producing properties in amounts ranging from $200,000 to
4,000,000. In 1986, the Bank issued letters of credit relating to the payment
of $9,000,000 of industrial development revenue bonds issued to finance
development of a commercial building. The Bank later took title to the
building. As a result of these and other activities, the Bank has a
substantial amount of large commercial loans and REO. Regulatory criticism
resulted in losses to the bank. The majority of consumer loans originated so
far are composed of home equity lines of credit that the Bank calls
"SmartLine." As of December 31, 1993, total outstanding SmartLine loan
commitments were $9.8 million with approximately $6.0 million funded.
Commercial real estate loans outstanding at December 31, 1993, and December 31,
1992, totaled $119 million and $135 million, respectively. REO of the Bank at
December 31, 1993 and 1992, totaled $3.1 million and $5.3 million,
respectively, net of reserves. Improvement in many of the economic regions in
which the Bank holds loans has made it possible for much of the REO to be sold.
Management anticipates further reductions in REO in the early part of 1994.
There can be no assurance that additional losses will not be realized in
connection with the commercial real estate loans or the REO of the Bank or any
other of its assets.
The Bank has established allowances for possible losses for known and
anticipated problem loans, as well as a general loan loss allowance for the
portfolio as a whole. Total allowances for possible losses totaled $5.6
million or 1.35% of assets of the Bank at the end of December 31, 1993. REO
reported net of reserves on the financial statement had a reserve for loss of
$350,000 at December 31, 1993, or 0.1% of total assets of the Bank.
When REO is sold, the Bank usually provides financing for the sale. In some
cases the Bank may provide a "loan to facilitate," which is a loan at or below
market rates or involving terms not usually offered to other borrowers. If a
loan to facilitate is made below market rate, the Bank records a loan discount
in order to bring the yield on the loan to a market interest rate.
The Bank has made a concerted effort to reduce both the number and dollar
amount of delinquent loans and to reduce the level of REO. The Bank continues
to place a major emphasis on this area, although there is no assurance such
efforts will succeed. Delinquent loans and
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leases and REO and repossessed equipment as of December 31, 1993, and December
31, 1992 are shown below.
<TABLE>
<CAPTION>
Delinquent Loans and Leases December 31, 1993 December 31, 1992
----------------- -----------------
(net of specific reserves) (dollars in thousands)
<S> <C> <C>
30 to 60 days $1,852 $4,317
60 days or more 2,122 2,913
------ ------
Total $3,974 $7,230
====== ======
REO (net of all reserves) $3,055 $5,263
====== ======
</TABLE>
Pursuant to management's emphasis on resolving unsatisfactory credits through
foreclosure proceedings or other actions, the Bank has commenced, and may in
the future commence, enforcement proceedings against borrowers whose loans may
not be delinquent with respect to principal or interest payments but who may
not be in compliance with other provisions of the documents governing the
loans, such as those relating to payment of taxes. These proceedings may
precipitate delinquencies or may result in additional REO.
CONSUMER LENDING
During 1991, the Bank began offering consumer loans for personal, family, or
household purposes such as the financing of home improvements, automobiles,
boats, vacations and education. Such loans have been originated in the branch
offices of the Bank. Competition for consumer loans comes from other savings
associations, commercial banks, credit unions and other finance companies.
The Bank hopes to increase its consumer lending activities in the future as the
Bank endeavors to attract new customers through its retail checking and savings
programs. As new customers come to the Bank, the Bank intends to market
consumer loan programs to these new customers.
The Bank has not engaged in consumer lending for a substantial period of time.
The establishment of consumer lending programs requires additional personnel
and the development of forms, policies and procedures to be used in the
program. Consumer lending laws change rapidly and frequently and require that
someone in the program keep apprised of developments. There can be no
assurance that income from consumer loans will justify the costs of the program
or that losses will not be experienced. In addition, consumer lending programs
involve peculiar risks. As a general rule, consumer loans experience a higher
default rate than residential real estate loans. Collateral for consumer loans
(other than real estate), if any is obtained, normally declines rapidly in
value and may be difficult to locate. The cost and expense of enforcing loan
and security agreements against an individual consumer may outweigh the
likelihood of any benefit of recovery. The mortgage lien on real estate
securing consumer loans is often subordinate to priority mortgage liens
securing larger amounts of indebtedness. The consumer lender may be required
to advance monies in amounts greater than the consumer loan in order to protect
its security. For these and other reasons there can be no assurance that the
consumer loan program will not adversely affect the Bank.
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COMMERCIAL BUSINESS LENDING
The Bank has determined in recent years to offer commercial business loans
principally to small to mid-market businesses and individuals. These loans
include revolving lines of credit established for borrowers. During the years
ended December 31, 1993 and 1992, the Bank originated $3,820,000 and $7,815,000
in commercial business loans, respectively. Such loans are secured with
business assets or, in some cases, are unsecured.
The Bank perceives two principal advantages of making commercial business
loans. First, commercial business loans assist in increasing the Bank's
short-term, variable rate asset base. These loans also generally bear interest
rates that are higher than commercial real estate loans. Second, commercial
business lending can generate depository relationships and may lead to the sale
by the Bank of other income producing products.
While the Bank has made commercial business loans from time to time in past
years, it has not, until just recently, offered commercial business loans on a
regular basis. Commercial business lending involves a different type of
underwriting analysis, loan monitoring and exercise of remedies than does real
estate lending. A more in depth understanding of the business being financed
and the industry involved may be required. More frequent monitoring and
analysis of the loan may be necessary. The structure of the loan and the
documentation of the loan may be more complicated and customized. The
collateral involved, if any, may be more difficult to identify, locate, insure,
manage and resell than real estate. In order to bolster the business lending
program, the Bank will hire new personnel, and train other personnel. The bank
may also expand the variety and type of commercial business loans it will
offer. In past years certain aspects of the program, particularly sufficiency
of some loan files has been criticized by regulators of the Bank. Management
believes operation of the program should not raise regulatory concerns but
there can be no assurance that the program will not raise additional regulatory
concerns or that losses will not be sustained in the program. Further, there
can be no assurance that the benefits of such program will outweigh the risks
and costs involved.
INVESTMENT ACTIVITIES
The second principal use of the Bank's funds is to purchase certain securities,
primarily investment securities and mortgage-backed securities.
INVESTMENT SECURITIES
The Bank invests in various types of liquid assets (including United States
Treasury obligations, securities of various federal agencies and corporate
obligations). Such investments are generally purchased by the Bank to maintain
minimum levels of liquid assets for the conducting of business, as well as to
meet minimum regulatory requirements for liquidity. Liquidity may increase or
decrease depending on the availability of funds and comparative yields on
investments in relation to the return on loans and mortgage-backed securities.
During 1993, approximately $16,662,000 of investment securities were purchased
by the Bank to meet liquidity needs. Mortgage-backed securities may be
purchased or classified as investment securities when management determines
that such securities will be held to their final maturity. Management
anticipates that such securities will be those that are most similar to the
loans that the Bank originates for its portfolios.
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Investment in FHLB capital stock is required of FHLB members and represents the
greater of: (a) 1% of residential mortgage loans and mortgage- backed
securities, (b) 0.3% of total assets, or (c) 5% of advances from the FHLB. At
December 31, 1993, the Bank had invested in $3,858,000 of FHLB capital stock.
INVESTMENTS AVAILABLE FOR SALE
The Bank invests in certain mortgage-backed securities primarily as a means of
investing in residential real estate mortgage loans with adjustable rates.
Such investments are accounted for as assets available for sale and carried on
the books at fair value. At December 31, 1993, the amortized cost of these
investments was $132,302,000 and the estimated fair value was $132,196,000.
EMPLOYEES
As of December 31, 1993, the Corporation and its subsidiaries had 175
employees, including 46 part-time employees. Employees are provided a
comprehensive program of benefits, some of which are on a contributory basis.
The number of full-time equivalent employees of the Corporation increased by 17
since December 31, 1992. This increase is primarily associated with personnel
working in the expanded branch network, residential lending and the loan review
operations.
OTHER AFFILIATED COMPANY
The Corporation has one additional wholly owned subsidiary, Olympus Financial
Services, Inc., which is engaged in the sale of insurance products, including
tax deferred annuities and property and casualty insurance.
SUPERVISION AND REGULATION
OVERVIEW; LEGISLATIVE AND REGULATORY DEVELOPMENTS
The Corporation, a publicly held thrift holding company, as well as the Bank, a
federally chartered savings bank, with deposits insured by the Federal Deposit
Insurance Corporation (the "FDIC"), are subject to extensive laws, regulations
and supervision. These laws, regulations and supervision impose restrictions
on activities, minimum capital requirements, lending and deposit restrictions,
securities disclosure obligations and numerous other requirements.
Many of these laws and regulations were recently enacted and promulgated. The
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") was
enacted in 1989 and the Federal Deposit Insurance Corporation Improvement Act
("FDICIA") was enacted in 1991. A number of significant changes applicable to
the Corporation and the Bank resulted from this legislation and from new
regulations issued pursuant to FIRREA and FDICIA. Additional regulations are
to be promulgated pursuant to such legislation. The ultimate effects of the
foregoing developments cannot be predicted.
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REGULATORY CAPITAL REQUIREMENTS
FIRREA mandated significant new regulatory capital requirements for thrift
institutions. Under minimum regulatory capital regulations issued by the
Director of the Office of Thrift Supervision ("OTS"), thrift institutions are
required to have "core capital" equal to no less than 3% of adjusted total
assets and "tangible capital" equal to no less than 1.5% of adjusted total
assets. The minimum tangible capital requirement will effectively increase to
3% of adjusted total assets over a five-year "phase-in" period ending on
December 31, 1994. In addition, thrift institutions are required to maintain
"risk-based capital" equal to 8% of risk-weighted assets as of December 31,
1993.
Consistent with increased "leverage limits" imposed by regulators of national
banks, the core capital requirement for most savings institutions is expected
to range from 4% to 5% of adjusted total assets. In December 1991 OTS directed
the Bank to maintain core capital at 5% of adjusted consolidated assets, from
December 31, 1991, forward. This directive was terminated in 1993. In 1992
the Bank's regulators urged the Bank to maintain core capital at 7% of adjusted
consolidated assets. At December 31, 1993, the Bank had actual core capital,
consisting entirely of common stockholders' equity, in the amount of
approximately $32.7 million which is equal to 7.91% of adjusted consolidated
assets. There can be no assurance that the Bank will continue to meet its core
capital requirement nor can there be any assurance the Bank's regulators will
not take steps adverse to the Bank if the Bank's core capital drops below 7%.
Tangible capital is defined as core capital less intangible assets, except that
savings institutions may include certain amounts of purchased mortgage
servicing rights in core capital subject to a maximum amount determined by the
FDIC or, under FDICIA, by the OTS. The FDIC has restricted the percentage of
purchased mortgage servicing includible in capital to a maximum of 50% of core
capital and 100% of tangible capital.
Under the risk-based capital requirement, risk weighted assets are determined
by multiplying each of an institution's assets by specified risk weights.
Certain off-balance sheet items must be converted into on-balance sheet
equivalent amounts and then multiplied by specified risk weights. The
applicable risk weights range from 0% to 100%. As of December 31, 1993, the
Bank had risk weighted assets of approximately $250.8 million. The risk-based
capital requirement as of the same date was 8% of the risk weighted assets or
approximately $20 million. Eligible capital of the Bank is composed of core or
tier 1 capital of approximately $32.7 million and supplementary or tier 2
capital of approximately $3.2 million for a total risk weighted capital of
approximately $35.9 million, or 14.3% of risk weighted assets, exceeding the
requirement by approximately $15.8 million. The OTS revised the market rate
risk effect of its risk-based capital standards that became effective January
1, 1994. The bank is in compliance with recently revised regulations.
The OTS also has the authority to impose higher capital requirements for
individual institutions, such as the Bank, based on an assessment of the risk
an institution presents to the deposit insurance fund or other factors. The
OTS also has the authority to raise the capital requirements over the minimum
levels set forth in FIRREA.
Pursuant to FDICIA, the OTS promulgated regulations in September 1992
specifying the levels at which a savings institution is well capitalized,
adequately capitalized, under capitalized,
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significantly under capitalized, or critically under capitalized. The level of
capital below which an institution is deemed to be critically under capitalized
may not be less than 2% of total assets nor more than 65% of the required
minimum level of capital under the leverage limit. An institution is well
capitalized if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and the institution is not subject to an order, written agreement,
capital directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. This categorizes the Bank as
"well capitalized."
Certain interpretive issues are presented by the new capital rules. In many
instances, these issues have not been resolved by the OTS or other regulatory
authorities. Although the Bank believes its resolution of such issues,
together with the assumptions it has used in its capital calculations, are
appropriate and reasonable, its calculations of capital may require adjustment
in the event the OTS or other regulatory authorities adopt differing
interpretations or use different assumptions.
In the event the Bank fails to comply with any of its existing or future
minimum regulatory capital requirements, it would be required to file and
implement a capital plan with the appropriate regulatory agencies, would be
subjected to restrictions on growth and the payment of dividends, could have
restrictions imposed on its ability to form new branches, invest in service
corporations and make equity risk investments, or be precluded from issuing
securities as a means of raising additional capital, among other negative
effects. Such failure could also permit the OTS to require that the Bank
subject itself to a restrictive business plan or supervisory agreement that
could impose limits on dividends or compensation of officers and employees or
impose other restrictions. Such failure could also permit the FDIC to initiate
action resulting in the termination of deposit insurance.
The Bank's ability to attain compliance with potential future increases in
the risk-based capital requirement or the core capital requirement may be
adversely affected by un-anticipated losses or lower levels of earnings, by new
or increased regulatory capital requirements, or by other factors. In
addition, there is virtually no limit on the authority of the OTS or FDIC to
take any appropriate action with respect to conditions or activities it
considers unsafe and unsound, including failure to comply with minimum
regulatory capital requirements.
QUALIFIED THRIFT LENDER
Savings institutions are subject to restrictions on permissible investments
that are generally known as Qualified Thrift Lender ("QTL") requirements.
Pursuant to FDICIA, an institution will satisfy the QTL requirements if the
institution's qualified thrift investments continue to equal or exceed 65% of
the institution's portfolio assets on a monthly average basis in nine out of
every twelve months. In general, qualified thrift investments include loans
for and securities backed by domestic residential housing. For purposes of the
QTL test, portfolio assets means total assets minus goodwill and other
intangible assets, the value of property used by the institution to conduct its
business and liquid assets held by the institution in an amount up to a
specified percentage of its total assets. Failure to meet the requirements of
the QTL Test may have several consequences for an institution and its holding
company including: the institution shall either become a bank or be subject to
certain restrictions, including (i) limitations on new investments and
activities to those permissible for national banks, (ii) branching restrictions
equivalent to those imposed on national banks, (iii) prohibition on obtaining
new FHLB
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advances, and (iv) dividend restrictions equivalent to those applicable to
national banks. Additionally, three years after the institution ceases to be a
QTL, the institution would be required to divest all investments and cease all
activities not permissible for national banks and repay all FHLB advances.
Within one year after an institution should have (but does not) become, or
ceases to be, a QTL, its holding company must register as and be deemed to be a
bank holding company. Such a development would impose a number of additional
activity, capital and other restrictions on the holding company. The Bank is in
compliance with all QTL requirements.
INTERNAL OPERATIONS REQUIREMENTS
FDICIA requires the federal regulators to promulgate regulations promoting the
safety and soundness of individual institutions by specifically addressing,
among other things: (1) internal controls, information systems and internal
audit systems; (2) loan documentation; (3) credit underwriting; (4) interest
rate exposure; (5) asset growth; (6) ratio of classified assets to capital; (7)
minimum earnings; and (8) compensation and benefit standards for management
officials. Proposed rules or notices of rule making addressing these areas
have been issued but not yet finalized. These regulations are expected to add
further to the cost of compliance and to impose new record keeping
requirements.
REGULATORY SUPERVISION
The Bank is subject to periodic examinations and to supervision by the OTS and
the FDIC. The Bank is also subject to regulations governing such matters as
mergers, establishment of branch offices and subsidiary investments and
activities, and to general investment authority under regulations applicable to
federally chartered savings banks. Any insured institution which does not
operate in accordance with or conform to OTS or FDIC regulations, policies and
directives may be sanctioned for noncompliance. Proceedings may be instituted
against any insured institution or any director, officer, employee or person
participating in the conduct of the affairs of such institution who engages in
unsafe and unsound practices, including the violation of applicable law,
regulations, orders, agreements or similar items. If the assets of an
institution are overvalued on its books, it may be ordered to establish and
maintain a specific reserve in an amount equal to the determined overvaluation,
which may result in a charge against operations to the extent of the
overvaluation. FDIC insurance may be terminated, after notice and hearing,
upon a finding that an insured institution is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operating, does not
meet minimum regulatory capital requirements, or has violated any applicable
law, rule, regulation or order of or condition imposed by the FDIC. FIRREA has
resulted in increased costs for the Bank including examination fees, and
deposit insurance premiums. In addition, the Bank expects reduced dividends
from FHLB stock due to substantial contributions which will be required from
the Federal Home Loan Banks to fund the Resolution Trust Corporation.
Increased financial pressure on the FHLB System may also result in higher rates
on borrowings by the Bank from the FHLB in the future. Finally, other adverse
effects may result from the application of more rigorous standards in
regulatory examinations of savings associations.
LIQUIDITY AND RESERVE REQUIREMENTS
The Director of the OTS must adopt regulations providing for a minimum
liquidity requirement for thrift institutions. The minimum liquidity
requirement must be in a range of 4% to 10% of
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an institution's withdrawable accounts and borrowings payable on demand or with
maturities of one year or less. Current OTS regulations, which may be modified
by the Director of the OTS, provide that each thrift institution must maintain
an average daily balance for each calendar month of liquid assets equal to at
least 5% of the sum of its average daily balance of net withdrawable deposit
accounts plus borrowings payable in one year or less. Each thrift institution
must maintain an average daily balance for each calendar month of short-term
liquid assets equal to at least 1% of its average daily balance of net
withdrawable deposit accounts plus short-term debt. Management believes the
Bank is in compliance with these requirements.
The Bank is also subject to Federal Reserve Board reserve requirements imposed
under Regulation D. These requirements, which are subject to change from time
to time, call for minimum levels of reserves based on amounts held in
transaction accounts. The Bank was in compliance with these reserve
requirements on December 31, 1993.
INSURANCE OF ACCOUNTS
The Bank's deposits are insured by the Savings Association Insurance Fund
administered by the FDIC up to $100,000 per insured depositor. Deposit
insurance premiums are assessed on a risk weighted basis, as defined by the
FDIC, with well-capitalized and well-managed institutions paying a lower
percentage on deposits than institutions with deficiencies.
Currently, those institutions that pose the lowest risk of loss to SAIF pay
$0.23 per $100.00 of insured deposits, and those institutions that pose the
greatest risk of loss to SAIF pay $0.31 per $100.00 of insured deposits.
The Bank was recently assigned a risk classification assessment of $0.26 per
$100.00 of insured deposits. The assignment was based on an examination of the
Bank conducted in July 1993. This assessment classification of the Bank will
be reviewed semi-annually by the FDIC.
FDICIA requires the FDIC to establish regulations setting up a risk-based
deposit insurance premium schedule. In addition, the FDIC can impose special
assessments.
ACCOUNTING AND INVESTMENTS
During the past several years, there has been an ongoing review of the
accounting principles and practices used by financial institutions for certain
types of transactions. As a result of this process, there have been new
accounting pronouncements. This review is expected to continue by thrift and
banking regulators, the SEC, the FASB, the AICPA and other organizations, and
further developments may be forthcoming.
The SEC has advocated market value accounting for financial institutions and
has urged the AICPA and the FASB to require that banks and other financial
institutions account for assets at their market value. The SEC's position has
been criticized by the Federal Reserve Board and is highly controversial. As
of December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for
Investments in Certain Debt and Equity Securities." The Bank classified most
mortgage-backed securities as assets available for sale, which resulted in an
unrealized loss of $107,000, which is recorded as a separate component of
stockholders' equity. Due to the requirements of SFAS 115, capital levels may
be more volatile.
E-14
<PAGE> 188
CERTAIN LENDING RESTRICTIONS
FIRREA generally subjects savings banks to the same loans-to-one borrower
limitations that are applicable to national banks. The new loans-to-one
borrower limitations are substantially more restrictive than the limitations
previously imposed on savings banks. Prior to the enactment of FIRREA, a
savings bank could generally lend an amount equal to its entire regulatory
capital to one borrower. With certain limited exceptions, the maximum amount
that a savings bank may now lend to one borrower (including certain related
entities of such borrower) is an amount equal to 15% of the savings bank's
unimpaired capital and unimpaired surplus, plus an additional 10% for loans
fully secured by readily marketable collateral. Real estate is not included
within the definition of "readily marketable collateral."
FIRREA generally limits the amount that a savings bank may invest in commercial
real estate loans to 400% of capital. FIRREA does not require a savings bank
to divest itself of commercial real estate loans in excess of such limitation
acquired prior to the enactment of FIRREA.
THE COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") was enacted in 1977 by Congress to
eliminate the practice by some financial institutions of denying or restricting
credit for the purchase or improvement of homes in areas of a community where
the risk of loan losses is believed to be high. Changes to the regulations
have been proposed which would place the emphasis on performance instead of the
process and encourage consistency in assessments to permit more effective
enforcement of poor performance and to reduce regulatory burden. These
proposed changes are scheduled to become effective July 1, 1994. Management is
unable to determine what, if any, the proposed changes will have on the
Corporation. The Bank's CRA compliance is monitored by the OTS. Management
believes the Bank's compliance with CRA is satisfactory.
CLASSIFICATION OF ASSETS
The Bank classifies its problem assets on the same system as used by commercial
banks. An asset is classified substandard when it has a well-defined weakness
or weaknesses. A substandard asset is one that is inadequately protected by
the net worth or paying capacity of the obligor or by the collateral, if any.
An asset is classified doubtful where some loss seems very likely but there is
still sufficient uncertainty to permit the asset to remain on the books at its
full value. The possibility of a loss on an asset classified doubtful is high,
but because of important and reasonably specific pending factors which may work
to the strengthening of the asset, its classification as loss is deferred until
its more exact status may be determined. An asset, or a portion thereof, is
classified as loss when it is considered uncollectible and of such little value
that continuance as an asset without establishment of a specific reserve is not
warranted. Assets that do not warrant classification as substandard, doubtful
or loss, but posseses credit deficiencies or potential weaknesses deserving
management's close attention are classified as special mention.
Assets may be classified in whole or in part, and part of an asset may be
classified in one category, and part in a different category. Insured
institutions are required to self-classify their assets. These classifications
are reviewed as part of the regulatory examination process. An
E-15
<PAGE> 189
institution is required to have general valuation allowances that are adequate
in light of its level of classified assets. When an asset or portion of an
asset has been classified as loss, the institution must either charge-off 100%
of the portion classified as loss or establish a specific valuation allowance
in a like amount. Specific allowances may not be included in regulatory
capital, while general reserves are included in risk-based capital, subject to
certain limitations.
RESTRICTIONS ON DISTRIBUTIONS
Capital distributions by institutions such as the Bank, including dividends,
stock repurchases, redemption of securities and cash-out mergers are subject to
restrictions tied to the institution's capital levels after giving effect to
such a transaction.
OTHER LAWS AND REGULATIONS
The Bank is subject to a wide array of other laws and regulations, both federal
and state, including, but not limited to, usury laws, the Equal Credit
Opportunity Act and Regulation B, the Electronic Fund Transfer Act and
Regulation E, the Truth-in-Lending Act and Regulation Z and the Real Estate
Settlement Procedures Act and Regulation X. The Bank is also subject to laws
and regulations that may impose liability on lenders and owners for clean-up
costs and other costs stemming from hazardous waste located on property
securing real estate loans made by lenders or on real estate that is owned by
lenders following a foreclosure or otherwise. Although the Bank's lending
procedures include measures designed to limit lender liability for hazardous
waste clean-up or other related liability, the Bank has engaged in significant
commercial lending activity and there is some uncertainty as to the
circumstances under which lenders may be held liable for hazardous wastes.
REGULATION OF THE CORPORATION
The Corporation is subject to regulation as a savings and loan holding company.
It is required to register with the OTS and is subject to OTS regulations,
examinations and reporting requirements relating to savings and loan holding
companies. As a subsidiary of a savings and loan holding company, the Bank is
subject to certain restrictions in its dealings with the Corporation and with
other companies affiliated with the Corporation.
The Home Owners Loan Act ("HOLA") generally regulates acquisitions by a savings
and loan holding company, directly or indirectly, of certain interests in other
savings institutions (or a holding company thereof). Savings institutions may
also be subject to the Federal Change in Bank Control Act if the provisions of
HOLA do not apply.
HOLA provides generally that an insured savings institution subsidiary of a
holding company is subject to the restrictions on affiliate transactions set
forth in the Federal Reserve Act sections 23A and 23B. In addition, an insured
institution may not buy securities from an affiliate, except for shares of
stock of a subsidiary, and it may not make loans to an affiliate engaged in a
non-banking activity. The OTS can adopt additional restrictions upon affiliate
transactions. Thrift institutions are also subject to Section 22(h) of the
Federal Reserve Act, which restricts a financial institution's ability to make
loans to "insiders" (executive officers and directors) and permits the OTS to
impose additional restrictions on loans to insiders.
E-16
<PAGE> 190
HOLA authorizes the OTS or the FDIC to identify holding company activities that
present excessive risk to insured institutions, and to restrict, among other
things, dividends to the holding company and other affiliate transactions. If
the Bank were to lose its status as a QTL, the Corporation would thereafter be
treated as a bank holding company, resulting in additional restrictions on its
activities and other possible negative effects. Reference is made to the
additional information, financial statements and footnotes thereto presented in
Items 6, 7 and 8 of this Report for additional financial information.
The following statistical information is presented to facilitate an
understanding of the Corporation's operations.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND CHANGES IN RATES
(Amounts in Thousands)
<TABLE>
<CAPTION>
1993 over 1992 1992 over 1991
-------------- --------------
Changes Due to Changes Due to
-------------- --------------
Total Total
Interest-Earning Assets Volume Rate Changes Volume Rate Changes
----------------------- ------ ---- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Investments Securities and
Other Short-term Investments $ 22 $ (362) $ (340) $ (470) $ (775) $ (1,245)
Mortgage-Backed Securities 650 (1,720) (1,070) (1,383) (2,266) (3,649)
Loan Receivables:
Real Estate Loans (1,676) (2,168) (3,844) (621) (1,803) (2,424)
Commercial Loans (96) (96) 343 (189) 154
Other Loans Receivables (161) 15 (146) 99 (31) 68
------- ------- ------- ----- ------- ------
Total Loan Receivables (1,938) (2,148) (4,086) (179) (2,023) (2,202)
------- ------- ------- ------ ------- -------
Total Interest-Earning Assets (685) (4,811) (5,496) (2,032) (5,064) (7,096)
----- ------- ------- ------- ------- -------
Interest-Bearing Liabilities
----------------------------
Savings Deposits (70) (3,076) (3,146) 32 (5,807) (5,775)
Advances from Federal Home
Loan Bank 607 (905) (298) (1,789) (509) (2,307)
Securities Sold Under
Agreements to Repurchase and
Other Borrowings (1,010) (830) (1,840) (685) (1,129) (1,814)
------- ------- ------- -------- -------- --------
Total Interest-Bearing
Liabilities (473) (4,811) (5,284) (2,442) (7,445) (9,896)
------- ------- ------- -------- -------- --------
</TABLE>
E-17
<PAGE> 191
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Interest Differential $ 152 $ (364) $ (212) $ 419 $ 2,381 $ 2,800
====== ======= ======= ====== ======= =======
</TABLE>
Note: Changes not due entirely to changes in volume or rate have been allocated
to volume.
INVESTMENT PORTFOLIO
(Amounts in Thousands)
Investment Securities:
<TABLE>
<CAPTION>
Book Value on December 31
-------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government agencies $ 199 $ 200
Other investment securities* 8,730 8,374 $15,730
------- ------- -------
Total debt securities 8,929 8,574 15,730
------- ------- -------
Federal Home Loan Bank stock 3,858 3,357 2,982
Other equity securities 7 7 7
------- ------- -------
Total equity securities 3,865 3,364 2,989
------- ------- -------
Total Investment Securities $12,794 $12,038 $18,719
--------------------------- ======= ======= =======
</TABLE>
* Other Securities include bonds, federal funds sold and securities
purchased under agreements to resell. Investments available for sale
are not included in the maturity and yield analysis.
Maturity and Yield Analysis of Debt Securities
December 31, 1993
<TABLE>
<CAPTION>
Carrying Average Estimated
Value Yield* Fair Value
-------- ------- ----------
<S> <C> <C> <C>
Due one year or less $ 280 3.24% $ 278
Due after one year through five years 8,489 3.96 8,489
Due after five years through ten years 160 9.57 160
------ -------- ------
Total investment debt securities $8,929 4.04 $8,927
====== ======== ======
</TABLE>
* Average yields have been calculated using coupon rates adjusted for
amortization of premiums and discounts, not adjusted to fully taxable
equivalent.
E-18
<PAGE> 192
The Corporation held no single issuer of securities, excluding the U.S.
Government and U.S. Government agencies, included above in excess of 10% of
stockholders' equity of the Corporation.
LOAN PORTFOLIO
(Amounts in Thousands)
Types of Loan and Balances
<TABLE>
<CAPTION>
December 31 1993 1992 1991 1990 1989
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate - mortgage $239,786 $236,522 $261,765 $269,342 $303,485
Commercial 7,092 7,562 6,326 4,123 10,619
Other Loans 2,239 2,302 3,811 1,592 2,889
Lease Financing 217 1,127 3,220
------- ------- ------- ------- -------
Total loans and leases 249,117 246,386 272,119 276,184 320,213
Less unamortized loans fees 1,037 802 944 709 792
Less allowance for possible
losses 5,610 6,678 6,545 6,704 12,735
------- ------- ------- ------- -------
Net Loans $242,470 $238,906 $264,630 $268,771 $306,686
======== ======== ======== ======== ========
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates
(Excluding Real Estate Mortgages, Other Loans and Leases)
<TABLE>
<CAPTION>
Remaining Maturity
----------------------------------------
1 Year 1 Year to Over
or Less 5 Years 5 Years Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
Commercial $ 4,853 $ 1,644 $ 596 $ 7,092
======= ======= ====== =======
</TABLE>
Loans maturing in more than one year are all fixed rate loans.
Risk Elements
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 2,242 $ 4,047 $ 2,823 $12,310 $14,708
</TABLE>
According to the policies of the Corporation, no loans past due more than 90
days continue to accrue interest. Renegotiated loans have been insignificant.
If non-accrual loans had been current in accordance with their stated terms,
approximately $99,000 in interest would have been recorded in 1993. Interest
actually recognized on such loans was immaterial.
E-19
<PAGE> 193
The accrual of interest income is generally discontinued when loans become more
than 90 days past due. However, when a large commercial real estate loan
becomes 30 days or more delinquent, the prospects for curing the delinquency
are reviewed. If it does not appear that the delinquency will be easily cured,
the loan is placed on a non-accrual status prior to becoming 90 days or more
delinquent. Loans that have matured, but continue to make principal and
interest payments, are not reported as delinquent.
POTENTIAL PROBLEM LOANS AND LOAN CONCENTRATIONS
At December 31, 1993 and 1992, real estate loans included $807,000 and
$4,276,000, respectively, on which the Corporation had filed notice of default
with the borrower, which begins foreclosure proceedings, and/or where the
borrower has declared bankruptcy.
Concentrations of non-residential real estate loans classified by property type
at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Property Type Carrying Amount
------------- ---------------
<S> <C>
Office Buildings (includes medical and bank) $22,069,573
Industrial and warehouse (includes light industrial) 12,646,042
Retail and wholesale 29,873,011
Motel or hotel 21,250,380
Nursing home, convalescent center or hospital 11,096,471
Mobile home parks 3,801,403
Service (gas station, fast food, car wash, convenience stores, etc.) 2,883,363
Restaurant 2,106,450
Other commercial (recreation facilities, mini-storage, farm, hydro-
electric, auto-dealers, truck terminal and other single-use property)
13,461,075
</TABLE>
Commercial real estate loans listed by the state in which the property is
located at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
State Book Value
----- ------------
<S> <C>
Alaska $ 1,202,224
Arizona 3,067,538
California 37,691,363
Colorado 1,044,606
Idaho 16,335,436
Montana 6,561,469
</TABLE>
E-20
<PAGE> 194
<TABLE>
<S> <C>
New Mexico 5,829,617
Nevada 372,091
Oregon 2,357,314
Utah 42,920,533
Wyoming 1,805,577
</TABLE>
OTHER INTEREST-EARNING ASSETS
The Corporation did not have any other interest-earning assets that would have
been reportable above had they been classified as loans.
SUMMARY OF LOAN LOSS EXPERIENCE
(Amounts in Thousands)
Changes in the allowance for losses are as follows:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
------ ------ ------ ---- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $6,678 $6,545 $6,704 $12,735 $ 6,783
Loans charged off:
Real estate mortgage 391 73 2,208 5,426 2,428
Commercial 45 26 789 406
Other loans 10 1,737 28
------ ------ ------- ------- -------
Total loans charged off 446 73 2,431 8,144
------ ------ ------- ------- -------
Recoveries 375 324 350
------ ------ ------ ------- -------
Provision charged (credited) to
expense (997) (118) 1,922 2,113 8,873
------- ------ ------ ------- -------
Balance, end of year $ 5,610 $ 6,678 $ 6,545 $ 6,704 $12,735
======= ======= ======= ======= =======
Net charge offs to average loans
.18% .03% .78% 2.87% .93%
</TABLE>
The Corporation determines the amount to be provided for loan and lease losses
on a quarterly basis, based on management's judgment as to the adequacy of the
allowance for possible losses. Various factors are considered in making this
judgment, such as the size, composition, collateral and quality of the loan and
lease portfolios; levels of delinquent or troubled loans and leases; historical
charge-off percentages; specifically identified allocations of the reserve; the
amount of the reserve that is unallocated; and prevailing local and national
economic conditions.
The purpose of an allowance for possible loss is to recognize losses which are
probable and estimable. Allowances are established using the OTS
Classifications of Assets Regulation to determine category risk. Assets
classified pass, special mention, substandard or doubtful generally trigger
allowances categorized as general, while loss classification triggers a
specific allowance or charge off. General and specific allowances are
estimated based on the loan collateral and the factors mentioned above.
E-21
<PAGE> 195
The allocation by loan category of the allowance for possible losses are as
follows at December 31, 1992:
<TABLE>
<CAPTION>
Percent
Applicable to: Amount to Total Loans
-------------- ------ --------------
<S> <C> <C>
Real Estate Mortgage $4,142 73.8%
Commercial 1,444 25.7
Other Loans 24 0.5
------ -----
$5,610 100.0%
====== =====
</TABLE>
DEPOSITS
(Amounts in Thousands)
Average Deposits and Rates
<TABLE>
<CAPTION>
1993 1992 1991
------------------- --------------- -------------------
Average Average Average Average Average
Average Balance Rate Balance Rate Balance Rate
-------- -------- ------- ---- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand $ 50,793 1.86% 42,144 2.96% $ 30,844 5.61%
Savings 46,510 3.31 35,220 4.23 21,156 5.54
Time 191,987 4.45 213,452 5.37 238,374 7.15
-------- ----- -------- ---- -------- ----
Total $289,290 3.81% $290,816 4.87% $290,374 6.87%
======== ===== ======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Maturity Schedule of Time Certificates of Deposit Over $100,000
---------------------------------------------------------------
Remaining Maturity December 31, 1993
------------------ -----------------
<S> <C>
3 months or less $ 9,164
3 to 6 months 5,682
6 to 12 months 5,302
Over 12 months 4,077
-------
Total $24,225
=======
</TABLE>
RETURN ON EQUITY AND ON ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1993 1992 1991
------ ------ -----
<S> <C> <C> <C>
Ratio of net income (loss) to average total assets 1.64% 0.70% 0.08%
Ratio of net income (loss) to average total equity 20.83% 12.08% 1.57%
Ratio of average total equity to average total assets 7.88% 5.78% 4.97%
</TABLE>
No dividends have been paid by the Corporation as of the end of the above
reported periods.
E-22
<PAGE> 196
SHORT-TERM BORROWINGS
(Amount in Thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance outstanding at December 31
(including accrued interest payable):
Amount $44,996 $ 8,465 $52,700
======= ======= =======
Weighted average interest rate 3.60% 4.82% 5.01%
======= ======= =======
Average borrowing for the year:
Outstanding $13,412 $39,548 $55,969
======= ======= =======
Weighted average interest rate 5.11% 4.26% 6.31%
======= ======= =======
Largest amount outstanding at month-end $44,996 $57,685 $64,890
======= ======= =======
</TABLE>
The above short-term borrowings are securities sold under agreements to
repurchase and generally mature within three months.
INTEREST-SENSITIVITY
(Amounts in Thousands)
The following table is a GAP analysis of the Bank as of December 31, 1993
<TABLE>
<CAPTION>
6 Months 6 Months 1 to 3 3 to 5 Over 5
Category or Less to 1 Year Years Years Years
-------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate loans and
mortgage-backed securities
Adjustable rate: $109,768 $107,001 $11,656 $14,876
Fixed rate: 12,496 11,382 37,248 27,710 $40,226
Unearned fees: (34) (18) (70) (69) (185)
All other loans and
mortgage servicing 5,364 1,224 4,274 1,750 690
Investment securities
and Federal Funds sold: 20,972 18 66 59
------- -------- ------- ------- --------
TOTAL INTEREST RATE
SENSITIVE ASSETS: 148,566 119,607 53,174 44,326 40,731
------- ------- ------ ------ ------
LIABILITIES:
Deposits: 133,453 43,329 58,481 31,568 28,152
Advances from FHLB
Adjustable rate: 14,000 150
Fixed rate: 12,500 10,000
</TABLE>
E-23
<PAGE> 197
<TABLE>
<S> <C> <C> <C> <C> <C>
Repurchase agreements: 42,407
Hedges
Interest rate caps: (12,000) 12,000
Interest rate swaps: (5,000) 5,000
--------- -------- ------- --------
TOTAL INTEREST RATE
SENSITIVE LIABILITIES: 185,360 53,329 75,481 31,568 30,711
------- ------ ------ ------ ------
Hedged Gap (36,764) 66,278 (22,307) 12,758 10,020
======== ====== ======== ====== ======
CUMULATIVE HEDGED GAP $(36,794) $29,484 $ 7,177 $19,935 $29,955
========= ======= ======== ======= =======
CUMULATIVE HEDGED GAP TO TOTAL ASSETS (8.9%) 7.1% 1.7% 4.8% 7.2%
====== ==== ====== ====== ======
</TABLE>
The following prepayment assumptions were used in the preparation of
the GAP analysis:
<TABLE>
<CAPTION>
Category Prepayment Rate
-------- ---------------
<S> <C>
ASSETS
Investment Securities:
Fixed rate 7.0%
Mortgage-backed Securities:
Adjustable rate: 10.0%
Fixed rate: 10.1%
Real estate loans:
Adjustable rate residential 5.0%
Fixed rate residential
Less than 7.00% 12.9%
7.00% to 7.999% 12.9%
8.00% to 8.999% 20.1%
9.00% to 9.999% 25.5%
10.00% to 10.999% 31.8%
11.00% or more 30.9%
Adjustable rate commercial 7.3%
Fixed rate commercial 7.0%
LIABILITIES
Checking:
Year one 37.0%
Years two through three 32.0%
More than three years 17.0%
</TABLE>
E-24
<PAGE> 198
<TABLE>
<S> <C>
Money market deposit accounts:
Year one 79.0%
More than one year 31.0%
Statement savings accounts:
Years one through three 17.0%
Years four through five 16.0%
More than five years 14.0%
</TABLE>
Item 2. PROPERTIES
The following table sets forth certain information relating to the ownership of
the Bank's offices as of December 31, 1993:
<TABLE>
<CAPTION>
Leased
or
Location Owned Lease Expiration Date
------------------------------- ----- ---------------------
<S> <C> <C>
Executive Office
Salt Lake City, Utah
115 South Main Street Owned
Branch Offices
--------------
Salt Lake City, Utah
201 South Main Street Leased February 28, 2002; renewable for up to two
additional terms of five years each.
Salt Lake City, Utah
4041 South 700 East Leased May 15, 2002; renewable for up to two additional
terms of five years each.
Salt Lake City, Utah
1360 South Foothill Blvd. Leased July 1994; renewable for up to two additional terms
of five years each; second renewable term is subject
to operator's approval.
Salt Lake City, Utah
5510 South 900 East Leased March 31, 2003; renewable for up to two additional
terms of five years each.
Sandy, Utah
7850 South 1300 East Leased June 30, 1998; renewable for up to two additional
terms of five years each.
</TABLE>
E-25
<PAGE> 199
<TABLE>
<S> <C>
Ogden, Utah Owned
2661 Washington Boulevard
Ogden, Utah
4411 Harrison Boulevard Owned
Provo, Utah
310 North University Avenue Owned
Butte, Montana (Satellite)
49 North Main & Broadway Owned
Butte, Montana
3701 Harrison Avenue Owned
</TABLE>
The Bank occupies approximately 31,500 square feet of space in the executive
office at 115 South Main Street, Salt Lake City, Utah. The remainder of the
space (approximately 21,500 square feet) is available to lease to others for
general office purposes, 12,700 square feet of which is currently leased. The
Bank also leases space to others in its Ogden, Provo and Butte branch offices.
Each of the properties is adequate and suitable for the purposes for which it
is being used.
Item 3. LEGAL PROCEEDINGS
Richard Madsen vs. Prudential Federal Savings and Loan Association, Third
Judicial District Court of Salt Lake County, State of Utah, Civil No. 226073,
filed February 1975.
This is an alleged class action filed in February, 1975, in the District Court
of Salt Lake County, seeking compensation for the use of loan reserves for
taxes and insurance. The District Court granted the Bank's (formerly known as
Prudential Federal Savings and Loan Association) motion for summary judgment
dismissing the complaint. Plaintiff appealed to the Utah Supreme Court. The
Utah Supreme Court reversed the summary judgment on January 14, 1977, and
ordered the case remanded for further proceedings. In October, 1977, plaintiff
amended the complaint to allege a plaintiff class action on behalf of all
mortgagors in the State of Utah against a defendant class of all mortgage
lenders in Utah, of which the Bank would be the representative defendant. In
October, 1981, plaintiff filed an amended complaint in the matter. The amended
complaint, in addition to requesting an accounting, requests that the Bank and
other members of the alleged defendant class pay to plaintiffs and other
members of the alleged plaintiff's class profits earned from the past use of
escrow funds, annual payments in the future for the use of escrow fund,
punitive damages of $10,000,000 and the sum of 4% interest on the reserve
account of each member of the plaintiff's class or $100, whichever is more,
from June 30, 1979. The trial court also denied the Bank's Motion for Summary
Judgment and ruled that the Bank must account to plaintiff Madsen only for net
earnings, if any, made on his reserve account.
Trial on this case was held in September, 1985. At the conclusion the Court
directed judgment in favor of plaintiff Madsen in the amount of $134.70.
Before judgment was entered, the Bank
E-26
<PAGE> 200
moved for disqualification of the trial judge, which was granted on January 16,
1986, and was retroactive, so that all of the trial judge's orders were
vacated. Thereafter, plaintiff's petition to the Utah Supreme court for
interlocutory review of the disqualification order was granted. During 1988,
the Utah Supreme Court reversed the lower court's disqualification of the trial
judge. The case was remanded to the trial court entry of findings of fact and
conclusion of law.
The trial court has on March 22, 1990, entered its findings of fact and
conclusions of law. The trial court entered judgment on April 30, 1992. The
judgment awards $134.70 to plaintiff, plus costs of court, plus 10% interest
from the date of the trial to the date of judgment, plus post-judgment interest
from the date of judgment. The judgment also orders that a special master be
appointed to survey the Bank's records to determine a feasible method for
identifying class members and for identifying records from which a computation
of damages can be made for class members. A consequence of the judgment may be
that a class of plaintiffs, whose trust deeds in favor of the Bank contain
similar language as that contained in the plaintiff's trust deed, may recover a
larger judgment against the Bank. The trial court certified the judgment as
final and directed its entry so that an appeal may be taken. The trial court
stayed, pending appeal, that portion of the judgment ordering that a special
master be appointed to identify the defendant class and calculate damages.
Both the individual plaintiff in this case and the Bank filed a notice of
appeal to the Utah Supreme Court.
The Supreme Court has now found that the appeals were premature and returned
the case to the trial court. The parties and the trial court are now in the
process of appointing a special master who will identify class members and
compute damages. The amount of the damages that may be awarded against the
Bank cannot be determined at this time. Appeal must await the trial court's
determination of class issues.
Other Litigation
The Corporation and its subsidiaries are parties to other ordinary routine
legal proceedings incident to its business none of which, in the opinion of
management, will have a material adverse effect on the Corporation's business
or financial condition if decided adversely to the Corporation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
E-27
<PAGE> 201
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
TRADING
The common stock, $1.00 par value, of the Corporation is traded on the National
Association of Securities Dealers Automated Quotation Service ("NASDAQ")
National Market System. The following table sets forth, for the respective
periods indicated, the closing prices of the common stock on the NASDAQ
National Market System, based upon actual transactions, as reported and
summarized by NASDAQ.
<TABLE>
<CAPTION>
1993 High Low
---- ---- ---
<S> <C> <C>
First Quarter 9 1/2 6 1/2
Second Quarter 11 1/4 8 3/4
Third Quarter 15 10 1/2
Fourth Quarter 14 1/2 12 1/2
</TABLE>
<TABLE>
<CAPTION>
1992 High Low
---- ---- ---
<S> <C> <C>
First Quarter 6 4 1/4
Second Quarter 6 5 1/8
Third Quarter 5 7/8 5 1/4
Fourth Quarter 7 1/4 5 1/4
</TABLE>
As of March 25, 1994, there were 11,895 record holders of the common stock.
DIVIDENDS
No dividends have been paid to stockholders since 1981, and no determination
has been made as to when, if at all, dividends may be paid to stockholders of
the Corporation in the future.
As a unitary savings and loan holding company, the Corporation's ability to pay
dividends depends in part on the dividends it receives from the Bank and on
income from other activities in which the Corporation may engage either
directly or through other subsidiaries. As a condition of the February 1983
FHLBB approval of the reorganization in which the Bank became a subsidiary of
the Corporation, dividends paid by the Bank are limited to net income for each
year, but such dividends may be deferred to a subsequent year. However, no
dividend may be paid from net income for a year prior to 1983 or if the payment
of such dividends would reduce the Bank's regulatory capital below the
regulatory minimums set by the OTS. To the extent dividends have been paid by
the Bank to the Corporation, such funds have been used in the conduct of the
business of the Corporation.
E-28
<PAGE> 202
Item 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR 1993 1992 1991 1990 1989
- ------------ -------- -------- -------- -------- --------
(Dollar Amounts in Thousands except Earnings (Loss) and
Stockholders' Equity Per Share)
<S> <C> <C> <C> <C> <C>
Interest Income $ 27,430 $ 33,109 $ 39,545 $ 48,833 $ 65,147
Interest Expense 14,485 19,769 29,665 40,513 59,376
Net Interest Income 12,945 13,340 9,880 8,320 5,771
Provision for (Recovery of)
Loan Losses (996) 2,038 1,922 2,113 8,874
Gain on Sale of Loans and
Investments 2,519 1,209 480 457 393
Provision for Loss on Real Estate
Acquired in Settlement of Loans 576 1,130 1,457 1,528 5,012
Net Income (Loss) 6,343 2,835 345 858 (14,419)
Primary Earnings (Loss) Per Share 1.97 1.06 0.14 0.34 (5.65)
Return (Loss) on Average Equity 20.83% 12.08% 1.57% 3.73% (50.47%)
Return (Loss) on Beginning Equity 23.50% 12.98% 1.60% 4.16% (41.12%)
Return (Loss) on Average Assets 1.64% 0.70% 0.08% 0.16% (2.01%)
AT YEAR END
Total Assets $414,169 $380,480 $403,693 $450,466 $589,933
Loan Receivable-Net 242,470 238,906 264,630 268,771 306,686
Investment Securities 12,713 7,058 16,414 25,174 57,814
Investments Available for Sale 132,196 103,835
Mortgage-Backed Securities 90,661 122,758 178,106
Savings Deposits 294,561 291,651 292,713 291,580 332,560
FHLB Advances, Securities Sold
Under Agreements to Repurchase
and Other Borrowings 81,646 57,562 83,168 131,548 228,972
Stockholders' Equity 33,364 26,987 21,849 21,504 20,646
Stockholders' Equity Per Share $ 10.76 $ 8.82 $ 8.57 $ 8.43 $ 8.10
</TABLE>
E-29
<PAGE> 203
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
This discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in this Annual Report.
The following table includes average balance information and the calculated
average rate earned or paid on assets and liabilities and is presented to
facilitate discussion of the Corporation's financial condition and results of
operations.
AVERAGE BALANCE SHEET/YIELDS AND RATES
for the Twelve Months Ended December 31, 1993, 1992 and 1991
(Unaudited)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
Average Average Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Investment Securities
and Other Short-term
Investments $24,809 $1,147 4.62% $ 24,349 $ 1,487 6.11% $ 32,021 $ 2,732 8.53%
Mortgage-backed
Securities 106,048 5,273 4.97 93,051 6,343 6.82 113,290 9,992 8.82
Loan Receivables1
Real Estate Loans 234,431 19,478 8.31 254,653 23,322 9.16 261,321 25,746 9.85
Commercial Loans 7,225 578 8.00 8,433 674 8.00 4,133 520 12.58
Other Loans Receivable 2,241 202 9.01 4,018 348 8.66 2,829 290 10.25
-------- ------- ----- ------- ------- ------ ------ ----- -----
Total Loan
Receivables 243,897 20,258 8.31 267,104 24,344 9.11 268,283 26,546 9.89
------- ------ ------- -------- ------- ------
Total Interest
Earning Assets 374,754 $26,678 7.12% 384,504 $32,174 8.37% 413,594 $39,270 9.49%
======= ====== ======= ===== ======= =====
Other Assets, Net 11,629 21,419 26,303
-------- ------- -------
Total Assets $386,383 $405,923 $439.897
======== ======== ========
</TABLE>
E-30
<PAGE> 204
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------- -------------------------------- -------------------------------
LIABILITIES AND Average Average Average Average Average Average
STOCKHOLDERS EQUITY Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------- -------- -------- -------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
Liabilities:
Deposits $289,290 $11,023 3.81% $290,816 $14,169 4.87% $290,374 $19,944 6.87%
Advances from Federal
Home Loan Bank 45,134 2,741 6.07 35,116 3,039 8.65 55,912 5,346 9.56
Securities Sold Under
Agreement to Repurchase
and Other Borrowings 16,910 721 4.26 48,665 2,561 5.26 61,711 4,375 7.09
------- ------ ---- -------- ------- ---- -------- ------ ----
Total Interest-Bearing
Liabilities 351,334 $14,485 4.12% 374,597 $19,769 5.28% 407,997 $29,665 7.27%
======= ==== ======= ==== ======= ====
Other Liabilities 4,602 7,850 9,879
Stockholders' Equity 30,447 23,476 22,021
------- -------- --------
Total Liabilities and
Stockholders' Equity $386,383 $405,923 $439,897
======== ======== ========
Net Interest Spread 3.00% 3.09% 2.22%
Net Interest
Income/Earning Assets $12,193 3.25% $12,405 3.23% $9,605 2.32%
</TABLE>
1 Loans and leases include non-accrual loans and are shown net of
unearned discount and allowance for possible losses. Interest on
loans and leases excludes fees.
RESULTS OF OPERATIONS
The following table highlights results of operation and earnings per share for
the years ended December 31,
<TABLE>
<CAPTION>
1993 1992 1991
----------- ------------ ---------
<S> <C> <C> <C>
Net income $6,343,000 $2,835,000 $345,000
Primary earnings per share 1.97 1.06 0.14
Fully diluted earnings per share 1.95 1.04 0.14
</TABLE>
NET INTEREST INCOME
A significant component of the Corporation's income is net interest income.
Net interest income is the difference between interest earned on loans,
investments and other interest-earning assets ("interest income") and interest
paid on deposits and other interest-bearing liabilities ("interest expense").
Net interest margin, expressed as a percentage, is net interest income divided
by average interest-earning assets. Changes in interest rates, the volume and
the mix of interest-earning assets and interest-bearing liabilities, and the
levels of non-performing assets affect net interest income and net interest
margin. Net interest spread is the difference between the yield on
interest-earning assets and the percentage cost of interest-bearing
liabilities.
E-31
<PAGE> 205
The following table highlights net interest income for the years ended December
31,
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- ------------
<S> <C> <C> <C>
Net interest income
including loan origination fees $12,945,000 $13,340,000 $9,880,000
Change from previous year (395,000) 3,460,000 1,560,000
% change from previous year (2.96%) 35.02% 18.75%
Net interest spread 3.00% 3.09% 2.22%
Net interest margin 3.25% 3.23% 2.32%
Net interest margin including
loan origination fees 3.45% 3.47% 2.39%
</TABLE>
The Corporation's net interest margin increased from 1991 to 1993 as the result
of a generally lower interest rate environment, lower levels of non-performing
assets and a change in the mix of retail deposits from certificates of deposit
to checking and statement savings accounts.
The following table highlights interest income for the years ended December 31,
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Total interest income $27,430,000 $33,109,000 $39,545,000
Change previous year (5,679,000) (6,436,000) (9,288,000)
% change from previous year (17.15%) (16.28%) (19.02%)
Total interest income/average interest
earning assets 7.32% 8.61% 9.56%
</TABLE>
The greatest decline in interest income from 1991 to 1993 occurred in the real
estate loan portfolio. Income from real estate loans declined $2,425,000 from
1991 to 1992 and $3,844,000 from 1992 to 1993 as a result of a decline in
average balances and rates. Real estate loan average portfolio balances have
also declined from 1991 to 1993 falling $6,668,000 from 1991 to 1992 and
$20,222,000 from 1992 to 1993. Over half the decline from 1992 to 1993
occurred in the commercial real estate portfolio. Until recently, federal
banking regulations prohibited the Corporation from originating non-residential
real estate loans, except to finance the sale of commercial real estate
acquired in settlement of loans (REO). Multi-family real estate loan average
balances increased $3,000,000 from 1992 to 1993, and average outstanding
balances on home equity loans increased $2,000,000 for the same period.
Average disbursed balances on construction loans increased $3,000,000 from 1992
to 1993. The balance of the decline from 1992 to 1993 was in single family
real estate loans. The average interest rate received for the real estate
portfolio fell 0.69% from 1991 to 1992 and 0.85% from 1992 to 1993. This trend
occurred in the mortgage-backed securities (MBS) portfolio as well. The
average interest rate earned for MBS fell 2.00% from 1991 to 1992 and 1.85%
from 1992 to
E-32
<PAGE> 206
1993. Decreases in the interest rate received for MBS and real estate loans
resulted from the downward adjustment of interest rates for adjustable rate
loans and the replacement of loans paid off with new loans at lower interest
rates. The average balance of investment securities increased $500,000 from
1992 to 1993 after declining $7,700,000 from 1991 to 1992. Due to lower yields
available for these securities, these balances are kept at minimum levels for
conducting business as well as to meet minimum regulatory requirements for
liquidity.
Loan origination fees earned during 1993 decreased by $183,000 over that earned
in 1992, which followed an increase of $660,000 from 1991 to 1992. The overall
increase from 1991 to 1993 of $478,000 was the result of the increased activity
in residential mortgage loans originated for sale and the increased volume of
loan refinancing. Deferred net loan fees collected at origination are
recognized as income when the loans are sold or pay-off. During 1993, Olympus
Bank, a Federal Savings Bank (the Bank) funded $66,228,000 for mortgage loans
originated for sale compared to $79,944,000 during 1992 and $13,343,000 for
1991. From the portfolio of loans originated for sale, $66,437,000 principal
balance was sold during 1993 compared to $77,898,000 which was sold during 1992
and $13,440,000 which was sold during 1991.
The following table highlights interest expense for the years ended December
31,
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Total interest expense $14,485,000 $19,769,000 $29,665,000
Change from previous year (5,284,000) (9,896,000) (10,848,000)
% change from previous year (27.73%) (33.36%) (26.78%)
Total interest expense/average costing
liabilities 4.12% 5.28% 7.27%
</TABLE>
Average costing liabilities declined $56,663,000 from 1991 to 1993 and the
average rate paid for such liabilities declined 3.15% for the same period. The
aggregate average balance of deposits declined $1,084,000 from 1991 to 1993 but
the average rate paid for such deposits fell 3.06% for the same period. The
Bank has experienced a significant change in the mix of the deposits during the
last three years. Outstanding balances of certificates of deposit at December
31, 1993, were $41,320,000 lower than the outstanding balances of certificates
of deposit at December 31, 1991. For the same period outstanding balances of
demand deposits, including money market demand accounts (MMDA), and statement
savings accounts increased $44,501,000 consistent with management's focus on
retail banking. The interest paid for all deposits fell $3,146,000 from 1992
to 1993 and $5,775,000 from 1991 to 1992. Advances from the Federal Home Loan
Bank (FHLB) constitute the most expensive source of funds for the Bank, though
the cost of this funding source has declined significantly in the past three
years. The average rate paid for FHLB advances fell 3.49% from 1991 to 1993
and the average balances of these advances declined $10,778,000. The interest
paid for FHLB advances fell $298,000 from 1992 to 1993 and $2,307,000 from 1991
to 1992. During the years ended December 31, 1993 and 1991 the Bank prepaid
$25,000,000 and $9,600,000, respectively, of
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<PAGE> 207
FHLB advances. The advances prepaid during 1993 had an average rate of 9.48%.
Such prepayments resulted in prepayment penalties, which are reported as
extraordinary items for 1993 and 1991. The average balances of other borrowing
sources declined $31,755,000 from 1992 to 1993 and $13,046,000 from 1991 to
1992. During 1993, $5,100,000 of $9,000,000 of other borrowings consisting of
an industrial revenue refunding bond liability was retired and the balance of
the liability was assumed by the purchaser of the industrial building
previously held in real estate acquired in settlement of loans. The average
balance of repurchase agreements declined $26,136,000 from 1992 to 1993.
Management may use this source of funding for the Corporation's liquidity needs
and to fund investment opportunities.
PROVISION FOR LOSSES
For the year ended December 31, 1993, the Corporation recorded a benefit for
$996,000 as compared to losses of $2,038,000 for the same period in 1992. The
provision for losses for 1992 was primarily the result of provision for losses
taken on the interest-only strips. These interest-only strips were sold during
1993 and had no impact on loan loss provisions during 1993.
The recoveries of previous loan loss reserves during 1993 were the result of
lower non-performing asset levels and the satisfactory settlement of several
troubled loans.
The provision for losses on REO was $576,000 for the year ended December 31,
1993, compared to $1,130,000 for the year ended December 31, 1992. The
provision for losses on REO was principally the result of adopting during 1992
the American Institute of Certified Public Accountants Statement of Position
92-3, "Accounting for Foreclosed Assets." The statement requires that assets
such as REO be carried on the books of the Corporation at the lower of cost or
fair value minus estimated costs to sell. Provision for losses on other
accounts receivable increased from 1991 to 1992 and decreased in 1993. These
provisions for 1993 include a charge of $257,000 to recognize the permanent
impairment of two purchased mortgage servicing portfolios caused by
prepayments, and a recovery of $196,000 on previously charged off assets. The
provision for 1992, totaling $289,000, was primarily taken against the residual
value of equipment owned by the Bank and leased to others. Such equipment is
being sold by the Bank and no further significant provisions for losses are
expected because the Bank no longer has an active equipment leasing program.
OTHER INCOME
Other income for the year ended 1993 was $4,200,000 as compared to $2,500,000
and $3,443,000 for the same periods in 1992 and 1991, respectively.
Fee income increased $22,000 from 1992 to 1993 after increasing $307,000 from
1991 to 1992. The two largest components of fee income are loan servicing fees
and fees and charges on deposits. Loan servicing fees declined $172,000 from
1992 to 1993, due in part to increased amortization of purchased mortgage
servicing rights resulting from early prepayments of mortgage loans. Late
charges collected on loans serviced for the Bank and others increased $28,000
from 1992 to 1993 and increased $74,000 from 1991 to 1992. Fees and charges
E-34
<PAGE> 208
collected on deposits increased $132,000 from 1992 to 1993 and increased
$197,000 from 1991 to 1992.
The Corporation earned $62,000 from real estate operations in 1993 compared to
a loss of $583,000 in 1992 and a loss of $103,000 for 1991. The Corporation
continues to make a concerted effort to reduce the dollar amount and holding
costs associated with REO properties.
At December 31, 1992, the Bank classified all mortgage-backed securities and
mortgage-backed derivative securities as assets available for sale, and
consistent with applicable accounting practice, recorded an unrealized loss of
$562,000. In the first quarter of 1993 most of the portfolio was sold,
including interest-only strip securities, and the Bank realized this loss. The
Bank continues to classify mortgage-backed securities as available for sale,
but consistent with current accounting practices, unrealized gains or losses
are excluded from income and reported as a separate component of Stockholders
Equity. At December 31, 1993, the Bank had recorded an unrealized loss on
securities available for sale of $107,000.
The Bank realized $956,000 more gain on sale of investments in 1993 than 1992.
Gain from the sale of mortgage loans decreased $270,000 from $1,200,000 in 1992
to $930,000 in 1993. During 1993, the Bank sold mortgage servicing rights on
loans serviced for others at a gain of $350,000. Gains on sale of investments,
principally mortgage-backed securities, increased $880,000 from 1992 to 1993.
Miscellaneous income fell $453,000 from 1992 to 1993, after falling $807,000
from 1991 to 1992. Miscellaneous income in 1992 and 1991 included tax refunds
and interest on tax refund claims. Such refunds and interest totaled $363,000
in 1992 and $1,373,000 in 1991. Commissions and income from the sale of
insurance products amounted to $400,000 in both 1993 and 1992.
OTHER EXPENSES
Excluding provision for losses on REO and other accounts receivable discussed
above, other expenses increased $1,826,000 during 1993, following an increase
of $563,000 during 1992 over 1991.
From 1991 to 1993 compensation expense has increased $1,197,000. Full time
compensation contributed most to the increase, rising $819,000 from 1991 to
1993. The Bank has opened five new branches since 1991, as well as adding
commercial loan administration personnel and residential lending personnel due
to increased demand for these services. Additionally, the increased volume of
demand deposits has required additions to the operations staff. Besides
opening five new branches, the Bank has relocated three additional branches to
larger, more convenient locations. Occupancy expense increased $219,000 from
1992 to 1993 after increasing $270,000 from 1991 to 1992. As well as new
branches and relocations, major repair projects have led to increased occupancy
expense. Management anticipates that increases in compensation and occupancy
may continue in future periods with the opening of two additional branches in
grocery stores. Management believes that retail branches represent an
opportunity to build low cost core deposits and to offer the Bank's lending
products and services to a wider
E-35
<PAGE> 209
range of customers. Loan and collection expense rose to 1991 levels after
declining $433,000 during 1992. The Bank experienced fewer and less
complicated foreclosure proceedings during 1992. The Bank was involved in
several costly foreclosure proceedings during 1993, most of which had been
concluded by December 1993. Insurance expense, which includes Federal Deposit
Insurance Corporation (FDIC) premiums for insured deposits, declined $129,000
from 1992 to 1991. During 1993 the Bank received the final installment of its
secondary reserve credit. This credit reduced the FDIC insurance premium
$415,000 for 1993. Legal expense continues to be a significant expense for the
Corporation reflecting management's policy of aggressively protecting the
Corporation's interests. In connection with this, a reserve of $500,000 has
been established for estimated costs associated with litigation. Data
processing and other outside services expense increased $240,000 from 1992 to
1993 after declining $211,000 from 1991 to 1992. In the fourth quarter of 1993
the Corporation spent $200,000 for review of strategic alternatives in
connection with an expression of interest to acquire the Corporation, which
expression of interest has since been terminated.
INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative
effect of adopting SFAS No. 109 on the Corporation's financial statements was
to increase income $338,000 during 1993.
In 1992, the Corporation recorded an income tax benefit of $157,000 which
resulted from a $197,000 deferred tax benefit offset by an estimate for Federal
alternative minimum tax of $40,000. The Corporation has net operating loss
carry forwards for financial statement purposes of approximately $8,750,000
which expire in the year 2003.
ASSET/LIABILITY MANAGEMENT - INTEREST RATE RISK
A mismatch between maturities and interest rate sensitivities of assets and
liabilities results in interest rate risk. While a certain level of interest
rate risk may be unavoidable, and may at times be desirable, management closely
monitors and attempts to manage this risk. The Corporation's general objective
has been to reduce its vulnerability to interest rate fluctuations over time.
The principal strategies to achieve this objective include (1) emphasizing
originations of shorter term and adjustable rate loans, (2) increasing core
checking and other demand deposit accounts which are less sensitive to changes
in interest rates, and (3) the use of interest rate swaps and interest rate cap
agreements to minimize the consequences of rising interest rates on short-term
deposits and borrowings.
The Corporation uses primarily two techniques in managing and measuring
interest rate risk, net interest income simulations and theoretical
mark-to-market values for interest sensitive assets and liabilities. The net
interest income simulation is a simulation of interest income and interest
expense for a twelve month period under different scenarios. An initial
scenario or base case was calculated using rates as of December 31, 1993.
Additional scenarios were computed adjusting rates both up and down. The
Corporation is negatively impacted by rising interest
E-36
<PAGE> 210
rates. Based on the simulation, net interest income would decline by
approximately 11% for an increase of 200 basis points over the base rates.
Theoretical market values were also computed using December 31, 1993 market
rate information for both assets and liabilities. This provides a base case
from which additional values for assets and liabilities are computed under
varying fluctuations of the current interest rates. The net market value of
portfolio equity, which is the theoretical market values of assets minus the
theoretical market values of liabilities, as of December 31, 1993, is
approximately $38.5 million. Given the same 200 basis point increase in the
base rates as discussed above, the net market value of portfolio equity would
decline by approximately 14%.
It is common for financial institutions to also measure interest rate risk
using a gap analysis. This analysis measures the difference between interest
earning assets and interest bearing liabilities repricing within a given time
period. Within one year the Bank has approximately $29,484,000 in assets
repricing in excess of liabilities or a cumulative hedged gap as a percent of
total assets of positive 7.1%. Within three years from December 31, 1993, the
Bank has approximately $7,177,000 of assets repricing in excess of liabilities
for a cumulative hedged gap to total assets of positive 1.7%. This information
is based on the Bank's internal gap analysis model as of December 31, 1993.
FINANCIAL CONDITION
ASSETS
Total consolidated assets at December 31, 1993, were $414,169,000, an increase
of $33,689,000 or 8.85% from the December 31, 1992 balance of $380,480,000.
This resulted primarily from an increase in net loan receivables of $3,564,000
and an increase in MBS of $28,361,000.
INVESTMENT SECURITIES AND LIQUIDITY MANAGEMENT
Investment securities, including federal funds sold, are used to provide
liquidity and generate income. The following table sets forth the carrying
values of each type of investment security held by the Corporation.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C>
Federal Funds Sold $ 81,000 $ 4,980,000
U.S. Government Securities 199,000 200,000
U.S. Government Agency Securities 6,498,000 2,997,000
Corporate Debt 497,000
Mortgage-backed Securities 2,151,000
Other Investment Securities 7,000 7,000
</TABLE>
E-37
<PAGE> 211
<TABLE>
<S> <C> <C>
Federal Home Loan Bank Stock 3,858,000 3,357,000
----------- -----------
Total $12,794,000 $12,038,000
=========== ===========
</TABLE>
Collateralized mortgage obligations (CMO) and mortgage-backed securities
interest-only strips (IO strips) accounted for as investments available for
sale as of December 31, 1992 are no longer included in the investment
securities. The securities included in the investment securities portfolio
have short term maturities and management has the intent and ability to hold
them to maturity.
The Corporation attempts to manage its liquidity position to meet the funding
needs of depositors and borrowers in a prompt and cost-effective manner.
Generally, the Corporation's liabilities have shorter maturities than the
Corporation's assets. Hence, the Corporation's ability to retain deposits and
renew advances and other borrowings can significantly affect liquidity. During
1993, although the assets had longer scheduled maturities, principal repayments
and maturities of the assets provided ample liquidity to fund deposit
withdrawals, other maturing liabilities, lending commitments, and capital
expenditures. The Corporation believes it has enough assets that can be
converted to cash through sale or used as collateral for borrowings to meet
liquidity needs. The Bank is required by regulation to meet mimimum liquidity
levels. Management believes it continues to be in compliance with such
requirements.
INVESTMENTS AVAILABLE FOR SALE
As of December 31, 1992, the Corporation categorized most mortgage-backed
securities and mortgage-backed securities derivatives as investments available
for sale and recorded an unrealized loss of $562,000. Such adjustment was
included as a reduction in income in 1992. In early 1993 the Bank sold most of
the adjustable rate mortgage-backed securities, the IO strips and CMOs. During
the third quarter of 1993, the Bank sold an additional $36,600,000 of
mortgage-backed securities. This sale resulted in a recognized gain of
$900,000. The proceeds of the sales were used to purchase adjustable and fixed
rate mortgage-backed securities, many with different interest rate indices
which more closely approximate the marginal cost of liability funding.
Additionally, a portion of the mortgage-backed securities are not issued by an
agency of the U.S. government but are privately issued securities with a
Standard and Poors rating of AAA. Management believes these securities will,
in the long term, provide a higher return than available from government
agency-backed securities at an acceptable level of risk. The mortgage-backed
securities are accounted for as assets available for sale recorded at fair
value and unrealized gains or losses are recorded as a separate component of
stockholders' equity.
LOAN AND LEASE RECEIVABLE
Loan and lease receivables totaled $242,470,000 at December 31, 1993, compared
to $238,906,000 at December 31, 1992. The increase in the ending balance is
primarily the result of loans originated for portfolio of $76,100,000 during
1993 offset by principal payments (both scheduled and unscheduled) of
$69,152,000 and the sale of the student loan portfolio.
E-38
<PAGE> 212
Real estate loans totaled $233,316,000 at December 31, 1993, an increase of
$3,472,000 from December 31, 1992. This increase is due to the amount of loans
originated to be retained in the portfolio which exceeded the repayment of
principal mentioned above. Currently, the Bank retains residential real estate
loans which either have adjustable interest rates and certain fixed rate loans
with shorter maturity dates. The Bank is currently originating and retaining
multi-family real estate loans. During 1993 the Bank originated $10,202,000 of
multi-family loans, compared to $4,381,000 during 1992. The Bank also
originates commercial real estate loans for acceptable borrowers and to finance
the sale by the Bank of commercial REO. Real estate loans are reviewed by
members of the Bank's loan committee or a direct endorsement underwriter prior
to the time a loan commitment is made, and the loan must adhere to established
underwriting standards and procedures designed to minimize the risk of
originating a loan which may later result in default.
The following table sets forth information to the Corporation's real estate
loan originations and loan sales:
<TABLE>
<CAPTION>
December 31,
---------------------------------
Real estate loans originated: 1993 1992
------------ -----------
<S> <C> <C>
Residential $106,824,000 $88,183,000
Commercial 3,675,000 6,850,000
Land 12,000 14,000
Construction 17,799,000 4,433,000
------------ -----------
Total originations $128,310,000 $99,480,000
============ ===========
Real estate loans sold $ 66,437,000 $77,898,000
============ ===========
</TABLE>
At December 31, 1993 and 1992, the Bank had extended lines of credit totaling
$10,602,000 and $4,057,000, respectively, for mortgage loan originations. The
lines of credit are used by mortgage bankers to originate and warehouse
mortgage loans. During the years ended December 31, 1993 and 1992, the Bank
disbursed $98,938,000 and $20,817,000, respectively, on these lines of credit.
These originations are not included in the preceding table.
The Bank currently maintains $119,188,000 in outstanding commercial real estate
loans in its loan portfolio. The commercial real estate loan portfolio is
subject to significant concentrations in single industries, single borrowers
and geographical areas. A downturn in any one geographic area, industry, or a
deterioration in the financial condition of one of the largest borrowers, could
have a material adverse impact on the Corporation. A further decline in
commercial real estate values in markets where the Corporation's commercial
real estate loans are located or other unexpected events could cause losses
with the result that capital of the Bank could be reduced below required
levels. As a consequence of these risks, in 1992 the Bank employed three
additional employees to monitor and manage this portfolio.
E-39
<PAGE> 213
Real estate loans held for sale totaled $6,470,000 at December 31, 1993. All
of these loans are fixed rate residential real estate loans which were
originated for sale in the secondary market. With the dramatic increase in
residential real estate loan production beginning in 1992, primarily from both
the financing and refinancing of residential real estate, and because many of
the loans bear interest at a fixed rate, it is presently management's intent to
continue to sell government and long term conventional fixed rate loans.
Commercial business loans totaled $7,092,000 at December 31, 1993, a decrease
of $470,000, or 6% from December 31, 1992. Management intends to allocate
additional resources for the origination of commercial business loans and
growth could be expected in this category of lending. Recognizing the
generally increased risks associated with commercial business lending, the Bank
originates commercial business loans in order to increase short-term or
adjustable rate assets.
Other loans receivable decreased $19,000 to a total of $2,223,000 at December
31, 1993. The balance of other loans receivable are consumer loans, such as
loans for automobiles and credit card loans. This area of lending will
continue, but slow growth is expected due to competitive pressure.
The allowance for losses on loans totaled $5,610,000 at December 31, 1993,
compared to $6,678,000 at December 31, 1992. The allowance for losses is
composed of specific allowances on particular loans and a general allowance for
the loan portfolio. As of December 31, 1993, the total of specific allowances
was $1,526,000, an increase of $449,000 from December 31,1992. The general
allowance totaled $4,084,000 at December 31, 1993 compared to $5,601,000 at
December 31, 1992. The general allowance is 1.66% of the loan and lease
portfolio at December 31, 1993, as compared to 2.71% at December 31, 1992. It
is difficult to predict which, if any, of the loans will become delinquent.
The general allowance is 182% of non-performing loans at December 31, 1993,
compared to 138% of non-performing loans at December 31, 1992. Management has
closely monitored the adequacy of the allowance for possible losses, but the
continuing evolution of the methodologies used to determine adequacy, the
changing economic environment, the changing financial condition of the Bank's
largest borrowers, and the evolving standards of the Federal Deposit Insurance
Corporation ("FDIC") and the OTS may result in further additions to the
allowance.
NON-PERFORMING ASSETS & REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Non-performing assets (principally non-accrual loans and REO) totaled
$5,297,000 at December 31, 1993, compared with $9,310,000 at December 31, 1992.
Commercial real estate loans represent the majority of the assets in this
category in 1993. In 1992, REO represented the majority of assets. As of
December 31, 1993, non-accrual loans totaled $2,242,000 compared to $4,047,000
at December 31, 1992. At December 31, 1993, non- accrual loans consisted of
commercial real estate loans and commercial installment loans. At December 31,
1993, real estate loans that were non-accrual totaled approximately $832,000 as
compared to $3,842,000 at December 31, 1992. At December 31, 1993, non-accrual
commercial installment loans totaled $1,408,000.
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<PAGE> 214
REO (including in-substance foreclosures) totaled $3,055,000 at December 31,
1993, compared to $5,263,000 at December 31, 1992. During 1992 and 1993 the
Corporation sold several large properties in REO, including the remaining
property at the Resort Center in Park City and an industrial building in Salt
Lake City. The Bank has provided loans on market terms to some of these
buyers. Properties in REO are being actively marketed. Pursuant to
management's emphasis on resolving unsatisfactory credits through foreclosure
proceedings or other actions, the Bank has commenced, and may in the future
commence, enforcement proceedings against borrowers whose loans may not be
delinquent with respect to principal or interest payments but who may not be in
compliance with other provisions of the documents governing the loans, such as
those relating to the payment of taxes. These proceedings may precipitate
delinquencies or may result in additions to REO.
At December 31, 1993, there were two Bank properties in REO. The largest was a
hotel located in Pocatello, Idaho. This hotel was sold in a Bank financed
transaction during the first quarter of 1994. The other property was a
hydroelectric plant. The Bank sold this property in the first quarter of 1994.
However, it will be accounted for as REO pursuant to Statement of Financial
Accounting Standards No. 66, "Accounting for sales of Real Estates". Major
loans that are on non-accrual consisted of a commercial real estate loan and
commercial business loans. The commercial real estate loan is an office
building located in southern California. The largest nonaccrual commercial
business loan was made in connection with a hotel in Idaho and has some
commonality of borrowers with the hotel in Pocatello, Idaho that is listed
above as REO property. Proceeds from the sale of the hotel were used to pay
this loan in full.
As of December 31, 1993, the Corporation has identified approximately $13.6
million of loans and real estate acquired in settlement of loans (net of
specific allowances) with various weaknesses or deficiencies, including present
and/or past delinquencies in payment, and unverified or unverifiable sources of
cash flow covering past and/or future payments. This compares with $22.8
million of such assets as December 31, 1992. The Corporation has $25,899,000
of commercial real estate loans located in southern California. Management is
unable to determine what, if any, the impact of recent natural disasters will
have on these loans.
LIABILITIES
SAVINGS DEPOSITS
Deposits are the Corporation's principal source of funds. Deposits totaled
$294,561,000 at December 31, 1993, an increase of $2,910,000 from December 31,
1992. Management's strategy, implemented in 1990, to improve and where
necessary relocate facilities and to emphasize checking accounts and other
transaction related accounts combined with a lower interest rate environment
appears to be successful so far in mitigating the loss of deposits attributable
to a decline in certificates of deposit offered by the Bank. During 1993,
certificates of deposit decreased $16,320,000 while checking and demand
accounts and statement savings accounts increased $19,230,000.
E-41
<PAGE> 215
BORROWINGS
Advances from the Federal Home Loan Bank decreased $3,350,000 from 1992 to 1993
and as discussed previously, during 1993 the Bank prepaid $25,000,000 of
advances from the Federal Home Loan Bank. These fixed rate advances were
replaced by adjustable rate advances. During 1993, $5,100,000 of the
$9,000,000 industrial revenue bond, supported by letters of credit issued by
the Bank, which made up the bulk of other borrowings at December 31, 1992, was
retired, and the principal obligation for repayment of the balance was assumed
by the purchaser of the industrial building previously held in REO. The
balance of funds borrowed through repurchase agreements rose $36,531,000 during
1993. The proceeds from this borrowing were used to purchase adjustable and
fixed rate mortgage-backed securities. Management intends to use borrowed
funds only as needed for liquidity and to borrow at longer maturities.
CAPITAL RESOURCES
The Corporation privately placed 510,000 shares of its common stock on November
19, 1992 at $5.00 per share. This raised approximately $2,300,000 in new
capital after all associated costs of issuance. The capital was contributed to
the Bank for general business purposes and to strengthen the capital position
of the Bank. During 1993, 39,500 stock options were exercised, which
contributed $140,000 in new capital to the Corporation.
In connection with the insurance of savings accounts by the Savings Association
Insurance Fund ("SAIF"), the Bank is required to meet certain minimum capital
standards consisting of three separate requirements. The capital standards
consist of a tangible capital requirement of 1.5% of tangible assets, a core or
leveraged capital requirement of 3% of tangible assets, and a risk-based
capital requirement. The risk-based requirement takes each asset and gives it
a weighting of 0% to 100% based upon credit risk as defined in the regulations
of the Office of Thrift Supervision ("OTS"). The risk-based capital
requirement as of December 31, 1993 and 1992 was 8% of the risk weighted
assets. Eligible capital to meet this test is composed of core or tier 1
capital and supplementary or tier 2 capital. Supplementary or tier 2 capital
is composed of general loan loss reserves up to a maximum of 1.25% of risk
weighted assets.
The following is a summary of the Bank's regulatory capital at December 31,
1993:
<TABLE>
<CAPTION>
Requirements Actual
------------------- --------------------- Amount Exceeding
Capital Ratio Capital Ratio Requirements
----------- ----- ------------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Tangible $ 6,207,000 1.50% $32,731,000 7.91% $26,524,000
Core 12,415,000 3.00 32,731,000 7.91 20,316,000
Risk-based 20,060,000 8.00 35,877,000 14.27 15,817,000
</TABLE>
E-42
<PAGE> 216
EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions". The Statement requires an
accrual of post-retirement benefits (such as health care benefits) during the
years an employee provides services. The cost of these benefits were
previously expensed on a pay-as-you-go basis. The Corporation adopted this
Statement in 1993. The impact of the Statement on the Corporation was not
material.
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Post-employment Benefits". The Statement requires an accrual of benefits to be
provided to former or inactive employees after employment but before
retirement, such as salary continuation, severance pay, or health care
benefits. The Statement is effective for fiscal years beginning after December
15, 1993. The impact of the Statement on the Corporation is not expected to be
material.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires that
impaired loans be valued based on the present value of expected future cash
flows or fair value of the collateral if the loan is collateral dependent.
SFAS No. 114 is effective for fiscal years beginning after December 15, 1994.
The impact of SFAS No. 114 on the Corporation is not expected to be material.
E-43
<PAGE> 217
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Olympus Capital Corporation and Subsidiaries:
We have audited the accompanying consolidated statements of financial condition
of Olympus Capital Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Olympus Capital Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Corporation changed its method of accounting for income taxes and certain debt
securities to conform with Statements of Financial Accounting Standards No. 109
and No. 115, respectively.
/s/
DELOITTE & TOUCHE
Salt Lake City, Utah
March 1, 1994
E-44
<PAGE> 218
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Cash on hand and in banks (Note 2) $ 8,323,332 $ 7,096,080
Federal funds sold 81,099 4,980,484
------------ ------------
Total cash and cash equivalents 8,404,431 12,076,564
------------ ------------
Investments available for sale (amortized cost of $132,302,225
in 1993 and $104,396,822 in 1992) (Notes 3, 11, and 17) 132,195,692 103,834,561
Investment securities (fair value $12,711,849 in 1993 and
$7,035,774 in 1992) (Note 4) 12,712,941 7,057,761
Loans receivables, net (Note 5):
Real estate loans 233,316,431 229,844,248
Real estate loans held for sale 6,469,655 6,678,429
Commercial loans 7,091,863 7,562,150
Other loans receivable 2,238,761 2,301,410
Less unamortized loan fees (1,036,824) (802,360)
Less allowance for losses (5,610,010) (6,677,783)
------------ ------------
Total loan receivables 242,469,876 238,906,094
------------ ------------
Accrued interest receivable (less allowance for uncollectible
interest of $99,499 in 1993 and $163,308 in 1992) 2,232,629 2,359,429
Real estate acquired in settlement of loans, net (Note 6) 3,054,916 5,262,614
Premises and equipment, net (Note 7) 7,333,637 7,528,378
Other assets and deferred charges (Note 8) 5,765,291 3,454,305
------------ ------------
TOTAL ASSETS $414,169,413 $380,479,706
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 9) $294,560,648 $291,650,580
Advances from Federal Home Loan Bank (Note 10) 36,649,913 40,000,000
Securities sold under agreements to repurchase
(including accrued interest payable) (Note 11) 44,996,245 8,464,822
Other borrowings (Note 12) 9,096,748
Other liabilities and accrued expenses 4,599,067 3,942,656
Deferred tax credits (Note 13) 337,878
Total liabilities 380,805,873 353,492,684
------------ ------------
Commitments and contingent liabilities (Note 17)
Stockholders' equity (Note 15):
Common stock - $1 par value, 10,000,000 shares authorized;
shares issued and outstanding 3,099,639 in 1993 and
3,060,139 in 1992 (Note 19) 3,099,639 3,060,139
Paid-in capital 1,894,005 1,793,230
Retained earnings - substantially restricted 28,476,429 22,133,653
Net unrealized losses on investments available
for sale (Note 3) (106,533)
------------ ------------
Total stockholders' equity 33,363,540 26,987,022
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $414,169,413 $380,479,706
============ ============
</TABLE>
See notes to consolidated financial statements.
E-45
<PAGE> 219
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Real estate loans $19,478,265 $23,322,006 $25,746,517
Mortgage-backed securities 5,272,572 6,342,758 9,991,919
Investment securities and other short-term investments 643,174 1,107,940 2,345,729
Equity securities 504,137 378,958 386,258
Commercial loans 577,706 674,721 520,294
Other loans and contracts 201,490 347,441 279,880
Loan organization fees 752,201 935,025 274,091
----------- ----------- -----------
Total 27,429,545 33,108,849 39,544,688
----------- ----------- -----------
INTEREST EXPENSE
Deposits (Note 9) 11,022,544 14,168,612 19,944,339
Advances from Federal Home Loan Bank (Note 10) 2,740,926 3,039,131 5,345,760
Securities sold under agreements to repurchase
and other borrowings (Notes 11 and 12) 721,302 2,561,556 4,375,076
----------- ----------- -----------
Total 14,484,772 19,769,299 29,665,175
----------- ----------- -----------
NET INTEREST INCOME 12,944,773 13,339,550 9,879,513
Provision for (recovery of) loan losses (Note 5) (996,412) 2,037,707 1,922,271
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 13,941,185 11,301,843 7,957,242
----------- ----------- -----------
OTHER INCOME:
Fees 1,413,207 1,391,491 1,083,500
Income (loss) from real estate operations 61,584 (582,802) (103,423)
Unrealized loss on investments available for sale (Note 3) (562,261)
Gain on sale of loans and investments (Notes 3, 4, and 5) 2,519,020 1,209,224 480,138
Rentals on operating leases, net 32,141 162,416
Miscellaneous (Note 13) 559,659 1,012,684 1,820,198
---------- ----------- -----------
Total 4,553,470 2,500,477 3,442,829
---------- ----------- -----------
OTHER EXPENSES:
Compensation and other employee expense (Note 20) 5,439,399 5,078,634 4,242,246
Occupancy 2,185,436 1,966,359 1,696,811
Advertising 375,326 295,078 457,497
Loan and collection expense 476,930 123,533 556,535
Insurance expense 693,069 821,943 785,588
Provision for losses:
Real estate acquired in settlement of loans (Note 6) 575,560 1,130,201 1,457,005
Other accounts receivable 61,058 289,475 72,836
Other operating expenses 2,360,172 1,419,058 1,402,760
----------- ----------- -----------
Total 12,166,950 11,124,281 10,671,278
----------- ----------- -----------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
ITEMS, AND CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 6,327,705 2,678,039 728,793
----------- ----------- -----------
</TABLE>
(Continued)
E-46
<PAGE> 220
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ---------- -----------
<S> <C> <C> <C>
INCOME TAX EXPENSE (BENEFIT) (Note 13):
Provision in lieu of income taxes $ 553,000
Current $ 40,000
Deferred (196,761)
----------- ---------- -----------
Total NONE (156,761) 553,000
----------- ---------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE $ 6,327,705 2,834,800 175,793
EXTRAORDINARY ITEMS
FHLB advance prepayment penalty, net of related
income taxes of $143,000 in 1991 (Note 10) (322,807) (240,894)
Realization of net operating loss carryforward 410,000
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (Notes 1 and 13) 337,878
----------- ----------- -----------
NET INCOME $ 6,342,776 $ 2,834,800 $ 344,899
=========== =========== ===========
EARNINGS PER SHARE (Note 18):
PRIMARY
Income per share of common stock before
extraordinary items and cumulative effect
of a change in accounting principle $ 1.96 $ 1.06 $ .07
Extraordinary items (.10) .07
Cumulative effect of a change in accounting
principle (Note 1) .11
----------- ----------- -----------
Earnings per share of common stock $ 1.97 $ 1.06 $ .14
=========== =========== ===========
FULLY DILUTED:
Income per share of common stock before
extraordinary items and cumulative effect
of a change in accounting principle $ 1.94 $ 1.04 $ .07
Extraordinary items (.10) .07
Cumulative effect of a change in accounting
principle (Note 1) .11
----------- ----------- -----------
Earnings per share of common stock $ 1.95 $ 1.04 $ .14
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(Concluded)
E-47
<PAGE> 221
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
UNREALIZED
COMMON PAID-IN RETAINED LOSS ON TOTAL
STOCK CAPITAL EARNINGS INVESTMENTS (NOTE 15)
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $2,550,139 $18,953,954 $21,504,093
Net income 344,899 344,899
---------- ---------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1991 2,550,139 19,298,853 21,848,992
Issuance of common stock
(Note 15) 510,000 $1,793,230 2,303,230
Net income 2,834,800 2,834,800
---------- ---------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1992 3,060,139 1,793,230 22,133,653 26,987,022
Issuance of common stock
(Note 19) 39,500 100,775 140,275
Net decrease in fair value of
investments available for
sale (Notes 1 and 3) $(106,533) (106,533)
Net income 6,342,776 6,342,776
---------- ---------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1993 $3,099,639 $1,894,005 $28,476,429 $(106,533) $33,363,540
========== ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
E-48
<PAGE> 222
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $26,434,708 $ 34,075,609 $ 40,461,944
Fees and commissions received 2,828,343 2,185,135 1,592,096
Income (loss) from real estate operations 1,584 (582,802) (103,423)
Loans originated or purchased for resale (66,228,074) (79,943,643) (18,170,070)
Proceeds from sale of loans originated or
purchased for resale 66,436,848 77,897,537 13,440,454
Miscellaneous income received 1,030,959 2,024,324 2,264,391
Interest paid (15,248,131) (20,327,638) (29,700,682)
Cash paid for services to suppliers and employees (8,336,568) (6,657,617) (5,836,736)
Cash paid for other expenses (1,645,382) (2,228,429) (2,104,893)
Income taxes paid (7,213) (237,515)
--------------- -------------- --------------
Net cash provided by operating activities 5,274,287 6,435,263 1,605,566
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities 10,450,000 5,153,500 26,121,415
Proceeds from sale of investment securities 6,952,437 2,620,082 1,500,000
Purchase of investment securities (16,661,900) (10,385,706) (21,723,209)
Principal collected on investment securities 354,801 2,268,164 2,227,018
Proceeds from sale of mortgage-backed securities 137,781,224 10,842,347
Purchase of mortgage-backed securities (183,220,432) (28,788,003) (3,894,600)
Principal collected on mortgage-backed securities 11,461,598 21,484,572 25,180,681
Principal collected on loans 69,151,779 52,970,550 36,837,197
Proceeds from sale of loans 902,225 4,168,441 560,384
Loans originated or purchased (76,099,514) (33,716,496) (38,399,846)
Proceeds from sale of real estate 8,266,008 9,137,748 6,641,048
Capital expenditures for premises and equipment (2,215,264) (729,284) (2,026,679)
Purchases of other assets (3,467,329) (797,166) (98,033)
--------------- -------------- --------------
Net cash provided by (used in) investing
activities (36,344,367) 23,386,402 43,767,723
--------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,835,068 (1,062,709) 1,133,022
Proceeds from advances from Federal Home Loan Bank 152,258,200 30,696,000
Principal payments on advances from Federal Home
Loan Bank (155,608,287) (20,696,000) (34,600,000)
Net proceeds (repayment) of securities sold under
agreements to repurchase 36,626,668 (43,896,328) (4,706,178)
Proceeds from (repayment of) other borrowings (8,853,977) 7,641,989 (8,910,269)
Proceeds from issuance of common stock 140,275 2,303,230
--------------- -------------- --------------
Net cash provided by (used in)
financing activities 27,397,947 (25,013,818) (47,083,425)
--------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,672,133) 4,807,847 (1,710,136)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,076,564 7,268,717 8,978,853
--------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,404,431 $ 12,076,564 $ 7,268,717
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
E-49
<PAGE> 223
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991 (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 6,342,776 $ 2,834,800 $ 344,899
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 716,298 682,455 559,818
Deferred income tax benefit (196,761)
Cumulative effect of a change in accounting principle (337,878)
Provision for (recovery of) credit losses (996,412) 2,037,707 1,922,271
Provision for loss on real estate acquired in
settlement of loans 575,560 1,130,201 1,457,005
Recoveries 196,689 345,323 965,798
Unrealized loss on investments available for sale 562,261
Gain on sale of loans and investments (2,519,020) (1,209,224) (480,138)
Net loans originated or purchased for resale 208,774 (841,307) (4,632,323)
(Gain) loss on sale of real estate (102,282) 970 (35,945)
Discount/premium amortization on investment and
mortgage-backed securities 134,913 1,459,464 1,104,848
Federal Home Loan Bank stock dividends (500,100) (375,900) (383,900)
Amortization on unearned discounts on loans (4,249) (8,706) (52,890)
Net rentals on operating leases (32,141) (162,416)
Provision for loss on and decline in value of other
assets 61,058 323,086
Decrease in other liabilities (25,184) (56,501) (236,014)
Decrease in accrued interest receivable 126,800 826,927 636,342
Increase (decrease) in interest payable (440,552) (558,339) 618,179
(Increase) decrease in prepaid expenses 895,892 (157,815) (138,200)
Increase (decrease) in deferred fees and commissions 448,425 (141,381) 234,505
Increase (decrease) in accrued expenses 492,779 (189,856) (116,273)
----------- ----------- -----------
Total adjustments (1,068,489) 3,600,463 1,260,667
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,274,287 $ 6,435,263 $ 1,605,566
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES - Loans transferred to
real estate acquired in settlement of loans $ 4,138,973 $ 4,223,816 $ 7,235,683
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
E-50
<PAGE> 224
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Olympus Capital Corporation (the "Corporation"), a savings and loan
holding company, provides a full range of financial services to individual
and corporate customers through its primary subsidiary, Olympus Bank, a
Federal Savings Bank (the "Bank"). The Corporation is subject to the
regulations of certain federal agencies and undergoes periodic
examinations by those agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles including those applicable to the savings and loan
industry. In preparing such financial statements, management is required
to make estimates and judgments that effect the carrying amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for
the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly subject to change
relate to the determination of the allowance for possible loan losses and
the valuation of real estate acquired in settlement of loans. Management
obtains independent appraisals of properties to assist in the
determination of the allowance for losses on loans, leases, and real estate
owned.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include those of the Corporation and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENTS AVAILABLE FOR SALE - Effective December 31, 1993, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (Statement No. 115). Pursuant to Statement No. 115,
investments available for sale are recorded at fair value, with net
unrealized gains or losses excluded from income and reported as a separate
component of stockholders' equity. Gains or losses on investments
available for sale are determined on the specific identification method
and are included in income when realized. Investments available for sale
include securities for which the Corporation has entered into a commitment
to sell the securities as well as securities to be held for indefinite
periods of time that management intends to use as part of its
asset/liability management strategy and that may be sold in response to
changes in interest rates, prepayment risk, or other factors. Prior to
the adoption of Statement No. 115, investments available for sale were
carried at the lower of aggregate cost or market with unrealized losses
reported in the statement of operations.
INVESTMENT SECURITIES - Investments securities are carried at amortized
cost, based on management's intent and ability to hold such securities to
maturity. Discounts are accreted or premiums amortized using the interest
method over the life of the security. Gains or losses on sales of
securities are determined based on the specific identification method.
INTEREST RATE EXCHANGE, INTEREST RATE CAP AGREEMENTS, AND INTEREST-ONLY
STRIPS - The Corporation enters into interest rate exchange agreements as
a means of managing interest rate exposure. The floating rates associated
with these exchanges are reset on a quarterly basis. The effect on
interest costs is recognized currently over the term of such agreements.
E-51
<PAGE> 225
Interest rate cap agreements are purchased to reduce the Corporation's
exposure to rising interest rates which would increase the cost of
floating rate liabilities. Costs are amortized over the life of the
agreements and benefits are recognized when realized. The premium related
to interest-only strips is amortized using the interest method over the
estimated life of the future payment stream.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS (REO) - Properties acquired in
settlement of loans and loans considered in substance foreclosures are
carried at the lower of cost or fair value less estimated selling costs.
Costs relating to the development and improvement of property are
capitalized, whereas those relating to holding the property are expensed.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost.
Depreciation and amortization of office buildings and related equipment
are computed on a straight-line method over the estimated useful lives
ranging from 20 to 50 years for buildings, 5 to 35 years for leasehold
improvements, and 3 to 25 years for furniture and equipment. Maintenance
and repairs are expensed as incurred. Additions and major renewals and
betterments are capitalized. In addition, the Corporation leases certain
of its branch facilities under operating leases.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Securities sold under
agreements to repurchase are accounted for as financing transactions and
are recorded at the amount at which the securities will be reacquired,
including accrued interest. Securities sold under agreements to
repurchase are entered into only with securities brokers which are
registered with the Securities and Exchange Commission, are members in
good standing of the National Association of Securities Dealers, Inc., and
are primary dealers in U.S. Government securities or are agencies of the
federal government. Collateralization limits, based on market values,
range from 101% to 110%, depending on maturity.
ALLOWANCE FOR LOSSES ON LOAN RECEIVABLES - Allowance for losses on loan
receivables are established to recognize losses which are, in the opinion
of management, probable and estimable. Allowance for losses are
established on the loan portfolio based on past experience and calculated
as a percentage of the portfolio. Delinquent and adversely classified
loans are analyzed and additional allowance for losses established based
on historical losses and estimates of the fair value of the collateral.
While management uses the best information available on which to base
estimates, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used for the
purposes of analysis. Restructuring of a loan results in the
establishment of a loss allowance based on the fair value of the
collateral. In addition, various regulatory agencies routinely examine
the Corporation's financial statements as part of their legally prescribed
oversight of the savings and loan industry. As an integral part of their
examination process, the regulatory agencies review the allowance for
losses. Such agencies may require additions to the allowance based on
their evaluation of information available at the time of their
examination.
NON-REFUNDABLE LOAN ORIGINATION FEES - Loan origination fees and certain
direct loan origination costs are being deferred. For loans held for
investment, such fees are amortized over the life of the loan using the
interest method as an adjustment of yield. Net deferred loan fees are
included in the calculation of the gain or loss on the sale of loans.
INCOME TAXES - In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes"
E-52
<PAGE> 226
(Statement No. 109). Effective January 1, 1993, the Corporation and its
subsidiaries adopted the provisions of Statement No. 109 and recognized a
cumulative effect of a change in accounting principle adjustment of
$337,878. The change in accounting for income taxes had no effect on
income before income taxes in 1993. The Corporation has recorded net
deferred tax assets which are offset by a valuation allowance for the
expected future tax consequences of events that have been recognized in
different periods for financial statement purposes than for income tax
purposes.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income an allowance for bad debts based
on a percentage of taxable income before such deduction. Retained
earnings at December 31, 1993 and 1992 include earnings of approximately
$25,200,000 and $27,300,000, respectively, representing such bad debt
deductions for which no provision for Federal income taxes has been made.
If the deducted amounts are used at a future time for any purpose other
than to absorb such losses, tax liabilities will be incurred by the Bank
at the Federal income tax rates in effect at that time. In the future, if
the Bank does not meet the Federal income tax requirements necessary to
permit it to deduct an allowance for bad debts, the Corporation's
effective Federal income tax rate could increase.
ACCRUED INTEREST RECEIVABLE - Interest earned but uncollected on loans and
investments is accrued. Generally, the recognition of income on a loan is
suspended and previously accrued interest is reversed when payments become
more than 90 days delinquent.
STATEMENTS OF CASH FLOWS - For purposes of the statements of cash flows,
the Corporation considers cash on hand, amounts due from banks, federal
funds sold, and United States Treasury Bills purchased as part of cash
management activities with an original maturity less than 90 days to be
cash equivalents. Also, for purposes of the statements of cash flows,
loan originations and principal collected on loans includes rollovers of
loans.
OTHER - Certain reclassifications have been made in the prior year's
financial statements to conform to classifications adopted in the current
year.
2. RESTRICTED CASH
In connection with loans serviced for others, the Corporation collects
loan payments and advances for taxes and insurance from borrowers and
remits such collections, less a servicing fee, to the lender. At December
31, 1993, there were no unremitted collections or restricted funds.
E-53
<PAGE> 227
3. INVESTMENTS AVAILABLE FOR SALE
The amortized cost and estimated fair values of investments available for
sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1993 COST GAINS LOSSES VALUE
----------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agency fixed rate
mortgage-backed securities $ 29,714,294 $ (323,745) $ 29,390,549
U.S. Government Agency variable
rate mortgage-backed securities 64,701,617 $ 34,932 64,736,549
Non-agency variable rate mortgage-
backed securities 37,886,314 182,280 38,068,594
------------ ---------- ------------ ------------
Total $132,302,225 $ 217,212 $ (323,745) $132,195,692
============ ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1993 COST GAINS LOSSES VALUE
- ----------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agency fixed rate
mortgage-backed securities $ 1,668,040 $ 83,055 $ 1,751,095
U.S. Government Agency variable
rate mortgage-backed securities 94,004,584 1,823,258 95,827,842
Real estate mortgage investment
conduit 1,986,613 1,986,613
Utah Housing mortgage-backed
securities 170,000 170,000
Collateralized mortgage obligations 1,733,795 $ (70,924) 1,662,871
Interest-only mortgage-backed
securities 4,833,790 (2,397,650) 2,436,140
------------ ----------- ----------- ------------
Total $104,396,822 $1,906,313 $(2,468,574) $103,834,561
============ ========== =========== ============
</TABLE>
At December 31, 1993, the net unrealized loss on investments available for
sale of $106,533 was recorded to reduce the carrying value of the
investments on an aggregate basis to their estimated fair values.
Pursuant to the adoption of SFAS No. 115, such adjustment was excluded
from income and shown as a separate component of stockholders' equity. At
December 31, 1992, a lower of cost or market adjustment of $562,261 was
recorded to reduce the carrying value of the investments on an aggregate
basis to their estimated fair value. Such adjustment was included as a
reduction in income in 1992.
The amortized cost and estimated fair value of investment securities
available for sale at December 31, 1993 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. The maturities of mortgage-backed
securities are estimated based on the contractual maturities of the
underlying loans.
E-54
<PAGE> 228
<TABLE>
<CAPTION>
ESTIMATED
FAIR
AMORTIZED COST VALUE
-------------- -------------
<S> <C> <C>
Due after one year through five years $ 5,224,009 $ 5,199,952
Due after five years through ten years 9,844,228 9,755,139
Due after ten years 117,233,988 117,240,601
------------ ------------
Total $132,302,225 $132,195,692
============ ============
</TABLE>
Proceeds, gross gains, and gross losses from sales of investments
available for sale were as follows for the year ended December 31, 1993:
<TABLE>
<S> <C>
Proceeds $137,781,224
============
Gross realized gains $ 2,807,672
Gross realized losses (2,482,636)
------------
Net realized gains $ 325,036
============
</TABLE>
There were no investments classified as available for sale during 1991.
At December 31, 1993, mortgage-backed securities totaling $6,747,391 are
pledged as collateral to letters of credit and $598,199 to interest rate
swap agreements. Additionally, mortgage-backed securities totaling
$46,912,958 as of December 31, 1993, have been sold under agreements to
repurchase (see Note 11). Investment in Federal Home Loan Bank capital
stock is required of Federal Home Loan Bank members and represents the
greater of: a) 1% of residential mortgage loans and mortgage-backed
securities, b) 0.3% of total assets, or c) 5% of advances from the Federal
Home Loan Bank.
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1993 COST GAINS LOSSES VALUE
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal Home Loan Bank variable
rate notes $1,506,937 $ (7,387) $1,499,550
Federal National Mortgage
Association variable rate notes 3,491,220 (10,695) 3,480,525
Student Loan Marketing Association
variable rate notes 1,500,000 $ 3,000 1,503,000
Utah Housing mortgage-backed
securities 160,000 160,000
Real estate mortgage investment
conduit 1,990,955 15,246 2,006,201
U.S. Treasury securities 199,256 (1,256) 198,000
---------- ------- -------- ----------
Total debt securities 8,848,368 18,246 (19,338) 8,847,276
</TABLE>
E-55
<PAGE> 229
<TABLE>
<S> <C> <C> <C> <C>
Federal Home Loan Bank capital 3,857,500 3,857,500
stock
Other equity securities 7,073 7,073
----------- ------- -------- -----------
Total $12,712,941 $18,246 $(19,338) $12,711,849
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1992 COST GAINS LOSSES VALUE
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Investment grade corporate debt $ 496,937 $3,063 $ 500,000
U.S. Treasury securities 199,890 110 200,000
Federal National Mortgage
Association debentures 2,996,460 $(25,160) 2,971,300
---------- ------ -------- ----------
Total debt securities 3,693,287 3,173 (25,160) 3,671,300
Federal Home Loan Bank capital
stock 3,357,400 3,357,400
Other equity securities 7,074 7,074
---------- ------ -------- ----------
Total $7,057,761 $3,173 $(25,160) $7,035,774
========== ====== ======== ==========
</TABLE>
The amortized cost and estimated fair value of investment debt securities
at December 31, 1993 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due less than one year $ 199,256 $ 198,000
Due after one year through five years 8,489,112 8,489,276
Due after five years through ten years 160,000 160,000
---------- ----------
Total investment debt securities $8,848,368 $8,847,276
========== ==========
</TABLE>
Proceeds, gross gains, and gross losses from sales of investment securities
were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>
Proceeds $6,952,437 $2,620,082 $12,342,347
========== ========== ===========
Gross gains $ 384,295
Gross losses $ (11,910) $ (28,750)
---------- ---------- -----------
Net gains $ (11,910) $ (28,750) $ 384,295
========== ========== ===========
</TABLE>
E-56
<PAGE> 230
Investment securities totaling $3,857,500 and $3,357,400 were pledged on
advances from the Federal Home Loan Bank of Seattle at December 31, 1993
and 1992, respectively.
5. LOAN RECEIVABLES
Real estate loan receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992
------------ ------------
<S> <C> <C>
Real estate loans:
Residential $117,664,808 $ 84,076,030
Commercial 119,187,768 134,857,373
FHA and VA loans 9,966,800 12,738,600
Equity line-of-credit loans 6,506,411 4,011,628
Land acquisition loans 55,335 1,070,602
------------ ------------
Total 253,381,122 236,754,233
Less:
Undisbursed portion of loans-in-process 19,689,718 6,612,672
Unearned discount on loans and contracts purchased 374,973 297,313
------------ ------------
Net real estate loans $233,316,431 $229,844,248
============ ============
</TABLE>
These loans are collateralized by liens on real property. The balances of
participation loans serviced for others at December 31, 1993 and 1992 were
approximately $354,238,000 and $278,353,000, respectively. Generally,
fixed rate residential real estate loans currently originated by the
Corporation are sold in the secondary market.
A Federally-chartered savings bank's aggregate non-residential real estate
loans may not exceed 400% of its capital as determined under the capital
standards provisions of FIRREA. The Bank is federally-chartered and
subject to this limitation. FIRREA does not require divestiture of any
loan that was lawful when it was originated. At December 31, 1993, the
Bank was in compliance with the 400% limitation. Additionally, FIRREA
prohibits origination after August 9, 1989 of loans to one borrower in
excess of 15% of capital, except for loans not to exceed $500,000 or to
facilitate the sale of real estate acquired in settlement of loans. The
15% limitation results in a dollar limitation of approximately $4,910,000
at December 31, 1993. The Bank has not originated a loan since August 9,
1989 which was in violation of this limitation.
E-57
<PAGE> 231
The Corporation originates and purchases both adjustable and fixed
interest rate loans. At December 31, 1993, the composition of these loans
is as follows:
<TABLE>
<CAPTION>
FIXED RATE ADJUSTABLE RATE
--------------------------------------------------- ---------------------------------
AVERAGE
TERM TO TERM TO
INTEREST MATURITY RATE
RATE BOOK VALUE (YEARS) ADJUSTMENT BOOK VALUE
--------------- ----------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Less than 8.00% $24,150,736 9 1 mo. - 1 yr. $115,725,640
8.00 - 8.99% 17,830,500 10 1 yr. - 3 yr. 22,382,109
9.00 - 9.99% 23,976,550 10 3 yr. - 5 yr. 21,755,743
10.00 - 10.99% 22,134,264 9 Non-accrual 649,738
11.00% and above 4,592,842 10
Non-accrual 183,000
----------- ------------
Total $92,867,892 Total $160,513,230
=========== ============
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to current market indices. Future market factors may affect
the correlation of the interest rate adjustment with the rates paid on the
deposits that have been primarily utilized to fund these loans.
Non-accrual real estate loans, principally loans past due more than 90 days,
totaled approximately $2,242,000 and $4,047,000 at December 31, 1993 and 1992,
respectively. If non-accrual loans had been current in accordance with their
stated terms, approximately $99,000, $163,000, and $157,000 in interest income
would have been recorded in 1993, 1992, and 1991, respectively.
Concentration of commercial real estate loans listed by property type at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
PROPERTY TYPE BOOK VALUE
------------- -----------
<S> <C>
Office buildings (includes medical and bank) $22,069,573
Industrial and warehouse (includes light industrial) 12,646,042
Retail and wholesale 29,873,011
Motel or hotel 21,250,380
Nursing home, convalescent center, or hospital 11,096,471
Mobile home parks 3,801,403
Service (gas station, fast food, car wash, convenience stores, etc.) 2,883,363
Restaurant 2,106,450
Other commercial (recreation facilities, mini-storage, farm, hydro-electric, 13,461,075
auto-dealers, truck terminal, and other single-use property)
</TABLE>
E-58
<PAGE> 232
Commercial real estate loans listed by the state in which the property is
located at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
STATE BOOK VALUE
----- ----------
<S> <C>
Alaska $ 1,202,224
Arizona 3,067,538
California 37,691,363
Colorado 1,044,606
Idaho 16,335,436
Montana 6,561,469
New Mexico 5,829,617
Nevada 372,091
Oregon 2,357,314
Utah 42,920,533
Wyoming 1,805,577
</TABLE>
Additionally, the Corporation has 93 commercial real estate and multi-family
loans with book values in excess of $500,000 at December 31,1993. Multiple
loans to 22 different borrowers range in total value, to each borrower, from
$301,819 to $12,935,584.
Changes in the allowance for losses on loan receivables are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1 $6,677,783 $ 6,545,377 $ 6,703,698
Provision (recovery) charged
(credited) to expense (996,412) 2,037,707 1,922,271
Recoveries of amounts previously
charged to allowance 375,205 323,406 350,195
Charge-offs (446,566) (2,228,707) (2,430,787)
---------- ----------- -----------
Balance, December 31 $5,610,010 $ 6,677,783 $ 6,545,377
========== =========== ===========
</TABLE>
E-59
<PAGE> 233
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is net of an allowance for
losses that may be incurred in disposing of the real estate. Changes in
the allowances are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ------------ -----------
<S> <C> <C> <C>
Balance, January 1 $ 1,851,129 $ 2,937,828 $ 3,106,335
Provision charged to expense 575,560 1,130,201 1,457,005
Recoveries 122,260 487,542
Charge-offs (2,076,689) (2,339,160) (2,113,054)
----------- ------------ -----------
Balance, December 31 $ 350,000 $ 1,851,129 $ 2,937,828
=========== ============ ===========
</TABLE>
7. PREMISES AND EQUIPMENT
The cost of premises and equipment and related accumulated depreciation
and amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992
----------- -----------
<S> <C> <C>
Land $ 1,076,318 $ 1,076,318
Buildings and leasehold improvements 9,178,689 9,129,815
Furniture and equipment 3,311,399 2,895,198
Branch offices and equipment under capital leases 316,169
----------- -----------
Total 13,566,406 13,417,500
Accumulated depreciation and amortization (6,232,769) (5,889,122)
----------- -----------
Net premises and equipment $ 7,333,637 $ 7,528,378
=========== ===========
</TABLE>
8. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992
----------- -----------
<S> <C> <C>
Purchased mortgage servicing rights $ 4,016,773 $ 2,040,382
Prepaid expenses 398,993 746,041
Other assets and deferred charges 1,349,525 667,882
----------- ------------
Total $ 5,765,291 $ 3,454,305
=========== ===========
</TABLE>
Amortization expense related to purchased mortgage servicing rights for
the years ended December 31, 1993 and 1992 was $825,295 and $219,496,
respectively, including a $257,414
E-60
<PAGE> 234
adjustment for permanent impairment recorded in 1993. The servicing
rights are amortized over the life of the loans, based on management's
estimate of prepayments of the underlying mortgage loans.
9. DEPOSITS
Deposits are classified by type and interest rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------------- -----------------------
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
------- ------------ ------- ------------
<S> <C> <C>> <C> <C>
Money market deposit accounts 2.83% $ 21,863,517 3.00% $ 25,348,607
Checking accounts 0.89 35,450,467 1.20 17,970,289
Other demand 1,205,291 2,327,942
Statement savings 3.17 49,515,070 3.43 43,157,576
Certificates:
14 day/variable rate 3.47 2,702,802
3 month 2.93 1,745,826 3.33 2,495,413
6 month 3.26 54,804,732 3.76 65,771,552
8 month 3.44 2,785,973 4.43 7,995,869
10 month 4.05 27,509
1 year 3.75 43,247,614 4.45 58,588,595
18 month 4.30 1,172,139
2 year 4.75 14,150,806 5.77 15,359,731
3 year 5.52 22,674,999 6.79 13,221,789
4 year 6.56 3,588,874 7.49 3,337,921
5 year 6.43 27,035,779 8.18 12,831,557
Retirement trust 3.90 12,321,210 5.00 16,356,416
Jumbo (over $100,000) 3.53 2,998,351 3.86 4,157,012
----- ------------ ----- ------------
Total certificates 4.31 186,526,303 4.77 202,846,166
----- ------------ ----- ------------
Total deposits 3.59% $294,560,648 4.16% $291,650,580
===== ============ ===== ============
</TABLE>
As of December 31, 1993, certificates totaling $136,506,000 mature in
one year or less. The remaining certificates of $50,020,000 mature in two
to five years.
E-61
<PAGE> 235
Interest expenses on deposits consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Money market deposit and checking accounts $ 937,537 $ 1,245,751 $ 1,718,813
Statement savings 1,541,555 1,453,115 1,158,708
Certificates 8,543,452 11,469,746 17,066,818
----------- ----------- -----------
Total interest expense $11,022,544 $14,168,612 $19,944,339
=========== =========== ===========
</TABLE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)
Advances from FHLB consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MATURITY INTEREST ---------------------------------------
DATE RATE 1993 1992
-------- ---------- ----------- -----------
<S> <C> <C> <C>
1993 9.30-9.60% $20,000,000
1994 3.02-9.70% $26,500,000 20,000,000
1995 3.98% 10,000,000
2008 6.93% 149,913
----------- -----------
Total $36,649,913 $40,000,000
=========== ===========
</TABLE>
During the years ended December 31, 1993 and 1991, the Corporation prepaid
$25,000,000 and $9,600,000, respectively, of advances from the FHLB. Such
prepayments resulted in prepayment penalties of $322,807 for the year ended
December 31, 1993 and $383,894 for the year ended December 31, 1991. The
prepayment penalty is shown as an extraordinary item in the Consolidated
Statements of Operations for the years ended December 31, 1993 and 1991,
respectively.
E-62
<PAGE> 236
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Short-term borrowings of mortgage-backed securities sold under
agreements to repurchase substantially identical securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1992
----------- -----------
<S> <C> <C>
Balance outstanding (including accrued interest payable):
Amount $44,996,245 $ 8,464,822
=========== ===========
Weighted average interest rate 3.60% 4.82%
=========== ===========
Average borrowing for the year:
Outstanding $13,412,159 $39,547,895
=========== ===========
Weighted average interest rate 5.11% 4.26%
=========== ===========
Largest amount outstanding at any month-end $44,996,245 $57,685,160
=========== ===========
</TABLE>
Mortgage-backed securities sold under agreements to repurchase
substantially identical securities are as follows:
E-63
<PAGE> 237
DECEMBER 31, 1993
<TABLE>
<CAPTION>
SECURITIES SOLD
--------------------------------------------
ACCRUED
TERM TO INTEREST CARRYING FAIR INTEREST LIABILITY
MATURITY RATE VALUE (1) VALUE RECEIVABLE BALANCE
-------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Less than 30 days 3.16-3.41% $19,501,623 $19,698,089 $103,275 $19,086,206
30 days to 60 days 3.43% 24,795,308 24,518,596 133,842 23,459,389
Five years to ten years 5.72-8.875% 2,616,027 2,652,519 10,813 2,450,650
----------- ----------- -------- -----------
Total $46,912,958 $46,869,204 $247,930 $44,996,245
=========== =========== ======== ===========
</TABLE>
DECEMBER 31, 1992
<TABLE>
<CAPTION>
SECURITIES SOLD
-----------------------------------------------
ACCRUED
TERM TO INTEREST CARRYING FAIR INTEREST LIABILITY
MATURITY RATE VALUE (1) VALUE RECEIVABLE BALANCE
-------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
10 Months 3.910% $ 8,713,203 $ 8,862,609 $ 61,703 $ 6,927,964
129 Months 8.875% 1,541,541 1,615,286 9,273 1,536,858
----------- ----------- -------- -----------
Total $10,254,744 $10,477,895 $ 70,976 $ 8,464,822
=========== =========== ======== ===========
</TABLE>
(1) excludes accrued interest receivable
The mortgage-backed securities underlying the agreements were delivered
to the primary dealers who arranged the transactions. The dealers may
have sold, loaned, or otherwise disposed of such securities to other
parties in the normal course of their operations and have agreed to
resell to the Corporation substantially identical securities at the
maturities of the agreements.
The Corporation pays a fixed rate of 8% on an interest rate swap
agreement hedging securities sold under agreements to repurchase in the
notional principal amount of $5,000,000 at December 31, 1993 and 1992.
The agreement expires in July 1995. The effect of swaps for the years
ended December 31, 1993, 1992 and 1991 was to increase interest expense
by $169,486, $473,115, and $446,660, respectively. Securities totaling
$598,199 are pledged as collateral on these agreements as of December
31, 1993.
E-64
<PAGE> 238
12. OTHER BORROWINGS
Other borrowings consisted of the following as of December 31, 1992:
<TABLE>
<S> <C>
Notes payable with interest at 5% due in quarterly installments through 1997 $ 71,564
Obligations under capital leases, due in monthly installments through 1993 25,184
Industrial Revenue Refunding Bond with monthly interest payments at
variable interest rates based on market determined rates, with principal due
in 1996 (Note 17) 9,000,000
----------
Total $9,096,748
==========
</TABLE>
During the second quarter of 1993, $5,100,000 of the Industrial
Revenue Refunding Bond was retired, and the remaining principal obligation
was assumed by the purchaser of the related industrial building previously
held as real estate owned. The balance of the 5% note payable was prepaid
in December 1993 without penalty.
Premises, equipment and operating lease equipment with a depreciated
cost of $3,882,926 at December 31, 1992 were pledged as collateral for
these borrowings.
13. INCOME TAXES
As discussed in Note 1, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes" effective January 1, 1993.
The total deferred tax expense of $1,045,150 for the year ended
December 31, 1993 was offset by a corresponding reduction in the valuation
allowance.
Deferred tax assets and liabilities as of December 31, 1993 consisted
of the following items:
<TABLE>
<S> <C>
Assets:
Provision for loan losses $ 2,292,004
Net operating loss carryforward 3,265,135
AMT credit 168,598
Other 296,715
-----------
Total deferred tax assets 6,022,452
-----------
Liabilities:
Depreciation 344,813
Accrual to cash conversion 143,706
FHLB stock dividend 750,024
Other 75,683
-----------
Total deferred tax liabilities 1,314,226
-----------
Net deferred tax asse 4,708,226
Valuation allowance (4,708,226)
-----------
Net NONE
===========
</TABLE>
E-65
<PAGE> 239
Income tax expense (benefit) differed from the amount computed by
applying the Federal statutory rate to income taxes for the years ended
December 31, 1993, 1992 and 1991 as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
Federal income tax expense at statutory rate $ 2,041,665 $ 910,533 $ 117,266
Increases (decreases) in taxes resulting from:
Statutory bad debt deduction (885,318) (1,757,654) (632,810)
Tax exempt income (111,197) (91,419) (93,761)
State income taxes 36,136
Net loss on sale and provision for loss on
real estate owned 682,682 632,009
Provision for loss on qualifying real estate
loans and non-qualifying loans 58,246 700,757
Alternative minimum tax 40,000
Net operating loss carryforward used to
offset existing deferred tax credits (196,761)
Limitation in tax benefit due to net
operating loss 181,632
Reduction in valuation allowance (1,045,150)
Income tax refund (excluding interest (349,777)
portion)
Effect of FHLB advance prepayment 143,000
Other 15,980
----------- ----------- ----------
Total NONE $ (156,761) $ 553,000
=========== =========== ==========
</TABLE>
The deferred tax benefit of $196,761 recorded in 1992 results from a
change in the estimated timing difference related to FHLB stock which
management expects to reverse in the years prior to the expiration of
the Corporation's net operating loss carryforward.
At December 31, 1993, the Corporation has net operating loss
carryforwards for income tax purposes of approximately $8,750,000
which expire in the year 2003.
During the year ended December 31, 1991, the Corporation received a
refund of past income taxes paid of $1,373,086, including approximately
$344,000 in interest, which is included in other income. The refund is
due to a change in the method for computing the allowable bad debt
deduction for income tax purposes under the percentage method and
relates to tax years 1972 through 1977.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107) requires that the
Corporation disclose fair values for its financial instruments. Fair
value estimates, methods and assumptions are as follows for the
Corporation's financial instruments.
E-66
<PAGE> 240
CASH AND INVESTMENTS - The carrying amounts for cash and
short-term investments is considered a reasonable estimate of fair
value. The fair value of longer term investments is estimated based
on bid indications received from securities dealers.
The following table represents the carrying value and estimated fair
value of cash and investments at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------------------------- ----------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash on hand and in
banks $ 8,323,332 $ 8,323,332 $ 7,096,080 $ 7,096,080
Federal funds sold 81,099 81,099 4,980,484 4,980,484
Investments
available for sale 132,302,225 132,195,692 104,396,822 103,834,561
Investment
securities 12,712,941 12,711,849 7,057,761 7,035,774
------------ ------------ ------------ ------------
Total $153,419,597 $153,311,972 $123,531,147 $122,946,899
============ ============ ============ ============
</TABLE>
LOANS - Fair values are estimated for portfolios of loans with similar
characteristics. Loans are segregated by type, such as residential
mortgage, commercial real estate, land loans, commercial, credit card
and other consumer. Each loan category is further segmented into fixed
and adjustable rate interest terms.
The fair value is calculated by discounting contractual cash flows
using estimated market discount rates which reflect the credit and
interest rate risk inherent in the loan.
The following table presents information for loans:
<TABLE>
<CAPTION>
AVERAGE
--------------------
ESTIMATED
CARRYING MATURITY DISCOUNT CALCULATED
DECEMBER 31, 1993 AMOUNT YIELD (YRS.) RATE FAIR VALUE
------------ ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Real estate:
Residential:
Adjustable $ 22,758,355 6.70% 19 6.77% $ 22,603,756
Fixed 59,191,936 8.34 14 6.72 61,768,486
Commercial:
Adjustable 105,649,243 7.70 7 7.34 104,813,543
Fixed 39,715,303 9.76 6 7.96 42,684,711
Land:
Adjustable
Fixed 55,336 11.74 1 7.75 56,543
Other 12,415,913 8.00 1 8.06 12,415,913
Commercial 7,091,863 8.93 3 8.50 7,157,506
Credit card 543,989 10.32 3 15.00 537,589
Other 1,694,772 8.14 2 7.46 1,708,903
------------ ------------
Total $249,116,710 $253,746,950
============ ============
</TABLE>
E-67
<PAGE> 241
<TABLE>
<CAPTION>
AVERAGE
----------------------
ESTIMATED
DECEMBER 31, 1992 CARRYING MATURITY DISCOUNT CALCULATED
AMOUNT YIELD (YRS.) RATE FAIR VALUE
------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Real estate:
Residential:
Adjustable $ 18,049,225 7.45% 9 6.69% $ 18,098,176
Fixed 75,352,230 9.04 15 7.17 79,859,856
Commercial:
Adjustable 81,546,293 7.94 8 7.12 81,212,850
Fixed 49,789,118 10.15 12 9.75 50,739,941
Land:
Adjustable 1,000,422 9.00 14 8.00 1,020,200
Fixed 3,390,180 7.58 5 7.60 3,385,700
Other 7,395,209 8.11 3 7.65 7,415,183
Commercial 7,562,150 9.10 2 8.38 7,601,481
Credit card 439,056 12.19 3 15.00 435,955
Other 1,862,354 8.84 2 7.28 1,872,636
------------ ------------
Total $246,386,237 $251,641,978
============ ============
</TABLE>
Average maturity represents average cash flow period, which in some
instances is different than the stated maturity.
Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for
many of these financial instruments, management has no basis to
determine whether the fair value presented above would be indicative
of the value negotiated in an actual sale.
DEPOSITS - Under SFAS 107, the carrying amount of deposits with no
stated maturity, such as money market and checking accounts, and
statement savings accounts, is considered a reasonable estimate of
fair value. The fair value of certificates of deposit is based on the
discounted value of the contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
remaining maturities.
The following table presents deposit information at December 31, 1993
and 1992.
<TABLE>
<CAPTION>
1993 1992
----------------------------------- ----------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Money market and checking $ 58,519,275 $ 58,519,275 $ 45,646,838 $ 45,646,838
Statement savings 49,515,070 49,515,070 43,157,576 43,157,576
Certificate of deposit 186,526,303 188,964,202 202,846,166 205,264,092
------------ ------------ ------------ ------------
Total $294,560,648 $296,998,547 $291,650,580 $294,068,506
============ ============ ============ ============
</TABLE>
ADVANCES FROM FHLB, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE,
AND OTHER BORROWINGS - The fair value is calculated by discounting
contractual cash flows using estimated market discount rates.
E-68
<PAGE> 242
The following table presents information for advances from FHLB,
securities sold under agreements to repurchase, and other borrowings
as of December 31, 1993 and 1992.
<TABLE>
<CAPTION>
1993 1992
----------------------------------- --------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Variable rate advances from FHLB $ 14,149,913 $ 14,150,000 $ 10,000,000 $ 9,997,300
Fixed rate advances from FHLB:
Due in one year or less 12,500,000 12,501,692 20,000,000 20,777,698
Due after one year through five 10,000,000 9,936,371 10,000,000 10,491,154
Securities sold under agreements to
repurchase 44,996,245 45,789,529 8,464,822 8,979,600
Other borrowings 9,096,748 6,576,848
------------ ------------- ------------ ------------
Total $ 81,646,158 $ 82,377,592 $ 57,561,570 $ 56,822,600
============ ============ ============ ============
</TABLE>
INTEREST RATE SWAP AGREEMENTS AND INTEREST RATE CAPS - The fair values
of interest rate swap agreements and interest rate caps are obtained
by discounting anticipated cash flows. These values represent the
estimated amount the Corporation would receive or pay to terminate the
contracts or agreement, taking into account current interest rates.
The following table presents the notional amount, carrying amount and
estimated fair value for interest rate swaps and interest rate caps:
E-69
<PAGE> 243
<TABLE>
<CAPTION>
CARRYING ESTIMATED
DECEMBER 31, 1993 NOTIONAL AMOUNT AMOUNT FAIR VALUE
--------------- -------- ----------
<S> <C> <C> <C>
Interest rate swap agreement $ 5,000,000 $ 41,250 $ (243,000)
(net payable position)
Interest rate caps 12,000,000 85,146 None
</TABLE>
<TABLE>
<CAPTION>
CARRYING ESTIMATED
DECEMBER 31, 1992 NOTIONAL AMOUNT AMOUNT FAIR VALUE
--------------- -------- ----------
<S> <C> <C> <C>
Interest rate swap agreement
(net payable position) $ 5,000,000 $ 40,250 $(344,426)
Interest rate caps 22,000,000 132,896 None
</TABLE>
The amounts shown under "Carrying Amount" represent accruals or
deferred expense.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The fair
value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreement and the present credit
worthiness of the counterparties. For fixed rate loan commitments, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the
estimated costs to terminate them or otherwise settle the obligations
with counterparties. The contract amount, carrying amount and the
estimated fair value for commitments to extend credit and standby
letters of credit are as follows:
<TABLE>
<CAPTION>
CONTRACT CARRYING ESTIMATED
DECEMBER 31, 1993 AMOUNT AMOUNT FAIR VALUE
----------- -------- ----------
<S> <C> <C> <C>
Commitments to extend credit $45,214,634 $194,741 $(403,891)
Standby letters of credit 5,821,227 None None
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CARRYING ESTIMATED
DECEMBER 31, 1992 AMOUNT AMOUNT FAIR VALUE
----------- -------- ----------
<S> <C> <C> <C>
Commitments to extend credit $28,182,679 $30,775 $(279,000)
Standby letters of credit 474,446 None (8,000)
</TABLE>
The amounts shown under "Carrying Amount" represent deferred
income from these unrecognized financial instruments.
LIMITATIONS - The fair value estimates are made at a discrete point in
time based on relevant market information about the financial
instruments. Because no market exists for a significant portion of the
corporation's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and
such other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgments and
therefore
E-70
<PAGE> 244
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates are based on existing on and off
balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial
assets or liabilities include the mortgage banking operation, deferred
tax credits, other assets, and premises and equipment. In addition,
the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates
and have not been considered in many of the estimates.
15. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
In connection with the insurance of savings accounts by the Savings
Association Insurance Fund ("SAIF"), the Bank is required to meet
certain minimum capital standards consisting of three separate
requirements. The capital standards consist of a tangible capital
requirement of 1.5% of tangible assets, a core or leverage capital
requirement of 3% of tangible assets, and a risk-based capital
requirement. The risk-based requirement takes each asset and gives it
a weighting of from 0% to 100% based upon credit risk as defined in
the regulations of the Office of Thrift Supervision ("OTS"). The
risk-based capital requirement as of December 31, 1993 and 1992 was 8%
of the risk weighted assets. Eligible capital to meet this test is
composed of core or tier I capital and supplementary or tier 2
capital. Supplementary or tier 2 capital is composed of general loan
loss reserves up to a maximum of 1.25% of risk weighted assets.
The FDIC Improvement Act of 1991 ("FDICA") required each federal
banking agency to implement prompt corrective actions for institutions
that it regulates. In response to this requirement, the OTS adopted
final rules, effective December 19, 1992, based upon FDICIA's five
capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The rules provide that a savings association is "well capitalized" if
its total risk-based capital ratio is 10% or greater, its tier 1
risk-based capital ratio is 6% or greater, its leverage ratio is 5% or
greater, and the institution is not subject to a capital directive.
As used herein, total risk-based capital ratio means the ratio of
total capital to risk-weighted assets, tier 1 risk-based capital ratio
means the ratio of core capital to risk-weighted assets, and leverage
ratio means the ratio of core capital to adjusted total assets, in
each case as calculated in accordance with current OTS capital
regulations. Under these new regulations, the Bank is deemed to be
"well capitalized".
E-71
<PAGE> 245
The following is a summary of the Bank's regulatory capital at
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
REQUIREMENT ACTUAL AMOUNT
------------------- -------------------- EXCEEDING
CAPITAL RATIO CAPITAL RATIO REQUIREMENT
----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Tangible $ 6,207,000 1.50% $32,731,000 7.91% $26,524,000
Core 12,415,000 3.00 32,731,000 7.91 20,316,000
Risk-based 20,060,000 8.00 35,877,000 14.27 15,817,000
DECEMBER 31, 1992
Tangible $ 5,700,000 1.50% $26,700,000 7.03% $21,000,000
Core 19,000,000 5.00 26,700,000 7.03 7,700,000
Risk-based 19,300,000 8.00 26,700,000 12.30 10,400,000
</TABLE>
At periodic intervals, both the Office of Thrift Supervision (OTS) and
Federal Deposit Insurance Corporation ("FDIC") routinely examine the
Bank's financial statements as part of their legally prescribed
oversight of the savings and loan industry. Based on these
examinations, the regulators can direct that the Bank's financial
statements be adjusted in accordance with their findings.
A future examination by the OTS or FDIC could include a review of
certain transactions or other amounts reported in the Bank's 1993
financial statements. In light of FIRREA and the uncertain regulatory
environment in which the Bank now operates, the extent, if any, to
which a forthcoming regulatory examination may ultimately result in
adjustments to the 1993 financial statements cannot presently be
determined.
In August 1993, the OTS issued a final regulation adding an interest
rate risk component to its risk-based capital standard. The regulation
will require a savings institution to maintain capital in an amount
equal to one-half the difference between the institution's measured
interest rate risk and 2% of the market value of the institution's
assets. Interest rate risk is to be measured on the market value of
its assets, based on a hypothetical 200 basis point change in interest
rates. The credit risk component of the risk-based capital standard
will remain unchanged at 8% of risk-weighted assets. Institutions with
measured interest rate risk less than or equal to 2% will not be
required to maintain additional capital. The Bank's management
believes that, based on the Bank's interest rate risk profile, no
additional risk-based capital would have been required at December 31,
1993.
On November 19, 1992, the Corporation sold 510,000 shares of its
common stock under a private placement memorandum. The net proceeds
received on the sale of stock were $2,303,230.
As a unitary savings and loan holding company, the Corporation's
ability to pay dividends depends in part on the dividends it receives
from the Bank and on income from other activities in which the
Corporation may engage either directly or through other subsidiaries.
As a condition of the February 1983 Federal Home Loan Bank Board
approval of the reorganization
E-72
<PAGE> 246
in which the Bank became a subsidiary of the Corporation,
dividends paid by the Bank are limited to net income for each year,
but such dividends may be deferred to a subsequent year. However, no
dividend may be paid from net income for a year prior to 1983 or if
the payment of such dividends would reduce the Bank's regulatory
capital below the regulatory minimums set by the OTS.
16. INTEREST RATE RISK
A mismatch between maturities and interest rate sensitivities of
assets and labilities results in interest rate risk. While a certain
level of interest rate risk may be unavoidable, and may at times be
desirable, it is important to monitor and manage this risk. The
Corporation's general objective has been to reduce its vulnerability
to interest rate fluctuations over time. The principal strategies to
achieve this objective include emphasizing originations of shorter
term and adjustable rate loans and growing core checking and other
demand deposit accounts which are less sensitive to changes in
interest rates. In addition, management constantly examines the value
of extending the effective maturities of liabilities or shortening the
effective maturity of assets through the use of interest rate swaps
and interest rate cap agreements.
The Corporation uses various techniques in managing and measuring
interest rate risks, including net interest income simulations,
theoretical mark-to-market values for interest sensitive assets and
liabilities, and gap analysis.
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a defendant in an action seeking punitive damages
of $10,000,000 and challenging the practice of not paying interest on
advances from borrowers for taxes and insurance, and in various other
actions in connection with its lending activities. Management does
not believe that the Corporation will sustain material future losses
from this contingency.
During 1986, the Corporation issued an irrevocable, collateralized
Letter of Credit supporting the payment of principal and interest on
$9,000,000 of Sandy City, Utah variable rate demand industrial
development revenue refunding bonds. During the second quarter of
1993, $5,100,000 of the bond was retired and the principal obligation
for repayment was assumed by the purchaser of the industrial building
previously held as real estate owned. Payment of any sums disbursed
under the letter of credit is secured by deeds of trust on the real
property and improvements with respect to which the bonds were issued.
At December 31, 1993, the Corporation has approximately $6,747,000 in
mortgage-backed securities held by the Bond Trustee to assure its
performance of obligations under the Letter of Credit which expires on
August 15, 2004.
At December 31, 1993, the Corporation had approximately $29,220,000 in
unused lines of credit which have been granted to customers in the
normal course of business, as well as $15,994,000 in single-family
mortgage loan applications. The Corporation uses the same credit
policies in making commitments to extend credit as they do for loans
to similar customers
E-73
<PAGE> 247
The Bank leases certain branch facilities under long-term operating
lease arrangements. Consolidated rent expense on the above operating
leases was approximately $233,402, $182,857, and $70,655 for the years
ended December 31, 1993, 1992, and 1991, respectively. The following
represents the Bank's future commitments under such leases:
<TABLE>
<S> <C>
1994 $ 202,155
1995 206,664
1996 207,773
1997 215,505
1998 210,350
Thereafter 605,285
==========
Total $1,647,732
</TABLE>
18. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on the following weighted
average number of shares outstanding:
<TABLE>
<CAPTION> 1993 1992 1991
<S> <C> <C> <C>
Primary 3,223,742 2,674,297 2,550,139
Fully diluted 3,255,226 2,716,003 2,550,139
</TABLE>
Primary per share amounts are computed after including the effect, if
dilutive, of stock options outstanding using the treasury stock
method.
Fully diluted per share amounts are computed using the greater of the
dilutive effects of average or quarter-end stock prices.
For the year ended December 31, 1991, common stock options were not
considered because their effect would be anti-dilutive.
19. STOCK OPTIONS
In July 1988, the Board of Directors of the Corporation adopted a
non-qualified stock option plan ("1988 Plan") which authorized the
Corporation to grant options to purchase up to 250,000 shares of
common stock pursuant to the 1988 Plan.
E-74
<PAGE> 248
Changes in stock options are as follows:
<TABLE>
<CAPTION>
PRICE RANGE
1993 SHARES PER SHARE
<S> <C> <C>
Granted 10,000 $11.50
Expired None
Exercised 39,500 3.25- 5.63
Outstanding and exercisable at December 31 233,000 3.25-11.50
1992
Granted 80,000 $ 5.50-5.63
Expired None
Exercised None
Outstanding and exercisable at December 31 262,500 3.25-5.63
1991
Granted 157,500 $ 3.25
Expired 30,000 5.50-10.50
Terminated 27,500 5.50-9.00
Exercised None
Outstanding and exercisable at December 31 182,500 3.25-5.50
</TABLE>
20. EMPLOYEE BENEFIT PLANS
The Employee Stock Bonus Plan (the "Bonus Plan"), qualified under
Section 401(a) of the Internal Revenue Code, provides that each full-
time salaried employee of the Corporation and/or its subsidiaries who
has attained the age of 21 and has completed 12 consecutive months of
employment during which he/she has received credit for at least 1,000
hours of service is entitled to participate in the Bonus Plan commencing
on the January 1 or July 1 immediately following when such
qualifications are met, provided he/she is employed on that date. Under
the terms of the plan, participating employees may contribute, and the
Board of Directors may authorize the Corporation to match a certain
portion of such contribution. Employees may elect to have their own
contributions invested in either (i) the Corporation's common stock, or
(ii) a certificate of deposit or savings account from the Bank.
Employer contributions are invested in the Corporation's common stock.
During 1993, 1992, and 1991, the Corporation and its subsidiaries
contributed $74,717, $111,502, and $80,865, respectively, to the Bonus
Plan.
The Corporation and its wholly-owned subsidiaries provide a
non-contributory retirement plan (the "Retirement Plan"), qualified
under Section 401(a) of the Internal Revenue Code, for the benefit of
qualified employees. Each full-time salaried employee who has attained
the age of 21 and has completed 12 consecutive months of employment
during which he/she has received credit for at least 1,000 hours of
service is entitled to participate in the Retirement Plan commencing on
January 1 or July 1 immediately following when such qualifications are
met. Under the Retirement Plan, the Corporation and its subsidiaries
make a monthly pension
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<PAGE> 249
contribution equal to 6% of each eligible employee's monthly
base compensation. In addition, the Corporation and its subsidiaries
are allowed, but not required, to make a profit sharing contribution
based on base compensation to the Retirement Plan, provided that in no
event shall the profit sharing contribution and the aggregate
contributions under the Bonus Plan during any year exceed 15% of the
total payroll of eligible employees of the Retirement Plan. In any
year, aggregate contributions under the Retirement Plan and aggregate
contributions under the Bonus Plan may not exceed the lesser of 25% of
the eligible employee's base compensation or $30,000. During 1993,
1992, and 1991, the Corporation and its subsidiaries contributed
$133,387, $149,000, and $112,169, respectively, to the Retirement Plan.
In December 1990, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions". The
Statement requires an accrual of postretirement benefits (such as
health care benefits) during the years an employee provides services.
The cost of these benefits were previously expensed on a pay-as-you-go
basis. The Corporation adopted this Statement in 1993. The impact of
the Statement on the Corporation was not material.
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<PAGE> 250
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of
operations. This information should be read in conjunction with the
Discussion of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 4th QUARTER 3rd QUARTER 2nd QUARTER 1st QUARTER
<S> <C> <C> <C> <C>
Interest income $6,781,322 $6,587,913 $6,967,922 $7,011,388
Interest expense 3,352,957 3,611,357 3,703,033 3,817,425
Provision for losses (152,870) (459,443) (421,940) 37,841
Gain on sale of loans and investments 349,822 1,190,644 745,016 233,538
Income before extraordinary items and
cumulative effect of a change in
accounting principle 1,484,786 1,804,042 1,703,466 1,335,411
Net income 1,484,851 1,481,235 1,703,466 1,673,224
Earnings per common share before
extraordinary items and cumulative
effect of a change in accounting
principle 0.46 0.56 0.53 0.42
Earnings per common share - primary 0.46 0.46 0.53 0.53
Earnings per common share - fully
diluted 0.46 0.46 0.53 0.52
DECEMBER 31, 1992
Interest income $7,868,413 $9,130,148 $7,829,826 $8,280,462
Interest expense 4,316,057 4,779,208 5,094,245 5,579,789
Provision for losses 482,454 1,245,714 45,791 263,748
Gain on sale of loans and investments 312,054 718,386 80,787 97,997
Income (loss) before extraordinary
items 2,298,000 (713,212) 562,963 687,049
Net income 1,028,000 556,788 562,963 687,049
Earnings (loss) per common share
before extraordinary items 0.79 (0.28) 0.22 0.27
Earnings per common share - primary 0.36 0.22 0.22 0.27
Earnings per common share - fully
diluted 0.36 0.22 0.21 0.26
</TABLE>
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<PAGE> 251
22. EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits". The Statement requires an
accrual of benefits to be provided to former or inactive employees
after employment but before retirement, such as salary continuation,
severance pay, or health care benefits. The Statement is effective
for fiscal years beginning after December 15, 1993. The impact of the
Statement on the Corporation is not expected to be material.
In May 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114
requires that impaired loans be valued based on the present value of
expected future cash flows or fair value of the collateral if the loan
is collateral dependent. SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994. The impact of SFAS No. 114 on the
Corporation is not expected to be material.
23. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
Condensed financial information of the parent company only is as
follows:
BALANCE SHEET INFORMATION AS OF DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________
1993 1992
<S> <C> <C>
ASSETS:
Cash and savings on deposit primarily with subsidiary
savings and loan $ 163,294 $ 10,330
Receivable from savings and loan and subsidiaries 16,597
Investment in subsidiaries:
Savings and loan and subsidiaries 33,116,325 26,938,873
Others 143,377 37,909
----------- -----------
Total $33,422,996 $27,003,709
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, accounts payable, and accrued expenses $ 59,456 $ 16,687
----------- -----------
Stockholders' equity:
Common stock (3,099,639 shares issued in 1993 and
3,060,139 shares issued in 1992) 3,099,639 3,060,139
Paid-in capital 1,894,005 1,793,230
Retained earnings - substantially restricted 28,476,429 22,133,653
Net unrealized losses on investments available for
sale (106,533)
----------- -----------
Total stockholders' equity 33,363,540 26,987,022
----------- -----------
Total $33,422,996 $27,003,709
=========== ===========
</TABLE>
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<PAGE> 252
STATEMENTS OF OPERATIONS INFORMATION FOR THE YEARS
ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
1993 1992 1991
<S> <C> <C> <C>
INCOME:
Income from subsidiaries
Interest $ 1,331 $ 11,348 $ 1,966
Other 113,625 99,500 95,000
Other 11,284 24,234
---------- ----------- --------
Total 114,956 122,132 121,200
---------- ----------- --------
EXPENSES:
Compensation and other employee expense 120,211 114,500 113,755
Occupancy 1,688
Provision for losses 70,010
Other 54,734 4,007 (460)
---------- ----------- --------
Total 176,633 188,517 113,295
---------- ----------- --------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES (61,677) (66,385) 7,905
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 6,404,453 2,901,185 336,994
---------- ----------- --------
NET INCOME $6,342,776 $ 2,834,800 $344,899
========== =========== ========
</TABLE>
STATEMENTS OF CASH FLOWS INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,342,776 $ 2,834,800 $ 344,899
----------- ----------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed income of subsidiaries (6,404,453) (2,901,185) (336,994)
Provision for possible credit losses 70,010 9,150
Amortization of unearned discount on leases (5,795)
Decrease (increase) in receivables from
subsidiaries 16,597 (12,597) 19,475
Decrease in other assets 1,807
</TABLE>
E-79
<PAGE> 253
<TABLE>
<S> <C> <C> <C>
Increase (decrease) in accounts payable and
accrued expenses 42,769 (232) (50,884)
----------- ----------- ---------
Total adjustments (6,345,087) (2,842,197) (365,048)
----------- ----------- ---------
Net cash used in operating activities (2,311) (7,397) (20,149)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from subsidiary 90,000 115,000 51,107
Capital contribution to subsidiary (75,000) (2,478,404)
----------- ----------- ---------
Net cash provided by (used in) investing
activities 15,000 (2,363,404) 51,107
----------- ----------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (10,313)
Proceeds from issuance of common stock 140,275 2,303,230
----------- ----------- ---------
Net cash provided by (used in) financing
activities 140,275 2,303,230 (10,313)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 152,964 (67,571) 20,645
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,330 77,901 57,256
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 163,294 $ 10,330 $ 77,901
=========== ============ =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Capital contributions of financing lease to
subsidiary NONE NONE $ 104,855
========== ========== =========
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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<PAGE> 254
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Director Title of Class
Since
_______________________________________________________________________________________________________
<S> <C> <C> <C>
DIRECTORS SERVING UNTIL 1995 ANNUAL MEETING
CLASS I
A. Blaine Huntsman 57 1988 Common Stock
Gregory L. Smith 57 1989 Common Stock
_______________________________________________________________________________________________________
DIRECTORS SERVING UNTIL 1993 ANNUAL MEETING
CLASS II
Richard N. Hokin 53 1982 Common Stock
James K. Loebbecke 57 1992 Common Stock
R. Gibb Marsh 45 1992 Common Stock
_______________________________________________________________________________________________________
DIRECTORS SERVING UNTIL 1994 ANNUAL MEETING
CLASS III
Richard G. Price 66 1972 Common Stock
Ramon E. Johnson 58 1990 Common Stock
K. John Jones 40 1993 Common Stock
_______________________________________________________________________________________________________
</TABLE>
THE DIRECTORS
A. BLAINE HUNTSMAN was elected Vice Chairman of the Board of Directors
of the Corporation and Chief Executive Officer of the Corporation in July 1988,
Chairman of the Board of Directors in December 1988 and served as President of
the Corporation from August 1989 to 1993. He was elected a director of Olympus
Bank in July 1988 and Chairman of the Board of Directors in August 1989. He
also served as President of Olympus Bank from August 1989 to January 1991. Mr.
Huntsman was Professor of Finance at the University of Utah from 1972 to 1988
(but was on leave for significant periods of time during such years to pursue
various business activities), and served as Dean of the Graduate School of
Business and College of Business from 1975 to 1980. He was co-founder and
Chairman of the Board of Huntsman Container Corporation (a manufacturer of
polystyrene containers) and of Huntsman-Christensen Corporation (a real estate
construction and development firm). Mr. Huntsman received his Ph.D. in
Economics from the University of Pennsylvania (Wharton School) in 1968. He
served as a director of Dean Witter Reynolds Organization, Inc. from 1978 until
its acquisition by Sears in 1982 and was a director of Arcata Corporation from
1978 to 1982. He currently serves as a director of Geneva Steel, a Utah
corporation engaged in steel
E-81
<PAGE> 255
manufacturing and of Zions Co-operative Mercantile Institution (a retailing
company serving the intermountain area).
GREGORY L SMITH is an investor and consultant and has been a director
of the Corporation and Olympus Bank since April 1989. Mr. Smith has been
Chairman of Fountain Capital Management in Overland Park, Kansas, since March
1990. He has been President and Chief Executive Officer of Gregory L. Smith
and Sons, Inc., a privately owned consulting firm, since August 1978. In 1990,
he became a trustee of the Lutheran Church, Missouri Synod, Foundation. From
1982 to March 1988, Mr. Smith was President and Chief Executive officer of
Smith Breeden Associates, a privately owned firm specializing in financial
consulting services. He is a member of six corporate boards and numerous
charitable boards. Mr. Smith has been a director of the Corporation and
Olympus Bank since 1989.
RICHARD N. HOKIN has been Chairman of Intermountain Industries, Inc.,
Boise, Idaho, since 1984. Intermountain's principal subsidiary, Intermountain
Gas Company, distributes natural gas in southern Idaho. Mr. Hokin is managing
general partner of Century Partners, a private investment partnership,
organized in 1967, which holds approximately 9.4% of the outstanding common
stock of the Corporation. Mr. Hokin has been a director of the Corporation and
Olympus Bank since 1982.
RAMON E. JOHNSON has been a Professor of Finance at the University of
Utah since 1966. He received his Ph.D. in finance from the University of
Wisconsin in 1966. Mr. Johnson is a Chartered Financial Analyst and belongs to
several professional societies, including the Financial Management Association.
He was a member of the Consumer Advisory Council for the Federal Reserve Board
from 1987 to 1989, and is currently a member of the Utah State Board of
Financial Institutions. In 1983, he served as a member of the task force for
Current Value Accounting for the Federal Home Loan Bank Board. In addition to
his teaching and research activities, Mr. Johnson has been a consultant for
several financial institutions and public utility companies in Salt Lake City,
Utah, as well as the Utah State Legislative Auditor General. Mr. Johnson has
been a director of the Corporation and Olympus Bank since 1990.
JAMES K. LOEBBECKE has been a Professor of Accounting at the University
of Utah since 1980. Prior to 1980 he was a partner in the accounting firm of
Touche Ross & Co. in its New York office. Mr. Loebbecke has authored several
books and articles on the subjects of auditing and other accounting issues and
is a member of several professional societies, including the American Institute
of Certified Public Accountants. In addition to his teaching and research
duties, Mr. Loebbecke is a principal in Norman/Loebbecke Associates, financial
and litigation consultants, where he performs services as an expert witness in
business and accounting-related litigation. Mr. Loebbecke has been a director
of the Corporation and Olympus Bank since 1992.
R. GIBB MARSH has been employed by the Corporation, or one of its
subsidiaries, since June of 1972. Mr. Marsh was elected President and Chief
Operating Officer of Olympus Bank in May 1993. He was elected President of the
Corporation in August 1993. Prior to his election as President of Olympus
Bank, Mr. Marsh was the Chief Credit Officer for the Corporation and Olympus
Bank with principal responsibility for loan origination and underwriting, loan
servicing and special asset management. Mr. Marsh has held many positions
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<PAGE> 256
during his 21 year tenure with Olympus Bank. He has been a director of the
Corporation and Olympus Bank since 1992.
K. JOHN JONES has been employed by the Corporation, or one of its
subsidiaries, since February 1979. Mr. Jones has been a Senior Vice President
of the Corporation since 1987. He was elected as Chief Financial Officer in
1989. Mr. Jones is also the Secretary and Treasurer of the Corporation and
Olympus Bank. His services to the Corporation and Olympus Bank have been in
the areas of interest rate risk management, investment securities, commercial
real estate underwriting and internal auditing. On July 29, 1993 he was
nominated to the Board of Directors of the Corporation and Olympus Bank.
EXECUTIVE OFFICERS
The executive officers of the Corporation are as follows:
<TABLE>
<CAPTION>
Name Age Officer Since* Positions
___________________________________________________________________________________________________________
<S> <C> <C> <C>
A. Blaine Huntsman 57 1988 Director, Chairman of the Board, Chief Executive
Officer and President of the Corporation and a
Director, Chairman of the Board and Chief Executive
Officer of Olympus Bank
R. Gibb Marsh 45 1977 President and Chief Operating Officer of the
Corporation and Olympus Bank
K. John Jones 40 1987 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Corporation and Olympus
Bank
Gary L. Matern 50 1990 Senior Vice President of the Corporation and Olympus
Bank
Kathy K. Hale 46 1987 Senior Vice President of the Corporation and Olympus
Bank
___________________________________________________________________________________________________________
</TABLE>
* Indicates the period of time during which such persons have served as
officers of the Corporation or Olympus Bank.
There is no family relationship between any of the directors or
executive officers. All officers are elected annually by the Board of
Directors to serve until they are removed by the Board of Directors or until
their successors have been duly elected and qualified.
For information concerning the positions and background of A. BLAINE
HUNTSMAN, see "The Directors" above.
For information concerning the positions and background of R. GIBB
MARSH, see "The Directors" above.
E-83
<PAGE> 257
For information concerning the positions and background of K. JOHN
JONES, see "The Directors" above.
GARY L. MATERN has been an employee and executive officer of the
Corporation and the Bank since July 1990. From 1988 to 1990 he was an Account
Manager for Systematics Inc. of Little Rock, Arkansas, and from 1964 to 1988 he
was Vice President and Cashier for First Interstate Bank of Utah, N.A.
KATHY K. HALE has been an employee of the Corporation and Olympus Bank
since 1976 and an executive officer of the Corporation since January 1987.
Item 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by the Corporation and its subsidiaries, to or on
behalf of the Corporation's Chief Executive Officer and each of the other four
most highly compensated executive officers of the Corporation whose
compensation exceeded $100,000 for the year (determined as of the end of the
last fiscal year) (hereafter referred to as the "Named Executive Officers") for
the fiscal years ending December 31, 1991, 1992, and 1993.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------
Other Securities All Other
Annual Restricted Underlying LTIP Compen-
Compen- Stock Options/ Payouts sation
Name & Principal Position Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) ($) ($)(1)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Blaine Huntsman 1993 $182,200 - - - - - $14,897
Chairman & CEO 1992 $182,200 - - - - - $20,004
1991 $182,200 - - - 100,000 - $18,751
-
R. Gibb Marsh 1993 $ 88,000 $36,379 - - - - $ 7,141
Director, President, 1992 $ 88,000 $ 3,000 - - 20,000 - $10,560
COO 1991 $ 85,000 $10,000 - - 10,000 - $10,200
K. John Jones 1993 $ 75,000 $31,005 - - - - $ 4,958
Director, Sr. V.P., 1992 $ 67,500 $ 3,000 - - 15,000 - $ 6,066
CFO, Secretary & Treas. 1991 $ 65,000 $ 5,000 - - 5,000 - $ 5,844
Gary L. Matern 1993 $ 75,000 $31,005 - - - - $ 6,086
Sr. V.P.-Operations 1992 $ 75,000 $ 3,000 - - 15,000 - $ 9,000
1991 $ 72,000 $ 5,000 - - 5,000 - $ 4,320
</TABLE>
(1) The amounts shown in this column are the annual employer
contributions to the non-contributory retirement plan and the employee
stock bonus plan.
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<PAGE> 258
STOCK OPTIONS
No individual grants of stock options or free standing stock
appreciation rights were granted during fiscal 1993 to the Named Executive
Officers.
OPTION EXERCISES
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during the
fiscal year and unexercised options and SARs held as of the end of the fiscal
year.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END(1)
(#) ($)
SHARES ACQUIRED VALUE ---------------------------------------------
ON EXERCISE REALIZED EXERCISABLE (E)/ EXERCISABLE(E)/
NAME (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. Blaine Huntsman - - 125,000 (E) $1,350,000 (E)
R. Gibb Marsh 10,000 $97,500 5,000 (E) $44,350 (E)
15,000 (U) $135,000 (U)
K. John Jones 2,000 $19,500 8,000 (E) $78,100 (E)
10,000 (U) $90,000 (U)
Gary L. Matern - - 10,000 (E) $100,600 (E)
10,000 (U) $90,000 (U)
</TABLE>
(1) The price of a share of the Corporation's common stock as reported by
NASDAQ on December 31, 1993 was $14.50. The Value of unexercised options is
the difference between the exercise price and the price of a share as of
December 31, 1993.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Corporation has entered into a Deferred Compensation Agreement (the
"Agreement") with A. Blaine Huntsman in connection with Mr. Huntsman's
employment as Chief Executive Officer and President of the Corporation. The
Agreement provides that a general ledger account (the "Deferred Compensation
Account") shall be established with $1,250 being credited thereto on the first
day of each month commencing on August 1, 1988 and continuing until the
termination of Mr. Huntsman's employment with the Corporation. The Deferred
Compensation Account has been established solely for accounting and record
keeping purposes and there may be no actual assets or property in such account.
Any amount credited to the Deferred Compensation Account will (solely for
accounting purposes) be invested in investments that are approved by Mr.
Huntsman. Upon termination of Mr. Huntsman's employment, the Corporation shall
pay to him or his
E-85
<PAGE> 259
designated beneficiary (in the event of death) the fair market value of the
Deferred Compensation Account as of the date of termination in five equal
annual installments. Each installment shall include the earnings on the
remaining balance until the Deferred Compensation Account shall have been paid
out in full. At no time shall Mr. Huntsman have any property interest
whatsoever in any specific asset of the Corporation as a result of the
Agreement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 1994 as
to those persons or entities known to the Corporation who own beneficially 5%
or more of the outstanding common stock of the Corporation.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
-------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Common Stock Century Partners(1) 304,000 Shares 9.4%
800 Post Road
Darien, CT 06820
Common Stock Charter National Life
Insurance Company(2)
8301 Maryland Ave.
St. Louis, MO 63105
Common Stock LNC Investments, Inc.(2)
529 East South Temple
Salt Lake City, UT 84102
Common Stock Leucadia, Inc.(2)(3) 539,891 Shares 16.6%
315 Park Avenue South
New York, NY 10010
Common Stock Leucadia National Corporation(2)(3)
315 Park Avenue South
New York, NY 10010
Common Stock A. Blaine Huntsman(4) 246,026 Shares(5) 7.6%
115 South Main Street
Salt Lake City, UT 84111
Common Stock Evergreen Investments, Ltd.(5)
1910 East 3060 South
Salt Lake City, UT 84106
</TABLE>
- ---------------
(1) The general managing partner of Century Partners, a New York limited
partnership, is Richard N. Hokin, who is currently a director of the
Corporation.
(2) These persons (Leucadia Group) could be deemed to be members of a
"group" as that term is used in Section 13(d) of the Securities Exchange Act of
1934, which owns 5% or more of the common stock of the Corporation. This
information was obtained from a Form 4 filed with the Securities and Exchange
Commission on or about September 8, 1993.
(3) Each may be considered a beneficial owner of the common stock of the
Corporation held by Charter National Life Insurance Company and LNC
Investments, Inc.
E-86
<PAGE> 260
(4) These persons could be deemed to be members of a "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, which
owns 5% or more of the common stock of the Corporation. This information was
obtained from a Form 4 filed with the Securities and Exchange Commission on or
about August 20, 1993.
(5) This figure includes 125,000 shares which Mr. Huntsman has the
right to acquire pursuant to stock options. See "Proposal 2."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1993, certain directors and executive officers of the
Corporation were indebted to Olympus Bank. These loans were made by Olympus
Bank in the ordinary course of its business and were made on substantially the
same terms, including interest rate and collateral, at those prevailing at the
time for comparable transactions with other customers of Olympus Bank and do
not involve more than the normal risk of collectability or present unfavorable
features.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
Financial Statements. The following are included in Part II of this
Report:
Independent Auditors' Report
Consolidated Statements of Financial Condition at December 31,
1993 and 1992
Consolidated Statements of Operations for each of the Three
Years Ended in the Period December 31, 1993
Consolidated Statements of Cash Flow for each of the Three
Years Ended in the Period December 31, 1993
Consolidated Statements of Stockholders' Equity for each of
the Three Years Ended in the Period December 31, 1993
Notes to Consolidated Financial Statements
Financial Statements Schedules. All schedules are omitted because of
the absence of conditions under which they are required or because the
required information is given in the financial statements or notes
thereto.
Exhibits. For the information with respect to this Item, see the
Index to Exhibits attached to this Report.
Reports on Form 8-.
None
Separate Financial Statements of Registran. Separate financial
statements of the registrant are included in the Notes to Consolidated
Financial Statements.
E-87
<PAGE> 261
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
By /S/
------------------------------------------------
Blaine Huntsman, Chairman of the Board,
Chief Executive Officer
</TABLE>
Dated: March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of the
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/S/ Chairman of the Board, Chief March 29, 1994
- -----------------------------
A. Blaine Huntsman Executive Officer and Director
/S/ Director March 29, 1994
- -----------------------------
Richard N. Hokin
/S/ Director March 29, 1994
- -----------------------------
Ramon E. Johnson
/S/ Director March 29, 1994
- -----------------------------
Richard G. Price
/S/ Director March 29, 1994
- -----------------------------
Gregory L. Smith
/S/ Director March 29, 1994
- -----------------------------
James K. Loebbecke
/S/ President of the March 29, 1994
- -----------------------------
R. Gibb Marsh Corporation and Director
</TABLE>
E-88
<PAGE> 262
<TABLE>
<S> <C> <C>
/S/ Senior Vice President March 29, 1994
- -----------------------------
K. John Jones Chief Financial Officer
Secretary/Treasurer and
Director
/S/ Vice President and Controller March 29, 1994
- -----------------------------
Brad J. Foley
</TABLE>
E-89
<PAGE> 263
Olympus Capital Corporation
<TABLE>
<CAPTION>
Reg. S-K
Exhibits No. Index of Exhibits
- ------------ -----------------
<S> <C>
(2) Not Applicable
(3) (i) Articles of Incorporation (amended and restated)
(3) (ii) By laws
(4) Not Applicable
(9) Not Applicable
(10) (iii)(A) Management contracts regarding deferred compensation and stock options. All other management contracts
regarding deferred compensation and stock option agreements incorporated by reference to Form 10-K dated
December 31, 1992, File No. 0-11130.
(11) Statement of Per Share Earnings
Refer to registrant's Consolidated Financial Statements, Part II, Item 8 of this filing.
(12) Not Applicable
(13) Not Applicable
(16) Not Applicable
(18) Not Applicable
(19) Not Applicable
(21) The significant subsidiaries of Olympus Capital Corporation are as follows:
Jurisdiction of
Name Incorporation
---- -------------
Olympus Bank, A Federal Savings Bank United States
Olympus Financial Services, Inc. Utah
(22) Not Applicable
(23) Consent of Independent Public Accountants
(24) Not Applicable
(25) Not Applicable
</TABLE>
E-90
<PAGE> 264
<TABLE>
<S> <C>
(27) Not Applicable
(28) Not Applicable
(99) Not Applicable
</TABLE>
E-91
<PAGE> 265
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1933
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT PF 1934
For the transition period from __________ to _________
Commission File Number 0-11130
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
UTAH 87-0166750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
115 South Main St. Salt Lake City, Utah 84111
(Address of principal executive offices)
(Zip Code)
(801) 325-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE> 266
Part IV of the Registrant's Annual Report on Form 10-K and the related
Exhibit Index are hereby amended by filing the financial statements required by
Form 11-K for the Registrant's Amended and Restated Employee Stock Bonus Plan
as an Exhibit to the Registrant's Annual Report on Form 10-K as provided by
Rule 15d-21.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
Financial Statements. The following are included in Part II of this Report:
Independent Auditors' Report
Consolidated Statements of Financial Condition at December 31, 1993 and
1992
Consolidated Statements of Operations for each of the Three Years Ended
in the Period December 31, 1993
Consolidated Statements of Cash Flows for each of the Three Years Ended
in the Period December 31, 1993
Consolidated Statements of Stockholders' Equity for each of the Three
Years in the Period Ended December 31, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules. All schedules are omitted because of the absence
of conditions under which they are required or because the required information
is given in the financial statements or notes thereto.
Exhibits. For information with respect to this Item, see the Index to Exhibits
attached to this Report.
Reports on Form 8-K.
None
Separate Financial Statements of Registrant. Separate financial statements of
the registrant are included in the Notes to Consolidated Financial Statements.
<PAGE> 267
Olympus Capital Corporation
Reg S-K
Exhibits No. Index to Exhibits
(2) Not Applicable
(3) (i) Articles of Incorporation (amended and restated)
(3) (ii) By laws
(4) Not Applicable
(9) Not Applicable
(10)(iii)(A) Management contracts regarding deferred compensation
and stock options. All other management contracts
regarding deferred compensation and stock option
agreements incorporated by reference to Form 10-K dated
December 31, 1992, File No. 0-11130.
(11) Statement of Per Share Earnings.
Refer to registrant's Consolidated Financial
Statements, Part II, Item 8 of this filing.
(12) Not Applicable
(13) Not Applicable
(16) Not Applicable
(18) Not Applicable
(19) Not Applicable
(21) The significant subsidiaries of Olympus Capital
Corporation are as follows:
Jurisdiction of
Name Incorporation
Olympus Bank, a Federal Savings Bank United States
Olympus Financial Services, Inc. Utah
(22) Not Applicable
(23) Consent of Independent Public Accountant
(24) Not Applicable
(25) Not Applicable
(27) Not Applicable
(28) Financial Statements for the Amended and Restated
Olympus Capital Corporation Employee Stock Bonus Plan
for the year ended December 31, 1993.
(99) Not Applicable
<PAGE> 268
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
OLYMPUS CAPITAL CORPORATION
By: K. John Jones
K. John Jones, Senior Vice President,
Chief Financial Officer, Secretary and
Treasurer
Date: June 21, 1994
<PAGE> 269
OLYMPUS CAPITAL CORPORATION EMPLOYEE STOCK BONUS PLAN
Balance Sheet
For Fiscal Year Ending December 31, 1993
<TABLE>
<CAPTION>
Beginning End of
of year year
---------- ----------
<S> <C> <C>
Assets
Cash $ 356,624 $ 395,752
Receivables 0 0
Investments:
U.S. Government securities 0 0
Corporate debt and equity instruments 0 0
Real estate and mortgages (other than
to participants) 0 0
Loans to participants:
Mortgages 0 0
Other 0 0
Other (Common Stock of Olympus Capital) $ 726,622 $1,748,323
Total investments $1,083,246 $2,144,075
Buildings and other property used in
plan operations 0 0
Other assets 0 0
Total assets $1,083,246 $2,144,075
Liabilities
Payables $ 0 $ 0
Acquisition indebtedness 0 0
Other Liabilities 0 0
Total liabilities $ 0 $ 0
Net assets $1,083,246 $2,144,075
</TABLE>
<PAGE> 270
OLYMPUS CAPITAL CORPORATION EMPLOYEE STOCK BONUS PLAN
Income Statement
For Fiscal Year Ending December 31, 1993
<TABLE>
<S> <C>
Income
Contributions received or receivable in cash from:
Employer(s) (including contributions on behalf
of self-employed individuals) $ 69,715
Employees 144,611
Others 0
Total 214,326
Noncash contributions 0
Total contributions 214,326
Earnings from investments (interest, dividends, rents,
royalties) 13,753
Non realized gain (loss) on sale or exchange of assets 928,996
Other income (specify) 0
Total income $1,157,075
Expenses
Distribution of benefits and payments to provide benefits:
Directly to participants or their beneficiaries $ 96,246
Other 0
Total distribution of benefits and payments to
provide benefits 96,246
Administrative expenses (salaries, fees, commissions,
insurance premiums) 0
Other expenses (specify) 0
Total expenses $ 96,246
Net income (loss) $1,060,829
</TABLE>
<PAGE> 271
Appendix F
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-11130
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
UTAH 87-0166750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
115 South Main St. Salt Lake City, Utah 84111
(Address of principal executive offices)
(Zip Code)
(801) 325-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
3,117,239 shares of $1.00 par value common stock of the registrant were
outstanding as of November 14, 1994.
<PAGE> 272
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Financial
Condition - September 30, 1994, and December 31, 1993
Consolidated Condensed Statements of Operations -
Three and Nine Month Periods ended September 30, 1994 and 1993
Consolidated Condensed Statements of Cash Flows -
Nine Month Periods ended September 30, 1994, 1993
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 273
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 9,188,340 $ 8,323,332
Federal funds sold 380,415 81,099
Total cash and cash equivalents 9,568,755 8,404,431
Investments available for sale (amortized cost of $79,051,561
in 1994 and $132,302,225 in 1993) 76,380,344 132,195,692
Investment securities (fair value $49,645,739 in 1994 and
$12,711,849 in 1993) 52,602,832 12,712,941
Loan receivables, net
Real estate loans 230,170,564 233,316,431
Real estate loans held for sale 423,308 6,469,655
Commercial loans 8,556,359 7,091,863
Other loan receivables 2,528,449 2,238,761
Less unamortized loan fees (1,075,097) (1,036,824)
Less allowance for losses (6,668,306) (5,610,010)
Total loan receivables 233,935,277 242,469,876
Accrued interest receivable (less allowance for uncollectible
interest of $53,545 in 1994 and $99,499 in 1993) 2,217,043 2,232,629
Real estate acquired in settlement of loans, net 32,048 3,054,916
Premises and equipment, net 6,982,122 7,333,637
Other assets and deferred charges 10,602,015 5,765,291
TOTAL ASSETS $392,320,436 $414,169,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $311,242,265 $294,560,648
Advances from Federal Home Loan Bank 25,326,623 36,649,913
Securities sold under agreements to repurchase
(including accrued interest payable) 16,636,161 44,996,245
Other liabilities and accrued expense 5,350,280 4,599,067
Total liabilities 358,555,329 380,805,873
Stockholders' equity
Common stock - $1 par value, 10,000,000 shares authorized; shares
issued and outstanding 3,112,239 in 1994 and 3,099,639 in 1993 3,112,239 3,099,639
Paid-in capital 1,942,130 1,894,005
Retained earnings - substantially restricted 31,798,604 28,476,429
Net unrealized loss on investments available for sale (3,087,866) (106,533)
Total stockholders' equity 33,765,107 33,363,540
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $392,320,436 $414,169,413
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 274
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Real estate loans $4,706,696 $4,670,657 $13,727,527 $14,558,608
Investments available for sale 1,072,163 1,304,658 3,706,952 3,783,323
Investment securities 697,652 131,657 1,447,771 559,115
Equity securities 61,767 112,778 210,332 364,803
Commercial loans 195,852 145,559 538,263 463,343
Other loans and contracts 51,691 45,421 142,440 142,816
Loan origination fees 228,947 168,183 719,728 686,215
Total 7,014,768 6,578,913 20,493,013 20,558,223
INTEREST EXPENSE:
Deposits 2,839,283 2,786,855 8,207,362 8,361,774
Advances from Federal Home Loan Bank 301,253 686,911 776,145 2,386,915
Securities sold under agreements to
repurchase and other borrowings 359,357 137,591 1,143,699 383,126
Total 3,499,893 3,611,357 10,127,206 11,131,815
NET INTEREST INCOME 3,514,875 2,967,556 10,365,807 9,426,408
Provision for loan losses 136,517 (459,443) 1,026,332 (843,542)
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,378,358 3,426,999 9,339,475 10,269,950
OTHER INCOME:
Fees 615,283 366,885 1,764,263 1,090,501
Income (loss) from real estate operations 166,891 11,908 788,244 (182,471)
Gain on sale of loans and investments 38,066 1,190,644 278,908 2,169,198
Miscellaneous 46,774 165,546 172,723 344,249
Total 867,014 1,734,983 3,004,138 3,421,477
OTHER EXPENSES:
Compensation and other employee expense 1,344,164 1,481,721 4,493,449 4,009,385
Occupancy 549,530 568,406 1,654,530 1,616,969
Advertising 113,992 100,736 279,138 296,515
Loan and collection expense 9,846 46,079 21,417 274,930
Insurance expense 222,477 257,512 706,147 427,295
Provision for losses:
Real estate acquired in settlement
of loans 3,561 514,112 57,561 836,052
Other accounts receivable (75,447) (200) 61,059
Other operating expenses 721,237 464,821 1,809,394 1,326,303
Total 2,964,807 3,357,940 9,021,436 8,848,508
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 1,280,565 1,804,042 3,322,177 4,842,919
EXTRAORDINARY ITEM - DEBT PREPAYMENT
PENALTY (322,807) (322,807)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 337,813
NET INCOME $1,280,565 $1,481,235 $ 3,322,177 $ 4,857,925
</TABLE>
<PAGE> 275
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
PRIMARY
Income per share of common stock
before extraordinary item and
cumulative effect of a change in
accounting principle $0.39 $ 0.56 $1.02 $ 1.51
Extraordinary item (0.10) (0.10)
Cumulative effect of a change in
accounting principle 0.10
Earnings per share of common stock $0.39 $ 0.46 $1.02 $ 1.51
FULLY DILUTED
Income per share of common stock
before extraordinary item and
cumulative effect of a change in
accounting principle $0.39 $ 0.56 $1.02 $ 1.49
Extraordinary item (0.10) (0.10)
Cumulative effect of a change in
accounting principle 0.11
Earnings per share of common stock $0.39 $ 0.46 $1.02 $ 1.50
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 276
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 19,716,181 $ 19,863,347
Fees and commissions received 3,469,565 2,212,020
Income (loss) from real estate operations 788,244 (182,471)
Loans originated or purchased for resale (16,246,299) (43,663,135)
Proceeds from sale of loans originated or purchased for resale 22,436,698 45,520,515
Miscellaneous income received 143,199 374,412
Interest paid (10,319,030) (11,890,782)
Cash paid for services to suppliers and employees (6,572,780) 5,988,511)
Cash paid for other expenses (1,749,191) (740,937)
Net cash provided by operating activities 11,666,587 5,504,458
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities 550,000 10,450,000
Proceeds from sale of investment securities 6,952,437
Purchase of investment securities (686,161) (16,661,900)
Principal collected on investment securities 1,968,687 354,791
Proceeds from sale of investments available for sale 132,832,787
Purchase of investments available for sale (152,621,255)
Principal collected on investments available for sale 11,163,887 6,637,022
Principal collected on loans 68,075,010 114,386,679
Proceeds from sale of loans 880,825
Loans originated or purchased (63,672,374) (118,224,584)
Proceeds from sale of real estate 49,068 6,978,436
Capital expenditures for premises and equipment (153,949) (2,131,115)
Purchases of other assets (5,683,766) (1,183,355)
Net cash provided by (used in) investing activities 11,610,402 (11,349,232)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 16,681,617 3,048,785
Proceeds from advances from Federal Home Loan Bank 143,600,000 84,758,200
Principal repayment on advances from Federal Home Loan Bank (154,923,290) (79,105,650)
Net proceeds (repayment) of securities sold under
agreement to repurchase (28,179,007) 2,269,027
Proceeds from (repayment of) other borrowings 647,290 (7,678,028)
Proceeds from issuance of common stock 60,725 85,025
Net cash provided by (used in) financing activities (22,112,665) 3,377,359
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,164,324 (2,467,415)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,404,431 12,076,564
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,568,755 $ 9,609,149
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Loans transferred to real estate acquired in
settlement of loans $ 1,165,609 $ 4,176,881
Loan originations to facilitate the sale of real estate
acquired in settlement of loans $ 4,100,000 None
Securities transferred to investment securities from investments
available for sale (net of $462,185 unrealized loss included in
stockholder's equity in 1994) $ 42,401,856 None
</TABLE>
See notes to consolidated condensed financial statements
<PAGE> 277
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In management's opinion, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition of
Olympus Capital Corporation (the "Corporation") and subsidiaries as of
September 30, 1994, and December 31, 1993, and the results of operations
for the three and nine month periods ended September 30, 1994, and 1993 and
the cash flows for the nine-month periods ended September 30, 1994 and
1993.
2. The results of operations for the nine-month period ended September 30,
1994, are not necessarily indicative of the results to be expected for the
full year.
3. Refer to Part II, Item 1 of this report for a discussion of
contingencies which may affect the Corporation.
4. For the quarters ended September 30, 1994, and 1993, no income tax
expense was recorded due to net operating loss carry forwards.
5. The Corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," effective January 1, 1993.
The cumulative effect of adopting SFAS No. 109 on the Corporation's
financial statements was to increase income by $338,000 ($.10 per share)
for the nine month period ended September 30, 1993.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carry forwards. Net deferred tax assets of
approximately $4,000,000 as of September 30, 1994, were offset by a
corresponding valuation allowance.
6. Investments Available for Sale - Effective December 31, 1993, the
Corporation adopted provisions of Statement of Financial Accounting
Standards No. 115. "Accounting for Certain Investments in Debt and Equity
Securities" (Statement No. 115). Pursuant to Statement No. 115,
investments available for sale are recorded at fair value, with net
unrealized gains or losses excluded from income and reported as separate
component of stockholders' equity. Gains or losses on investments
available for sale are determined on the specific identification method and
are included in income when realized. Investments available for sale
include securities for which the Corporation has entered into a commitment
to sell the securities as well as securities to be held for indefinite
periods of time that management intends to use as part of its
asset/liability management strategy and that may be sold in response to
changes in interest rates, prepayment risk, or other factors. Prior to the
adoption of Statement No. 115, investments available for sale were carried
at the lower of aggregate cost or market with unrealized losses reported in
the statement of operations. Gross unrealized gains and losses on
investments available for sale at September 30, 1994, were $1,000 and
$2,672,000, respectively.
<PAGE> 278
7. Investment Securities - Investment securities are carried at amortized
cost, based on management's intent and ability to hold such securities to
maturity. Discounts are accreted or premiums amortized using the interest
method over the life of the security. Gains or losses on sales of
securities are determined based on the specific identification method.
Gross unrealized gains and losses on investment securities at September 30,
1994, were $20,000 and $2,977,000, respectively.
8. On July 22, 1994, the Corporation and Olympus Bank, AFSB (the "Bank"),
signed an Agreement for Merger (the Agreement) with Washington Mutual
Savings Bank (WMSB) and its subsidiary Washington Mutual Federal Savings
Bank. Pursuant to the Agreement and upon satisfaction of certain
conditions, the Corporation will be merged in 1995 into WMSB and each share
of the Corporation's common stock will be exchanged for $15.50 worth of
WMSB common stock, based on the average closing price for the ten trading
days immediately preceding the third trading day before the effective date.
However, if the average price of WMSB common stock falls below $18.00, WMSB
may elect to purchase up to 49% of the Corporation's common stock with
cash. The total purchase price is anticipated to be approximately $52.1
million. There can be no assurance that such purchase or merger will
occur. Pending the merger or termination of the agreements the Corporation
has agreed to certain restrictions on its and the Bank's operations. The
Corporation has also entered into a Stock Option Agreement with WMSB
pursuant to which it has issued a stock option to WMSB for purchase of up
to approximately 9.9% of the Corporation's common stock under certain
conditions.
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis covers significant changes in the
results of operations of the Corporation and its subsidiaries for the three
and nine month periods ended September 30, 1994, as compared to the same
periods in 1993 and significant changes in the financial condition of the
Corporation and its subsidiaries since December 31, 1993 and should be read
in conjunction with the consolidated condensed financial statements and
related notes.
On July 22, 1994, the Corporation and Olympus Bank, AFSB (the "Bank"),
signed an Agreement for Merger (the Agreement) with Washington Mutual
Savings Bank (WMSB) and its subsidiary Washington Mutual Federal Savings
Bank. Pursuant to the Agreement and upon satisfaction of certain
conditions, the Corporation will be merged in 1995 into WMSB and each share
of the Corporation's common stock will be exchanged for $15.50 worth of
WMSB common stock, based on the average closing price for the ten trading
days immediately preceding the third trading day before the effective date.
However, if the average price of WMSB common stock falls below $18.00, WMSB
may elect to purchase up to 49% of the Corporation's common stock with
cash. The total purchase price is anticipated to be approximately $52.1
million. There can be no assurance that such purchase or merger will
occur. Pending the merger or termination of the agreements the Corporation
has agreed to certain restrictions on its and the Bank's operations. The
Corporation has also entered into a Stock Option Agreement with WMSB
pursuant to which it has issued a stock option to WMSB for purchase of up
to approximately 9.9% of the Corporation's common stock under certain
conditions.
<PAGE> 279
RESULTS OF OPERATIONS
The following table highlights results of operations and earnings per
share for the three and nine month periods ended September 30, 1994,
compared to the same periods in 1993.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest income $3,514,875 $2,967,556 $10,365,807 $9,426,408
Provisions for loan losses 136,517 (459,443) 1,026,332 (843,542)
Other income 867,014 1,734,983 3,004,138 3,421,477
Other expense 2,964,807 3,357,940 9,021,436 8,848,508
Net income 1,280,565 1,481,235 3,322,177 4,857,925
Primary earnings per share 0.39 0.46 1.02 1.51
Fully diluted earnings
per share 0.39 0.46 1.02 1.50
</TABLE>
A significant component of the Corporation's income is net interest income.
Net interest income is the difference between interest earned on loans,
investments and other interest-earning assets (interest income) and
interest paid on deposits and other interest-bearing liabilities (interest
expense). Net interest margin, expressed as a percentage, is net interest
income divided by average interest-earning assets. Changes in interest
rates, the volume and the mix of interest-earning assets and interest-
bearing liabilities and the levels of non-performing assets affect net
interest income and net interest margin. Net interest spread is the
difference between the yield on interest-earning assets and the percentage
cost of interest-bearing liabilities.
The following table highlights net interest income for the three and nine
month periods ended September 30, 1994, compared to the same periods in
1993.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $7,014,768 $6,578,913 $20,493,013 $20,558,223
Interest expense 3,499,893 3,611,357 10,127,206 11,131,815
Net interest income 3,514,875 2,967,556 10,365,807 9,426,408
Total interest income/
average interest earning assets 7.26% 7.15% 7.09% 7.42%
Total interest expense/
average costing liabilities 3.89 4.18 3.77 4.29
Net interest spread 3.37 2.97 3.32 3.13
Net interest margin 3.66 3.25 3.58 3.39
</TABLE>
Results of Operations - Three Months Ended September 30, 1994 and 1993
Interest income increased $436,000 for the quarter ended September 30,
1994, compared to the same period in 1993. Interest income earned from
real estate loans for the third quarter of 1994 as compared to 1993
increased a nominal $36,000. During the third quarter of 1994 the average
balance of the loan portfolio increased $2,770,000 over the third quarter
of 1993. This increase was primarily the result of increased lending for
single family home construction and lending on established multi-family
dwelling properties combined with slower prepayments on mortgage loans due
to higher interest rates available for refinancing. Construction loans
increased in average balance for the third quarter of 1994 as compared to
1993 by $7,884,000, while multi-family loans increased for the same period
over period comparison by $5,772,000. Permanent loans on single family
properties increased $5,988,000 as more adjustable rate and short term
loans were made for portfolio. Real estate portfolio decreases in average
balance for the quarter to quarter comparison were principally in
commercial real estate loans which decreased $16,264,000, the result of
loans paid off by borrowers with more attractive financing alternatives.
The weighted average interest rate earned on the portfolio decreased 0.04%
from third quarter 1994 as compared to 1993.
Interest income from investments available for sale declined by $232,000
during the quarter ended September 30, 1994 compared to the same period in
1993. The average balance of investments available for sale during the
third quarter of 1994 as compared to the same period in 1993 declined by
$25,517,000. The decline in average balance of investments available for
sale is largely due to the reclassification of a portion of the mortgage
<PAGE> 280
backed securities to investment securities which are held to maturity. As
previously disclosed, certain mortgage backed securities were reclassified
as investment securities held to maturity because of characteristics
similar to loans being originated and held in the portfolio of the Bank.
The average interest rate earned on investments available for sale during
the third quarter of 1994 was 5.37% as compared to 4.95% for the same
quarter in 1993. This is a direct result of the adjustable rate nature of
many of the securities in the portfolio. As a result of the
reclassification of mortgage backed securities mentioned above, the average
balance for investment securities held to maturity increased by
approximately $40,000,000 which accounts for an increase in interest income
earned on this portfolio of $566,000 for the third quarter of 1994 as
compared to the same quarter in 1993. In addition to the increase in the
average balance, the interest rate earned on this portfolio increased to
4.75% in the 1994 quarter as compared to 4.10% in 1993. For the quarter
ended September 30, 1994, dividend income from the Federal Home Loan Bank
of Seattle ("FHLB") stock declined $51,000 compared to the same period of
1993. The dividend paid by the FHLB for the third quarter of 1994 was
6.00% as compared to 12.30% for the same period in 1993. Management of the
Bank believes the dividend paid by the FHLB will remain significantly lower
for the remainder of 1994 as compared to the dividends paid in 1993.
Interest income on commercial loans (principally loans made to small and
medium size business) increased $50,000 in the quarter ended September 30,
1994 as compared to the same period in 1993. This is a result of both an
increase in the average balance of the portfolio of $766,000, primarily in
lines of credit, and an increase in the average interest rate earned of
1.70% for the third quarter of 1994 as compared to the same period in 1993.
This increase in the interest rate earned can be attributed to the
adjustable interest rates of the portfolio combined with the general
increase in interest rates as well as a decrease in the level of non-
performing loans. Loan origination fees for the quarter ended September
30, 1994 increased $61,000 as compared to the same period in 1993 primarily
due to the increase in construction lending.
Interest expense declined $111,000 for the quarter ended September 30,
1994, compared to the same period in 1993. Overall, the average balance of
all deposits and other interest-bearing liabilities for the quarter ended
September 30, 1994, increased by $14,557,000 and the average interest rate
paid decreased by .30% as compared to the same period in 1993. Interest
expense on deposits for the quarter ended September 30, 1994, increased
$52,000 compared to the same period in 1993. During the quarter ended
September 30, 1994, the average balance of all deposits increased
$16,622,000 and the average rate paid for all deposits declined 0.07%
compared to the same period in 1993. The average balance increase in
deposits was concentrated in demand deposit accounts and long term
certificates of deposit. Interest expense from FHLB advances for the
quarter ended September 30, 1994, declined $386,000 compared to the same
period in 1993. During the third quarter in 1994, the average balance of
FHLB advances was $20,241,000 lower than the same period of 1993. The
lower average balance in 1994 was the result of the Bank prepaying high
interest FHLB advances in the last half of 1993. The average interest rate
paid on FHLB advances during the quarter ended September 30, 1994 was 1.32%
lower than the average interest rate for the same period of 1993. Interest
expense from repurchase agreements and other borrowing for the quarter
ended September 30, 1994, increased $222,000 compared to the same period in
1993. During this quarter in 1994, the average balance of repurchase
agreements was $18,240,000 higher and the average interest rate the Bank
paid for these funds was 0.30% lower than the average interest rate in the
same period of 1993. The increase in the repurchase agreement funds
occurred primarily during the fourth quarter of 1994 and the funds were
used to purchase mortgage backed securities.
The provision for loan losses during the three months ended September 30,
1994, was $137,000 as compared to a recovery of $459,000 for the same
period in 1993. The provision for loan losses in the third quarter of 1994
was to reserve against delinquent property taxes on a loan which although
current as to principal and interest, is classified according to Office of
Thrift Supervision regulations.
Other income for the quarter ended September 30, 1994 was $868,000 less
than the same period of 1993. The decline in other income for the third
quarter of 1994 as compared to the same quarter of 1993 is due to a
decrease in gain on sale of loans and investments of $1,153,000. During
the third quarter of 1993, the Bank sold mortgage backed securities and
recognized a gain of $901,000. The sale of the securities and the
resulting gain recognition was done in part to offset effects of penalties
in connection with prepaying high interest FHLB advances. During the
fourth quarter of 1993, mortgage backed securities were purchased to
replace those sold during the third quarter. No such security sales
occurred during the third quarter of 1994. The decline in gain on sale of
loans was partially offset by an increase in fee income. Fee income
increased $248,000 for the quarter ended September 30, 1994 as compared to
the same period in 1993. The increase was primarily a result of an
increase in loan servicing fees on a larger balances of the loans serviced
for others portfolio and an increase in fee income from deposits, primarily
demand deposit accounts. Income from real estate operations for the three
months ended September 30, 1994 was $155,000 higher as compared to the same
period in 1993. This increase was attributed primarily to the recovery of
property taxes accrued for real estate acquired in the settlement of loans
("REO"). Due to the significant decline in REO, the remaining property
taxes accrued for such REO is not needed. Miscellaneous income for the
three months ended September 30, 1994 was $119,000 lower than the same
period in 1993. During the quarter ended September 30, 1994, fee income
from the sale of annuity products by Olympus Financial Services,
Incorporated, a subsidiary of the Bank, was $134,000 less than the same
period in 1993.
Other expenses during the quarter ended September 30, 1994, were $393,000
lower compared to the same period in 1993. During the three months ended
September 30, 1994, compensation and other employee expense was $138,000
less than the same period in 1993, primarily as a result in a reduction of
five full time employees and lower commissions to loan officers. Loan and
collection expense encompasses the costs of reviewing loans, foreclosure
expense and the costs of collecting amounts which are owed to the Bank.
During the quarter ended September 30, 1994, loan and collection expense
was $36,000 lower compared to the same quarter of 1993. As of September
30, 1994, the Bank's non-performing assets, principally loans with payments
ninety days or more delinquent, totalled less than $1 million. Insurance
<PAGE> 281
expense included the premiums the Bank pays for Federal Deposit Insurance
Corporation ("FDIC") insurance on deposits. For the three months ended
September 30, 1994 this premium was $19,000 lower than the same period in
1993, primarily as a result of a lower premium assessment from the FDIC.
During the quarter ended September 30, 1994, the Bank recorded a small
provision for the losses from REO as compared to provision for losses of
$439,000 in the quarter ended September 30, 1993. The 1993 provision for
loss from REO was largely the result of writing down the carrying value of
an office complex in Idaho which has subsequently been sold. Other
operating expenses include legal and other professional services which the
Corporation and its subsidiaries use. During the quarter ended September
30, 1994, other operating expenses increased $256,000 as compared to the
same quarter in 1993 primarily due to costs associated with the pending
merger with WMSB.
Results of Operation - Nine Months Ended September 30, 1994 and 1993
Interest income declined by $65,000 and the average interest rate earned
declined by 0.33% for the nine months ended September 30, 1994, compared to
the same period in 1993. The decline is primarily in interest income
earned on commercial real estate loans. Interest income earned from real
estate loans for the nine months ended September 30, 1994, declined by
$831,000 compared to the same period in 1993. The average balance of real
estate loans outstanding during the nine months ended September 30, 1994,
declined by $3,969,000 compared to the same period during 1993, and the
weighted average interest rate earned declined by 0.34% compared to the
same period in 1993. The decline in the interest rate is due largely to
the repayment of loans with higher fixed interest rates in the commercial
real estate portfolio. The Bank experienced a decline of $20,876,000 in
the average balance of the commercial real estate loan portfolio during the
nine months ended September 30, 1994, compared to the same period during
1993. The bulk of this decline occurred in the third quarter of 1993 and
continued to the first quarter of 1994. During the nine months ended
September 30, 1994, the average balance of the multi-family real estate
loan portfolio grew $7,224,000, the construction loan portfolio grew
$7,508,000, and the consumer loan portfolio, composed of short term fixed
rate residential loans and home equity lines of credit, grew $5,596,000
compared to the same period in 1993.
During the nine months ended September 30, 1994, interest income from
investments available for sale decreased by $76,000 compared to the same
period in 1993. This decline was primarily the result of a decrease in the
average balance of investments available for sale of $2,358,000 for the
nine months ended September 30, 1994, compared to the same period in 1993.
During the first quarter of 1994, the Bank reclassified to investment
securities approximately $40,000,000 of mortgage backed securities
previously reported as available for sale. This reclassification was the
principal reason income from investment securities for the nine months
ended September 30, 1994, increased by $889,000. During the nine months
ended September 30, 1994, the average balances of investment securities for
the period, increased $22,721,000 compared to the same period in 1993. The
interest rate earned on these investments for the nine months ended
September 30, 1994, was 4.48% compared to 4.62% for the same period in
1993. During the nine months ended September 30, 1994, dividend income
from FHLB stock declined $155,000 compared to the same period of 1993. The
dividend paid by the FHLB for the nine months ended September 30, 1994, was
7.00% compared to 13.90% for the same period in 1993. Management of the
Bank believes the dividend paid by FHLB will remain significantly lower for
the remainder of 1994 compared to dividends paid in 1993.
Interest income on commercial loans increased $75,000 for the nine months
ended September 30, 1994 as compared to the same period in 1993. This is
primarily the result of an increase of 1.70% in the interest rate earned on
this portfolio for the nine month period of 1994 as compared to 1993. Most
interest rates on the loans in this portfolio are adjustable and have
adjusted higher as interest rates in general have increased. Loan
origination fees for the nine months ended September 30, 1994 increased
$34,000 over the same period in 1993 largely attributable to the increase
in construction lending experienced in 1994.
Interest expense declined $1,005,000, while the average balance of interest
costing liabilities increased $11,822,000 for the nine months ended
September 30, 1994, compared to the same period in 1993. Interest expense
for deposits for the nine months ended September 30, 1994, declined
$154,000 compared to the same period in 1993. During the nine months ended
September 30, 1994, the average balance of all deposits increased
$15,059,000 and the average interest rate paid for all deposits declined
0.21% compared to the same period in 1993. The increase in the average
balance of deposits was concentrated in demand deposit accounts and long
term certificates of deposit. Interest expense from FHLB advances for the
nine months ended September 30, 1994, declined $1,611,000 compared to the
same period in 1993. During the period in 1994, the average balance of
FHLB advances was $21,221,000 lower than the same period of 1993. The
lower balances in 1994 were the result of the Bank prepaying high interest
FHLB advances in the last half of 1993. The average rate paid for FHLB
advances during the nine months ended September 30, 1994 was 2.77% lower
than the average rate paid in the same period of 1993. Interest expense
from repurchase agreements and other borrowings for the nine months ended
September 30, 1994, increased $761,000 compared to the same period in 1993.
During the period in 1994, the average balance of repurchase agreements was
$30,333,000 compared to $7,690,000 during the first nine months of 1993 and
the average interest rate the Bank paid for this borrowing was 2.84% lower
compared to the same period of 1993. During the nine months ended
September 30, 1993, most of the funds borrowed by the Bank from repurchase
agreements were long-term with higher interest rates. These funds have
been retained by the Bank, but their impact on the weighted average
interest rate is smaller. During the nine months ended September 30, 1993,
the Bank recovered $87,000 of previously expensed interest payments on an
industrial revenue bond issued in connection with a property previously
owned by the Bank. The Bank sold the property during the second quarter of
1993. The recovery lowered interest expense from other borrowings by
$87,000 for the nine months ended September 30, 1993.
The provision for loan losses of $1,026,000 during the nine months ended
September 30, 1994, was $1,870,000 higher than the same period in 1993.
The Bank recorded net recoveries of $844,000 during the first nine months
of 1993, the result of lower non-performing asset levels and the resolution
<PAGE> 282
of several troubled loans during the first three quarters of 1993. Most of
the provisions for 1994 were established for loans secured by Southern
California properties in response to uncertainties caused by natural
disasters and the overall weakness of the rental market for commercial
space in the region.
Other income for the nine months ended September 30, 1994, was
$417,000 less compared to the same period of 1993. Fee income for
the nine months ended September 30, 1994, was $674,000 higher
compared to the same period in 1993. During the nine months ended
September 30, 1994, service fee income from deposits increased
$355,000 and loan servicing fee income increased $59,000 compared to
the same period in 1993. Due to prepayments of certain commercial
real estate loans, the Bank collected $275,000 in prepayment fees
during the first nine months of 1994. Income from real estate
operations for the nine months ended September 30, 1994, was
$971,000 higher compared to the same period in 1993. Rental income
from branch offices during the nine months ended September 30, 1994,
was $12,000 lower compared to the same period in 1993. During the
second quarter of 1994, the Bank lost a major tenant from the
corporate office building in Salt Lake City. The space remains
unleased. During the nine months ended September 30, 1994, the net
income from REO was $983,000 higher than the same period in 1993.
The lower costs of holding REO reflects the lower level of these
assets. During the nine months ended September 30, 1994,
settlements surrounding REO properties resulted in the Bank
collecting $627,000 for operating these properties. During the nine
months ended September 30, 1994, gains from sale of loans and
investments was $1,890,000 lower than the same period in 1993. In
addition to the sale of mortgage backed securities and the resulting
gain recognition previously discussed, lower prices when loans are
sold due to higher interest rates and lower production and sales
volume led to this decline. Additionally, during the second quarter
of 1993, the Bank sold mortgage servicing rights and recorded a gain
of $350,000. The Bank has not sold mortgage servicing rights during
1994. Miscellaneous income for the nine months ended September 30,
1994, was $171,000 lower than the same period in 1993. During the
nine months ended September 30, 1994, fee income from the sale of
annuity products by Olympus Financial Services, Incorporated, a
subsidiary of the Bank, was $189,000 lower than the same period in
1993.
Other expenses during the nine months ended September 30, 1994, were
$173,000 higher compared to the same period in 1993. During the nine
months ended September 30, 1994, compensation and other employee expense
was $484,000 higher than the same period in 1993. During the nine months
ended September 30, 1994, the Bank accrued or paid $228,000 in severance
pay for former employees and an officer of the Bank. Bonus payments during
the first nine months of 1994 were $90,000 higher than the same period in
1993. During the first nine months of 1994, the expense for employee
benefits, such as retirement fund contribution and health insurance was
$193,000 higher compared to the same period in 1993. During the nine
months ended September 30, 1994, loan and collection expense was $254,000
lower compared to the same period of 1993. As of September 30, 1994, the
Bank had non-performing assets totalling less than $1 million. For the
nine months ended September 30, 1994, the FDIC insurance premium was
$303,000 higher than the same period in 1993, chiefly because during the
first nine months of 1993, the Bank received a credit from the FDIC for
$516,000, the final installment of the Bank's Federal Savings and Loan
Insurance Corporation secondary reserve credit. During the nine months
ended September 30, 1994, the Bank recorded a $58,000 provision for the
losses from REO as compared to a $836,000 provision for losses from REO for
the same period in 1993. The reduction in the provision is a result of the
decline in the level of REO. For the nine months ended September 30, 1994,
other operating expenses increased $483,000 compared to the same quarter in
1993. During the nine months ended September 30, 1994, the Corporation
spent $303,000 for legal and professional services associated with the
proposed merger. Other legal fees increased $153,000 for the nine months
ended September 30, 1994, as compared to the same period in 1993. Much of
this increase was to review strategic alternatives in connection with an
expression of interest to acquire the Corporation earlier in 1994.
FINANCIAL CONDITION
Total consolidated assets at September 30, 1994, were $392,320,000 a
decrease of $21,849,000 from $414,169,000 at December 31, 1993. Principal
repayments both scheduled and unscheduled from mortgaged backed securities
as well as the real estate loan portfolio, are the primary reason for this
decrease. The proceeds from loan payoffs and increased deposits were used
to pay advances from the FHLB and other borrowing sources.
Investment securities increased $39,890,000 during the first nine months of
1994, while investments available for sale decreased $55,815,000 primarily
the result of a reclassification of securities from investments available
for sale to investments held to maturity. The Bank charged the carrying
value of the investment $462,000, with an offsetting entry to stockholders'
equity for the difference between the carrying value and the fair value at
the date of reclassification. The Bank amortized $45,000 of this
unrealized holding loss reported in equity during the nine months of 1994,
to offset the effect on interest income of the amortization of the discount
created by this reclassification. The reclassified securities included
fixed rate, fifteen year original maturity mortgage backed securities
("MBS"), MBS collaterized by loans with five and seven year balloon
payments and a MBS pledged as collateral for a long term letter of credit
issued by the Bank. In reassessing the classification of these assets
management concluded they bear many of the same characteristics as mortgage
loans currently being originated for the Corporation's portfolio. At
September 30, 1994, the market value of investments available for sale was
$2,671,000 lower than the carrying value of these securities. This
unrealized loss is reported as a separate component of stockholders equity.
Loan receivables declined by $8,535,000 from December 31, 1993 to September
30, 1994, with the largest decline of $16,127,000 occurring on commercial
real estate loans. During the first quarter of 1994, a large commercial
real estate loan borrower prepaid approximately $11,000,000 of commercial
real estate loans. During the nine months ended September 30, 1994, the
Bank originated real estate loans totalling $4,100,000 to facilitate the
sale of REO, all of which occurred in the first half of the year.
<PAGE> 283
Excluding the commercial real estate portfolio, the balances of the
remaining real estate loan portfolios increased $5,644,000, primarily in
shorter term fixed rate mortgages and construction loans. During the nine
months ended September 30, 1994, non-real estate commercial loans increased
by $1,464,000. Also during this period, the Bank received a pay off of a
commercial loan receivable of $1,130,000 previously reported as a non-
performing asset. During the first nine months of 1994, the Bank provided
financing for the sale of a hydro electric plant previously reported as
real estate acquired in settlement of loans. The increase in allowance for
loan loss of $1,058,000 is primarily in response to commercial real estate
conditions in California and most of the increase occurred early in the
year. Other assets and deferred charges increased $4,837,000 due mainly to
the acquisition of mortgage servicing portfolios for $4,429,000, net of
amortization. On December 31, 1993, the Bank was closed for New Years
holiday. Although the Bank was closed, the Federal Reserve System was
open. The Federal Reserve System posted credits to the Bank on December
31, 1993 which the Bank then posted to depositors' accounts January 3,
1994. These unposted credits which totalled $500,000 at December 31, 1993,
are reported as other assets and deferred charges.
Total deposits increased $16,682,000 from December 31, 1993 to September
30, 1994. Most of this increase was in the form of time deposits with
maturities of seven or more years. The proceeds from these deposits and
from collections from loans were used to pay off maturing advances from the
FHLB and obligations arising from securities sold under agreements to
repurchase. The Bank currently borrows only short term funds from the
FHLB. Other liabilities and accrued expense includes deposits for
borrower's taxes and insurance, interest accrued but unpaid on deposits,
and other expenses which are accrued but unpaid, and unposted mortgage
payments. Deposits for borrowers' taxes and insurance increased $1,669,000
during the first nine months of 1994 while unposted payments and accrued
interest decreased $1,063,000.
LIQUIDITY AND CAPITAL RESOURCES
Regulations of the Office of Thrift Supervision ("OTS"), require the Bank
to maintain specified levels of liquid assets, generally defined as cash
and marketable securities which are quickly convertible into cash. Such
assets must equal at least 5% of the daily average balance of total
withdrawable savings and short-term borrowings (liquidity base). As of
September 30, 1994, the Bank's average liquid assets were approximately
$24,096,000 or 6.8% of its liquidity base.
The Bank had loan commitments of approximately $47,961,000 as of September
30, 1994. The loan commitments outstanding includes $5,142,000 of
available but unused credit lines on home equity loans and $17,686,000 of
undisbursed construction loans. Additionally, commercial business lines of
credit that are unused and included in loan commitments is $6,136,000. The
Bank anticipates that the funding requirements of the outstanding loan
commitments will be met through cash from maturities and monthly payments
received on the existing portfolio together with loan sales. Liquidity
from deposits and other borrowing sources are expected to meet other
funding needs of the Bank.
In connection with the insurance of savings accounts by the Savings
Association Insurance Fund (SAIF), the Bank is required to meet certain
minimum capital standards consisting of a tangible capital requirement of
1.5% of tangible assets, a core or leveraged capital requirement of 3% of
tangible assets, and a risked-based capital requirement. The risk-based
requirement takes each asset and gives it a weighting of 0% to 100% based
upon credit risk as defined in the regulations of the OTS. The risk-based
requirement as of September 30, 1994, was 8% of the risk weighted assets.
Eligible capital to meet this test is composed of core or tier one capital
and supplementary or tier two capital. Supplementary or tier two capital
is composed of general loan loss reserves up to a maximum of 1.25% of risk
weighted assets.
<PAGE> 284
The following is a summary of the Bank's regulatory capital at September
30, 1994.
<TABLE>
<CAPTION>
Requirement Actual Amount
-------------------------- -------------------------- Exceeding
Capital Ratio Capital Ratio Requirements
------------ ----- ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Tangible $ 5,885,000 1.50% $33,672,000 8.58% $27,787,000
Core 11,770,000 3.00% 33,672,000 8.58% 21,902,000
Risk-Based 18,338,000 8.00% 36,482,000 15.92% 18,144,000
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets totaled $913,000 at September 30, 1994, compared with
$5,297,000 at December 31, 1993. The balance of REO, $3,055,000 at
December 31, 1993, had been sold by September 30, 1994 with the addition of
one single family loan which is now REO. The sales were financed in part
by loans provided by the Bank. The major non-performing loan at September
30, 1994, was a commercial real estate loan located in southern California.
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Richard Madsen vs. Prudential Savings and Loan Association, Third Judicial
District Court of Salt Lake County, State of Utah, Civil No. 226073, filed
February 1975.
This is an alleged class action filed in February 1975, in the District
Court of Salt Lake County, seeking compensation for the use of loan
reserves for taxes and insurance. The District Court granted the Bank's
(formerly known as Prudential Federal Savings and Loan Association) motion
for summary judgment dismissing the complaint. Plaintiff appealed to the
Utah Supreme Court. The Utah Supreme Court reversed the summary judgment
on January 14, 1977, and ordered the case remanded for further proceedings.
<PAGE> 285
In October, 1977, the Plaintiff amended the complaint to allege a plaintiff
class action on behalf of all mortgagors in the State of Utah against a
defendant class of all mortgage lenders in Utah, of which the Bank would be
the representative defendant. In October, 1981, plaintiff filed an amended
complaint in the matter. The amended complaint, in addition to requesting
an accounting, requests that the Bank and other members of the alleged
defendant class pay to plaintiffs and other members of the alleged
plaintiff's class profits earned from the past use of the escrow funds,
annual payments in the future for the use of escrow funds, punitive damages
of $10,000,000 and the sum of 4% interest on the reserve account of each
member of the plaintiff's class or $100, whichever is more, from June 30,
1979. The trial court also denied the Bank's Motion for Summary Judgement
and ruled that the Bank must account to plaintiff Madsen only for net
earnings, if any, made on his reserve account.
Trial on this case was held in September, 1985. At the conclusion, the
Court directed judgement in favor of Plaintiff Madsen in the amount of
$134.70 Before judgment was entered, the Bank moved for disqualification of
the trial judge, which was granted on January 16, 1986, and was
retroactive, so that all of the trial judges's orders were vacated.
Thereafter, plaintiff's petition to the Utah Supreme Court for
interlocutory review of the disqualification order was granted. During
1988, the Utah Supreme Court reversed the lower court's disqualification of
trial judge. The case was remanded to the trial court for entry of
findings of fact and conclusions of law.
The trial court on March 22, 1990, entered its findings of fact and
conclusion of law. The trial court entered judgment on April 30, 1992.
The judgment awards $134.70 to plaintiff, plus costs of court, plus 10%
interest from the date of trial to the date of judgement, plus post
judgment interest from the date of judgment. The judgment also orders that
a special master be appointed to survey the Bank's records to determine a
feasible method for identifying class members and for identifying records
from which a computation of damages can be made for class members. A
consequence of the judgment may be that a class of plaintiffs, whose trust
deeds in favor of the Bank contain similar language as that contained in
the plaintiff's trust deed, may recover a larger judgment against the Bank.
The trial court certified the judgment as final and directed its entry so
that an appeal may be taken. The trial court certified the judgement as
final and directed its entry so that an appeal may be taken. The trial
court stayed, pending appeal, that portion of the judgment ordering that a
special master be appointed to identify the defendant class and calculate
damages. Both the individual plaintiff in this case and the Bank filed a
notice of appeal to the Utah Supreme Court.
The Supreme Court found that the appeals were premature and returned the
case to the trial court. On June 20, 1994, the trial court appointed a
special master who will identify class members and compute damages. Also
on June 20, 1994, the trial court ordered the Bank to pay the initial costs
of the master's determining what records the Bank has available and what is
the best, most economical method of locating individual class members and
computing their damages. The Bank's petition for interlocutory appeal to
the Supreme Court challenging that order was denied. The master is now
proceeding with his initial survey of the records.
The amount of the damages that may be awarded against the Bank cannot be
determined at this time. Appeal must await the trial court's determination
of all class issues.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
September 30, 1994.
<PAGE> 286
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OLYMPUS CAPITAL CORPORATION
Date November 14, 1994 By: K. John Jones
K. John Jones, Vice President/
Chief Financial Officer
Date November 14, 1994 By: R. Gibb Marsh
R. Gibb Marsh, President
<PAGE> 287
[ARTICLE] 9
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-30-1994
[CASH] 9,188,340
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 380,415
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 0
[INVESTMENTS-CARRYING] 131,654,393
[INVESTMENTS-MARKET] 126,026,083
[LOANS] 241,678,680
[ALLOWANCE] (6,668,306)
[TOTAL-ASSETS] 392,320,436
[DEPOSITS] 311,242,265
[SHORT-TERM] 41,962,784
[LIABILITIES-OTHER] 5,350,280
[LONG-TERM] 0
[COMMON] 3,112,239
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 30,652,868
[TOTAL-LIABILITIES-AND-EQUITY] 392,320,436
[INTEREST-LOAN] 15,127,958
[INTEREST-INVEST] 5,365,055
[INTEREST-OTHER] 0
[INTEREST-TOTAL] 20,493,013
[INTEREST-DEPOSIT] 8,207,362
[INTEREST-EXPENSE] 1,919,844
[INTEREST-INCOME-NET] 10,365,807
[LOAN-LOSSES] 1,026,332
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 9,021,436
[INCOME-PRETAX] 3,322,177
[INCOME-PRE-EXTRAORDINARY] 3,322,177
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,322,177
[EPS-PRIMARY] 1.02
[EPS-DILUTED] 1.02
[YIELD-ACTUAL] .071
[LOANS-NON] 0<F1>
[LOANS-PAST] 0<F1>
[LOANS-TROUBLED] 0<F1>
[LOANS-PROBLEM] 0<F1>
[ALLOWANCE-OPEN] 0<F1>
[CHARGE-OFFS] 0<F1>
[RECOVERIES] 0<F1>
[ALLOWANCE-CLOSE] 0<F1>
[ALLOWANCE-DOMESTIC] 0<F1>
[ALLOWANCE-FOREIGN] 0<F1>
[ALLOWANCE-UNALLOCATED] 0<F1>
<FN>
<F1> This item is reported only on Form 10K
</TABLE>
<PAGE> 288
APPENDIX G
AMENDMENT
TO
OLYMPUS CAPITAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AND
INCENTIVE STOCK OPTION PLAN
(as amended)
THIS AMENDMENT (the "Amendment") is executed effective as of
_______________________ by Olympus Capital Corporation, a Utah corporation (the
"Company").
RECITALS
WHEREAS, the Company has previously adopted the Olympus Capital
Corporation Nonqualified Stock Option Plan and Incentive Stock Option Plan (the
Nonqualified Stock Option Plan and Incentive Stock Option Plan, as amended, are
hereinafter referred to as the "Plans"); and
WHEREAS, the Company has entered into an Amended and Restated
Agreement For Merger dated ______________, 1994 (the "Merger Agreement") with
Washington Mutual, Inc. ("WMI") and certain other parties which provides that
the Company will be merged into WMI;
WHEREAS, the Merger Agreement provides that the Plans shall be amended
to provide for conversion of the outstanding options issued under the Plans
into options to purchase common stock of WMI if WMI elects to pay a portion of
the merger consideration in cash; and
WHEREAS, the Board of Directors has determined it advisable and in the
best interests of the Company to execute this Amendment to amend the Plans as
set forth in the Merger Agreement subject to shareholder approval and subject
to WMI electing to pay a portion of the merger consideration in cash.
NOW, THEREFORE, upon these premises, the Plans are hereby modified,
altered and amended in the following respects only, subject to the conditions
set forth in Section 2 below:
1. Amendment. Section 7.02 of the Plans is hereby amended to read in its
entirety as follows:
7.02 Corporate Capital Transactions. In the event that the Company,
its shareholders, or both enter into a written agreement to dispose if all or
substantially all of the assets or stock of the Company by means of a sale,
merger, consolidation, reorganization, liquidation or similar transaction
(other than a reorganization, merger or consolidation effected solely to change
the Company's name or state of incorporation), all Options issued pursuant to
the Plans established hereby shall become immediately
-1-
<PAGE> 289
exercisable, whether or not such Options were exercisable prior to such event,
on the date on which the Company agrees to enter into such transaction. Each
outstanding Option shall also be subject to the agreement governing any sale,
merger, consolidation, reorganization or liquidation, which agreement may
provide, without limitation, for the conversion of the outstanding Options into
fully vested options to acquire common stock of the surviving corporation or
its parent. In the event that the Company's agreement to enter into any such
transaction is terminated, all unexercised Options shall revert to the status
they had before the Company agreed to enter into the transaction in question.
Any exercise of Options made before the agreement to enter into the transaction
was terminated shall remain effective after the termination of the agreement,
notwithstanding that the Option may have become exercisable solely by reason of
the Company entering into the agreement.
2. Shareholder Approval. This Amendment shall become effective only if
(i) it is approved by the shareholders of the Company and (ii) WMI elects to
pay a portion of the merger consideration in cash. If either of these two
conditions are not satisfied, this Amendment shall not become effective
notwithstanding the approval of this Amendment by the Board of Directors of the
Company.
3. Ratification. In all respects, other than as specifically set forth
in Section 1 above, the Plan shall remain unaffected by this Amendment, the
Plans shall continue in full force and effect, subject to the terms and
conditions thereof, and in the event of any conflict, inconsistency, or
incongruity between the provisions of this Amendment and any provisions of the
Plans, the provisions of this Amendment shall in all respects govern and
control.
IN WITNESS WHEREOF, the Company has duly executed this Amendment
effective as of ________________________.
OLYMPUS CAPITAL CORPORATION,
a Utah corporation
By ________________________________
Its___________________________
Attest:
___________________________________
-2-
<PAGE> 290
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS & OFFICERS.
Section 23B.08.320 of the Washington Business Corporation Act (the
"Corporation Act") provides that the personal liability of directors to a
corporation imposed by Section 23B.08.310 of the Corporation Act may be
eliminated by the articles of incorporation of the corporation, except in the
case of acts or omissions involving certain types of conduct. At Article XIII
of its Articles of Incorporation, the Registrant has elected to eliminate the
liability of directors to the Registrant to the extent permitted by law. Thus,
a director of the Registrant is not personally liable to the Registrant or its
shareholders for monetary damages for conduct as a director, except for
liability of the director (i) for acts or omissions that involve intentional
misconduct by the director or a knowing violation of law by the director, (ii)
for conduct violating Section 23B.08.310 of the Corporation Act, or (iii) for
any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled.
Section 23B.08.560 of the Corporation Act provides that if authorized by
(i) the articles of incorporation, (ii) a bylaw adopted or ratified by the
shareholders, or (iii) a resolution adopted or ratified, before or after the
event, by the shareholders, a corporation shall have the power to indemnify
directors made party to a proceeding, or to obligate itself to advance or
reimburse expenses incurred in a proceeding, without regard to the limitations
on indemnification contained in Sections 23B.08.510 through 23B.08.550 of the
Corporation Act. At Article X of the Registrant's Restated Articles of
Incorporation, the Registrant has the power to indemnify, and to purchase and
maintain insurance for, its directors (as well as officers, employees, and
other persons and agents) against all liability, damage, and expenses arising
from or in connection with service for or at the request of, employment by, or
other affiliation with the Registrant or other firms or entities. Article VIII
of the Bylaws of the Registrant (the "Bylaws"), which was approved by the
Registrant's shareholders, provides for indemnification to directors beyond
that expressly permitted under the Corporation Act. The Bylaws provide that
the directors' right to indemnification shall include the right to be paid by
the Registrant the expenses incurred in defending any such proceeding in
advance of its final disposition. In connection with a proceeding initiated by
a director, however, the Bylaws provide that the directors entitled to
indemnification only if the proceeding was authorized by the Board of Directors
of the Registrant.
The Bylaws also provide that the Registrant may, by action of its Board
of Directors from time to time, provide indemnification and pay expenses in
advance of the final disposition of a proceeding to officers, employees and
agents of the Registrant or another corporation, partnership, joint venture
trust or other enterprise with the same scope and effect as the provisions in
the Registrant's Bylaws with respect to the indemnification and advancement of
expenses of directors of the Registrant or pursuant to rights granted pursuant
to, or provided by, the Corporation Act or otherwise.
ITEM 21. EXHIBITS.
An index of exhibits appears at page II-3.
ITEM 22. UNDERTAKING.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and
II-1
<PAGE> 291
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference in the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a material
transaction, and any company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective.
II-2
<PAGE> 292
FORM S-4 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C>
2 Agreement for Reorganization between the Registrant
and WMSB, dated October 19, 1994*
3.1 Restated Articles of Incorporation of the
Registrant, filed November 28, 1994 (the
"Articles")*
3.2 Bylaws of the Registrant*
4.1 Articles II D 2 (A); (B); and (C) of the Articles,
which define the rights of holders of the
Registrant's 9.12% Noncumulative Perpetual Preferred
Stock, Series C; the Registrant's $6.00
Noncumulative Convertible Perpetual Preferred Stock,
Series D; and the Registrant's 7.60% Noncumulative
Perpetual Preferred Stock, Series E respectively
(included as Exhibit 3.1 hereto)*
4.2 Rights Agreement, dated October 16, 1990*
4.3 Amendment No. 1 to Rights Agreement, dated October
31, 1994*
4.4 Supplement to Rights Agreement, dated November 29,
1994*
5.1 Opinion of Foster Pepper & Shefelman re legality
8.1 Form of Tax Opinion of Foster Pepper & Shefelman**
10.1 1994 Stock Option Plan*
10.2 Incentive Stock Option Plan*
10.3 Restricted Stock Plan (1986)*
10.4 Employees' Stock Purchase Program*
10.5 Retirement Savings and Investment Plan*
10.6 Employee Service Award Plan*
10.7 Supplemental Employee Retirement Plan*
10.8 Employment Contract of Kerry K. Killinger*
10.9 Employment Contract of William A. Longbrake*
10.10 Employment Contract of Lee D. Lannoye*
</TABLE>
II-3
<PAGE> 293
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C>
10.11 Employment Contract of Craig E. Tall*
10.12 Employment Contract of Michael D. Towers*
10.13 Employment Contract of S. Liane Wilson*
10.14 Lease Agreement between Third and University Limited
Partnership and WMSB, dated September 1, 1988*
10.15 First Amendment to Stock Purchase Agreement between
WMSB, Washington Mutual, a Federal Savings Bank
("FSB"), RT Holdings, Inc., Pacific First Financial
Corporation, RT Capital Corporation, RT Finance
Corporation and Royal Trustco Limited, dated April
9, 1993*
10.16 Agreement for Merger between WMSB, FSB and Pioneer
Savings Bank, dated August 20, 1992*
13.1 WMSB Annual Report on Form F-2 for the year ended
December 31, 1993, including the independent
auditor's report and the Financial Statements of
WMSB contained in WMSB's Annual Report to
Shareholders for the year ended December 31, 1993
attached thereto**
13.2 WMSB Quarterly Report on Form F-4 for the Quarter
ended March 31, 1994**
13.3 WMSB Quarterly Report on Form F-4 for the Quarter
ended June 30, 1994**
13.4 WMSB Quarterly Report on Form F-4 for the Quarter
ended September 30, 1994**
13.5 Olympus Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1994**
13.6 Olympus Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994**
13.7 Annual Report of Washington Mutual on Form 10-K for
the Fiscal Year Ended December 31, 1994
21 List of Subsidiaries of the Registrant*
23.1 Consent of Foster Pepper & Shefelman (contained in
opinion to be filed as Exhibit 5.1 hereto)
23.2 Consents of Deloitte & Touche LLP (contained on
pages II-6 and II-7)**
23.3 Consents of Deloitte & Touche LLP (contained on
page II-6 and II-7)
24.1 Power of Attorney (contained on signature page)**
99.1 Quarterly Report of WMSB on Form F-4 for the Quarter
Ended September 30, 1994*
</TABLE>
II-4
<PAGE> 294
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C>
99.2 Quarterly Report of WMSB on Form F-4 for the Quarter
Ended June 30, 1994*
99.3 Quarterly Report of WMSB on Form F-4 for the Quarter
Ended March 31, 1994*
99.4 Annual Report of WMSB on Form F-2 for the Fiscal
Year Ended December 31, 1993*
99.5 Proxy Statement for Annual Meeting of Shareholders
of WMSB held on April 19, 1994*
99.6 1993 Annual Report to Shareholders of WMSB*
</TABLE>
- -------------
* Incorporated by reference to the Registrant's filing on Form 8-K dated
November 29, 1994.
** Previously filed.
II-5
<PAGE> 295
INDEPENDENT AUDITORS' CONSENT
- -----------------------------------------------------------------------
We consent to the incorporation by reference in this Pre-Effective Amendment No.
1 to Registration Statement No. 33-57413 of Washington Mutual, Inc. on Form S-4
of our report dated February 14, 1995, appearing in the Annual Report on
Form 10-K of Washington Mutual, Inc. for the year ended December 31, 1994, and
our report dated February 15, 1994, appearing in the Annual Report to
shareholders of Washington Mutual Savings Bank, attached as an exhibit to the
Form F-2 of Washington Mutual Savings Bank for the year ended December 31, 1993.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
March 14, 1995
II-6
<PAGE> 296
INDEPENDENT AUDITORS' CONSENT
- ----------------------------------------------------------------------------
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 33-57413 of Washington Mutual, Inc. on Form S-4 of
the report of Deloitte & Touche dated March 1, 1994, appearing in the Annual
Report on Form 10-K of Olympus Capital Corporation for the year ended December
31, 1993 and to the reference to Deloitte & Touche LLP under the heading
"Independent Auditors" in the Prospectus, which is part of this Registration
Statement.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 15, 1995
II-7
<PAGE> 297
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on the 23rd day of January 1995.
WASHINGTON MUTUAL, INC.
By: /s/ Kerry K. Killinger
-----------------------
Kerry K. Killinger
Chairman of the Board of Directors,
Chief Executive Officer and President
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated below on the 23rd day of January 1995.
/s/ Kerry K. Killinger
____________________________________
Kerry K. Killinger,
Chairman of the Board of Directors,
and Chief Executive Officer and President
(Principal Executive Officer)
/s/ Douglas G. Wisdorf
____________________________________
Douglas G. Wisdorf,
Senior Vice President, Treasurer and
Controller (Principal Financial
and Accounting Officer)
/s/ Sally S. Behnke* /s/ Dr. Samuel B. McKinney*
____________________________________ ____________________________________
Sally S. Behnke, Dr. Samuel B. McKinney,
Director Director
/s/ Douglas P. Beighle* /s/ Michael K. Murphy*
____________________________________ ____________________________________
Douglas P. Beighle, Michael K. Murphy,
Director Director
* Pursuant to power of attorney granted to Kerry K. Killinger.
<PAGE> 298
/s/ Herbert M. Bridge* /s/ Louis H. Pepper*
____________________________________ ___________________________________
Herbert M. Bridge, Louis H. Pepper,
Director Director
/s/ Roger H. Eigsti* /s/ William G. Reed, Jr.*
____________________________________ ___________________________________
Roger H. Eigsti, William G. Reed, Jr.,
Director Director
/s/ John W. Ellis* /s/ Janet H. Skadan*
____________________________________ ___________________________________
John W. Ellis, Janet H. Skadan,
Director Director
/s/ Daniel J. Evans* /s/ James H. Stever*
____________________________________ ___________________________________
Daniel J. Evans, James H. Stever,
Director Director
/s/ William P. Gerberding*
___________________________________ ___________________________________
William P. Gerberding, Anne V. Farrell
Director Director
*Pursuant to power of attorney granted to Kerry K. Killinger.
<PAGE> 299
FORM S-4 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C>
5.1 Opinion of Foster Pepper & Shefelman
13.7 WMSB Annual Report on Form 10-K for the year ended
December 31, 1994, including the independent
auditor's report and the Financial Statements of
Washington Mutual contained in Washington Mutual's
Annual Report to Shareholders for the year ended
December 31, 1994 attached thereto
23.3 Consents of Deloitte & Touche LLP
(contained on page II-6 and II-7)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
March 16, 1995
Board of Directors
Washington Mutual, Inc.
1201 Third Avenue
Seattle, Washington 98101
Ladies and Gentlemen:
We have acted as counsel for Washington Mutual, Inc., a Washington
Corporation (the "Company") in connection with the proposed merger (the
"Merger) of Olympus Capital Corporation ("Olympus") with and into the Company
in accordance with the terms of that certain Amended and Restated Agreement for
Merger dated as of January 20, 1995 among the Company, Washington Mutual Bank,
Washington Mutual Federal Savings Bank, Olympus and Olympus Bank, a Federal
Savings Bank (the "Merger Agreement") and the preparation and filing of a
Registration Statement ("Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended for up to 3,002,621 shares (the "Shares") of
the Company's common stock, no par value per share, that are issuable to
shareholders of Olympus as consideration for the surrender of their shares of
Olympus Common Stock in the Merger. We have examined the Registration
Statement, the Merger Agreement and such other documents and records as we deem
necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that upon the issuance of
the Shares in accordance with the terms of the Merger Agreement and the
Registration Statement, the Shares will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this Opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
included in the Registration Statement under the caption entitled "Legal
Matters."
Very truly yours,
FOSTER PEPPER & SHEFELMAN
/s/ ROBERT C. SEIDEL
----------------------------
Robert C. Seidel
<PAGE> 1
EXHIBIT 13.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO :
COMMISSION FILE NUMBER 0-25188
WASHINGTON MUTUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
WASHINGTON 91-1653725
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (206) 461-2000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK THE NASDAQ STOCK MARKET
9.12% NONCUMULATIVE PERPETUAL PREFERRED STOCK, SERIES C THE NASDAQ STOCK MARKET
$6.00 NONCUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK, THE NASDAQ STOCK MARKET
SERIES D
7.60% NONCUMULATIVE PERPETUAL PREFERRED STOCK, SERIES E THE NASDAQ STOCK MARKET
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1995:
COMMON STOCK -- $1,092,681,474
The number of shares outstanding of the issuer's classes of common stock as of
January 31, 1995:
COMMON STOCK -- 61,996,112
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held April 18, 1995, are incorporated by reference into Part
III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
WASHINGTON MUTUAL, INC.
1994 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I................................................................................ 1
Item 1. Business.................................................................... 1
General.......................................................................... 1
The Reorganization............................................................... 1
Washington Mutual's Operating Subsidiaries....................................... 2
Lending Activities............................................................... 3
Asset Quality.................................................................... 6
Provision for Loan Losses and Reserve for Loan Losses............................ 7
Other Investments................................................................ 8
Sources of Funds................................................................. 9
Asset and Liability Management................................................... 11
Acquisitions..................................................................... 11
Employees........................................................................ 12
Taxation......................................................................... 12
Environmental Regulation......................................................... 13
Regulation and Supervision....................................................... 13
Competitive Environment.......................................................... 20
Principal Officers............................................................... 21
Item 2. Properties.................................................................. 23
Item 3. Legal Proceedings........................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......................... 23
PART II............................................................................... 23
Item 5. Market for Washington Mutual's Common Stock and Related Security
Holder Matters.............................................................. 23
Item 6. Selected Financial Data..................................................... 26
Item 7. Management's Discussion and Analysis of Financial Position and
Results of Operations....................................................... 27
Results of Operations............................................................ 27
Review of Financial Condition.................................................... 33
Asset Quality.................................................................... 38
Provision for Loan Losses and Reserve for Loan Losses............................ 40
Interest Rate Risk Management.................................................... 41
Liquidity........................................................................ 43
Capital Requirements............................................................. 43
Item 8. Financial Statements and Supplementary Data................................. 43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................. 43
PART III.............................................................................. 44
PART IV............................................................................... 44
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 44
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Washington Mutual, Inc. ("WMI" and together with its subsidiaries
"Washington Mutual" or the "Company") is a Washington corporation that provides
a broad range of financial services to consumers in Washington, Oregon and Idaho
through its subsidiary operations. The principal asset of Washington Mutual is
its direct and indirect ownership of its principal subsidiaries, Washington
Mutual Bank ("WMB"), Washington Mutual, a Federal Savings Bank ("FSB"),
Washington Mutual Federal Savings Bank ("WMFSB") and WM Life Insurance Co. ("WM
Life"). Financial services of the Company include the traditional savings bank
activities of accepting deposits from the general public and making residential
loans, consumer loans and limited types of commercial real estate loans,
primarily multi-family. Washington Mutual, through various subsidiaries, also
issues and markets annuity contracts and is the investment advisor and
distributor of mutual funds. At Dec. 31, 1994, Washington Mutual, through its
subsidiaries, operated a total of 232 financial centers and 22 loan centers. At
Dec. 31, 1994, Washington Mutual had total assets of $18.5 billion, total
deposits of $9.8 billion and stockholders' equity of $1.3 billion.
During the first half of 1993, Washington Mutual merged with Pioneer
Savings Bank ("Pioneer") and acquired Pacific First Bank ("Pacific First"). As a
result of these business combinations, the Company became substantially larger,
with significant operations in Oregon as well as Washington. (See
"Acquisitions.")
During 1994, there was a significant rise in short-term market interest
rates. A rising interest rate environment generally has an adverse effect on the
business of thrift institutions such as WMB, FSB and WMFSB. Thrift institutions
traditionally have funded loans to homeowners with short-term savings deposits
and borrowings. During any given time period a large volume of savings deposits
and borrowings reprice, but only a comparatively smaller volume of loans matures
or reprices. As a consequence, the loans still outstanding must be financed with
new or repriced liabilities bearing interest rates, which, depending on market
conditions, may be considerably higher than the unchanged interest being earned
on the loans. This mismatch between asset and liability maturities benefits a
thrift institution when market interest rates fall, but adversely affects
profitability when interest rates rise. While the Company takes various steps to
reduce its exposure to increases in interest rates, its business during 1994 was
nevertheless adversely affected by the increase, and future increases in market
interest rates would continue to have an adverse effect on the Company.
The principal executive offices of Washington Mutual are located in the
Washington Mutual Tower, 1201 Third Avenue, Suite 1500, Seattle, Washington,
98101, and its telephone number is (206) 461-2000.
THE REORGANIZATION
On Nov. 29, 1994, the Company's predecessor, Washington Mutual Savings Bank
("WMSB"), reorganized into a holding company structure (the "Reorganization").
To effect the Reorganization, WMSB formed WMI in August of 1994. Thereafter,
WMSB caused WMI to form WMB as a wholly owned subsidiary of WMI. In the
Reorganization, WMSB merged with and into WMB, with WMB as the surviving entity.
WMB continued as a wholly owned subsidiary of WMI. As a result of the
Reorganization, WMI became the parent company of the companies of which WMSB
was, prior to the Reorganization, the parent company. Because WMI owns WMB, FSB
and WMFSB, WMI is a savings and loan holding company under federal law and, as
such, is subject to regulation by the Office of Thrift Supervision ("OTS").
As a result of the Reorganization, all shareholders of WMSB became
shareholders of WMI. Each outstanding share of WMSB common stock was converted
into one share of WMI common stock, no par value per share, and each outstanding
share of WMSB 9.12% Noncumulative Perpetual Preferred Stock, Series C; $6.00
Noncumulative Convertible Perpetual Preferred Stock, Series D; and 7.60%
Noncumulative Perpetual Preferred Stock, Series E, was converted on a
share-for-share basis into WMI 9.12% Noncumulative Perpetual Preferred Stock,
Series C; $6.00 Noncumulative Convertible Perpetual Preferred Stock,
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Series D; and 7.60% Noncumulative Perpetual Preferred Stock, Series E,
respectively, with substantially the same relative rights, privileges and
preferences.
Except where otherwise indicated, references hereinafter to "Washington
Mutual" or the "Company" refer to both (i) WMI and its consolidated subsidiaries
after the consummation of the Reorganization and (ii) WMSB and its consolidated
subsidiaries prior to the consummation of the Reorganization.
WASHINGTON MUTUAL'S OPERATING SUBSIDIARIES
Washington Mutual Bank
WMB's principal business is providing a broad range of financial services,
primarily to consumers. (Hereinafter, "WMB" is used to refer both to WMB and its
predecessor, WMSB.) These services include the traditional savings bank
activities of accepting deposits from the general public and making residential
loans, consumer loans and limited types of commercial real estate loans,
primarily multi-family. WMB currently operates 73 financial centers, 40 in the
greater Seattle metropolitan area and 33 elsewhere in Washington and 10 loan
centers in Washington.
WMB operates under Title 32 (Mutual Savings Banks) of the Revised Code of
Washington. Its deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"), principally through the Bank Insurance Fund ("BIF").
Because WMB owns FSB, WMB is a savings and loan holding company under federal
law and, as such, is also subject to regulation by the OTS.
Washington Mutual, a Federal Savings Bank
FSB's principal business is accepting deposits from the general public,
making consumer loans and facilitating the origination of residential loans that
are underwritten, closed and funded by WMB. In recent years, FSB has grown
primarily by acquiring other institutions and by purchasing loan participations
from WMB. The range of deposit and loan products offered at FSB financial
centers is the same as those offered at WMB financial centers, except that FSB's
deposits are insured through its membership in the Savings Association Insurance
Fund ("SAIF"). FSB is subject to comprehensive regulation and examination by the
OTS and to supervision and examination by the FDIC. (See "Regulation and
Supervision.") FSB operates 158 financial centers, 38 in the greater Seattle
metropolitan area, 41 elsewhere in Washington, 76 in Oregon and three in Idaho.
FSB also operates 12 loan centers in Washington, Oregon and Idaho. Most of these
financial centers were acquired in business combinations completed in the past
several years.
Washington Mutual Federal Savings Bank
WMFSB is a federal savings bank formed in 1994 to participate in a
supervisory acquisition of certain branches of a federal savings bank from the
Resolution Trust Corporation. WMFSB's principal business includes the
traditional savings association activity of accepting deposits from the general
public, as well as the brokering of loans to other WMI subsidiaries. WMFSB also
makes consumer loans. WMFSB operates one financial center in Lake Oswego, Oregon
and, as of early 1995, one loan center in Utah. It is anticipated that Olympus
Bank, a Federal Savings Bank ("Olympus Bank") will be merged into WMFSB in 1995.
(See "Acquisitions.")
WM Life Insurance Co.
WM Life is an Arizona-domiciled capital life insurance company that was
purchased in 1983. Subsequent to the purchase, WMB contributed additional
capital and surplus to WM Life to qualify and maintain it as a direct
underwriter of life insurance. WM Life is authorized under state law to issue
annuities in seven states. WM Life currently issues the Income Annuity, a
flexible premium annuity sold by Murphey Favre, Inc. ("Murphey Favre"), by
Washington Mutual Insurance Services, Inc. ("WMIS") in Washington and by
Columbia Services, Inc. ("CSI"), a subsidiary of FSB, in Oregon, and the
Composite Variable Annuity, a variable annuity sold by Murphey Favre. It also
underwrites other flexible premium annuities that are sold by independent
agents. WM Life owns Empire Life Insurance Co. ("Empire"), which is currently
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licensed under state law to issue annuities in 26 states. Empire currently
issues flexible premium annuities sold by Murphey Favre and independent agents.
Murphey Favre, Inc.
Murphey Favre is a registered broker-dealer that offers a broad range of
securities brokerage services, including distribution of mutual funds. Murphey
Favre has seven free-standing offices and offices in most of the Company's
financial centers. Murphey Favre's subsidiary, Murphey Favre Securities
Services, Inc., provides advisory, administrative and support services to
broker-dealers and to mutual funds.
Composite Research & Management Co.
Composite Research & Management Co. ("Composite Research") is a registered
investment advisor. Composite Research is the investment advisor of eight mutual
funds and offers separate investment management for large accounts. As of Dec.
31, 1994, Composite Research had a total of $1,095.5 million in funds under
management in the eight mutual funds.
LENDING ACTIVITIES
General
The Company's lending activities are carried on through its banking
subsidiaries, WMB, FSB and WMFSB. As of Dec. 31, 1994, the Company's total loan
portfolio (carried at historical cost) of $12,534.6 million (exclusive of
reserve for loan losses) included $8,004.3 million in mortgage loans secured by
first liens on 1-4 family residential properties; $1,675.4 million in mortgage
loans secured by commercial properties such as apartment buildings, office
buildings, warehouses, shopping centers and medical office buildings; $516.5
million in residential construction loans; $2,336.0 million in consumer loans;
and $2.4 million in commercial credits. (For a discussion of the fair value of
the loan portfolio, see "Financial Statements and Supplementary Data -- Note 27:
Fair Value of Financial Instruments.")
Washington state law gives state-chartered savings banks such as WMB broad
lending powers, subject to certain statutory restrictions on total investment in
different types of loans. WMB may make loans secured by residential and
commercial real estate, secured and unsecured consumer loans, and secured and
unsecured commercial loans. FSB and WMFSB have narrower lending authority, but
can make loans secured by residential and commercial real estate, certain
secured and unsecured consumer loans, and a limited amount of secured and
unsecured commercial loans.
In originating loans, the Company must compete with other savings banks,
savings and loan associations, commercial banks, mortgage companies and,
primarily in the commercial real estate area, life insurance companies. In
addition, the Company's lending activities are heavily influenced by economic
trends affecting the availability of funds and by general interest rate levels.
More specifically, the condition of the construction industry and the demand for
housing directly affect residential lending volumes.
Residential Real Estate Loans
The Company makes available to borrowers in its primary consumer market
area a full range of residential loans, including FHA-insured and VA-guaranteed
loans, conventional fixed-rate loans for terms of five, 15 or 30 years, and
adjustable-rate mortgage loans ("ARMs"). ARMs are advantageous to the Company
because adjustable-rate loans better match its natural liability base. However,
Washington Mutual's ability to originate ARMs in lieu of fixed-rate loans has
varied in response to changes in market interest rates. Between 1990 and 1993,
ARMs constituted less than 30 percent of residential loan originations,
reflecting continuing lower market interest rates. With the rise in interest
rates, ARMs totaled 62 percent of residential loan originations during 1994.
Under the Company's current ARMs programs, the borrower may choose among
loans that have the initial interest rate fixed for one, three or five years
before the adjustments begin. Currently ARMs are indexed to the 1-year Treasury
Securities Index and have annual caps of 2 percent. Under most options, the
borrower
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may elect, between the sixth and the sixtieth months, to convert to a fixed-rate
loan payable over the remainder of the original term. There is no conversion
fee, and the fixed interest rate is indexed to the then current required net
yield for loans sold to the Federal National Mortgage Association ("FNMA").
Originations in 1992, 1993 and early 1994 included significant refinancing
activity that was generated by low market interest rates. Higher interest rates
in 1994 curtailed refinancing activity for the year. Consequently, total lending
volumes in 1994 were below those in the prior year.
All of the Company's residential mortgage lending is subject to
non-discriminatory underwriting standards, and most is subject to loan
origination and documentation procedures acceptable to the secondary market.
Residential loans are originated using standard FNMA and Federal Home Loan
Mortgage Corporation ("FHLMC") applications and appraisal forms. All loans are
subject to underwriting review and approval by various levels of Company
personnel, depending on the size of the loan. Residential loan applications come
in through various channels, primarily the Company's loan centers and financial
centers. However, all residential real estate loans are currently originated by
WMB.
Mortgage insurance currently is required on all residential real estate
loans originated at a loan-to-value ratio of 90 percent and above. Any
exceptions must be reported to the Board of Directors of WMB. As of Dec. 31,
1994, 4 percent of the residential real estate loan portfolio had loan-to-value
ratios of 90 percent or above at origination and were without mortgage
insurance.
The Company from time to time, depending upon its asset and liability
management strategy, converts a portion of its 15-year and 30-year, fixed-rate
mortgage production into either FHLMC participation certificates, Government
National Mortgage Association ("GNMA") mortgage-backed securities or FNMA
conventional mortgage-backed securities, primarily for sale in the secondary
market. This securitization of its loans provides the Company with increased
liquidity both because the mortgage securities are more readily marketable than
the underlying loans and can be used as collateral for borrowing.
In addition to interest earned on loans, the Company receives fees for
originating loans and for providing loan commitments. The Company also charges
fees for loan modifications, late payments, changes of property ownership and
other miscellaneous services. Fees received in connection with loan originations
are deferred and amortized into interest income over the life of the loan. The
Company also receives fees for servicing loans for others.
Primarily as a result of recent acquisitions, the size of the Company's
residential loan portfolio increased dramatically. While there has been some
shifting in the geographic dispersal of the portfolio toward California and
other states, the bulk of the Company's residential loan portfolio remains
focused in Washington and Oregon (95 percent of the portfolio at Dec. 31, 1994).
Although the residential loans made by Pacific First and Pioneer were not
underwritten according to the specific guidelines of the Company, they generally
were underwritten to conform to FNMA and FHLMC standards.
Residential real estate loans totaled $8,004.3 million or 64 percent of the
loan portfolio at Dec. 31, 1994, compared with $6,680.5 million or 61 percent a
year earlier.
Residential Construction Loans
Washington Mutual provides financing for two different categories of
residential construction loans. A custom construction loan is made to the
intended occupant of a house to finance its construction. Speculative
construction loans are made to borrowers who are in the business of building
homes for resale. Speculative construction loans are made on a house-by-house
basis and not as lines of credit to builders. Nevertheless, they involve
somewhat more risk than custom construction loans and involve different
underwriting considerations. All construction loans require approval by various
levels of Company personnel, depending on the size of the loan. Construction
loans for nonconforming residential properties (properties other than single-
family detached houses) are subject to more stringent approval requirements.
Residential construction loans totaled $516.5 million or 4 percent of the
loan portfolio at Dec. 31, 1994, compared with $409.8 million or 4 percent a
year ago.
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Commercial Real Estate Loans
The Boards of Directors of both WMB and FSB have adopted lending policies
that generally limit future commercial real estate loan originations to
Washington, Oregon, Idaho, Utah, Montana and contiguous states. The Company's
existing loan portfolio is principally concentrated in Washington, Oregon and
California.
In all commercial real estate lending, the Company considers the location,
marketability and overall attractiveness of the project. Washington Mutual's
current underwriting guidelines for commercial real estate loans require an
economic analysis of each property with regard to the annual revenue and
expenses, debt service coverage and fair market value to determine the maximum
loan amount. Commercial real estate loans require approval at various levels of
Company personnel, depending on the size of the loan.
Commercial real estate lending generally entails greater risks than
residential mortgage lending. Commercial real estate loans typically involve
large loan balances concentrated with single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by
income-producing properties usually depends on the successful operation of the
related real estate project and thus may be subject, to a greater extent, to
adverse conditions in the real estate market or in the economy generally. In
recent years, commercial real estate values in many areas of the country have
substantially declined. This was the case in Texas as a result of economic
conditions caused by the problems in energy related businesses and, more
recently, in Arizona and California as a result of an overbuilt market and weak
economies.
During the past few years, Washington Mutual has shifted its commercial
real estate lending to focus on small-to-medium size apartment lending ($2.5
million or less). During 1994, originations of apartment loans totaled $92.1
million, up from $71.8 million during 1993. Other commercial real estate lending
totaled $23.0 million versus $94.0 million for the same time periods. In 1993,
two commercial loans with a combined value of $65.0 million were made to the
parent company of Pacific First as part of the acquisition. (By year-end 1993,
both loans had been paid off.) At Dec. 31, 1994, loans on apartment buildings
totaled $947.3 million and loans on other commercial real estate totaled $728.1
million or a combined 13 percent of total loans.
In order to monitor its commercial real estate loan portfolio, the Company
periodically (i) inspects real estate collateral based on the loan risk
classification, the loan size and the location of the collateral; (ii) analyzes
the economic condition of markets in which the Company has a geographic
concentration; and (iii) reviews operating statements and rent rolls for all the
properties, updated financial and tax statements of borrowers, evidence of
insurance coverage and evidence that real estate taxes have been paid. These
procedures are designed to analyze the economic viability of the property and to
determine whether or not the debt service coverage and loan-to-value ratios
remain consistent with the Company's underwriting policies. It is the intention
of management to perform a continual review of the commercial real estate loan
portfolio in light of the condition of the real estate market. Based upon the
above procedures, the Company classifies loans that fall below underwriting
standards into various risk or watch categories.
In October 1992, responsibility for the monitoring of all commercial real
estate loans in California was transferred to Washington Mutual's Special
Credits department. At the time of the Pacific First and Pioneer business
combinations, the department undertook a complete review of all properties
located in California (including acquired loans) and revised its risk
assessments of some of these loans. (See "Management's Discussion and Analysis
of Financial Position and Results of Operations -- Provision for Loan Losses and
Reserve for Loan Losses.")
The acquisition of Pacific First and the merger with Pioneer added
approximately $966.1 million and $32.2 million, respectively, to the Company's
commercial real estate loan portfolio. The acquisition of Pacific First
increased the commercial real estate portfolio in California by approximately
one-third or $90.0 million. The Company's Special Credits department closely
monitors this portfolio and regularly revises risk assessments. The Company
believes that, although they do not conform to its guidelines, the commercial
real estate loans acquired from Pacific First were generally underwritten
according to standards and procedures that are acceptable to management.
As of Dec. 31, 1994, loans within Washington and Oregon accounted for 81
percent of the commercial real estate portfolio and loans on multi-family
projects comprised 57 percent of the portfolio.
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Commercial real estate loans totaled $1,675.4 million or 13 percent of the
total loan portfolio at Dec. 31, 1994, compared with $1,828.3 million or 17
percent a year earlier.
Manufactured Housing, Second Mortgage and Other Consumer Loans
The Company offers consumer loan programs in Washington, Oregon and Idaho
that include the following: (i) manufactured housing loans; (ii) second mortgage
loans for a variety of purposes including purchase, renovation, or remodeling of
property, and for uses unrelated to the security; (iii) loans for the purchase
of automobiles, pleasure boats and recreational vehicles; (iv) student loans;
and (v) loans for general household purposes, including loans made under
Washington Mutual's secured line of credit programs. Consumer loans, in addition
to being an important part of the Company's orientation toward consumer
financial services, promote greater net interest income stability because of
their somewhat shorter maturities and faster prepayment characteristics. The
size of the consumer loan portfolio has grown rapidly in recent years. Lending
in this area may involve special risks, including decreases in the value of
collateral and transaction costs associated with foreclosure and repossession.
Consumer loans are generally secured loans and are made based on an
evaluation of the collateral and the borrower's creditworthiness, including such
factors as income, other indebtedness and credit history. Secured consumer loan
amounts typically do not exceed 80 percent of the value of the collateral, less
the outstanding balance of any first-mortgage loan. Manufactured housing loans
do not exceed 90 percent of the value of the collateral plus taxes and other
costs. Additional limitations may be based on the customer's income, credit
history and other factors showing creditworthiness, and lines of credit are
subject to periodic review, revision and, when deemed appropriate by the
Company, cancellation as a result of changes in the borrower's financial
circumstances.
As a result of the acquisition of Pacific First, the amount of loans in the
Company's portfolio that were originated for the purchase of recreational
vehicles, pleasure boats and automobiles increased. While Washington Mutual is
authorized to make these loans, they have not been a significant part of the
Company's consumer loan business in recent years. As of Dec. 31, 1994, the
Company's portfolio included $112.7 million of recreational vehicle loans, $68.8
million of boat loans and $43.4 million of automobile loans. Additionally, a
significant number of the Pacific First recreational vehicle and boat loans are
for amounts greater than $100,000. These large recreational vehicle and boat
loans carry increased risk, and this risk was considered in determining the
level of the reserve for loan losses acquired from Pacific First. The merger
with Pioneer did not have a material effect on the Company's consumer loan
portfolio.
Consumer loans totaled $2,336.0 million or 19 percent of the loan portfolio
at Dec. 31, 1994, compared with $2,081.2 million or 19 percent a year earlier.
Commercial Credits
The Company's commercial credits include high-yield bonds in which the
Company invested between 1986 and 1988. The market for high-yield bonds
virtually evaporated during early 1990. At that time, the Company reclassified
these investments to the commercial credits portion of its loan portfolio. At
Dec. 31, 1994, commercial business loans resulting from acquisitions comprised
the majority of commercial credits.
Commercial credits totaled $2.4 million or less than 0.1 percent of
Washington Mutual's loan portfolio at Dec. 31, 1994, down from $6.6 million a
year earlier.
ASSET QUALITY
Banks are required to review their assets on a regular basis and to
classify them if any weaknesses are noted. Adequate reserves must be maintained
for assets classified as substandard or doubtful. Any assets classified as loss
must be immediately written-off. Washington Mutual has a comprehensive process
for classifying assets and asset reviews are performed on a quarterly basis. The
objective of the review process is to identify any trends and determine the
levels of loss exposure to evaluate the need for an adjustment to the reserve
accounts. Classified assets consist of nonaccrual loans, loans under
foreclosure, real estate owned
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("REO") and performing loans and securities that exhibit credit quality
weaknesses. Certain performing loans included in classified assets meet the
criteria of troubled debt restructurings because of modifications to loan terms.
The principal measures of asset problems are the levels of nonaccruing
loans, loans under foreclosure and REO, the size of the provision for loan
losses, loan charge-offs and the size of the write-downs in the value of REO.
Management ceases to accrue interest income on any loan that becomes 90
days or more delinquent and reserves all interest accrued up to that time. In
addition, when circumstances indicate concern as to the future collectibility of
the principal of a commercial real estate loan, management stops accruing
interest on the loan, whether or not it has reached the 90-day delinquency
point. Thereafter, interest income is accrued only if and when, in management's
opinion, projected cash proceeds are deemed sufficient to repay both principal
and interest. All loans on which interest is not being accrued are referred to
as loans on nonaccrual status.
Nonperforming loans include loans on which payment is 90 days or more
delinquent and loans that are under foreclosure (a category that includes
properties for which decrees of foreclosure have been granted but that are held
under sheriffs' certificates pending expiration of the borrowers' redemption
rights).
Real estate that served as security for a defaulted loan and that became
REO is recorded on the Company's books at the lower of the outstanding loan
balance (net of any reserves charged-off) or fair market value, the
determination of which takes into account the effect of sales and financing
concessions that may be required to market the property. If management's
estimate of fair market value at the time a property becomes REO is less than
the loan balance, the loan is written-down at that time by a charge to the
reserve for loan losses.
In 1990, the Company established an REO reserve to provide for inherent
losses that may result from unforeseen market changes in the REO portfolio and
declines in fair market values of properties subsequent to their initial
transfer to REO.
REO properties are analyzed periodically to determine the adequacy of the
REO reserve. Any adjustment in the reserve that results from such evaluations is
either charged or credited to the results of REO operations in the period in
which it is identified. Personal property that has been repossessed is recorded
at the lower of the outstanding loan balance (net of any charge-offs) or fair
market value at the time the property was repossessed.
(See "Management's Discussion and Analysis of Financial Position and
Results of Operations -- Asset Quality" for further discussion.)
PROVISION FOR LOAN LOSSES AND RESERVE FOR LOAN LOSSES
In 1990, the Company changed its reserving methodology from a traditional
loan-by-loan analysis of providing for losses to a general reserving method.
General reserves are based upon management's continuing analysis of pertinent
factors underlying the quality of the loan portfolio. These factors include
changes in the size and composition of the portfolio, historical loan loss
trends, industry wide loss experience, and current and anticipated economic
conditions.
As part of the process of determining the adequacy of the reserve for loan
losses, the Company reviews its loan portfolios for specific weaknesses. A
portion of the reserve is then allocated to reflect the potential loss exposure
of those specific weaknesses. When available information confirms that specific
loans or portions thereof are uncollectible, these amounts are charged-off
against the reserve for loan losses. The existence of some or all of the
following criteria will generally confirm that a loss has been incurred: the
loan is significantly delinquent and the borrower has not evidenced the ability
or intent to bring the loan current; the Company has no recourse to the
borrower, or if it does, the borrower has insufficient assets to pay the debt;
or the fair market value of the loan collateral is significantly below the
current loan balance, and there is little or no near-term prospect for
improvement. Residential real estate and consumer loans are not individually
analyzed for loss exposure because of the significant number of loans, their
relatively small balances and historically low level of losses.
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(See "Management's Discussion and Analysis of Financial Position and
Results of Operations -- Provision for Loan Losses and Reserve for Loan
Losses.")
In connection with the acquisition of Pacific First, $46.0 million was
added to the reserve for loan losses. The increase was based on an analysis of
the risks inherent in the loan portfolio acquired from Pacific First.
It is possible that the provision for loan losses may, in the future,
change as a percentage of total loans. The reserve for loan losses is maintained
at a level sufficient to provide for estimated loan losses based on evaluating
known and inherent risks in the loan portfolio. The reserve is based on
management's continuing analysis of the pertinent factors underlying the quality
of the loan portfolio. These factors include changes in the size and composition
of the loan portfolio, actual loan loss experience, current and anticipated
economic conditions, and detailed analysis of individual loans and credits for
which full collectibility may not be assured. The detailed analysis includes
techniques to estimate the fair market value of loan collateral and the
existence of potential alternative sources of repayment. The appropriate reserve
level is estimated based upon factors and trends identified by management at the
time financial statements are prepared, although there can be no assurance that
the reserve level is in fact adequate.
(See "Management's Discussion and Analysis of Financial Position and
Results of Operations -- Provision for Loan Losses and Reserve for Loan Losses"
for further discussion.)
OTHER INVESTMENTS
General
WMI has authority under state law to make any investment, but may be
subject to certain restrictions imposed by the Home Owners' Loan Act ("HOLA").
Under Washington state law, WMB has authority to make any investment deemed
prudent by its Board of Directors, and may invest in commercial paper, corporate
bonds, mutual fund shares, debt and equity securities issued by creditworthy
entities and interests in real estate located inside or outside of Washington
state. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), however, prohibits a state bank (such as WMB) from making or
retaining equity investments that are not permissible for a national bank,
subject to certain exceptions. (See "Regulation and Supervision.") FSB and WMFSB
have authority to make investments specified by HOLA and applicable regulations,
including governmental obligations, investment-grade commercial paper, and
investment-grade corporate debt securities. Under the laws of the states of
Arizona and Washington, respectively, WM Life and Empire have broad authority to
make investments in debt and equity securities subject to applicable reserve
requirements and risk-based capital requirements. (See "Regulation and
Supervision -- Regulation of Nonbanking Affiliates.")
Investments in corporate debt and equity securities have different risks
than investments in real estate loans. The risk of loss upon default of the
borrower is generally greater for corporate debt securities than for real estate
loans. In addition, investments by the Company in debt or equity securities of
an issuer are generally much larger than investments in any particular real
estate loan, resulting in a greater impact on the Company in the event of
default or decline in market value. The Company regularly analyzes these
securities for impairment of value and makes adjustments in their carrying value
or yield as appropriate.
Effective Jan. 1, 1994, Washington Mutual adopted, as required, Statement
of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." This standard required investment
and equity securities to be segregated into the following three categories:
trading, held-to-maturity and available-for-sale.
Trading securities are purchased and held principally for the purpose of
reselling them within a short period of time. Their unrealized gains and losses
are included in earnings.
Investments classified as held-to-maturity are accounted for at amortized
cost, but an institution must have both the positive intent and the ability to
hold those securities to maturity. There are very limited circumstances under
which securities in the held-to-maturity category can be sold without
jeopardizing the cost basis of accounting for the remainder of the securities in
this category. These circumstances include a
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significant deterioration of the issuer's creditworthiness; changes in tax law
that reduce the tax-exempt status of interest on the debt security; major
business combinations that require a significant disposition of assets to
maintain the enterprise's existing interest rate risk or credit risk policy; and
certain changes in statutory or regulatory investment authority or capital
requirements. Any security that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand or general liquidity needs, or similar factors should not be classified
as held-to-maturity. Because of the increase in interest rates during 1994, the
fair value of the portfolio moved from an unrealized gain of $79.4 million at
the beginning of the year to an unrealized loss of $201.9 million at Dec. 31,
1994. Because the Company has the ability and intent to hold these securities to
maturity, this unrealized loss was not recognized in the financial statements
and will not be recognized unless the Company, for some unforeseen reason,
liquidates a portion of the portfolio.
Securities not classified as either trading or held-to-maturity are
considered to be available-for-sale. Unrealized gains and losses on
available-for-sale securities are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until realized. (Under
regulations adopted by the FDIC and OTS during fourth quarter 1994, this
component is not included in regulatory capital calculations.) As of Jan. 1,
1994, a net unrealized gain (on an after-tax basis) of $13.6 million associated
with the available-for-sale securities was included as a separate component of
stockholders' equity. But as interest rates rose during 1994, the fair value of
the available-for-sale portfolio declined resulting in a net unrealized loss (on
an after-tax basis) as of Dec. 31, 1994, of $29.0 million. Further increases in
interest rates will likely result in further deterioration of the market value
of this portfolio.
As of Dec. 31, 1994, the Company's investment portfolio included $2,608.6
million of held-to-maturity securities (with a fair value of $2,406.7 million),
$2,535.0 million of available-for-sale securities and $572,000 of trading
account securities.
(See "Management's Discussion and Analysis of Financial Position and
Results of Operations -- Investment Activities" for further discussion.)
SOURCES OF FUNDS
Savings
Washington Mutual competes with other financial institutions in attracting
savings deposits. WMB accepts deposits at 73 financial centers in Washington
state and FSB accepts deposits at 79 financial centers in Washington state, 76
financial centers in Oregon and three financial centers in Idaho. WMFSB accepts
deposits at one financial center in Oregon. Competition from commercial banks
has been particularly strong due to their extensive branch systems. In addition,
there is strong competition for savings dollars from credit unions, mutual funds
and nonbank corporations, such as securities brokerage companies and other
diversified companies, some of which have nationwide networks of offices.
Generally lower interest rates since 1985 have reduced the attractiveness
of bank deposits for many customers and curtailed the Company's deposit growth.
In recent years, deposit growth has resulted almost exclusively from
acquisitions. At Dec. 31, 1994, the Company's deposits totaled $9,777.9 million.
During 1993, the acquisition of Pacific First and the merger with Pioneer added
approximately $3,831.7 million and $659.5 million in deposits, respectively.
Excluding the balance of acquired deposits at their acquisition date, the
Company's deposits declined $307.6 million from Dec. 31, 1992 to Dec. 31, 1994.
The Company offers traditional passbook and statement savings accounts as
well as checking accounts. In addition, the Company offers money market deposit
accounts ("MMDAs"), with higher minimum balances offering higher yields. At Dec.
31, 1994, there were $2,250.1 million in MMDAs.
Washington Mutual offers a broad range of retail time deposits and, at Dec.
31, 1994, had a total of $4,750.1 million in retail time deposits, of which
$2,124.9 million had original maturities longer than one year. The most popular
time deposit is Investor's Choice, which is a retail time deposit with
maturities available from one to 120 months in any one of three deposit size
categories. Interest rates on Investor's Choice deposits
9
<PAGE> 12
generally increase with increased maturity and amount. At Dec. 31, 1994,
Investor's Choice time deposits totaled $3,817.4 million.
Throughout 1992, 1993 and into 1994, low interest rates on bank deposits
reduced their appeal to consumers, and depositors have tended to move their
money from time deposits to MMDAs and checking accounts. The significant
increase in deposit rates in late 1994 and early 1995 may begin to change this
trend.
In addition to its retail time deposits, the Company offers wholesale time
deposits and brokered deposits. Wholesale time deposits have balances of at
least $100,000 and are primarily sold to institutional investors. At Dec. 31,
1994, there was a total of $619.1 million in wholesale time deposits. Bank
Investment Contracts ("BICs") were offered to qualified employee benefit plans
in the past. At Dec. 31, 1994, deposits included a total of $22.8 million of
BICs. As a result of FDICIA, BICs issued to nongovernmental employee benefit
plans are no longer entitled to deposit insurance protection, and almost no such
plans are currently interested in BICs. From time to time, Murphey Favre brokers
deposits on behalf of WMB. WMB has also sold deposits through various external
brokers but at Dec. 31, 1994, had no such deposits.
Annuities
WM Life and Empire issue fixed-rate annuity contracts. At Dec. 31, 1994,
the outstanding balance of such contracts was $770.1 million. WM Life also
issues variable-rate annuity contracts; at Dec. 31, 1994, the outstanding
balance of such contracts was $29.1 million. All annuity contracts impose a
contractual surrender charge in the event of a customer's withdrawal of funds
within a certain number of years (in the case of most of WM Life's fixed-rate
annuity contracts, five years) after the date of such customer's contribution of
funds to the annuity contract.
Borrowings
In addition to accepting deposits, the Company borrows funds. Borrowings
include the sale of securities subject to repurchase agreements, the purchase of
federal funds, the issuance of mortgage-backed bonds or notes, capital notes and
other types of debt securities, and funds obtained as advances from the Federal
Home Loan Bank of Seattle ("FHLB"). The Company also has access to the Federal
Reserve Bank's discount window. Under Washington state law, WMB may borrow up to
30 percent of total assets, but sales of securities subject to agreements to
repurchase are not deemed borrowings under such law, and borrowings from
federal, state or municipal governments, agencies or instrumentalities thereof
also are not subject to the 30 percent limit.
The Company actively engages in repurchase agreements with authorized
broker-dealers and major customers selling U.S. government and corporate
securities and mortgage-backed securities under agreements to repurchase them at
a future date. As of Dec. 31, 1994, the Company had $2,595.7 million of such
borrowings.
During 1994, WMB, WMFSB and WM Life joined FSB as members of the FHLB. As
members, a company maintains a credit line that is a percentage of its total
regulatory assets, subject to collateralization requirements. At year end, WMB,
WM Life and FSB had credit lines of 12 percent, 20 percent and 35 percent of
total regulatory assets, respectively. WMFSB did not have a credit line. At Dec.
31, 1994, advances under these credit lines totaled $3,737.6 million and are
secured in aggregate by grants of security interests in all FHLB stock owned,
deposits with the FHLB, and certain mortgage loans and deeds of trust and
securities of the U.S. government and agencies thereof.
As part of the acquisition of Pacific First, the Company assumed a $75.0
million note payable to the City of Tampa. The City of Tampa issued capital
improvement revenue bonds in 1988 and invested a portion of the receipts with
Pacific First. The note matures in 1998 and is subject to periodic withdrawals.
In addition to the borrowings discussed above, at Dec. 31, 1994, the
Company was in a position to obtain an additional $3,144.3 million, primarily
through the use of collateralized borrowings and deposits of public funds using
unpledged mortgage-backed securities and other wholesale borrowing sources. (See
"Management's Discussion and Analysis of Financial Position and Results of
Operations -- Liquidity.")
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<PAGE> 13
ASSET AND LIABILITY MANAGEMENT
The long-run profitability of the Company depends not only on the success
of the services it offers to its customers and the quality of its loans and
investments, but also the extent to which its earnings are unaffected by changes
in interest rates. Historically, the Company has had a mismatch between the
maturities of its assets and liabilities because its customers have
traditionally preferred short-term deposits and long-term fixed-rate loans. This
mismatch generally is not a problem when interest rates are stable or declining.
When interest rates increase, however, the interest paid to depositors and on
borrowings tends to rise much more quickly than the interest earned on loans and
investments, reducing the Company's net interest spread and impacting its net
interest income. The Company's asset and liability management strategy attempts
to reduce the risk of a significant decrease in net interest income caused by
interest rate changes without unduly penalizing current earnings.
One means of reducing the effect of interest rate volatility on net
interest income is to shorten asset maturities. In recent years, the Company has
attempted to do this by emphasizing ARMs and short-term consumer loan programs.
During periods of moderate to high market interest rates, originations of ARMs
have been well received by customers. But during periods of low market interest
rates, customers have preferred fixed-rate mortgage loans. At the end of 1990,
52 percent of the Company's residential, residential construction and commercial
real estate mortgage loan portfolio had variable or adjustable rates; at the end
of 1991, 39 percent of such portfolio had variable or adjustable rates. Since
then, the level of the Company's variable or adjustable-rate residential,
residential construction and commercial real estate mortgage loan portfolio has
stayed constant at approximately 40 percent, reflecting the low interest rate
environment throughout much of the period.
Another way to reduce the effect of the volatility of interest rates is to
lengthen liability maturities, which is difficult because of depositors'
preferences for liquidity. This was apparent from the fact that at Dec. 31,
1994, the Company's MMDAs accounted for $2,250.1 million or 25 percent of total
retail deposits and retail time deposits with maturities less than one year
totaled $2,589.0 million or 29 percent of total retail deposits. However, in the
first two months of 1994, the Company did convert approximately $750.0 million
of its short-term FHLB borrowings into FHLB advances with average maturities of
three years.
From time to time, the following strategies may be used by the Company to
reduce its exposure to interest rate risk: the origination of ARMs and the
purchase of adjustable-rate mortgage-backed securities; the sale of fixed-rate
residential mortgage loan production; and the use of derivative instruments,
such as interest rate exchange agreements, interest rate cap agreements and
options on such instruments.
As of Dec. 31, 1994, interest-sensitive assets of $7,081.5 million and
interest-sensitive liabilities of $11,890.7 million were scheduled to mature or
reprice within one year. A conventional measure of interest rate sensitivity for
thrift institutions is to divide the difference between assets maturing or
repricing within one year and total liabilities maturing or repricing within one
year by total assets -- "one-year gap". At Dec. 31, 1994, the Company had
entered into interest rate exchange agreements and interest rate cap agreements
with notional values of $759.0 million and $1,700.0 million, respectively.
Without these instruments the Company's one-year gap at Dec. 31, 1994, would
have been a negative 26.1 percent as opposed to a negative 14.3 percent. (See
"Management's Discussion and Analysis of Financial Position and Results of
Operations -- Interest Rate Risk Management" and "Financial Statements and
Supplementary Data -- Note 14: Interest Rate Risk Management" for a discussion
of the use of derivative instruments.)
ACQUISITIONS
Most of the Company's growth since 1988 has occurred as a result of banking
acquisitions. These acquisitions have generally been into FSB, rather than WMB,
primarily for regulatory reasons. The acquired institutions or branches had
deposits insured through the SAIF, which in the past prevented the acquisition
from being made by WMB, the deposits of which were insured exclusively through
the BIF until the merger with Pioneer. In addition, FSB has had clear regulatory
authority to have branches in Oregon, so acquisitions involving Oregon branches
have been made by FSB.
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<PAGE> 14
The following table summarizes Washington Mutual's acquisitions since the
formation of FSB in April 1988:
<TABLE>
<CAPTION>
Acquisition Name Date Acquired Loans Deposits Assets Branches
- -------------------------------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Columbia Federal Savings Bank and
Shoreline Savings Bank April 29, 1988 $551.0 $555.0 $752.6 26
Old Stone Bank(1) June 1, 1990 229.5 292.6 294.0 7
Frontier Federal Savings Association June 30, 1990 -- 95.6 -- 6
Williamsburg Federal Savings Bank(2) Sept. 14, 1990 -- 44.3 -- 3
VanFed Bancorp July 31, 1991 200.1 253.4 260.7 7
CrossLand Savings, FSB(2) Nov. 8, 1991 -- 185.4 -- 15
Sound Savings and Loan Association Jan. 1, 1992 16.8 20.5 23.5 1
World Savings and Loan Association(2) March 6, 1992 -- 37.8 -- 2
Great Northwest Bank April 1, 1992 603.2 586.4 710.4 17
Pioneer Savings Bank(3) March 1, 1993 624.5 659.5 926.5 17
Pacific First Bank April 9, 1993 3,770.7 3,831.7 5,861.3 129
Far West Federal Savings Bank(4) April 15, 1994 -- 42.2 -- 3
Summit Savings Bank(3) Nov. 14, 1994 127.5 169.3 188.1 4
</TABLE>
(1) This was an acquisition of selected assets and liabilities.
(2) The acquisition was of branches and deposits only. The only assets acquired
were branch facilities or loans collateralized by acquired savings deposits.
(3) This was a merger into WMB.
(4) Reflects purchase of three branches by WMFSB, two of which were subsequently
sold to FSB.
(See "Financial Statements and Supplementary Data -- Note 25: Acquisitions"
for a discussion of the accounting treatment of the acquisition of Pacific First
and the merger with Pioneer.)
On July 25, 1994, Washington Mutual announced the signing of a merger
agreement with Olympus Capital Corporation, of Salt Lake City, Utah ("Olympus"),
the holding company of Olympus Bank. At Dec. 31, 1994, Olympus (on a
consolidated basis) had assets of $392.3 million, deposits of $286.6 million and
stockholders' equity of $35.0 million. Olympus Bank operates nine branches in
Utah, as well as one branch and a satellite facility in Butte, Montana. Under
the terms of the transaction, Olympus Bank will merge into WMFSB. Approvals from
banking regulators and the Olympus shareholders are anticipated during the
second quarter of 1995.
EMPLOYEES
The number of full-time equivalent employees at the Company decreased from
4,697 at Dec. 31, 1993, to 4,371 at Dec. 31, 1994. The reductions were primarily
at financial centers, loan centers and in lending administration, and reflected
lower levels of lending activity during 1994. The Company believes that it has
been successful in attracting quality employees and believes its employee
relations to be excellent.
TAXATION
For federal income tax purposes, the Company reports its income and
expenses using the accrual method of tax accounting and uses the calendar year
as its tax year. Except for the bad debt reserve deduction and interest expense
rules pertaining to certain tax exempt income applicable to banks, the Company
is subject to federal income tax, under existing provisions of the Code, in
generally the same manner as other corporations.
The state of Washington does not currently have a net income tax. A
business and occupation tax based on a percentage of gross receipts is assessed
on businesses. Currently, interest received on loans secured by first mortgages
or deeds of trust on residential properties is not subject to such tax. However,
it is possible that legislation will be introduced which would repeal or limit
this exemption.
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<PAGE> 15
The state of Oregon has a corporate income tax which is imposed on the
privilege of doing business in the state. Although Oregon does not permit
taxpayers to carry back net operating losses, it does permit such losses to be
carried forward to offset future years' taxable income for a period of up to
eight years. As the Company's operations in Oregon increase, the Oregon
corporate income tax has an increasing impact on the Company's financial
results.
If and to the extent the Company carries on activities in other states, it
may in certain circumstances be subject to such states' tax laws.
ENVIRONMENTAL REGULATION
The business of the Company is affected from time to time by federal and
state laws and regulations relating to hazardous substances. Under the federal
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), owners and operators of properties containing hazardous substances
may be liable for the costs of cleaning up the substances. CERCLA and similar
state laws can affect the Company both as an owner of branches and other
properties used in its business and as a lender holding a security interest in
property which is found to contain hazardous substances. While CERCLA contains
an exemption for holders of security interests, the exemption is not available
if the holder participates in the management of a property, and some courts have
broadly defined what constitutes participation in management of a property.
Moreover, CERCLA and similar state statutes can affect the Company's decision of
whether or not to foreclose on a property. Before foreclosing on commercial real
estate, it is the Company's general policy to obtain an environmental report,
thereby increasing the costs of foreclosure. In addition, the existence of
hazardous substances on a property securing a troubled loan may cause the
Company to elect not to foreclose on the property, thereby reducing the
Company's flexibility in handling the loan.
REGULATION AND SUPERVISION
General
WMI, in its capacity as a savings and loan holding company, is subject to
regulation by the OTS. WMB is subject to regulation and supervision by the
Director of the Department of Financial Institutions of the State of Washington
("State Director"). Its deposit accounts are insured by the FDIC, primarily
through the BIF and, as a result of the mergers with Pioneer and Summit Savings
Bank ("Summit"), partially through the SAIF. The FDIC undertakes examination and
regulation of WMB and other state-chartered banks that are not members of the
Federal Reserve system ("Non-Fed Banks"). Federal and state laws and regulations
govern, among other things, investment powers, deposit activities, borrowings,
maintenance of guaranty funds and retained earnings. FSB and WMFSB are subject
to extensive regulation and examination by the OTS, which is their primary
federal regulator. Their deposit accounts are insured through the SAIF by the
FDIC, which also examines and regulates FSB and WMFSB. Because it owns FSB, WMB
is also a savings and loan holding company.
The description of statutory provisions and regulations applicable to
depository institutions, insurance companies, securities companies and their
holding companies set forth in this annual report does not purport to be a
complete description of the statutes and regulations mentioned herein, nor of
all such statutes and regulations.
Holding Company Regulation
WMI is a multiple savings and loan holding company, as defined by federal
law, because it owns three savings associations -- WMB, FSB and WMFSB. WMB has
elected to be treated as a savings association for purposes of the federal
savings and loan holding company law. WMB is a unitary savings and loan holding
company, as defined by federal law, because it owns one savings association,
FSB. (See "Washington Mutual's Operating Subsidiaries.") In order for WMI and
WMB to avoid certain regulatory restrictions, each of their savings association
subsidiaries must remain a qualified thrift lender ("QTL"), meaning generally
that at least 65 percent of a specified asset base must consist of certain
assets related to domestic residential real estate. Failure by a savings
association to remain a QTL would restrict its holding company's activities and
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<PAGE> 16
restrict the association's ability, among other things, to branch, to pay
dividends, and to obtain advances from the FHLB. WMB, FSB and WMFSB are each
currently in compliance with QTL standards. Moreover, FSB must merge with WMFSB
or WMB prior to Sept. 30, 1996, in order to avoid certain regulatory
restrictions on the activities of the Company under current law.
HOLA and OTS regulations require WMI and WMB, as savings and loan holding
companies, to file periodic reports with the OTS. In addition, they must observe
such recordkeeping requirements as the OTS may prescribe and are subject to
holding company examination by the OTS. The OTS may take enforcement action if
the activities of a savings and loan holding company constitute a serious risk
to the financial safety, soundness, or stability of a subsidiary savings
association. FSB and WMFSB, as holding company subsidiaries that are members of
the SAIF, are subject to both qualitative and quantitative limitations on the
transactions they conduct with WMI and its other subsidiaries.
The FDIC has authority to require FDIC-insured banks and savings
associations to reimburse the FDIC for losses incurred by the FDIC in connection
with the default of a commonly controlled depository institution or with the
FDIC's provision of assistance to such an institution. Institutions are commonly
controlled if they are controlled by the same holding company or if one
depository institution controls another depository institution (as WMB controls
FSB and WMI controls WMB, FSB and WMFSB).
State Regulation and Supervision
Savings banks in Washington, such as WMB, are empowered by state statute to
take deposits and pay interest thereon, to make loans on or invest in
residential and other real estate, to make consumer loans, to invest, with
certain limitations, in securities, and to offer various trust and banking
services to their customers. (See "General" and "Washington Mutual's Operating
Subsidiaries.") Under state law, savings banks in Washington also generally have
all of the powers that federal mutual savings banks have under federal laws and
regulations.
FDIC Insurance
Deposits in WMB, FSB and WMFSB are separately insured by the FDIC to the
applicable maximum limits in each institution. The FDIC administers two separate
deposit insurance funds. The SAIF is a deposit insurance fund for most savings
associations, such as FSB and WMFSB. The BIF is a deposit insurance fund for
commercial banks and state-chartered banks such as WMB.
In the past, the annual assessment for FDIC insurance was a specified
percentage of the insured institution's total amount of deposits as adjusted
under the statute. FDICIA, however, required the FDIC to develop a deposit
insurance system, under which the assessment rate for an insured depository
institution would vary according to the level of risk it poses to the BIF or
SAIF. The FDIC adopted a risk-based system, which went into effect on Jan. 1,
1994. This system bases an institution's risk category partly upon whether the
institution is well capitalized, adequately capitalized, or less than adequately
capitalized. (See "Regulation and Supervision -- Capital Requirements.") Each
insured depository institution is also assigned to one of three supervisory
subgroups based on reviews by the institution's primary federal or state
regulator, statistical analyses of financial statements, and other information
relevant to gauging the risk posed by the institution. Based on its capital and
supervisory subgroups, each institution is assigned an annual FDIC assessment
rate varying between 0.23 percent of total adjusted deposits and 0.31 percent of
total adjusted deposits. All of Washington Mutual's banking subsidiaries qualify
for the 0.23 percent or lowest rate. Regardless of the potential risk to the
insurance fund, FDICIA prohibits assessment rates from falling below the current
assessment rate of 23 cents per $100 of eligible deposits if the insurance fund
has outstanding borrowings from the U.S. Treasury Department or the insurance
fund's ratio of reserves to insured deposits is less than 1.25 percent.
In early 1995, the FDIC proposed to amend its regulation on assessments to
establish a new assessment rate schedule varying between 0.04 percent of total
adjusted deposits and 0.31 percent of total adjusted deposits for members of the
BIF to apply to the semiannual period in which the reserve ratio of the BIF
reaches the designated reserve ratio of 1.25 percent of total insured deposits
and to semiannual periods
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<PAGE> 17
thereafter. Based on current projections, the BIF reserve ratio is expected to
reach 1.25 percent of insured deposits between May 1 and July 31, 1995. Such a
reduction in BIF assessment rates would benefit WMB, although WMB will continue
to pay assessments at the SAIF assessment rate on the amount of deposits
received from Pioneer and Summit, increased, for future assessments, by an
imputed growth factor based on the overall growth of WMB's deposits. However,
the assessment rates would not be lowered for SAIF institutions, which include
FSB and WMFSB, and this will place such institutions at a competitive
disadvantage. At Dec. 31, 1994, approximately 36 percent of the Company's
deposits were insured through BIF and 64 percent were insured through SAIF.
Capital Requirements
WMI is not subject to any regulatory capital requirements. However, each of
its subsidiary depository and insurance institutions is subject to various
capital requirements. WMB is subject to FDIC capital requirements, while FSB and
WMFSB are subject to OTS capital requirements.
FDIC regulations recognize two types or tiers of capital: core ("Tier 1")
capital and supplementary ("Tier 2") capital. Tier 1 capital generally includes
common stockholders' equity and noncumulative perpetual preferred stock, less
most intangible assets. Tier 2 capital, which is limited to 100 percent of Tier
1 capital, includes such items as cumulative perpetual preferred stock,
mandatory convertible debt, term subordinated debt and limited life preferred
stock; however, the amount of term subordinated debt and intermediate term
preferred stock (original maturity of at least five years but less than 20
years) that may be included in Tier 2 capital is limited to 50 percent of Tier 1
capital.
The FDIC currently measures an institution's capital using a leverage limit
together with certain risk-based ratios. The FDIC's minimum leverage capital
requirement specifies a minimum ratio of Tier 1 capital to total assets. Most
banks are required to maintain a minimum leverage ratio of at least 4.00 percent
to 5.00 percent. The FDIC retains the right to require a particular institution
to maintain a higher capital level based on an institution's particular risk
profile. WMB, which must consolidate FSB and its other subsidiaries when
calculating capital, has calculated its leverage ratio to be 5.90 percent as of
Dec. 31, 1994.
FDIC regulations also establish a measure of capital adequacy based on
ratios of qualifying capital to risk-weighted assets. Assets are placed in one
of four categories and given a percentage weight -- zero percent, 20 percent, 50
percent or 100 percent -- based on the relative risk of that category. For
example, U.S. Treasury Bills and GNMA securities are placed in the zero percent
risk category, FNMA and FHLMC securities are placed in the 20 percent risk
category, loans secured by one-to-four family residential properties and certain
privately issued mortgage-backed securities are generally placed in the 50
percent risk category, and commercial real estate and consumer loans are
generally placed in the 100 percent risk category. In addition, certain
off-balance sheet items are converted to balance sheet credit equivalent
amounts, and each amount is then assigned to one of the four categories. Under
the guidelines, the ratio of total capital (Tier 1 capital plus Tier 2 capital)
to risk-weighted assets must be at least 8.00 percent, and the ratio of Tier 1
capital to risk-weighted assets must be at least 4.00 percent. WMB (consolidated
with FSB and its other subsidiaries) has calculated its total risk-based ratio
to be 11.89 percent as of Dec. 31, 1994, and its Tier 1 risk-based capital ratio
to be 10.97 percent. In evaluating the adequacy of a bank's capital, the FDIC
may also consider other factors that may affect a bank's financial condition.
Such factors may include interest rate risk exposure, liquidity, funding and
market risks, the quality and level of earnings, concentration of credit risk,
risks arising from nontraditional activities, loan and investment quality, the
effectiveness of loan and investment policies, and management's ability to
monitor and control financial operating risks.
The OTS requires savings associations, such as FSB and WMFSB, to meet each
of three separate capital adequacy standards: a core capital leverage
requirement, a tangible capital requirement and a risk-based capital
requirement. OTS regulations require savings associations to maintain core
capital (which may include, for a limited time, certain amounts of qualifying
supervisory goodwill) of at least 3.00 percent of assets and tangible capital
(excluding all goodwill) of at least 1.50 percent of assets. As of Dec. 31,
1994, FSB's core capital and tangible capital ratios were 7.29 percent and 7.24
percent, respectively, and WMFSB's
15
<PAGE> 18
ratios were 14.90 percent and 14.90 percent, respectively. Most savings
institutions are required to maintain a minimum leverage ratio of at least 4.00
percent. As of Dec. 31, 1994, the leverage capital ratio of FSB was 7.29 percent
and for WMFSB it was 14.90 percent. OTS regulations incorporate a risk-based
capital requirement that is designed to be no less stringent than the capital
standard applicable to national banks and is modeled in many respects on, but
not identical to, the risk-based capital requirements adopted by the FDIC. These
regulations require a core risk-based capital ratio of at least 4.00 percent and
a total risk-based capital ratio of at least 8.00 percent. As of Dec. 31, 1994,
FSB had core risk-based and total risk-based capital ratios of 12.13 percent and
12.56 percent, respectively, and WMFSB's ratios were 109.97 percent and 109.97
percent, respectively. The extraordinary high ratios for risk-based capital
ratios for WMFSB result from the fact that the majority of WMFSB's assets are
GNMA mortgage-backed certificates which receive a zero risk weight.
FDICIA created a statutory framework that increased the importance of
meeting applicable capital requirements. For WMB, FSB and WMFSB, FDICIA
establishes five capital categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. An institution's category depends upon where its capital
levels are in relation to relevant capital measures, which include a risk-based
capital measure, a leverage ratio capital measure, and certain other factors.
The federal banking agencies (including the FDIC and the OTS) have adopted
regulations that implement this statutory framework. Under these regulations, an
institution is treated as well capitalized if its ratio of total capital to
risk-weighted assets is 10 percent or more, its ratio of core capital to
risk-weighted assets is 6 percent or more, its ratio of core capital to adjusted
total assets is 5 percent or more and it is not subject to any federal
supervisory order or directive to meet a specific capital level. In order to be
adequately capitalized, an institution must have a total risk-based capital
ratio of not less than 8.00 percent, a Tier 1 risk-based capital ratio of not
less than 4.00 percent, and a leverage ratio of not less than 4.00 percent. Any
institution which is neither well capitalized nor adequately capitalized will be
considered undercapitalized.
Undercapitalized institutions are subject to certain prompt corrective
action requirements, regulatory controls and restrictions, which become more
extensive as an institution becomes more severely undercapitalized. Failure by
WMB, FSB or WMFSB to comply with applicable capital requirements would, if
unremedied, result in restrictions on their activities and lead to enforcement
actions against WMB by the FDIC or against FSB or WMFSB by the OTS, including,
but not limited to, the issuance of a capital directive to ensure the
maintenance of required capital levels. FDICIA requires the federal banking
regulators to take prompt corrective action with respect to depository
institutions that do not meet minimum capital requirements. Additionally, FDIC
or OTS approval of any regulatory application filed for their review may be
dependent on compliance with capital requirements.
FDICIA required the federal banking agencies (including the FDIC and the
OTS) to revise their risk-based capital guidelines, to take into account
interest rate risk, concentration of credit risk, and risks associated with
nontraditional activities. It also requires the guidelines to reflect the actual
performance and expected risk of loss of multi-family mortgages. These
provisions will affect the capital standing of all institutions, and may result
in a need for increased capital. However, the ultimate effect of FDICIA
risk-based capital provisions cannot be determined until final implementing
regulations are adopted.
On Sept. 14, 1993, the FDIC and some other federal banking agencies (not
including the OTS) requested public comment on a proposal to modify their
existing risk-based capital standards to take adequate account of interest rate
risk when assessing the capital adequacy of the institution and published
corrections to this proposal on Oct. 12, 1993. The proposal addressed the
measurement of interest rate risk exposure as changing market interest rates
affect the net economic value of an institution's assets, liabilities and off-
balance sheet positions. In the measurement of an institution's interest rate
risk exposure, the proposed rule used: (i) a quantitative screen to exempt low
risk institutions from additional reporting requirements; (ii) an institution's
approved internal risk measurement model where available; and (iii) a basic
supervisory model to be used by examiners to evaluate the adequacy of an
internal model, or in order to measure risk when an internal model does not
exist. The agencies requested comment on two alternative methods for determining
the amount of additional capital required for interest rate risk. The minimum
capital standard approach would reduce an institution's risk-based capital ratio
based on risk exposure in excess of a supervisory threshold. The
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<PAGE> 19
risk assessment approach would assess the need for capital on a case-by-case
basis based upon the level of measured exposure and qualitative risk factors.
The OTS has adopted a rule, to be implemented as of March 31, 1995,
incorporating an interest rate risk component into the risk-based capital
requirement for savings associations such as FSB and WMFSB. Under this rule, an
institution's interest rate risk is measured by the decline in net portfolio
value ("NPV") resulting from a hypothetical 200 basis point increase or decrease
in interest rates (whichever leads to the lower NPV) divided by the estimated
economic value of its assets. An institution would be required to make a
deduction from total capital for purposes of calculating its risk-based capital
if a decline in its NPV (resulting from a 200 basis point shock) exceeds 2
percent of its assets (expressed in present value terms). Such an institution
will be required to deduct from its total risk-based capital an amount equal to
one-half of the difference between its measured interest rate risk and 2
percent, multiplied by the estimated economic value of its assets. Management
has analyzed the effect of the regulation and believes that the effect of
including such an interest rate risk component in the calculation of
risk-adjusted capital will not cause either FSB or WMFSB to cease to be well
capitalized.
As a condition of its acquisition of FSB, WMB agreed that it would cause
the regulatory capital of FSB to be maintained at levels consistent with
applicable regulations. (See "Supervision and Regulation -- Regulatory
Restrictions on WMSB.")
Legal Restrictions on Dividends of Depository Institutions
A depository institution such as WMB, FSB or WMFSB may not make a capital
distribution if, following such distribution, the association will be
undercapitalized under the FDICIA provisions described above. In addition,
Washington state law prohibits WMB from declaring or paying a dividend greater
than its retained earnings or if doing so would cause its net worth to be
reduced below (i) the amount required for the protection of preconversion
depositors or (ii) the net worth requirements, if any, imposed by the State
Director.
OTS regulations limit the ability of savings associations such as FSB or
WMFSB to pay dividends and make other capital distributions according to the
institution's level of capital and income, with the greatest flexibility
afforded to institutions that meet or exceed their OTS capital requirements.
Under current OTS regulations, a savings association that exceeds its OTS
regulatory capital requirements both before and after a proposed dividend (or
other distribution of capital) and has not been advised by the OTS that it is in
need of more than normal supervision may, after prior notice to but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100 percent of its income during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the institution's
excess capital over its capital requirements) at the beginning of the calendar
year or (ii) 75 percent of its net income over the most recent four-quarter
period. In addition, such an institution may make capital distributions in
excess of the foregoing limits if the OTS does not object within a 30-day period
following notice by the institution.
A savings association that would not meet OTS capital requirements
following payment of a dividend is subject to additional restrictions. It is not
anticipated that FSB or WMFSB will pay any dividend that would cause them to
fail to meet OTS capital requirements.
FDIC and OTS Regulation and Examination
The FDIC has adopted regulations to protect the deposit insurance funds and
the customers of FDIC-insured institutions. These regulations cover various
subjects including advertising, forms of insured accounts, and shifting between
the BIF and SAIF funds. The FDIC has also adopted numerous regulations to
protect the safety and soundness of Non-Fed Banks in particular. These
regulations cover a wide range of subjects including financial reporting, change
in bank control, affiliations with securities firms and capital requirements. In
certain instances, these regulations restrict the exercise of powers granted by
state law.
An FDIC regulation and a joint FDIC/OTS policy statement place a number of
restrictions on the activities of WMB's securities and insurance affiliates, and
on such affiliates' transactions with WMB, FSB
17
<PAGE> 20
and WMFSB. These restrictions include requirements that such affiliates follow
practices and procedures to distinguish them from WMB, FSB and WMFSB and that
such affiliates give customers notice from time to time of this distinction and
of the distinction between deposits and nondeposit products.
FDICIA also prohibits banks such as WMB and their subsidiaries from
exercising certain powers that were granted by state law to make investments or
carry on activities as principal (i.e. for their own account) unless either (i)
national banks have power under federal law to make such investments or carry on
such activities, or (ii) the bank and such investments or activities meet
certain requirements established by FDICIA and the FDIC.
FDICIA imposed new supervisory standards requiring annual examinations,
independent audits, uniform accounting and management standards, and prompt
corrective action for problem institutions. As a result of FDICIA, depository
institutions and their affiliates are subject to federal standards governing
asset growth, interest rate exposure, executive compensation, and many other
areas of depository institution operations. FDICIA contains numerous other
provisions, including reporting requirements and revised regulatory standards
for, among other things, real estate lending.
The FDIC may sanction any Non-Fed Bank that does not operate in accordance
with FDIC regulations, policies and directives. Proceedings may be instituted
against any Non-Fed Bank, or any institution affiliated party, such as a
trustee, director, officer, employee, agent, or controlling person of the bank
who engages in unsafe and unsound practices, including violations of applicable
laws and regulations. The FDIC may revalue assets of an institution, based upon
appraisals, and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets. The State Director has similar authority under Washington state law and
the OTS has similar authority under HOLA. The FDIC has additional authority to
terminate insurance of accounts, after notice and hearing, upon a finding that
the insured institution is or has engaged in any unsafe or unsound practice that
has not been corrected, or is operating in an unsafe or unsound condition, or
has violated any applicable law, regulation, rule, or order of or condition
imposed by the FDIC.
Federal savings institutions, such as FSB and WMFSB, are subject to
regulatory oversight and examination by the OTS and the FDIC. HOLA and OTS
regulations delimit such institutions' investment and lending powers. Federal
savings institutions may not invest in noninvestment-grade debt securities, nor
may they generally make equity investments, other than investments in service
corporations.
Federal law and regulations require FSB and WMFSB to maintain, for each
calendar month, an average daily balance of liquid assets equal to not less than
5 percent of its average daily balance of total savings accounts and borrowings
payable in one year or less, subject to certain adjustments for deposit
outflows. This liquidity requirement may be changed from time to time.
Federal regulation of depository institutions is intended for the
protection of depositors (and the BIF and SAIF), and not for the protection of
stockholders or other creditors. In addition, a provision in the Omnibus Budget
Reconciliation Act of 1993 ("Budget Act") requires that in any liquidation or
other resolution of any FDIC-insured depository institution, claims for
administrative expenses of the receiver and for deposits in U.S. branches
(including claims of the FDIC as subrogee of the insured institution) shall have
priority over the claims of general unsecured creditors.
Regulatory Restrictions on WMSB
The regulatory approvals for the acquisitions of Columbia Federal Savings
Bank ("Columbia Federal") and Shoreline Savings Bank by WMSB were subject to
numerous conditions relating to the manner in which WMSB would operate the
acquired institution. Among these conditions were (i) a requirement to maintain
the regulatory capital of the acquired institution at a level consistent with
applicable regulations (see "Regulation and Supervision -- Capital
Requirements"); (ii) restrictions relating to the payment of dividends by the
acquired institution; (iii) a prohibition on causing or encouraging the transfer
or shift of certain deposit accounts from the acquired institution to WMSB; and
(iv) a requirement for advance notice of material changes in the terms under
which WMSB provides administrative services to the acquired institution.
18
<PAGE> 21
Federal Reserve Regulation
Under Federal Reserve Board regulations, WMB, FSB and WMFSB are each
required to maintain reserves against their transaction accounts (primarily
checking and NOW accounts). Because reserves must generally be maintained in
cash or in noninterest-bearing accounts, the effect of the reserve requirements
is to increase an institution's cost of funds. These regulations generally
require that WMB, FSB and WMFSB each maintain reserves against net transaction
accounts in the amount of 3 percent on amounts of $54.0 million or less, plus 10
percent on amounts in excess of $54.0 million. Institutions may designate and
exempt $4.2 million of certain reservable liabilities from these reserve
requirements. These amounts and percentages are subject to adjustment by the
Federal Reserve Board. A savings bank, like other depository institutions
maintaining reservable accounts, may borrow from the Federal Reserve Bank
discount window, but the Federal Reserve Board's regulations require the savings
bank to exhaust other reasonable alternative sources before borrowing from the
Federal Reserve Bank.
Numerous other regulations promulgated by the Federal Reserve Board affect
the business operations of the Company's banking subsidiaries. These include
regulations relating to equal credit opportunity, electronic fund transfers,
collection of checks, truth in lending, truth in savings and availability of
funds.
Community Reinvestment Act
The Community Reinvestment Act ("CRA") requires financial institutions
regulated by the federal financial supervisory agencies to ascertain and help
meet the credit needs of their delineated communities, including low-income and
moderate-income neighborhoods within those communities, while maintaining safe
and sound banking practices. The agencies evaluate an institution's CRA
performance based on a four-tiered descriptive rating system and are required to
make public an institution's rating and written evaluation. The four possible
ratings of meeting community credit needs are outstanding, satisfactory, needs
to improve, and substantial noncompliance.
Many factors play a role in assessing a financial institution's CRA
performance. The institution's regulator must consider its financial capacity
and size, legal impediments, local economic conditions and demographics,
including the competitive environment in which it operates. The evaluation does
not rely on absolute standards and the institutions are not required to perform
specific activities or to provide specific amounts or types of credit.
In November 1993, FSB received an outstanding rating from the OTS. WMB
received a satisfactory rating from the FDIC in December 1992. These ratings
reflect Washington Mutual's commitment to meeting the credit needs of the
communities it serves. The Company maintains a CRA statement for public viewing,
as well as an annual CRA highlights document. These documents describe
Washington Mutual's credit programs and services, community outreach activities,
public comments and other efforts to meet community credit needs.
Recent and Proposed Federal Legislation
Federal legislation was enacted in 1994 which will repeal, effective June
1, 1997, certain restrictions on the establishment of interstate branches by
national banks and state-chartered banks. In addition, one year after the
enactment of the legislation, bank holding companies will be generally permitted
to buy banks in any state. FSB and WMFSB already have authority to establish
interstate branches under current federal law and regulations, so management
expects that such legislation will primarily benefit competitors of the Company.
Various legislative proposals relating to depository institutions have been
or are expected to be introduced in the current session of Congress. These
include proposals which, if enacted, would restrict or further regulate the
sales of mutual funds and annuities by depository institutions or their
affiliates.
Regulation of Nonbanking Affiliates
As insurance companies, WM Life and Empire are subject to comprehensive
regulation and supervision by the states in which they are domiciled (WM Life is
domiciled in the state of Arizona and Empire is
19
<PAGE> 22
domiciled in the state of Washington) as well as the states in which they
transact business. The laws of the various states establish supervisory agencies
with broad administrative and supervisory powers. Such agencies to set standards
related to granting and revoking licenses to transact business, regulation of
trade practices and market conduct, licensing of agents, approval of policy
forms, regulating of certain premium rates, setting of insurance liability and
investment reserve requirements, determining the form and content of required
financial statements, determining the reasonableness and adequacy of capital and
surplus, and prescribing the types and amounts of permitted investments.
Insurance companies are subject to periodic examinations by such supervisory
agencies. State insurance laws and regulations also impose limits on the extent
to which the insurance company subsidiaries may pay dividends or lend or
otherwise supply funds to the Company.
As a broker-dealer registered with the Securities and Exchange Commission
and as a member of the National Association of Securities Dealers ("NASD"),
Murphey Favre is subject to various regulations and restrictions imposed by
those entities, as well as by various state authorities. As a registered
investment advisor, Composite Research is subject to various federal and state
securities regulations and restrictions.
On Dec. 15, 1994, the NASD proposed rules concerning NASD member operations
conducted in branches of depository institutions. Although many of the NASD's
proposed requirements are substantially similar to the joint FDIC/OTS policy
statement governing the activities of WMB's securities affiliates, the NASD
proposal could impose additional restrictions on these affiliates.
COMPETITIVE ENVIRONMENT
Financial institutions operate in a competitive environment. Washington
Mutual competes with commercial banks, other savings banks and associations,
finance companies, money market funds, credit unions and other financial
institutions, some of which have substantially greater financial resources than
the Company. Additionally, the consolidation of the financial institutions
industry in the Northwest in recent years has increased the level of
competition.
Although consolidation has decreased the number of institutions competing
in the Company's market, both thrifts and commercial banks have re-emphasized
their focus on the consumer, making competition for retail deposits and loans
extremely fierce. While the increased competitive pressures make the banking
environment more difficult, the Company remains a strong market force. For 1994,
the Company's originations of residential mortgage loans ranked first in
Washington state and second in Oregon and at Sept. 30, 1994, the Company had 12
percent of total deposits held by commercial banks, thrifts and credit unions in
Washington and Oregon.
20
<PAGE> 23
PRINCIPAL OFFICERS
The following table sets forth certain information regarding the principal
officers of Washington Mutual and its operating subsidiaries. Each officer's
responsibilities include dual officership of WMI and WMB unless otherwise noted
in the table.
<TABLE>
<CAPTION>
Employee of
Principal Officers Age Capacity in Which Served Company Since
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kerry K. Killinger 45 Chairman of the Board of Directors, President and 1983
Chief Executive Officer
William A. 51 Senior Executive Vice President and 1982
Longbrake(1) Chief Financial Officer
Lee D. Lannoye 57 Executive Vice President 1988
Deanna W. Oppenheimer 36 Executive Vice President 1985
Craig E. Tall 49 Executive Vice President 1985
Michael D. Towers 50 Executive Vice President 1986
S. Liane Wilson 52 Executive Vice President 1985
Marc R. Kittner 40 Senior Vice President and Corporate Counsel 1988
Norman H. Swick 45 Senior Vice President and General Auditor 1980
Douglas G. Wisdorf 40 Senior Vice President and Controller 1976
Michael L. Amato 38 Senior Vice President of WMB 1982
Susan C. Barrett 38 Senior Vice President of WMB 1980
Larry R. Bond 60 Senior Vice President of WMB 1965
Jack A. Cornick 49 Senior Vice President of WMB 1965
Alan J. Doman 49 Senior Vice President of WMB 1976
Robert J. Flowers 52 Senior Vice President of WMB 1970
Steven P. Freimuth 38 Senior Vice President of WMB 1988
Lindy J. Friedlander 46 Senior Vice President of WMB 1981
Robert J. Mathison 47 Senior Vice President of WMB 1988
David G. Murphy 44 Senior Vice President of WMB 1972
Gregory D. Newton 43 Senior Vice President of WMB 1992
M. Lynn Ryder 57 Senior Vice President 1974
William L. Lynch 43 Vice President, Corporate Secretary 1982
</TABLE>
(1) As of Feb. 28, 1995, Mr. Longbrake resigned from his position as Senior
Executive Vice President and Chief Financial Officer of WMI to become Chief
Financial Officer and Deputy to the Chairman for Financial Policy at the
FDIC. Washington Mutual will immediately begin a nationwide search for a
chief financial officer which is expected to take three to six months.
Mr. Killinger has been Chairman, President and Chief Executive Officer of
WMI since its organization. He has been Chairman of the Board of Directors of
WMB since 1991 and Chief Executive Officer since 1990. Mr. Killinger became an
Executive Vice President of WMB in 1983, a Senior Executive Vice President of
WMB in 1986 and the President and a director of WMB in 1988.
Mr. Longbrake has been Senior Executive Vice President and Chief Financial
Officer of WMI since its organization. He has been the Chief Financial Officer
of WMB since 1988 and a member of the WMB Executive Committee since its
formation in 1990. Mr. Longbrake became an Executive Vice President and
Treasurer of WMB in 1982 and a Senior Executive Vice President of WMB in 1986.
Mr. Lannoye has been an Executive Vice President of WMI since its
organization. He has been an Executive Vice President of WMB since 1988 and a
member of WMB's Executive Committee since its formation in 1990. In his capacity
as Executive Vice President, Mr. Lannoye is responsible for lending
administration.
21
<PAGE> 24
Ms. Oppenheimer has been an Executive Vice President of WMI since its
organization. She has been an Executive Vice President of WMB since 1993 and a
member of the Executive Committee since its formation in 1990. In this capacity,
Ms. Oppenheimer is responsible for corporate relations and marketing. She has
been an officer of WMB since 1985. She became an Assistant Vice President of WMB
in 1986, a Vice President in 1987 and a Senior Vice President in 1989.
Mr. Tall has been an Executive Vice President of WMI since its
organization. He had been an Executive Vice President of WMB since 1987 and a
member of WMB's Executive Committee since its formation in 1990. In his capacity
as Executive Vice President, Mr. Tall is responsible for corporate development.
Mr. Towers has been an Executive Vice President of WMI since its
organization. He has been an Executive Vice President of WMB since 1986 and a
member of WMB's Executive Committee since its formation in 1990. In his capacity
as Executive Vice President, Mr. Towers is responsible for retail financial
services.
Ms. Wilson has been an Executive Vice President of WMI since its
organization. She has been an Executive Vice President of WMB since 1988 and a
member of WMB's Executive Committee since its formation in 1990. In her capacity
as Executive Vice President, Ms. Wilson is responsible for operations and
administration.
Mr. Kittner has been Senior Vice President, Corporate Counsel and Assistant
Corporate Secretary of WMI since its organization. He has been Senior Vice
President and Corporate Counsel of WMB since 1992. Mr. Kittner joined WMB in
1988 as Vice President and Staff Attorney and became Senior Counsel of WMB in
1989. From 1983 to 1988, Mr. Kittner was an attorney with the law firm of
Preston, Thorgrimson, Holman and Ellis (now Preston, Gates and Ellis).
Mr. Swick has been Senior Vice President and General Auditor of WMI since
its organization. He has been an officer of WMB since 1980. Mr. Swick became a
Vice President in 1984, Senior Vice President in 1988, and General Auditor of
WMB in 1989. In this capacity, he monitors WMI's internal controls and
compliance with all laws and regulations.
Mr. Wisdorf has been Senior Vice President and Controller of WMI since its
organization. Mr. Wisdorf has been Senior Vice President and Controller of WMB
since 1991. In this capacity he serves as principal accounting officer of WMI.
He joined WMB in 1976 and has been an officer since 1978. Since 1986, he has
served as Vice President and Controller.
Mr. Amato has been a Senior Vice President, Retail Financial Services since
1994. He joined WMB in 1982, became an officer in 1987 and a Regional Vice
President in 1991.
Ms. Barrett has served as Senior Vice President since 1993. She joined WMB
in 1980, became an officer in 1984 and Vice President of WMB in 1987.
Mr. Bond has served as a Senior Vice President of WMB since 1988. He became
an officer of WMB in 1965, a Vice President in 1973 and a Regional Vice
President in 1984.
Mr. Cornick has served as a Senior Vice President of WMB since 1988. He
joined WMB in 1965 and has served as an officer since 1971 and a Regional Vice
President since 1984.
Mr. Doman has served as a Senior Vice President of WMB since 1985. He
became an officer of WMB in 1976 and a Vice President in 1978.
Mr. Flowers became a Senior Vice President of WMB in 1991. He joined WMB in
1970 and became a Vice President in 1976.
Mr. Freimuth became a Senior Vice President of WMB in 1991. He joined WMB
in 1988 as a Vice President when WMB acquired Columbia Federal.
Ms. Friedlander has served as a Senior Vice President of WMB since 1988.
She joined WMB in 1981 and has served as an officer since 1982 and a Vice
President since 1984.
22
<PAGE> 25
Mr. Mathison joined WMB in 1988 as Senior Vice President. Mr. Mathison
previously was a Vice President of Peoples National Bank of Washington.
Mr. Murphy has served as a Senior Vice President of WMB since 1988. He
joined WMB in 1972, became an officer in 1976 and a Vice President in 1981.
Mr. Newton became Senior Vice President in 1994. He joined WMB as Vice
President, Portfolio Management in 1992. Previously he was Vice President and
Manager, Investments and Treasury at First Interstate Bank of Washington.
Ms. Ryder has been a Senior Vice President of WMI since its organization.
She has served as Senior Vice President of WMB since 1984. She joined WMB in
1974, became an officer in 1976 and a Vice President in 1978.
Mr. Lynch has been Vice President and Corporate Secretary of WMI since its
organization. He became Vice President of WMB in 1989. He joined WMB in 1982 and
became Corporate Secretary of WMB in 1985.
ITEM 2. PROPERTIES
Washington Mutual's administrative offices are located at 1201 Third
Avenue, Seattle, Washington, 98101 where, as of Dec. 31, 1994, WMB leased
approximately 160,000 square feet pursuant to a lease agreement that terminates
in 2007 with multiple options to renew at WMB's discretion. WMB also leased
approximately 130,000 square feet of space in Seattle in the Second and Seneca
Building and approximately 75,000 square feet in the adjoining building,
pursuant to leases that terminate in 2007, with multiple options to renew at
WMB's discretion. As of Dec. 31, 1994, Washington Mutual's banking subsidiaries
conducted business from 232 financial centers and 22 loan centers in Washington,
Oregon and Idaho. Nonbanking subsidiary operations were conducted in 17
nonfinancial center locations in Washington and Oregon. (See "Financial
Statements and Supplementary Data -- Note 8: Premises and Equipment.")
ITEM 3. LEGAL PROCEEDINGS
Washington Mutual has certain litigation and negotiations in progress
resulting from activities arising from normal operations. In the opinion of
management, none of these matters is likely to have a materially adverse effect
on the Company's financial position.
On March 15, 1993, a lawsuit was filed in Washington state court against
WMSB, WM Financial, Inc. (the holding company for Murphey Favre),Murphey Favre,
and certain present and former directors and officers of Murphey Favre. The
lawsuit concerned claims related to the sale by Murphey Favre between 1987 and
1990 of bonds issued by Homestead Savings of Millbrae, California. During 1994,
the parties negotiated a settlement of the lawsuit, which was subsequently
approved by the court. The Company recognized as expense $5.0 million in
connection with the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR WASHINGTON MUTUAL'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
COMMON STOCK
Washington Mutual's common stock trades on The Nasdaq Stock Market under
the symbol WAMU. As of Dec. 31, 1994, there were 61,970,704 shares issued and
outstanding held by 11,620 shareholders of record.
23
<PAGE> 26
The following table shows the high and low common stock prices by quarter
for the two years ended Dec. 31, 1994, adjusted for the third quarter 1993 50
percent stock dividend:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------
High Low High Low
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $25.00 $19.13 $24.08 $17.92
Second quarter 21.50 18.25 23.00 18.08
Third quarter 21.63 19.63 27.38 22.25
Fourth quarter 20.63 15.75 28.38 22.63
- -------------------------------------------------------------------------------------------------
</TABLE>
Retained earnings of the Company at Dec. 31, 1994, included a bad debt
reserve for tax purposes of approximately $234.3 million for which no federal
income taxes had been provided. In the future, if this tax bad debt reserve is
used to pay dividends or for any other purpose except to absorb bad debt losses,
or if any of the banking subsidiaries do not meet the 60 percent qualified
assets test, the Company will incur a federal income tax liability at the then
prevailing corporate tax rate.
In December 1985, Washington Mutual's Board of Directors declared its first
dividend on common stock of 10 cents per share (before adjustment for the stock
dividends discussed below). In the third quarters of 1987 and 1986, Washington
Mutual's Board of Directors declared a 50 percent stock dividend along with the
continuance of a regular cash dividend on its shares of common stock. In the
first quarter of 1992 and the third quarter of 1993, Washington Mutual's Board
of Directors declared 50 percent stock dividends along with the continuance of
regular cash dividends on its shares of common stock. All four stock dividends
had the effect of three-for-two stock splits. The cash dividends declared by
quarter for the two years ended Dec. 31, 1994, adjusted for the effect of the
third quarter 1993 stock dividend, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
First quarter $0.16 $0.10
Second quarter 0.17 0.11
Third quarter 0.18 0.14
Fourth quarter 0.19 0.15
- ----------------------------------------------------------------------------------------------
</TABLE>
PREFERRED STOCK
9.12% Noncumulative Perpetual Preferred Stock, Series C
Washington Mutual's Series C Preferred Stock trades on The Nasdaq Stock
Market under the symbol WAMUO. The Series C Preferred Stock has a liquidation
preference of $25.00 per share plus dividends accrued and unpaid for the then
current dividend period. Dividends, if and when declared by Washington Mutual's
Board of Directors, are at an annual rate of $2.28 per share. At Dec. 31, 1994,
there were 2,800,000 shares issued and outstanding held by 559 shareholders of
record. The following table shows the high and low stock prices by quarter for
the two years ended Dec. 31, 1994:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------
High Low High Low
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $27.88 $25.75 $27.63 $25.25
Second quarter 26.63 25.13 28.25 27.00
Third quarter 26.25 25.50 28.38 27.00
Fourth quarter 26.13 24.50 28.50 26.63
- -------------------------------------------------------------------------------------------------
</TABLE>
$6.00 Noncumulative Convertible Perpetual Preferred Stock, Series D
Washington Mutual's Series D Preferred Stock trades on The Nasdaq Stock
Market under the symbol WAMUN. The Series D Preferred Stock has a liquidation
preference of $100.00 per share plus dividends accrued and unpaid for the then
current dividend period. Dividends, if and when declared by Washington
24
<PAGE> 27
Mutual's Board of Directors, are at an annual rate of $6.00 per share. At Dec.
31, 1994, there were 1,400,000 shares issued and outstanding held by 20
shareholders of record. The following table shows the high and low stock prices
by quarter for the two years ended Dec. 31, 1994:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------
High Low High Low
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $116.25 $96.75 $111.25 $ 96.75
Second quarter 97.00 90.00 110.50 101.50
Third quarter 96.25 90.63 121.00 110.00
Fourth quarter 93.50 78.50 124.50 112.50
- -------------------------------------------------------------------------------------------------
</TABLE>
7.60% Noncumulative Perpetual Preferred Stock, Series E
Washington Mutual's Series E Preferred Stock trades on The Nasdaq Stock
Market under the symbol WAMUM. The Series E Preferred Stock has a liquidation
preference of $25.00 per share plus dividends accrued and unpaid for the then
current dividend period. Dividends, if and when declared by Washington Mutual's
Board of Directors, are at an annual rate of $1.90 per share. At Dec. 31, 1994,
there were 2,000,000 shares issued and outstanding held by 464 shareholders of
record. The following table shows the high and low prices for the two quarters
the Series E stock traded in 1993 and by quarter for the year ended Dec. 31,
1994:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------
High Low High Low
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $25.50 $23.38 $ -- $ --
Second quarter 23.75 21.88 -- --
Third quarter 23.63 22.50 25.38 24.50
Fourth quarter 23.00 20.50 26.00 24.75
- -------------------------------------------------------------------------------------------------
</TABLE>
PAYMENT OF DIVIDENDS AND POLICY
Payment of future dividends is subject to a declaration by Washington
Mutual's Board of Directors. Factors considered in determining the size of
dividends are the amount and stability of profits, adequacy of capitalization,
and expected asset and deposit growth of its subsidiaries. The dividend policy
of Washington Mutual is also dependent on the ability of WMB, FSB and WMFSB to
make dividends to their respective parent companies, which is influenced by
legal, regulatory and economic restrictions. (See "Business -- Regulation and
Supervision -- Legal Restrictions on Dividends of Depository Institutions.")
25
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
of the Company at and for the years ended December 31:
<TABLE>
<CAPTION>
(dollars in thousands, except for per share
amounts) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $571,225 $529,431 $329,558 $234,061 $193,057
Provision for loan losses 20,000 35,000 14,000 21,627 61,549
Other income 107,838 143,862 90,692 94,475 66,924
Other expense 384,312 369,264 230,896 183,792 166,295
- --------------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary items and cumulative
effect of change in tax accounting
method 274,751 269,029 175,354 123,117 32,137
Income taxes 102,447 93,765 60,247 42,526 20,508
Extraordinary items, net of federal
income tax effect -- (8,953) (4,638) -- --
Cumulative effect of change in tax
accounting method -- 13,365 -- -- --
- --------------------------------------------------------------------------------------------------------
Net income $172,304 $179,676 $110,469 $ 80,591 $ 11,629
========================================================================================================
Net income attributable to common
stock $153,720 $166,118 $105,594 $ 75,716 $ 6,754
========================================================================================================
Net income per common share(1):
Primary $2.54 $2.82 $2.01 $1.65 $0.15
Fully diluted 2.46 2.67 1.91 1.58 0.15
Cash dividend declared per share:
Preferred stock $10.18 $7.56 $3.75 $3.75 $3.75
Common stock(1) 0.70 0.50 0.33 0.24 0.20
Common stock dividend payout ratio 24.50% 15.98% 19.22% 17.35% 83.27%
Return on average assets 1.02 1.31 1.24 1.04 0.15
Return on average stockholders' equity 13.69 16.92 15.16 14.08 2.27
Return on average common stockholders'
equity 14.24 17.73 15.17 14.08 2.27
Assets $18,457,682 $15,827,228 $9,911,602 $7,970,427 $7,659,973
Available-for-sale securities 2,535,018 -- -- -- --
Held-to-maturity securities 2,608,585 4,012,000 2,585,550 2,115,487 2,109,260
Loans:
Residential 8,004,319 6,680,466 4,332,236 3,182,502 3,071,241
Residential construction 516,486 409,789 350,736 326,508 328,262
Commercial real estate 1,675,406 1,828,266 988,712 832,393 826,781
Manufactured housing, second
mortgage and other consumer 2,335,984 2,081,189 1,087,997 940,252 769,940
Commercial credits 2,443 6,606 13,969 22,208 54,381
Reserve for loan losses (128,049) (115,214) (53,970) (52,305) (52,843)
- --------------------------------------------------------------------------------------------------------
12,406,589 10,891,102 6,719,680 5,251,558 4,997,762
========================================================================================================
Deposits 9,777,912 9,351,402 6,058,112 5,410,236 5,009,947
Annuities 799,178 713,383 571,428 433,767 316,884
Borrowings 6,412,301 4,337,262 2,164,224 1,355,541 1,748,588
Preferred stock 252,034 252,053 266,633 63,152 63,151
Stockholders' equity 1,304,568 1,195,704 995,036 658,326 505,506
Stockholders' equity ratio 7.07% 7.55% 10.04% 8.26% 6.60%
Leverage capital ratio 5.90 6.00 9.35 7.57 5.77
Book value per common share(1) $17.58 $16.42 $14.37 $12.00 $10.65
Number of common shares outstanding(1) 61,970,704 60,090,996 53,787,701 49,661,491 42,277,990
Number of preferred shares outstanding 6,200,000 6,200,000 5,494,150 1,300,000 1,300,000
</TABLE>
(1) Net income per common share, cash dividends declared per common share, book
value per common share and number of common shares outstanding for 1992,
1991 and 1990 have been adjusted for the third quarter 1993 and first
quarter 1992 50 percent stock dividends, each of which had the effect of a
three-for-two stock split.
26
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto, and with reference to
the discussion of the operations and other financial information presented
elsewhere in this report.
During the first half of 1993, Washington Mutual merged with Pioneer and
acquired Pacific First. As a result of these business combinations, the Company
became substantially larger. From Dec. 31, 1992 (prior to the effect of the
merger with Pioneer), to Dec. 31, 1993, total assets increased by 76 percent
($9.0 billion to $15.8 billion), loans increased by 79 percent ($6.1 billion to
$10.9 billion) and deposits increased by 74 percent ($5.4 billion to $9.4
billion). The discussion below should be read in light of the significant
increase in the size of the Company.
During 1994, the increase in interest rates had an adverse effect not only
on the results of operations but also on the market value of the Company's net
financial assets. Other than available-for-sale securities, financial assets and
liabilities were reported at historical cost and accordingly the financial
statements do not reflect changes in market value. (See "Financial Statements
and Supplementary Data -- Note 27: Fair Value of Financial Instruments.")
RESULTS OF OPERATIONS
Washington Mutual's net income of $172.3 million for 1994 was down from
$179.7 million in 1993, but above 1992's earnings of $110.5 million. Fully
diluted earnings per share were $2.46 in 1994, compared with $2.67 in 1993 and
$1.91 in 1992. Washington Mutual's return on average assets ("ROA") for 1994
equaled 1.02 percent, down from 1.31 percent in 1993 and 1.24 percent in 1992.
Its return on average common stockholders' equity ("ROE") of 14.24 percent for
1994 was also down from the previous two years -- 17.73 percent in 1993 and
15.17 percent in 1992. During 1992 and 1993, Washington Mutual operated in a
highly favorable interest rate environment. However, an increase of
approximately 250 basis points in short-term interest rates in 1994 led to a
compression of the net interest margin and a corresponding pressure on net
interest income. Although Washington Mutual takes steps to protect itself from
significant increases in short-term interest rates, any further increases in
1995 will continue to adversely affect net interest income.
Net Interest Income
Net interest income of $571.2 million for 1994 was up 8 percent from $529.4
million in 1993, which in turn was 61 percent higher than the $329.6 million
earned during 1992. Most of the growth in net interest income was due to the
increase in average interest-earning assets resulting from planned growth in
1994 and the acquisition of Pacific First. Although average interest-earning
assets were up 23 percent during 1994, a decline in the net interest margin (net
interest income divided by average interest-earning assets) limited the
potential increase in net interest income.
The increase in market interest rates during 1994 had a negative impact on
the net interest margin. The net interest margin for 1994 of 3.60 percent
declined from 4.12 percent in 1993 and 3.99 percent in 1992. Additional
increases in market interest rates will cause further reductions in the net
interest margin and, depending upon the growth of interest-earning assets, may
negatively impact net interest income. (See "Financial Statements and
Supplementary Data -- Note 14: Interest Rate Risk Management.")
The low level of interest rates during 1992 and particularly 1993 resulted
in a significant portion of the Company's loans being refinanced and
mortgage-backed securities being prepaid, as borrowers sought to lower their
interest rates. The result was a steady decline in the yield on interest-earning
assets from 9.26 percent in 1992 to 8.03 percent in 1993 and to 7.57 percent in
1994. The lower interest rate levels also resulted in a lower cost of funds
during 1992 and 1993. The average rate paid on deposits and borrowings fell from
5.49 percent in 1992 to 4.04 percent in 1993. However, the increase in
short-term rates during 1994 caused the cost of funds to increase to 4.12
percent. The resulting net interest spread (the difference between the yield on
interest-earning assets and the cost of funds) declined to 3.45 percent for 1994
from 1993's record 3.99 percent and from 3.77 percent earned during 1992.
27
<PAGE> 30
Average consolidated statements of financial position and analysis of net
interest spread were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
- ------------------------------------------------------------------------------------------------
Interest
Average Income
(dollars in thousands) Balance(1) Rate or Expense
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash equivalents $ 18,384 3.39% $ 666
Available-for-sale securities(2) 1,754,107 8.22 143,549
Held-to-maturity securities(2) 2,661,159 5.83 153,207
Loans(3):
Residential 7,274,704 7.26 527,791
Residential construction 481,572 8.47 40,793
Commercial real estate 1,728,341 8.99 155,348
Manufactured housing, second mortgage
and other consumer 2,179,040 8.56 186,429
Commercial credits 1,360 2.21 30
Reserve for loan losses (120,556) -- --
- ------------------------------------------------------------------------------------------------
11,544,461 7.89 910,391
- ------------------------------------------------------------------------------------------------
Total interest-earning assets 15,978,111 7.57 1,207,813
Other assets 878,367 -- --
- ------------------------------------------------------------------------------------------------
$16,856,478 -- --
================================================================================================
Liabilities
Deposits:
Checking accounts $ 1,152,363 1.38 15,848
Savings and money market accounts 3,074,650 3.16 97,201
Time deposits 5,150,552 4.71 242,771
- ------------------------------------------------------------------------------------------------
9,377,565 3.81 355,820
Borrowings:
Annuities 734,969 4.51 33,143
Securities sold under agreements to repurchase 2,213,080 4.45 98,425
Advances from the FHLB 2,998,593 4.81 144,163
Other interest-bearing liabilities 81,792 6.16 5,037
- ------------------------------------------------------------------------------------------------
6,028,434 4.61 280,768
- ------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 15,405,999 4.12 636,588
Other liabilities 191,834 -- --
- ------------------------------------------------------------------------------------------------
15,597,833 -- --
Stockholders' equity 1,258,645 -- --
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $16,856,478 -- --
================================================================================================
Net interest spread and income 3.45% $ 571,225
================================================================================================
Net interest margin 3.60%
</TABLE>
(1) Average balances were calculated on a daily basis.
(2) The rate was adjusted to reflect tax equivalent yields on nontaxable
investment income. The yields on $99.1 million, $91.6 million and $80.2
million of investment securities in 1994, 1993 and 1992, respectively, were
tax affected.
(3) Nonaccruing loans were included in the daily average loan amounts
outstanding.
28
<PAGE> 31
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
- -------------------------------------------------------------------------------------
Average Interest Income Average Interest Income
Balance(1) Rate or Expense Balance(1) Rate or Expense
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 63,130 2.69% $ 1,697 $ 88,986 3.58% $ 3,182
-- -- -- -- -- --
3,378,618 7.31 244,573 2,277,818 8.22 185,079
5,667,949 7.75 439,150 3,703,656 9.22 341,589
391,144 9.00 35,208 329,842 10.88 35,899
1,704,532 8.90 151,641 965,978 9.61 92,867
1,825,894 8.95 163,354 1,003,102 10.93 109,678
8,548 3.70 316 15,084 7.04 1,062
(101,898) -- -- (59,063) -- --
- -------------------------------------------------------------------------------------
9,496,169 8.32 789,669 5,958,599 9.75 581,095
- -------------------------------------------------------------------------------------
12,937,917 8.03 1,035,939 8,325,403 9.26 769,356
819,498 -- -- 582,150 -- --
- -------------------------------------------------------------------------------------
$13,757,415 -- -- $8,907,553 -- --
=====================================================================================
$ 1,042,356 1.69 17,611 $ 575,416 1.77 10,171
2,737,603 3.32 90,845 1,638,095 4.00 65,548
4,936,929 4.70 232,139 3,715,093 6.25 232,346
- -------------------------------------------------------------------------------------
8,716,888 3.91 340,595 5,928,604 5.20 308,065
629,636 5.44 34,261 495,046 6.49 32,118
1,526,197 3.84 58,613 826,044 5.89 48,623
1,573,678 4.19 65,890 680,060 6.15 41,830
97,076 7.36 7,149 76,881 11.92 9,162
- -------------------------------------------------------------------------------------
3,826,587 4.34 165,913 2,078,031 6.34 131,733
- -------------------------------------------------------------------------------------
12,543,475 4.04 506,508 8,006,635 5.49 439,798
151,823 -- -- 172,027 -- --
- -------------------------------------------------------------------------------------
12,695,298 -- -- 8,178,662 -- --
1,062,117 -- -- 728,891 -- --
- -------------------------------------------------------------------------------------
$13,757,415 -- $8,907,553 --
=====================================================================================
3.99% $ 529,431 3.77% $329,558
=====================================================================================
4.12% 3.99%
</TABLE>
29
<PAGE> 32
An analysis of the change in net interest income was as follows:
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
- --------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due To Total Increase (Decrease) Due to Total
(dollars in thousands) Volume(1) Rate Change Volume(1) Rate Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Cash equivalents $ (1,389) $ 358 $ (1,031) $ (801) $ (684) $ (1,485)
Available-for-sale
securities(2) -- -- -- -- -- --
Held-to-maturity securities 71,32 (19,140) 52,183 84,916 (25,422) 59,494
Loans(3):
Residential 118,024 (29,383) 88,641 158,907 (61,346) 97,561
Residential construction 7,757 (2,172) 5,585 6,074 (6,765) (691)
Commercial real estate 2,131 1,576 3,707 66,175 (7,401) 58,774
Manufactured housing,
second mortgage and
other consumer 30,468 (7,393) 23,075 76,577 (22,901) 53,676
Commercial credits (193) (93) (286) (356) (390) (746)
- --------------------------------------------------------------------------------------------------------------
158,187 (37,465) 120,722 307,377 (98,803) 208,574
- --------------------------------------------------------------------------------------------------------------
228,121 (56,247) 171,874 391,492 (124,909) 266,583
Interest expense
Deposits:
Checking accounts 1,733 (3,496) (1,763) 7,908 (468) 7,440
Savings and money market
accounts 10,802 (4,446) 6,356 38,009 (12,712) 25,297
Time deposits 10,068 564 10,632 65,607 (65,814) (207)
- --------------------------------------------------------------------------------------------------------------
22,603 (7,378) 15,225 111,524 (78,994) 32,530
Borrowings:
Annuities 5,247 (6,365) (1,118) 7,848 (5,705) 2,143
Securities sold under
agreements to repurchase 29,465 10,347 39,812 31,054 (21,064) 9,990
Advances from the FHLB 67,261 11,012 78,273 40,847 (16,787) 24,060
Other (1,035) (1,077) (2,112) 2,032 (4,045) (2,013)
- --------------------------------------------------------------------------------------------------------------
100,938 13,917 114,855 81,781 (47,601) 34,180
- --------------------------------------------------------------------------------------------------------------
123,541 6,539 130,080 193,305 (126,595) 66,710
- --------------------------------------------------------------------------------------------------------------
Net interest income $104,580 $(62,786) $ 41,794 $198,187 $ 1,686 $199,873
==============================================================================================================
</TABLE>
(1) Average balances are calculated on a daily basis.
(2) Due to change in accounting for investment securities beginning in 1994,
analysis for available-for-sale securities not meaningful.
(3) Nonaccruing loans are included in the daily average loan amounts
outstanding.
Note: The change in interest income and interest expense due to changes in both
volume and rate, which cannot be segregated, has been allocated
proportionately to the change due to volume and the change due to rate.
Other Income
Other income of $107.8 million in 1994 was down from $143.9 million in
1993, but above the $90.7 million reported in 1992. Other income in 1993
included $41.7 million in gains on the sale of loans and other assets. The
significant level of asset gains during 1993 resulted from asset restructurings
to accommodate the acquisition of Pacific First. In addition, loans were sold
during 1993 to take advantage of record loan origination volume fueled by home
loan refinancing and a declining interest rate environment which enabled the
Company to sell these loans at a gain.
Service fees grew 3 percent in 1994 and 34 percent in 1993. Nonbanking
service fees comprised 80 percent of service fees in 1992, but this level
declined to 63 percent in 1993 and to 54 percent in 1994.
30
<PAGE> 33
Although the nonbanking subsidiaries continued to provide substantial fee
income, their contribution was outpaced by an increase in retail deposit fees
generated by an expanded deposit customer base coupled with a revised fee
structure for certain deposit services. Deposit fees of $24.4 million in 1994
were well above the prior year's $18.2 million which were more than double
1992's $8.7 million.
Loan servicing fees decreased to $9.2 million in 1994, compared with a 29
percent increase to $13.4 million in 1993 from $10.4 million in 1992. The 1993
increase resulted from an expanded loan servicing portfolio stemming from the
acquisition of Pacific First. The decision to retain loans originated in the
latter half of 1993 and into 1994, coupled with the significant refinancing
activity of 1993, resulted in a shrinkage of the portfolio of loans serviced for
others to $3,897.5 million at Dec. 31, 1994, from $4,698.8 million one year
earlier. In addition, prepayment activity required a write-down of servicing
rights of $6.1 million in 1993 and $6.9 million in 1992.
The gain on sale of loans, inclusive of write-downs on mortgage servicing
rights, totaled $427,000 in 1994, compared with $14.1 million in 1993 and $11.5
million in 1992. Sales activity in 1994 was minimal as Washington Mutual
retained most of its loan production. The gain on loan sales equaled $20.2
million in 1993 and $18.4 million in 1992, based on sales volumes of $1,710.9
million and $1,162.9 million, respectively.
Gains on the sale of other assets in 1994 were $3.7 million, down from
$27.5 million in 1993 and $6.6 million in 1992. The gains generated in 1994 were
from the available-for-sale portfolio. Adjustments to Washington Mutual's
balance sheet to accommodate the acquisition of Pacific First were primarily
responsible for the large gains on the sale of other assets during 1993. During
this restructuring, Washington Mutual primarily sold mortgage-backed securities
to reduce the pre-acquisition size of its balance sheet.
Other Expense
Total other expense of $384.3 million in 1994 was up from $369.3 million in
1993 and $230.9 million in 1992. This increase reflected the growth in total
assets and particularly the growing number of financial centers. One commonly
accepted measure of a bank's operating efficiency is the ratio of its operating
expenses to revenues (net interest income and other income). The Company has
established a long-term operating efficiency goal of 50 percent. Washington
Mutual's operating efficiency ratios were 56.6 percent for 1994 versus 54.8
percent for 1993 and 54.9 percent for 1992.
At year-end 1994, staffing for the organization totaled 4,371 full-time
equivalent employees, compared with 4,697 at the end of 1993 and 3,022 at the
end of 1992. The decline in the number of full-time equivalent employees during
1994 was the result of reducing staffing levels to match lower lending volumes.
This decline helped to keep the upward pressure on salary and employee benefits
expense to a modest 7 percent. Most of the employee growth in 1993 was due to an
almost doubling of the number of financial centers to 228 brought about by
acquisitions completed that year. This increase drove salary and employee
benefits expense to $162.5 million in 1993 from $107.0 million in 1992.
The increase in occupancy and equipment expense to $63.0 million in 1994
from $55.9 million in 1993 and $33.2 million in 1992 was primarily due to the
growth in the number of financial centers, an expansion of head office
facilities, and technology upgrades to accommodate the Company's re-engineering
efforts. Also included during 1993 were some duplicative costs incurred before
full consolidation of acquired companies could be completed.
Deposit insurance paid to the FDIC totaled $22.4 million in 1994, up from
$20.4 million in 1993 and $13.6 million in 1992. The increases were solely the
result of the increase in total deposits outstanding.
Other operating expenses were $96.2 million (inclusive of a $5.0 million
one-time expense of a legal settlement, see "Legal Proceedings") in 1994, down
slightly from $96.9 million in 1993. Other operating expenses rose in 1993 from
$61.9 million in 1992 due to the increased size of the Company.
Goodwill and other intangible assets have resulted from business
combinations accounted for as purchase transactions. Goodwill and other
intangible assets are amortized using the straight-line method over the period
that is expected to be benefited, which originally ranged from three to 10
years. The acquisition of Pacific First
31
<PAGE> 34
in the second quarter of 1993 was the most significant of such business
combinations and resulted in the creation of $178.2 million in goodwill and
other intangible assets to be amortized over 10 years. The amortization of
goodwill and other intangible assets was $29.1 million in 1994, compared with
$24.7 million in 1993 and $10.4 million in 1992, respectively.
The expense associated with REO operations, inclusive of write-downs was
$12,000 in 1994, compared with $6.3 million in 1993 and $2.1 million in 1992.
During 1994, 1993 and 1992, write-downs of $100,000, $7.3 million and $4.7
million, respectively, were taken to increase the REO reserve for losses. (See
"Financial Statements and Supplementary Data -- Note 7: REO" for further
discussion of REO operations.)
Write-downs of other assets consisted of $2.5 million on real estate held
for investment during 1993. In 1992, $2.7 million in write-downs of other assets
were taken due to valuation adjustments on securities that were determined to
have declines in value that were other than temporary.
Extraordinary Items
In 1993, Washington Mutual redeemed for cash all $40.0 million in principal
of its 10.50 percent subordinated capital notes due March 15, 1999. It also
called, in 1992, all $60.0 million of its 15.00 percent subordinated capital
notes due June 15, 1997. During 1993 and 1992, Washington Mutual prepaid
advances from the FHLB totaling $432.6 million and $175.0 million, respectively.
Taxation
Income taxes include federal income taxes and applicable state income
taxes. (See "Business -- Taxation.")
As a result of the Budget Act, which was signed into law on Aug. 10, 1993,
the corporate tax rate increased to 35 percent effective Jan. 1, 1993. The
increased tax provision required in the third quarter as a result of enactment
of the bill was approximately $600,000. Washington Mutual was also required
under the Budget Act to report certain securities and other assets at fair
market value effective Jan. 1, 1993. This rule, however, has not had a material
impact on the income tax provision of the Company.
In February 1992, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 109, "Accounting for Income Taxes," that changed the accounting
principle governing accounting for income taxes. The statement requires the use
of the liability method in accounting for income taxes and eliminates on a
prospective basis the former exception from the provision of deferred income
taxes on thrift bad debt reserves. Washington Mutual implemented the change in
first quarter 1993, as required by FASB. The change resulted in a cumulative
positive adjustment to earnings of $13.4 million, on an after-tax basis.
Nonbanking Subsidiary Operations
Nonbanking subsidiary operations generally comprise approximately 5 percent
of the Company's total profitability. Pretax operating income (net income before
amortization of goodwill and intangible assets and elimination of intercompany
transactions) was $14.4 million in 1994, compared with $18.6 million in 1993 and
$13.4 million in 1992. The securities and insurance operations typically account
for more than 90 percent of nonbanking pretax operating income.
WM Life improved its operating performance, posting pretax operating income
of $12.5 million in 1994, up from $9.9 million in 1993 and $6.0 million in 1992.
Contributing to the improvement in earnings were strong sales of annuities.
However, annuities outstanding at year-end 1994 were $799.2 million, up only 12
percent from $713.4 million at the end of 1993 due to a high level of surrenders
of annuity contracts. In contrast, annuities outstanding at the end of 1993 were
up 25 percent from 1992's level of $571.4 million. The pretax operating income
for 1992 included a $2.9 million provision for loss to cover WM Life's guarantee
fund assessment from the failure of a large out-of-state insurance company that
had done business in Washington.
32
<PAGE> 35
The decline in the securities subsidiaries' operating income to $605,000 in
1994 from $6.9 million in 1993 and $6.3 million in 1992 resulted primarily from
the $5.0 million one-time expense of a legal settlement. (See "Legal
Proceedings.")
The 1994 pretax operating income of Mutual Travel was $1.2 million,
compared with $1.3 million in 1993 and $924,000 in 1992. On Feb. 1, 1995, WMI
announced the execution of an agreement to sell Mutual Travel to a company, the
principal shareholders of which are Mutual Travel's management team. While
Mutual Travel continues to perform satisfactorily during a sustained period of
difficulty for the travel industry, its business focus is different from
Washington Mutual's primary mission. The sale price is contingent upon the
operating performance of Mutual Travel over the next three years, but has a base
price that is expected to result in a minimum pretax gain of approximately $2.7
million. The gain will be recognized when a substantial portion of the
applicable provisions of the sale agreement are met, which is anticipated to be
in late 1995 or early 1996.
During 1993, Washington Mutual exited the employee benefits services
business by selling the operations of Benefit Service Corp. and WM Trust Co.
Management determined that these businesses were not consistent with Washington
Mutual's overall strategic plan of providing consumer financial services, and
the operating performance of these companies had been less than satisfactory in
recent years.
Nonbanking subsidiary results of operations were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities:
Murphey Favre, Inc. $(2,249) $ 4,334 $ 4,416
Composite Research & Management Co. 2,854 2,539 1,882
- -----------------------------------------------------------------------------------------------
605 6,873 6,298
WM Life Insurance Co. 12,482 9,900 6,002
Mutual Travel, Inc. 1,178 1,266 924
WM Financial, Inc. and other 118 536 194
- -----------------------------------------------------------------------------------------------
Net income before amortization of goodwill and other
intangible assets, elimination of intercompany transactions,
and federal income taxes 14,383 18,575 13,418
Amortization of goodwill and other intangible assets 1,501 1,874 1,409
- -----------------------------------------------------------------------------------------------
Net income before elimination of intercompany transactions
and federal income taxes $12,882 $16,701 $12,009
===============================================================================================
</TABLE>
REVIEW OF FINANCIAL CONDITION
Assets
Assets grew substantially in 1994 as they did in 1993. During 1994, total
assets grew $2,630.5 million to end the year at $18,457.7 million. At Dec. 31,
1993, total assets were $15,827.2 million, an increase of $5,915.6 million from
Dec. 31, 1992. Approximately three-quarters of the growth in 1993 resulted from
the acquisition of Pacific First. In addition to the acquisition of Pacific
First, growth these past two years has come from retaining originated loans and
acquiring investment-grade securities.
Investment Activities
In 1994, Washington Mutual leveraged its capital and increased its
investment securities by 28 percent to $5,143.6 million at Dec. 31, 1994, from
$4,012.0 million at Dec. 31, 1993. The increase was funded mostly through
borrowings. By leveraging the balance sheet through the use of these wholesale
activities, Washington Mutual generated additional net interest income.
As of Dec. 31, 1994, the Company's investment portfolio included $2,608.6
million held-to-maturity securities (with a fair value of $2,406.7 million),
$2,535.0 million available-for-sale securities and $572,000 trading account
securities. (See "Business -- Other Investments.")
33
<PAGE> 36
Available-for-sale securities reported on the financial statements at fair
value consisted of the following:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. government and agency obligations $ 254,103 $ -- $ --
Corporate debt obligations 135,060 -- --
Equity securities 265,010 -- --
- ------------------------------------------------------------------------------------------------
654,173 -- --
Mortgage-backed securities:
U.S. government agency 1,471,070 -- --
Corporate 349,431 -- --
- ------------------------------------------------------------------------------------------------
1,820,501
Derivative instruments:
Interest rate exchange agreements 18,654 -- --
Interest rate cap agreements 41,690 -- --
- ------------------------------------------------------------------------------------------------
60,344 -- --
- ------------------------------------------------------------------------------------------------
$2,535,018 $ -- $ --
================================================================================================
</TABLE>
The stated maturities of the Company's available-for-sale securities were
as follows:
<TABLE>
<CAPTION>
December 31, 1994
- -------------------------------------------------------------------------------------------------------
Due after one After five No
but within but within After stated
(dollars in thousands) five years 10 years 10 years maturity Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency
obligations $176,864 $ 9,215 $ 68,024 $ -- $ 254,103
Corporate debt obligations 81,254 47,925 5,881 -- 135,060
Equity securities -- -- -- 265,010 265,010
- -------------------------------------------------------------------------------------------------------
258,118 57,140 73,905 265,010 654,173
Mortgage-backed securities:
U.S. government agency 47,845 6,159 1,417,066 -- 1,471,070
Corporate -- 9,436 339,995 -- 349,431
- ------------------------------------------------------------------------------------------------------
47,845 15,595 1,757,061 -- 1,820,501
Derivative instruments:
Interest rate exchange agreements 18,654 -- -- -- 18,654
Interest rate cap agreements 41,690 -- -- -- 41,690
- -------------------------------------------------------------------------------------------------------
60,344 -- -- -- 60,344
- -------------------------------------------------------------------------------------------------------
$366,307 $72,735 $1,830,966 $265,010 $2,535,018
=======================================================================================================
Weighted average yield 4.94% 7.08% 6.42% 6.48% 6.23%
</TABLE>
The available-for-sale portfolio is maintained as a source of investment
income as well as potential liquidity should it be necessary for the Company to
raise cash or reduce its asset size. Because the available-for-sale portfolio is
required to be carried at fair value, its carrying value fluctuates with changes
in market factors, primarily interest rates. This portfolio is partially
comprised of mortgage-backed securities of which approximately 41 percent have
adjustable rates. In an attempt to modify the interest flows on these securities
as well as protect against market value changes, certain interest rate exchange
agreements and interest rate cap agreements have been designated to the
available-for-sale portfolio. The effect of such agreements in a rising interest
rate environment is to shorten the effective repricing period of the underlying
assets. Specifically, as short-term interest rates increase, the overall yield
of the portfolio rises. However, the yield is constrained by periodic and
lifetime interest rate adjustment limits or caps on the underlying
adjustable-rate assets. Therefore, the Company seeks to shorten the repricing
period by entering into interest rate cap
34
<PAGE> 37
agreements that are intended to provide an additional layer of interest rate
protection against the effect of the periodic and lifetime interest rate
adjustment limits or caps of the portfolio. Through the use of specific interest
rate cap agreement provisions, management attempts to reduce the repricing
ceiling of the portfolio and to effectively shorten the repricing period. Thus,
the Company has a degree of interest rate protection when interest rates rise
because the interest rate cap agreements provide a mechanism for repricing the
investment portfolio generally on pace with current market rates. In a similar
way, interest rate exchange agreements are utilized to provide protection in an
increasing rate environment, but also result in sensitivity in a downward
market. There can be no assurance that interest rate exchange agreements and
interest rate cap agreements will provide the Company with protection in all
scenarios or to the full extent of the Company's exposure.
The following table presents the effect interest rate exchange agreements
and interest rate cap agreements have on the repricing period of securities in
the available-for-sale portfolio currently (as of Dec. 31, 1994) or in a rising
interest rate environment:
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------------------------------------------
After six After one
Due within months but but within After
(dollars in millions) six months within one year two years two years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Principal amount of securities $ 230 $ 210 $ 600 $1,435 $2,475
Effect of derivative instruments 1,375 (210) (600) (565) --
- ---------------------------------------------------------------------------------------------------------
Principal amount of securities after
effect of derivative instruments $1,605 $ -- $ -- $ 870 $2,475
=========================================================================================================
</TABLE>
The following table presents the effect interest rate exchange agreements
and interest rate cap agreements have on the repricing period of securities in
the available-for-sale portfolio in a decreasing interest rate environment:
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------------------------------------------
After six After one
Due within months but but within After
(dollars in millions) six months within one year two years two years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Principal amount of securities $230 $ 210 $ 600 $1,435 $2,475
Effect of derivative instruments 500 (210) (290) -- --
- ---------------------------------------------------------------------------------------------------------
Principal amount of securities after
effect of derivative instruments $730 $ -- $ 310 $1,435 $2,475
=========================================================================================================
</TABLE>
The held-to-maturity portfolio by investment type consisted of the
following:
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. government and agency obligations $ 7,563 $ 277,022 $ 8,962
Corporate debt obligations 360,233 447,240 248,992
Municipal obligations 78,521 70,493 58,267
Equity securities -- 240,637 85,754
- -------------------------------------------------------------------------------------------------
446,317 1,035,392 401,975
Mortgage-backed securities:
U.S. government agency 2,044,216 2,322,768 1,464,540
Corporate 118,052 653,840 719,035
- -------------------------------------------------------------------------------------------------
2,162,268 2,976,608 2,183,575
- -------------------------------------------------------------------------------------------------
$2,608,585 $4,012,000 $2,585,550
=================================================================================================
</TABLE>
35
<PAGE> 38
The stated maturities of the Company's held-to-maturity securities were as
follows:
<TABLE>
<CAPTION>
December 31, 1994
- -------------------------------------------------------------------------------------------------------
Due within After one After five
one but within but within After
(dollars in thousands) year five years 10 years 10 years Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency
obligations $ -- $ 1,006 $ 6,557 $ -- $ 7,563
Corporate debt obligations 5,867 85,848 172,661 95,857 360,233
Municipal obligations -- 227 26,968 51,326 78,521
- -------------------------------------------------------------------------------------------------------
5,867 87,081 206,186 147,183 446,317
Mortgage-backed securities:
U.S. government agency -- -- 12,296 2,031,920 2,044,216
Corporate -- -- 548 117,504 118,052
- -------------------------------------------------------------------------------------------------------
-- -- 12,844 2,149,424 2,162,268
- -------------------------------------------------------------------------------------------------------
$5,867 $87,081 $219,030 $2,296,607 $2,608,585
=======================================================================================================
Weighted average yield 5.30% 8.13% 7.13% 7.17% 7.19%
</TABLE>
The held-to-maturity portfolio primarily consists of long-term fixed-rate
mortgage-backed securities and other debt securities that the Company intends to
hold until maturity. This portfolio had a market value depreciation of 8 percent
or $201.9 million on a pretax basis at year-end 1994, compared with a market
value appreciation of 2 percent or $79.4 million on a pretax basis at Dec. 31,
1993. The decline in value was due to the significant increase in interest rates
during 1994.
During 1994, there were no transfers between the available-for-sale and
held-to-maturity portfolios, nor were there any sales from the held-to-maturity
portfolio.
Loans
Loans grew 14 percent during 1994 to $12,406.6 million at Dec. 31, 1994, up
from $10,891.1 million at Dec. 31, 1993.
The total amount of loans originated in 1994 was $4,128.9 million compared
with $5,722.6 million in 1993. Residential loan originations of $2,040.3 million
in 1994 were down from the 1993 record level of $3,815.0 million. The decrease
reflected the significant decline in loan refinancing activity resulting from
rising interest rates. Although the market for existing homes remained strong
during 1994, originations slowed as interest rates rose during the year. For the
year, originations of loans to purchase homes were $1,187.2 million compared
with $897.9 million last year, but refinancing activity in 1994 accounted for
only $853.1 million of the residential lending volume, compared with $2,917.1
million in 1993. At year-end 1994, 1-4 family residential loans comprised nearly
two-thirds of total loans outstanding.
Residential construction originations of $1,034.2 million for 1994
increased from $847.2 million in 1993. Custom built homes for the final
purchaser were responsible for approximately two-thirds of these originations
during both years. The remainder were to builders for resale. At year-end 1994,
total residential construction loans outstanding for custom homes were $349.0
million and builder loans totaled $167.5 million, or collectively 4 percent of
total loans. Because of their short-term nature and relatively high profit
margins, residential construction lending is very profitable. Residential
construction loans also contain a higher degree of risk than other residential
loans. For this reason, Washington Mutual has strict lending and monitoring
policies to limit credit exposure. At year-end 1994, just over 1 percent of
residential construction loans were nonperforming, and loan charge-offs were
minimal during the year.
Although consumer loan originations of $939.3 million for all of 1994 were
above the prior year's level of $894.6 million, lending volumes gradually slowed
as short-term interest rates rose during the year. The majority of consumer
lending was for second mortgage and manufactured housing loans. Both of these
loan
36
<PAGE> 39
areas are natural extensions of shelter-based lending and have higher yields and
generally shorter terms than traditional first mortgages. At year-end 1994,
consumer loans accounted for 19 percent of total loans.
During the past few years, commercial real estate lending has decreased in
importance and constitutes a small portion of total loan originations.
Loans originated consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential (1-4 family units):
Fixed-rate $ 772,080 $2,994,210 $2,142,054 $1,217,845 $ 877,763
Adjustable-rate 1,268,187 820,743 679,559 126,950 378,277
Residential construction
adjustable-rate 1,034,176 847,217 652,952 459,029 567,032
- -----------------------------------------------------------------------------------------------------
3,074,443 4,662,170 3,474,565 1,803,824 1,823,072
Consumer:
Second mortgage and other
consumer 710,327 704,089 434,377 306,376 294,578
Manufactured housing 229,011 190,555 172,827 146,131 137,437
- -----------------------------------------------------------------------------------------------------
939,338 894,644 607,204 452,507 432,015
Commercial real estate:
Apartment buildings 92,135 71,771 59,959 31,177 15,767
Other 22,974 93,978 33,951 30,081 24,180
- -----------------------------------------------------------------------------------------------------
115,109 165,749 93,910 61,258 39,947
- -----------------------------------------------------------------------------------------------------
$4,128,890 $5,722,563 $4,175,679 $2,317,589 $2,295,034
=====================================================================================================
</TABLE>
Deposits
Total deposits increased to $9,777.9 million at Dec. 31, 1994, from
$9,351.4 million at Dec. 31, 1993. Retail deposits were up $200.4 million to
$9,049.1 million. Wholesale activities -- predominately deposits greater than
$100,000 -- were up $226.1 million. Wholesale deposits are an alternative to
other borrowings and their levels are determined by management's decisions as to
the most economic funding sources. The deposit market continued to be difficult
but showed improvement as short-term interest rates rose throughout the year.
The following table sets forth information relating to deposit flows, total
deposits and the weighted average interest rate on deposit accounts for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994(1) 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase due to deposit inflow, net $ 70,690 $2,952,695 $ 339,811
Increase due to interest credited 355,820 340,595 308,065
- -------------------------------------------------------------------------------------------------
Increase in total deposits $ 426,510 $3,293,290 $ 647,876
=================================================================================================
Total deposits at end of year $9,777,912 $9,351,402 $6,058,112
Weighted average rate for the year 3.81% 3.91% 5.20%
</TABLE>
(1) Includes $169.3 million of acquired deposits.
The Company utilizes interest rate exchange agreements and interest rate
cap agreements to reduce its exposure to rising interest rates. (See "Financial
Statements and Supplementary Data -- Note 14: Interest Rate Risk Management.")
37
<PAGE> 40
Nondeposit Products
Through its nonbanking subsidiaries, Washington Mutual offers to its
customers alternative retail investment products. Annuities underwritten by WM
Life increased $85.8 million to $799.2 million. Assets of the Composite Group of
mutual funds, managed by Composite Research ended the year at $1,095.5 million,
down from $1,254.9 million at Dec. 31, 1993. The decline was due primarily to a
reduction of market valuation brought about by rising interest rates in 1994.
Borrowings
Washington Mutual's borrowings primarily take the form of securities sold
under agreements to repurchase and advances from the FHLB. These two borrowing
sources grew to $2,595.7 million and $3,737.6 million, respectively, by year-end
1994 from a combined level of $4,253.6 million at Dec. 31, 1993. The increase
was used to fund the Company's asset growth.
The Company utilizes interest rate exchange agreements and interest rate
cap agreements to reduce its exposure to rising interest rates. (See "Financial
Statements and Supplementary Data -- Note 14: Interest Rate Risk Management.")
ASSET QUALITY
Classified assets, which consist of nonaccrual loans, loans under
foreclosure, REO and performing loans (including troubled debt restructurings)
and securities that exhibit credit quality weaknesses, were as follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans and loans under foreclosure $ 60,840 $ 77,043
REO 19,048 34,057
- ----------------------------------------------------------------------------------------------
Total nonperforming assets 79,888 111,100
Troubled debt restructurings 10,289 8,144
Other classified assets 163,579 186,815
- ----------------------------------------------------------------------------------------------
$253,756 $306,059
==============================================================================================
</TABLE>
Nonperforming assets decreased to $79.9 million at the end of the 1994 from
$111.1 million at Dec. 31, 1993. Nonperforming assets as a percentage of total
assets also declined substantially to 0.43 percent at Dec. 31, 1994, from 0.70
percent at Dec. 31, 1993. All asset categories reflected lower nonperforming
asset levels.
Nonperforming commercial real estate assets declined to $35.6 million at
Dec. 31, 1994, from $48.3 million a year ago. Approximately half of the
improvement was due to a decline in large commercial REO (properties valued at
$1.0 million or more). During 1994, four large loans were placed on
nonaccrual -- a California loan for $4.6 million and three Washington loans
totaling $3.8 million. During 1994, three REO properties were sold. Of the three
properties sold, one was an office building in California with a basis of $4.0
million and the other two were in Washington with a combined basis of $5.4
million. Also during 1994, a Washington loan for $1.2 million was paid off and
two loans -- one in Hawaii for $1.6 million and one in California for $2.4
million -- were returned to current status. At the end of 1994, large troubled
assets in California totaled less than 10 percent of total nonperforming assets.
38
<PAGE> 41
Nonperforming assets and troubled debt restructurings consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
Nonaccruing Total As a
Loans & Loans Nonperforming Percentage of Troubled Debt
(dollars in thousands) Under Foreclosure REO Assets Total Assets Restructurings
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential $27,658 $ 6,733 $34,391 0.19% $ --
Residential construction 4,640 1,691 6,331 0.04 --
Apartment buildings 9,106 729 9,835 0.05 1,680
Other commercial real estate 10,828 14,972 25,800 0.14 8,609
Second mortgage and other
consumer 6,296 692 6,988 0.04 --
Manufactured housing 1,643 736 2,379 0.01 --
Commercial credits 669 -- 669 -- --
Reserve for REO losses -- (6,505) (6,505) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------
$60,840 $19,048 $79,888 0.43% $10,289
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------
Nonaccruing Total As a
Loans & Loans Nonperforming Percentage of Troubled Debt
(dollars in thousands) Under Foreclosure REO Assets Total Assets Restructurings
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential $31,916 $ 7,473 $ 39,389 0.25% $ --
Residential construction 8,527 1,379 9,906 0.06 --
Apartment buildings 7,430 5,299 12,729 0.08 5,789
Other commercial real estate 11,403 24,158 35,561 0.23 2,355
Second mortgage and other
consumer 12,048 483 12,531 0.08 --
Manufactured housing 2,207 740 2,947 0.02 --
Commercial credits 3,512 -- 3,512 0.02 --
Reserve for REO losses -- (5,475) (5,475) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------
$77,043 $34,057 $111,100 0.70% $ 8,144
=====================================================================================================================
December 31, 1992 $45,010 $87,427 $132,437 1.34% $ 9,631
December 31, 1991 39,270 93,029 132,299 1.66 8,431
December 31, 1990 50,613 96,482 147,095 1.92 17,279
</TABLE>
Nonperforming commercial real estate and troubled debt restructurings by
geographic distribution and property type consisted of the following:
<TABLE>
<CAPTION>
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
Nonaccruing Total Total As a Percentage
Loans & Loans Nonperforming Loans of Total Troubled Debt
(dollars in thousands) Under Foreclosure REO Assets & REO Loans & REO Restructurings
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Washington $ 9,135 $15,005 $24,140 $1,116,333 2.16% $ 1,108
California 8,870 634 9,504 212,060 4.48 9,181
Arizona 1,855 -- 1,855 14,188 13.07 --
Other states 74 62 136 348,526 0.04 --
- --------------------------------------------------------------------------------------------------------------------------------
$19,934 $15,701 $35,635 $1,691,107 2.11% $10,289
================================================================================================================================
Office buildings $ 5,619 $10,476 $16,095 $ 165,992 9.70% $ 8,609
Apartment buildings 9,106 729 9,835 948,051 1.04 1,680
Shopping centers -- 1,262 1,262 134,613 0.94 --
Other 5,209 3,234 8,443 442,451 1.91 --
- --------------------------------------------------------------------------------------------------------------------------------
$19,934 $15,701 $35,635 $1,691,107 2.11% $10,289
================================================================================================================================
</TABLE>
39
<PAGE> 42
PROVISION FOR LOAN LOSSES AND RESERVE FOR LOAN LOSSES
The provision for loan losses during 1994 was $20.0 million compared with
$35.0 million in 1993 and $14.0 million in 1992. The 1994 provision reflected
the Company's strong level of reserves and continued improvement in asset
quality. The growth in the provision during 1993 was determined necessary by
management because of uncertainty about the economic conditions in some lending
markets as well as caution about the asset quality of the loans acquired from
Pacific First.
The reserve for loan losses increased to $128.0 million at Dec. 31, 1994,
from $115.2 million at Dec. 31, 1993. Loan charge-offs, net of recoveries for
1994 totaled $8.1 million. This was less than half the level of net charge-offs
in 1993 and 1992 of $19.8 million and $17.7 million, respectively. During 1993
and 1992, net charge-offs of commercial real estate loans accounted for $13.3
million and $14.4 million, respectively, of total net charge-offs. However, with
the improved performance of the commercial real estate portfolio, net charge-
offs on commercial real estate loans dropped to $318,000 during 1994. Of the
$8.1 million of net charge-offs taken in 1994, $4.3 million was the result of
consumer loan activity in large part due to loans acquired from Pacific First.
Net charge-offs on consumer loans have grown to the current level from $2.1
million in 1993 and $883,000 in 1992.
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $115,214 $ 53,970 $ 52,305 $ 52,843 $ 25,167
Provision for loan losses 20,000 35,000 14,000 21,627 61,549
Reserves added through business combinations 921 46,000 5,320 571 367
Reserves charged-off:
Residential (1,604) (1,612) (1,138) (379) (401)
Residential construction (190) (297) (937) (139) (181)
Commercial real estate (2,263) (13,786) (14,932) (5,285) (10,627)
Manufactured housing, second mortgage and
other consumer (5,223) (2,664) (1,028) (1,097) (606)
Commercial credits (1,712) (2,590) (1,096) (18,457) (23,383)
- --------------------------------------------------------------------------------------------------
(10,992) (20,949) (19,131) (25,357) (35,198)
Reserves recovered:
Residential 17 45 17 36 125
Residential construction -- -- -- 314 --
Commercial real estate 1,945 514 494 563 662
Manufactured housing, second mortgage and
other consumer 944 600 145 109 171
Commercial credits -- 34 820 1,599 --
- --------------------------------------------------------------------------------------------------
2,906 1,193 1,476 2,621 958
- --------------------------------------------------------------------------------------------------
Balance, end of year $128,049 $115,214 $ 53,970 $ 52,305 $ 52,843
==================================================================================================
</TABLE>
As part of the process of determining the adequacy of the reserve for loan
losses, management reviews the loan portfolio for specific weaknesses. A portion
of the reserve is then allocated to reflect the loss exposure. Residential real
estate and consumer loans are not individually analyzed for loss exposure
because of the significant number of loans, their relatively small balances and
historically low level of losses. At year-end 1994, the analysis of residential
construction, commercial real estate and commercial credits resulted in an
allocation of $16.9 million of the reserve for loan loss exposure, compared with
an allocation of $22.6 million a year earlier. Contributing to the decline was a
reduction in the level of allocated reserves related to commercial real estate
in California. While the quality of the California commercial real estate
portfolio appears to have stabilized, reserves allocated to this portfolio
comprised approximately two-thirds of total allocated reserves.
40
<PAGE> 43
Unallocated reserves are established for loss exposure that may exist in
the remainder of the loan portfolio but has yet to be identified. In determining
the adequacy of unallocated reserves, management considers changes in the size
and composition of the loan portfolio, actual historical loan loss experience,
and current and anticipated economic conditions. The high level of unallocated
reserves at year-end 1993 reflected the significant increase in total loans
outstanding, a change in the mix of loans in the portfolio, some uncertainty as
to the long-term credit quality of acquired loan portfolios as well as caution
over future economic conditions. Given the significant decline in nonperforming
assets and continued growth of the reserve for loan losses during 1994,
management is projecting a reduction in the provision for loan losses to $2.5
million for first quarter 1995 or $10.0 million on an annualized basis. Further
analysis of the reserve for loan losses during 1995 will determine if that level
will be sustainable throughout 1995 and beyond.
An analysis of the reserve for loan losses was as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allocated reserves:
Commercial real estate $ 15,594 $ 19,354 $21,746 $ 5,736 $ 4,705
Commercial credits -- 1,718 5,597 10,064 20,156
Residential construction 1,327 1,503 1,219 1,901 --
- --------------------------------------------------------------------------------------------------
16,921 22,575 28,562 17,701 24,861
Unallocated reserves 111,128 92,639 25,408 34,604 27,982
- --------------------------------------------------------------------------------------------------
$128,049 $115,214 $53,970 $52,305 $52,843
==================================================================================================
Total reserve for loan losses as a
percentage of:
Total loans 1.03% 1.06% 0.80% 1.00% 1.06%
Nonperforming loans 210.47 149.55 119.91 133.19 104.41
</TABLE>
INTEREST RATE RISK MANAGEMENT
Washington Mutual's banking subsidiaries traditionally have had a mismatch
between the maturities of their assets and liabilities because customers
generally prefer short-term deposits and long-term fixed-rate loans. This
mismatch is not a problem when interest rates are stable or declining. However,
when short-term interest rates rise, as they did in 1994, the interest paid on
deposits and other short-term borrowings rises much more quickly than the
interest earned on loans and investments. The inevitable result for Washington
Mutual was a reduction in its net interest spread and the corresponding pressure
on net interest income. Washington Mutual engages in a comprehensive asset and
liability management program that attempts to reduce the risk of significant
decreases in net interest income caused by interest rate changes. The
implementation of strategies to reduce interest rate risk, however, generally
has the negative effect of lowering current period earnings. Management tries to
balance these two factors in administering its interest rate risk program. While
the Company monitors its interest rate sensitivity and attempts to reduce the
risk of a significant decrease in net interest income caused by a change in
interest rates, rising interest rates or a flattening of the yield curve could
nevertheless adversely affect the Company's operations.
As part of this program, management actively manages the actual asset and
liability maturities and at various times uses derivative instruments, such as
interest rate exchange agreements, interest rate cap agreements and options on
such instruments, to reduce the negative effect that rising rates could have on
net interest income. Derivative instruments have received a lot of attention
lately because of the financial exposure they may cause if not used
appropriately. Management, in conjunction with the Company's Board of Directors,
has established strict policies and guidelines for their use. Moreover,
Washington Mutual has used these instruments for many years solely to mitigate
interest rate risk. Under no circumstances are these instruments used as
techniques to generate earnings by speculating on the movements of interest
rates, nor does the Company act as a dealer of these instruments. (See
"Financial Statements and Supplementary Data -- Note 14: Interest Rate Risk
Management.")
41
<PAGE> 44
At the end of 1994, Washington Mutual's one-year gap was a negative 14.3
percent, up from a negative 10.8 percent at the end of 1993. The one-year gap is
a conventional measure of interest sensitivity for thrift institutions.
Interest sensitivity analysis by maturity or repricing period was as
follows:
<TABLE>
<CAPTION>
December 31, 1994
- ----------------------------------------------------------------------------------------------------
After After
one two After
Due but but five
within within within but
one two five within After
(dollars in millions) year years years 10 years 10 years Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets
Cash, cash equivalents, and
trading account
securities(1) $ 334 $ -- $ -- $ -- $ -- $ 334
Available-for-sale
securities(2)(6) 1,461 109 501 271 232 2,574
Held-to-maturity securities 282 178 496 715 937 2,608
Loans(3):
Residential 2,718 823 1,872 1,328 1,308 8,049
Residential construction 341 24 96 34 30 525
Commercial real estate 1,068 199 326 68 11 1,672
Manufactured housing, second
mortgage and other
consumer 878 435 647 295 60 2,315
Commercial credits -- -- 2 -- -- 2
- ----------------------------------------------------------------------------------------------------
5,005 1,481 2,943 1,725 1,409 12,563
- ----------------------------------------------------------------------------------------------------
7,082 1,768 3,940 2,711 2,578 18,079
Interest-sensitive liabilities
Deposits(4) 6,213 2,136 1,354 57 3 9,763
Borrowings and other
liabilities 5,678 365 1,161 8 6 7,218
- ----------------------------------------------------------------------------------------------------
11,891 2,501 2,515 65 9 16,981
Derivative instruments affecting
interest rate sensitivity:
Interest rate exchange agreements:
Designated against
available-for-sale
securities(6) (350) 350 -- -- -- --
Designated against
short-term borrowings
and deposits(5) (115) 115 -- -- -- --
Interest rate cap
agreements:
Designated against
available-for-sale
securities(6) (875) 600 275 -- -- --
Designated against
short-term borrowings
and deposits (825) 825 -- -- -- --
- ----------------------------------------------------------------------------------------------------
(2,165) 1,890 275 -- -- --
- ----------------------------------------------------------------------------------------------------
Net (liability) asset sensitivity $(2,644) $(2,623) $1,150 $2,646 $2,569 $ 1,098
====================================================================================================
Net (liability) asset sensitivity
as a percentage of total assets (14.33)% (14.21)% 6.23% 14.35% 13.91% 5.96%
</TABLE>
(1) Includes accrued interest on interest-earning assets.
(2) Excludes mark-to-market adjustment.
(3) Excludes deferred loan fees, reserve for loan losses and premium on
purchased loans.
(4) Excludes premium on purchased deposits. Deposits without stated maturity are
included in the category "Due within one year."
(5) Does not include one interest rate exchange agreement based on the yield
curve where both parties pay a variable rate. The agreement has a notional
amount of $75.0 million with a stated maturity of Aug. 13, 1996. As of Dec.
31, 1994, Washington Mutual was in a net payable position.
(6) See "Investment Activities" regarding the effect of derivative instruments
on the repricing period of available-for-sale securities against which the
derivative instruments are designated.
While the one-year gap helps provide some information about a financial
institution's interest sensitivity, it does not predict the trends of future
earnings. For this reason, Washington Mutual uses financial modeling
42
<PAGE> 45
to forecast earnings under different interest rate projections. The year-end
1994 financial analysis indicated that if, rather than remaining unchanged,
interest rates increased by 100 basis points as of Jan. 1, 1995, and remained at
the higher level for the remainder of the year, net interest income would be
reduced by approximately 7 percent and earnings per share by approximately 40
cents. Conversely, the analysis indicated that a similar decrease in interest
rates for a year would increase net interest income and earnings per share by
approximately the same amounts. Although this modeling is very helpful in
managing interest rate risk, it does require significant assumptions for the
projection of loan prepayment rates, loan origination volumes and liability
funding sources that may prove to be inaccurate.
LIQUIDITY
Liquidity management focuses on the need to meet both short-term funding
requirements and long-term growth objectives. The long-term growth objectives of
the Company are to attract and retain stable consumer deposit relationships and
to maintain stable sources of wholesale funds. Because the low interest rate
environment of recent years inhibited consumer deposits, Washington Mutual has
supported its growth by acquiring other financial institutions and by increasing
its use of wholesale borrowings. Should the Company not be able to increase
deposits either internally or through acquisitions, it ability to grow would be
dependent upon, and to a certain extent limited by, its borrowing capacity.
Washington Mutual actively manages its ability to meet short-term cash
requirements under both normal (operating) and extreme (contingent)
circumstances using guidelines established by its Board of Directors. The
operating liquidity ratio is used to ensure that normal short-term secured
borrowing capacity is sufficient to satisfy unanticipated cash needs. The
contingent liquidity ratio measures the ability to raise cash by liquidating
assets in the event of a very adverse business environment. At Dec. 31, 1994,
the Company had excess liquidity compared to its established guidelines.
To meet its immediate needs for funds as well as long-term lending demands,
Washington Mutual maintains various sources of liquid assets and borrowing
capabilities. At Dec. 31, 1994, the Company was able to borrow an additional
$3,144.3 million through the use of collateralized borrowings using unpledged
mortgage-backed securities and other wholesale sources.
CAPITAL REQUIREMENTS
Washington Mutual's banking subsidiaries exceeded all current regulatory
capital requirements to be classified as well capitalized institutions, the
highest regulatory standard. In order to be categorized as a well capitalized
institution, the FDIC requires banks it regulates to maintain a leverage ratio,
defined as Tier 1 capital divided by total regulatory assets, of at least 5.00
percent; total capital of at least 10.00 percent of risk-weighted assets; and
Tier 1 (or core) capital of at least 6.00 percent of risk-weighted assets. At
Dec. 31, 1994, WMB's consolidated ratio of leverage capital to assets was 5.90
percent, the ratio of total capital to risk-weighted assets was 11.89 percent,
and the ratio of core capital to risk-weighted assets was 10.97 percent.
Washington Mutual's federal savings bank subsidiaries are also required by
the OTS to maintain certain capital levels. In order to be classified as well
capitalized institutions, the OTS requires banks it regulates to maintain a
leverage ratio of at least 5.00 percent; total capital of at least 10.00 percent
of risk-weighted assets; and core capital of at least 6.00 percent of
risk-weighted assets. At Dec. 31, 1994, both subsidiaries were in compliance
with all well capitalized requirements.
(See "Financial Statements and Supplementary Data -- Note 21: Regulatory
Capital Requirements.")
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements, see index on page 46.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
43
<PAGE> 46
PART III
Part III is incorporated by reference from the Company's definitive proxy
statement issued in conjunction with the Company's Annual Meeting of
Shareholders to be held April 18, 1995. Certain information regarding the
principal officers of Washington Mutual is set forth in "Business -- Principal
Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See Index to Consolidated Financial Statements on page 46.
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or not required, or because the required information is
included in the consolidated financial statements or the notes thereto.
(b) Reports on 8-K:
(1) November 29, 1994, Reorganization of the Company (Item 5), including
Consolidated Financial Statements of Washington Mutual, Inc. and its
predecessor, Washington Mutual Savings Bank, set forth in the Quarterly
Report of Washington Mutual Savings Bank for the quarters ended
September 30, 1994, June 30, 1994, and March 31, 1994 and the 1993
Annual Report to Shareholders of Washington Mutual Savings Bank.
(c) Exhibits:
See Index of Exhibits on page 86.
44
<PAGE> 47
SIGNATURES BY REGISTRANT
Pursuant to the requirements of the Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on Feb. 21, 1995.
WASHINGTON MUTUAL, INC.
/s/ Kerry K. Killinger
----------------------------------
Kerry K. Killinger
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on Feb. 21, 1995.
<TABLE>
<S> <C>
/s/ Kerry K. Killinger /s/ William A. Longbrake
- ------------------------------------- ------------------------------------------
Kerry K. Killinger William A. Longbrake
Chairman, President and Chief Senior Executive Vice President and
Executive Officer; Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ Douglas G. Wisdorf
------------------------------------------
Douglas G. Wisdorf
Senior Vice President and Controller
/s/ Sally S. Behnke /s/ Dr. William P. Gerberding
- ------------------------------------- ------------------------------------------
Sally S. Behnke Dr. William P. Gerberding
Director Director
/s/ Douglas P. Beighle /s/ Dr. Samuel B. McKinney
- ------------------------------------- ------------------------------------------
Douglas P. Beighle Dr. Samuel B. McKinney
Director Director
/s/ Herbert M. Bridge /s/ Michael K. Murphy
- ------------------------------------- ------------------------------------------
Herbert M. Bridge Michael K. Murphy
Director Director
/s/ Roger H. Eigsti /s/ Louis H. Pepper
- ------------------------------------- ------------------------------------------
Roger H. Eigsti Louis H. Pepper
Director Director
/s/ John W. Ellis /s/ William G. Reed, Jr.
- ------------------------------------- ------------------------------------------
John W. Ellis William G. Reed, Jr.
Director Director
- ------------------------------------- ------------------------------------------
Daniel J. Evans Janet H. Skadan
Director Director
/s/ Anne V. Farrell
- ------------------------------------- ------------------------------------------
Anne V. Farrell James H. Stever
Director Director
</TABLE>
45
<PAGE> 48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... 47
Consolidated Statements of Income,
Years ended December 31, 1994, 1993 and 1992........................................ 48
Consolidated Statements of Financial Position,
December 31, 1994 and 1993.......................................................... 49
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1994, 1993 and 1992........................................ 50
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993 and 1992........................................ 51
Notes to Consolidated Financial Statements............................................ 53
</TABLE>
46
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Washington Mutual, Inc.:
We have audited the accompanying consolidated statements of financial position
of Washington Mutual, Inc. and subsidiaries (the Company) as of December 31,
1994 and 1993, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Washington Mutual,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, on January 1, 1994. Also, as
discussed in Note 17 to the financial statements, the Company adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, on
January 1, 1993.
(SIG - LOGO]
Deloitte & Touche LLP
Seattle, Washington
February 14, 1995
47
<PAGE> 50
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------
(dollars in thousands, except for per share amounts) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 910,391 $ 789,669 $581,095
Available-for-sale securities 143,549 -- --
Held-to-maturity securities 153,207 244,573 185,079
Cash equivalents 666 1,697 3,182
- ------------------------------------------------------------------------------------------------
Total interest income 1,207,813 1,035,939 769,356
INTEREST EXPENSE
Deposits 355,820 340,595 308,065
Borrowings 280,768 165,913 131,733
- ------------------------------------------------------------------------------------------------
Total interest expense 636,588 506,508 439,798
- ------------------------------------------------------------------------------------------------
Net interest income 571,225 529,431 329,558
Provision for loan losses 20,000 35,000 14,000
- ------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 551,225 494,431 315,558
OTHER INCOME
Service fees 70,621 68,862 51,363
Loan servicing fees 9,209 13,381 10,380
Other operating income 23,840 19,963 10,897
Gain on sale of loans, inclusive of write-downs 427 14,133 11,477
Gain on sale of other assets 3,741 27,523 6,575
- ------------------------------------------------------------------------------------------------
Total other income 107,838 143,862 90,692
OTHER EXPENSE
Salaries and employee benefits 173,615 162,516 106,997
Occupancy and equipment 63,000 55,936 33,163
Deposit insurance 22,404 20,425 13,579
Other operating expense 96,205 96,914 61,927
Amortization of goodwill and other intangible assets 29,076 24,690 10,407
Real estate owned ("REO") operations, inclusive of
write-downs 12 6,295 2,111
Write-down of other assets -- 2,488 2,712
- ------------------------------------------------------------------------------------------------
Total other expense 384,312 369,264 230,896
- ------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary items and
cumulative effect of change in tax accounting
method 274,751 269,029 175,354
Income taxes 102,447 93,765 60,247
- ------------------------------------------------------------------------------------------------
Income before extraordinary items and cumulative
effect of change in tax accounting method 172,304 175,264 115,107
Extraordinary items, net of federal income tax effect -- (8,953) (4,638)
Cumulative effect of change in tax accounting method -- 13,365 --
- ------------------------------------------------------------------------------------------------
Net Income $ 172,304 $ 179,676 $110,469
================================================================================================
Net Income Attributable to Common Stock $ 153,720 $ 166,118 $105,594
================================================================================================
Per share amounts -- primary
Income before extraordinary items and cumulative
effect of change in tax accounting method $2.54 $ 2.74 $ 2.10
Extraordinary items, net of federal income tax effect -- (0.15) (0.09)
Cumulative effect of change in tax accounting method -- 0.23 --
- ------------------------------------------------------------------------------------------------
Net Income $2.54 $ 2.82 $ 2.01
================================================================================================
Per share amounts -- fully diluted
Income before extraordinary items and cumulative
effect of change in tax accounting method $2.46 $ 2.60 $ 1.99
Extraordinary items, net of federal income tax effect -- (0.14) (0.08)
Cumulative effect of change in tax accounting method -- 0.21 --
- ------------------------------------------------------------------------------------------------
Net Income $2.46 $ 2.67 $ 1.91
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
48
<PAGE> 51
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION> December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 222,435 $ 194,389
Trading account securities 572 1,098
Available-for-sale securities 2,535,018 --
Held-to-maturity securities 2,608,585 4,012,000
Loans 12,406,589 10,891,102
REO 19,048 34,057
Premises and equipment 173,805 158,927
Goodwill and other intangible assets 190,998 217,112
Other assets 300,632 318,543
- -----------------------------------------------------------------------------------------------
Total assets $18,457,682 $15,827,228
===============================================================================================
LIABILITIES
Deposits:
Checking accounts $ 1,117,545 $ 1,224,854
Savings and money market accounts 3,268,697 3,060,731
Time certificates 5,391,670 5,065,817
- -----------------------------------------------------------------------------------------------
Total deposits 9,777,912 9,351,402
Annuities 799,178 713,383
Securities sold under agreements to repurchase 2,595,651 2,173,693
Advances from the Federal Home Loan Bank of Seattle (FHLB) 3,737,611 2,079,934
Other borrowings 79,039 83,635
Other liabilities 163,723 229,477
- -----------------------------------------------------------------------------------------------
Total liabilities 17,153,114 14,631,524
Contingencies (Note 24)
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 10,000,000 shares authorized --
6,200,000 and 6,200,000 shares issued and outstanding -- --
Common stock, no par value: 100,000,000 shares authorized --
61,970,704 and 60,090,996 shares issued and outstanding -- --
Capital surplus 639,409 619,776
Valuation reserve for available-for-sale securities (28,980) --
Retained earnings 694,139 575,928
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 1,304,568 1,195,704
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $18,457,682 $15,827,228
===============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
49
<PAGE> 52
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of Shares Total
------------------ Valuation Stock-
Preferred Common Capital Retained Reserve for holders'
(dollars in thousands) Stock Stock Surplus Earnings Securities Equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 1,300 49,661 $304,251 $354,497 $ (422) $ 658,326
Net income -- -- -- 110,469 -- 110,469
Cash dividends declared on
preferred stock -- -- -- (4,875) -- (4,875)
Cash dividends declared on
common stock -- -- -- (21,231) -- (21,231)
Common stock issued -- 2,340 33,277 -- -- 33,277
Preferred stock issued 4,200 -- 203,765 -- -- 203,765
Adjustment in valuation reserve
for equity securities -- -- -- -- 422 422
Common stock issued through
stock options and employee
stock plans -- 1,764 14,793 90 -- 14,883
Conversion of preferred stock to
common stock (6) 23 -- -- -- --
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 5,494 53,788 556,086 438,950 -- 995,036
Net income -- -- -- 179,676 -- 179,676
Cash dividends declared on
preferred stock -- -- -- (13,559) -- (13,559)
Cash dividends declared on
common stock -- -- -- (28,712) -- (28,712)
Preferred stock issued 2,000 -- 48,182 -- -- 48,182
Common stock issued through
stock options and employee
stock plans -- 1,151 15,508 18 -- 15,526
Conversion of preferred stock to
common stock (1,294) 5,152 -- (445) -- (445)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 6,200 60,091 619,776 575,928 -- 1,195,704
Establishment of valuation
reserve for available-for-sale
securities -- -- -- -- 13,565 13,565
Net income -- -- -- 172,304 -- 172,304
Cash dividends declared on
preferred stock -- -- -- (18,584) -- (18,584)
Cash dividends declared on
common stock -- -- -- (42,214) -- (42,214)
Adjustment in valuation reserve
for available-for-sale
securities -- -- -- -- (42,545) (42,545)
Common stock issued through
stock options and employee
stock plans -- 426 10,038 -- -- 10,038
Immaterial business combination
accounted for as a pooling-of-
interests -- 1,454 9,595 6,705 -- 16,300
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,200 61,971 $639,409 $694,139 $ (28,980) $1,304,568
======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
50
<PAGE> 53
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 172,304 $ 179,676 $ 110,469
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 20,000 35,000 14,000
Cumulative effect of change in tax accounting
method -- (13,365) --
Gain on sale of loans (427) (14,133) (11,477)
Gain on sale of other assets (3,741) (27,523) (6,575)
REO operations, inclusive of write-downs 12 6,295 2,111
Write-down of other assets -- 2,488 2,712
Extraordinary loss -- 13,028 6,837
Depreciation and amortization 34,946 36,458 38,229
FHLB stock dividend (16,753) (22,943) (4,834)
Decrease (increase) in trading account securities 691 1,574 (109)
(Increase) in interest receivable (14,249) (32,096) (3,087)
Increase (decrease) in interest payable 11,761 (24,815) 7,697
Increase (decrease) in income taxes payable 40,500 13,190 (7,100)
Decrease (increase) in other assets 13,114 6,948 (844)
(Decrease) increase in other liabilities (58,638) (21,396) 2,476
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 199,520 138,386 150,505
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (1,037,632) -- --
Principal payments and maturities of available-for-sale
securities 343,348 -- --
Sales of available-for-sale securities 304,806 -- --
Purchases of held-to-maturity securities (773,498) (1,430,792) (1,080,062)
Principal payments and maturities of held-to-maturity
securities 188,372 920,635 751,556
Sales of held-to-maturity securities -- 764,162 80,705
Sales of loans 54,754 919,768 1,044,596
Principal payments on loans 2,329,872 3,545,492 1,902,376
Origination and purchases of loans (3,965,055) (5,654,511) (3,964,717)
Sales of REO 32,789 52,586 21,801
Expenditures for premises and equipment (31,410) (35,031) (12,222)
Acquisitions, net of cash acquired 40,679 387,688 30,926
- -------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (2,512,975) (530,003) (1,225,041)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits 229,743 (538,029) (6,752)
Increase in annuities 85,795 141,955 137,661
Increase in securities sold under agreements to
repurchase 421,958 1,112,361 341,290
Proceeds from FHLB advances 5,703,996 3,946,509 1,749,000
Payments for FHLB advances (4,045,800) (4,241,356) (1,267,605)
Call of subordinated capital notes -- (41,600) (62,400)
Payments of other borrowings (3,431) (5,428) (4,023)
Issuance of preferred stock (19) 48,182 203,765
Issuance of common stock through stock options and
employee stock plans 10,057 15,526 14,883
Conversion of preferred stock to common stock -- (445) --
Cash dividends paid (60,798) (42,271) (26,106)
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,341,501 395,404 1,079,713
- -------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 28,046 3,787 5,177
Cash and cash equivalents at beginning of year 194,389 190,602 185,425
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 222,435 $ 194,389 $ 190,602
=================================================================================================
</TABLE>
51
<PAGE> 54
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL DISCLOSURES RELATED TO THE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NONCASH INVESTING ACTIVITIES
Loans exchanged for mortgage-backed securities $ 174,572 $816,859 $143,367
Implementation of new accounting standard -- reclass to
available-for-sale portfolio 2,127,890 -- --
Real estate acquired through foreclosure 15,773 32,870 55,047
CASH PAID DURING THE YEAR FOR
Interest on deposits 354,531 364,022 305,469
Interest on borrowings 269,414 167,301 126,005
Federal income taxes 85,000 60,000 60,071
</TABLE>
See Notes to Consolidated Financial Statements.
52
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Washington
Mutual, Inc. ("WMI" and together with its subsidiaries "Washington Mutual" or
the "Company"). On Nov. 29, 1994, the Company's predecessor, Washington Mutual
Savings Bank ("WMSB") reorganized into a holding company structure (the
"Reorganization"). To effect the Reorganization, WMSB formed WMI in August of
1994. Thereafter, WMSB caused WMI to form Washington Mutual Bank ("WMB") as a
wholly owned subsidiary of WMI. In the Reorganization, WMSB merged with and into
WMB, with WMB as the surviving entity. WMB continued as a wholly owned
subsidiary of WMI. The par value of preferred and common stock and capital
surplus of the Company have been restated to reflect the new par value of the
holding company, effective Nov. 29, 1994. Certain reclassifications have been
made to the 1993 and 1992 financial statements to conform to the 1994
presentation. All significant intercompany transactions and balances have been
eliminated. Results of operations of companies acquired and accounted for as
purchases are included from the dates of acquisition. When Washington Mutual
acquires a company through a pooling-of-interests, current and prior period
financial statements are restated to include the accounts of acquired companies.
DERIVATIVE INSTRUMENTS
The Company uses derivative instruments, such as interest rate exchange
agreements, interest rate cap agreements and options on such instruments, to
reduce its exposure to interest rate risk. These instruments have the effect of
changing the interest rate characteristics of the assets or liabilities to which
they are designated.
Interest rate exchange agreements and interest rate cap agreements are
designated against either the available-for-sale portfolio or short-term
borrowings and deposits. Agreements designated against available-for-sale
securities are included at their market value in the available-for-sale
portfolio. Any mark-to-market adjustments are reported as a separate component
of stockholders' equity, net of tax. The market value of interest rate exchange
agreements and interest rate cap agreements designated against short-term
borrowings and deposits are not reported on the balance sheet.
The interest differential paid or received on interest rate exchange
agreements is recorded as an adjustment to interest income or interest expense
and classified with the interest income or interest expense of the related asset
or liability. The purchase premium of interest rate cap agreements is
capitalized and amortized on a straight-line basis and included as a component
of interest income or interest expense over the original term of the interest
rate cap agreement. No purchase premium is paid at the time an interest rate
exchange agreement is entered into. Gains and losses from terminated interest
rate exchange agreements and interest rate cap agreements are recognized,
consistent with the gain or loss on the asset or liability designated against
the agreement. Where the asset or liability was not sold or paid off, the gains
or losses are amortized on a straight-line basis as additional interest income
or interest expense over the original terms of the agreements or the remaining
life of the designated asset or liability, whichever is less.
The Company may also buy put or call options on mortgage instruments. The
purposes for such options are to manage the interest rate risk inherent in
secondary marketing activities. The cost of such options are capitalized and
amortized on a straight-line basis as a component of expense over the original
terms of the options. All options are carried at market value with the
corresponding gain or loss recognized in income.
INVESTMENT SECURITIES
Effective Jan. 1, 1994, the Company adopted, as required, Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires investment
and equity securities to be segregated into the following three categories:
trading, held-to-maturity and available-for-sale.
53
<PAGE> 56
Trading Securities
Trading securities are purchased and held principally for the purpose of
reselling them within a short period of time. Their unrealized gains and losses
are included in earnings.
Held-To-Maturity Securities
Investments classified as held-to-maturity are accounted for at amortized
cost, but an institution must have both the positive intent and the ability to
hold those securities to maturity. There are very limited circumstances under
which securities in the held-to-maturity category can be sold without
jeopardizing the cost basis of accounting for the remainder of the securities in
this category. Recognition is provided for unrealized losses in the debt
portfolio if any market valuation differences are deemed to be other than
temporary.
Available-For-Sale Securities
Securities not classified as either trading or held-to-maturity are
considered to be available-for-sale. Gains and losses realized on the sale of
these securities are based on the specific identification method. Unrealized
gains and losses for available-for-sale securities are excluded from earnings
and reported as a net amount in a separate component of stockholders' equity
until realized. As of Dec. 31, 1994, the net unrealized loss (on an after-tax
basis) of $29.0 million associated with the available-for-sale securities was
included as a separate component of stockholders' equity.
LOANS
Loans held for investment are stated at the principal amount outstanding,
net of deferred loan fees and any discounts or premiums on purchased loans. The
deferred fees, discounts and premiums are amortized using the interest method
over the estimated life of the loan. The Company sells residential fixed-rate
loans in the secondary market. At the date of origination, the loans so
designated and meeting secondary market guidelines are identified as held for
sale and carried at the lower of net cost or market value on an aggregate basis.
Management ceases to accrue interest income on any loan that becomes 90
days or more delinquent and reserves all interest accrued up to that time. In
addition, when circumstances indicate concern as to the future collectibility of
the principal of a commercial real estate loan, management stops accruing
interest on the loan, whether or not it has reached the 90 day delinquency
point. Thereafter, interest income is accrued only if and when, in management's
opinion, projected cash proceeds are deemed sufficient to repay both principal
and interest. All loans on which interest is not being accrued are referred to
as loans on nonaccrual status.
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." This statement
addresses the accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be determined. This
statement will become effective in 1995. Management does not believe that the
implementation of this statement will have a material effect on the financial
position or operations of the Company.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is maintained at a level sufficient to provide
for estimated loan losses based on evaluating known and inherent risks in the
loan portfolio. The reserve is based on management's continuing analysis of the
pertinent factors underlying the quality of the loan portfolio. These factors
include changes in the size and composition of the loan portfolio, actual loan
loss experience, current and anticipated economic conditions, and detailed
analysis of individual loans and credits for which full collectibility may not
be assured. The detailed analysis includes techniques to estimate the fair
market value of loan collateral and the existence of potential alternative
sources of repayment. The appropriate reserve level is estimated based upon
factors and trends identified by management at the time financial statements are
prepared.
54
<PAGE> 57
When available information confirms that specific loans or portions thereof
are uncollectible, these amounts are charged-off against the reserve for loan
losses. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not evidenced the ability or intent to bring the loan current;
the Company has no recourse to the borrower, or if it does, the borrower has
insufficient assets to pay the debt; the fair market value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement.
Commercial real estate loans are considered by the Company to have somewhat
greater risk of uncollectibility than residential real estate loans due to the
dependency on income production or future development of the real estate.
The ultimate recovery of all loans is susceptible to future market factors
beyond the Company's control. These factors may result in losses or recoveries
differing significantly from those provided in the financial statements.
REO
REO includes properties acquired through foreclosure that are transferred
to REO at the lower of cost or fair market value, which represents the new
recorded basis of the property. Subsequently, properties are evaluated and any
additional declines in value are provided for in the REO reserve for losses. The
amount the Company will ultimately recover from REO may differ substantially
from the amount used in arriving at the net carrying value of these assets
because of future market factors beyond the Company's control or because of
changes in the Company's strategy for sale or development of the property.
Commercial REO that is managed and operated by the Company is depreciated
using the straight-line method over the property's estimated useful life.
PREMISES AND EQUIPMENT
Land, buildings, leasehold improvements and equipment are carried at cost.
Buildings and equipment are depreciated over their estimated useful lives on the
straight-line method. Leasehold improvements are amortized over the shorter of
their useful lives or lease terms.
ANNUITY AND INSURANCE ACCOUNTING
WM Life Insurance Co. ("WM Life"), the Company's insurance underwriting
subsidiary, currently issues the Income Annuity, a flexible premium annuity sold
by Murphey Favre, Inc. ("Murphey Favre"), the Company's full-service brokerage
subsidiary, by Washington Mutual Insurance Services, Inc. in Washington, and by
Columbia Services, Inc., a subsidiary of Washington Mutual, a Federal Savings
Bank ("FSB") in Oregon, and the Composite Variable Annuity, a variable annuity
sold by Murphey Favre. It also underwrites other flexible premium annuities that
are sold by independent agents.
Flexible premium annuities build earnings on a tax-deferred basis with the
interest rate fixed for one year. The policyholder chooses the timing and amount
of subsequent deposits.
The Company defers certain costs, such as commissions and the expenses of
underwriting and issuing policies, that are involved in acquiring new annuity
and life insurance business. These costs, which are included in other assets in
the accompanying Consolidated Statements of Financial Position, are amortized
over the lives of the policies in relation to the estimated gross profit.
Annuity reserves equal the policy value as defined in the policy contract as of
the balance sheet date.
FEDERAL INCOME TAXES
In February 1992, FASB issued SFAS No. 109, "Accounting for Income Taxes."
The statement requires the use of the liability method in accounting for income
taxes and eliminates on a prospective basis the former exemption from provision
of deferred income taxes on thrift bad debt reserves. The Company adopted the
new
55
<PAGE> 58
statement as required in the first quarter of 1993. The effect of this statement
on the Company's results of operations increased earnings by approximately $13.4
million on an after-tax basis. Use of the methods prescribed by SFAS No. 109 as
compared with the methods used in 1992, also had the effect of increasing the
federal income tax provision by $3.1 million for 1994, and decreasing the
federal income tax provision by $8.1 million for 1993.
Under the asset and liability method provided for by SFAS No. 109, deferred
tax assets and liabilities are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
The Company reports income and expenses using the accrual method of
accounting and files a consolidated tax return that includes all of its
subsidiaries.
NOTE 2: CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and demand deposits $220,959 $186,810
Cash equivalents:
Time deposits 1,476 7,579
- ----------------------------------------------------------------------------------------------
1,476 7,579
- ----------------------------------------------------------------------------------------------
$222,435 $194,389
==============================================================================================
</TABLE>
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, overnight investments and time deposits.
Generally, time deposits are short term.
Federal Reserve Board regulations require depository institutions to
maintain certain minimum reserve balances. Included in cash and demand deposits
were required deposits at the Federal Reserve of $27.3 million and $19.8 million
at Dec. 31, 1994 and 1993, respectively.
56
<PAGE> 59
NOTE 3: AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities classified by type and contractual maturity
date consisted of the following:
<TABLE>
<CAPTION>
December 31, 1994
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value Yield(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U. S. government and agency
obligations:
Due after one but within five years $ 187,992 $ 7 $ (11,135) $ 176,864 5.74%
After five but within 10 years 9,469 -- (254) 9,215 6.08
After 10 years 70,340 -- (2,316) 68,024 5.97
- ----------------------------------------------------------------------------------------------------
267,801 7 (13,705) 254,103 5.81
Corporate debt obligations:
Due after one but within five years 83,255 231 (2,232) 81,254 6.71
After five but within 10 years 50,609 296 (2,980) 47,925 7.50
After 10 years 6,502 23 (644) 5,881 7.65
- ----------------------------------------------------------------------------------------------------
140,366 550 (5,856) 135,060 7.04
Equity securities:
Preferred stock 35,457 -- (1,790) 33,667 9.95
FHLB stock 230,311 -- -- 230,311 6.00
Other stock 1,032 -- -- 1,032 --
- ----------------------------------------------------------------------------------------------------
266,800 -- (1,790) 265,010 6.48
- ----------------------------------------------------------------------------------------------------
674,967 557 (21,351) 654,173 6.34
- ----------------------------------------------------------------------------------------------------
Mortgage-backed securities:
U. S. government agency:
Due after one but within five years 52,036 -- (4,191) 47,845 5.18
After five but within 10 years 6,152 9 (2) 6,159 7.78
After 10 years 1,475,882 1,272 (60,088) 1,417,066 6.51
- ----------------------------------------------------------------------------------------------------
1,534,070 1,281 (64,281) 1,471,070 6.47
Corporate:
Due after five but within 10 years 9,716 -- (280) 9,436 5.46
After 10 years 355,657 511 (16,173) 339,995 6.14
- ----------------------------------------------------------------------------------------------------
365,373 511 (16,453) 349,431 6.12
- ----------------------------------------------------------------------------------------------------
1,899,443 1,792 (80,734) 1,820,501 6.40
- ----------------------------------------------------------------------------------------------------
Derivative instruments:
Interest rate exchange agreements (2,360) 21,014 -- 18,654 --
Interest rate cap agreements 8,766 32,924 -- 41,690 --
- ----------------------------------------------------------------------------------------------------
6,406 53,938 -- 60,344 --
- ----------------------------------------------------------------------------------------------------
$2,580,816 $56,287 $ (102,085) $2,535,018 6.23%
====================================================================================================
</TABLE>
(1) Weighted average yield at Dec. 31, 1994.
Proceeds from sales of investment securities in the available-for-sale
portfolio during 1994 were $39.1 million. The Company realized $723,000 in gains
and $100,000 in losses on these sales during 1994. Proceeds from sales of
mortgage-backed securities in the available-for-sale portfolio during 1994 were
$261.7 million. The Company realized $3.6 million in gains and $469,000 in
losses on these sales during 1994.
Available-for-sale mortgage-backed securities with a book value of $1,644.0
million and a market value of $1,573.4 million at Dec. 31, 1994 were pledged to
secure public deposits, securities sold under agreement to repurchase, other
borrowings, interest rate exchange agreements and access to the Federal Reserve
discount window.
57
<PAGE> 60
Other than at the adoption of SFAS No. 115, no transfers between the
available-for-sale and held-to-maturity categories were made.
At Dec. 31, 1994, net unrealized losses on the available-for-sale portfolio
were $99.7 million and unrealized gains on the derivatives designated against
this portfolio were $53.9 million, resulting in a combined net unrealized loss
included as a separate component of stockholders' equity (on an after-tax basis)
of $29.0 million.
NOTE 4: HELD-TO-MATURITY SECURITIES
Held-to-maturity securities classified by type and contractual maturity
date consisted of the following:
<TABLE>
<CAPTION>
December 31, 1994
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value Yield(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U. S. government and agency
obligations:
Due after one but within five years $ 1,006 $ 1 $ -- $ 1,007 4.44%
After five but within 10 years 6,557 -- (42) 6,515 8.25
- ----------------------------------------------------------------------------------------------------
7,563 1 (42) 7,522 7.74
Corporate debt obligations:
Due within one year 5,867 14 (75) 5,806 5.30
After one but within five years 85,848 1,898 (3,422) 84,324 8.18
After five but within 10 years 172,661 727 (13,781) 159,607 7.24
After 10 years 95,857 493 (8,831) 87,519 7.80
- ----------------------------------------------------------------------------------------------------
360,233 3,132 (26,109) 337,256 7.58
Municipal obligations(2):
Due after one but within five years 227 6 (3) 230 7.39
After five but within 10 years 26,968 812 (636) 27,144 6.51
After 10 years 51,326 1,867 (753) 52,440 6.88
- ----------------------------------------------------------------------------------------------------
78,521 2,685 (1,392) 79,814 6.76
- ----------------------------------------------------------------------------------------------------
446,317 5,818 (27,543) 424,592 7.43
- ----------------------------------------------------------------------------------------------------
Mortgage-backed securities:
U. S. government agency:
Due after five but within 10 years 12,296 -- (1,019) 11,277 6.13
After 10 years 2,031,920 38 (175,624) 1,856,334 7.15
- ----------------------------------------------------------------------------------------------------
2,044,216 38 (176,643) 1,867,611 7.14
Corporate:
Due after five but within 10 years 548 13 -- 561 11.06
After 10 years 117,504 252 (3,861) 113,895 7.04
- ----------------------------------------------------------------------------------------------------
118,052 265 (3,861) 114,456 7.06
- ----------------------------------------------------------------------------------------------------
2,162,268 303 (180,504) 1,982,067 7.14
- ----------------------------------------------------------------------------------------------------
$2,608,585 $6,121 $ (208,047) $2,406,659 7.19%
====================================================================================================
</TABLE>
(1) Weighted average yield at Dec. 31, 1994.
(2) The yield was adjusted to reflect tax equivalent yields on nontaxable
investment income.
There were no sales out of the held-to-maturity portfolio during 1994.
Other than at the adoption of SFAS No. 115, no transfers between the
held-to-maturity and available-for-sale categories were made.
58
<PAGE> 61
Held-to-maturity securities classified by type and contractual maturity
date consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993
- -----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value Yield(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U. S. government and agency
obligations:
Due within one year $ 16,231 $ 9 $ -- $ 16,240 3.47%
After one but within five years 222,018 6,361 (372) 228,007 5.81
After five but within 10 years 11,137 91 (43) 11,185 4.71
After 10 years 27,636 54 (12) 27,678 4.55
- -----------------------------------------------------------------------------------------------------
277,022 6,515 (427) 283,110 5.50
Corporate debt obligations:
Due within one year 200 1 -- 201 9.50
After one but within five years 107,007 3,974 (185) 110,796 6.39
After five but within 10 years 238,541 15,737 (725) 253,553 7.71
After 10 years 101,492 4,574 (1,268) 104,798 7.29
- -----------------------------------------------------------------------------------------------------
447,240 24,286 (2,178) 469,348 7.30
Municipal obligations(2):
Due after one but within five years 65 6 -- 71 9.75
After five but within 10 years 17,468 1,471 -- 18,939 9.44
After 10 years 52,960 6,135 -- 59,095 10.24
- -----------------------------------------------------------------------------------------------------
70,493 7,612 -- 78,105 10.04
Equity securities:
Preferred stock 26,123 1,143 (14) 27,252 9.61
FHLB stock 213,514 -- -- 213,514 11.00
Other stock 1,000 -- -- 1,000 --
- -----------------------------------------------------------------------------------------------------
240,637 1,143 (14) 241,766 10.80
- -----------------------------------------------------------------------------------------------------
1,035,392 39,556 (2,619) 1,072,329 7.82
- -----------------------------------------------------------------------------------------------------
Mortgage-backed securities:
U. S. government agency:
Due within one year 14,374 -- (395) 13,979 2.76
After one but within five years 117,171 158 (844) 116,485 4.76
After five but within 10 years 20,742 760 -- 21,502 8.09
After 10 years 2,170,481 53,202 (12,659) 2,211,024 6.68
- -----------------------------------------------------------------------------------------------------
2,322,768 54,120 (13,898) 2,362,990 6.57
Corporate:
Due after five but within 10 years 1,336 -- (40) 1,296 7.43
After 10 years 652,504 6,637 (4,324) 654,817 6.23
- -----------------------------------------------------------------------------------------------------
653,840 6,637 (4,364) 656,113 6.23
- -----------------------------------------------------------------------------------------------------
2,976,608 60,757 (18,262) 3,019,103 6.50
- -----------------------------------------------------------------------------------------------------
$4,012,000 $100,313 $(20,881) $4,091,432 6.85%
=====================================================================================================
</TABLE>
(1) Weighted average yield at Dec. 31, 1993.
(2) The yield was adjusted to reflect tax equivalent yields on nontaxable
investment income.
Proceeds from sales of investment securities in the held-to-maturity
category during 1993 and 1992 were $135.6 million and $53.2 million,
respectively. The Company realized $3.7 million and $3.3 million in gains and
$317,000 and $1.6 million in losses on sales during 1993 and 1992, respectively.
Proceeds from sales of mortgage-backed securities in the held-to-maturity
category during 1993 and 1992 were $667.5 million and $5.6 million,
respectively. The Company realized $23.3 million and $485,000 in gains and
$33,000 and $2,000 in losses on sales during 1993 and 1992, respectively. The
majority of the 1993 sales were prior to the
59
<PAGE> 62
acquisition of Pacific First Bank ("Pacific First") and resulted from the
balance sheet restructuring required to accommodate the major business
acquisition of Pacific First.
Held-to-maturity mortgage-backed securities with a book value of $1,995.6
million and $2,523.7 million and a market value of $1,828.0 million and $2,561.9
million at Dec. 31, 1994 and 1993, respectively, were pledged to secure public
deposits, securities sold under agreement to repurchase, other borrowings,
interest rate exchange agreements and access to the Federal Reserve discount
window.
NOTE 5: LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate:
Residential $ 8,004,319 $ 6,680,466
Residential construction 516,486 409,789
Commercial 1,675,406 1,828,266
- -----------------------------------------------------------------------------------------------
10,196,211 8,918,521
Second mortgage and other consumer 1,689,379 1,540,971
Manufactured housing 646,605 540,218
Commercial credits 2,443 6,606
Reserve for loan losses (128,049) (115,214)
- -----------------------------------------------------------------------------------------------
$12,406,589 $10,891,102
===============================================================================================
</TABLE>
Nonaccrual loans totaled $32.7 and $57.7 million at Dec. 31, 1994 and 1993,
respectively. If interest on these loans had been recognized, such income would
have been $2.8 million and $4.6 million for 1994 and 1993, respectively. Loans
under foreclosure were $28.1 million and $19.3 million at Dec. 31, 1994 and
1993, respectively. In addition, at Dec. 31, 1994 and 1993, the Company had
troubled debt restructurings aggregating $10.3 million and $8.1 million,
respectively. During 1994 and 1993, these troubled debt restructurings returned
a net yield of 8.53 percent and 9.03 percent, thereby contributing $878,000 and
$781,000 to interest income, respectively. Had these loans not been restructured
and interest accrued at their original rates, the additional interest income
would have been $93,000 and $8,000 for 1994 and 1993, respectively.
Loans, exclusive of reserve for loan losses, by geographic concentration
were as follows:
<TABLE>
<CAPTION>
December 31, 1994
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) Washington Oregon California Idaho Other States Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential $6,246,530 $1,342,718 $217,949 $ 86,105 $111,017 $ 8,004,319
Residential construction 321,631 186,250 -- 6,282 2,323 516,486
Apartment buildings 642,396 167,247 74,410 13,841 49,428 947,322
Other commercial real
estate 458,932 82,370 137,016 2,342 47,424 728,084
- ----------------------------------------------------------------------------------------------------------
7,669,489 1,778,585 429,375 108,570 210,192 10,196,211
Second mortgage and other
consumer 1,434,391 233,243 16,573 437 4,735 1,689,379
Manufactured housing 530,002 107,442 2 9,052 107 646,605
Commercial credits 1,400 -- -- 203 840 2,443
- ----------------------------------------------------------------------------------------------------------
$9,635,282 $2,119,270 $445,950 $118,262 $215,874 $12,534,638
==========================================================================================================
</TABLE>
60
<PAGE> 63
Loans, exclusive of reserve for loan losses, deferred loan fees and
premiums and discounts, by maturity or repricing date were as follows:
<TABLE>
<CAPTION>
(dollars in thousands) December 31, 1994
- ---------------------------------------------------------------------------------------------
<S> <C>
Adjustable-rate loans:
Due within one year $ 3,355,898
After one but within five years 1,489,340
After five but within 10 years 51,760
- ---------------------------------------------------------------------------------------------
4,896,998
Fixed-rate loans:
Due within one year 1,649,002
After one but within five years 2,934,454
After five but within 10 years 1,674,242
After 10 years 1,408,093
- ---------------------------------------------------------------------------------------------
7,665,791
- ---------------------------------------------------------------------------------------------
$12,562,789
=============================================================================================
</TABLE>
In addition to loans the Company serviced for its own portfolio, it
serviced loans of $3,897.5 million and $4,698.8 million at Dec. 31, 1994 and
1993, respectively, for U.S. government agencies, institutions and private
investors.
Unamortized deferred loan fees were $92.6 million and $69.0 million at Dec.
31, 1994 and 1993, respectively.
At Dec. 31, 1994, the Company had outstanding $466.9 million in fixed-rate
mortgage loan commitments, $105.6 million in adjustable-rate mortgage loan
commitments and $440.5 million in undisbursed lines of credit.
It is the policy of Washington Mutual to not grant loans to employees who
hold the position of Senior Vice President or above.
NOTE 6: RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $115,214 $ 53,970 $52,305
Provision for loan losses 20,000 35,000 14,000
Reserves added through business combinations 921 46,000 5,320
Reserves charged-off:
Residential (1,604) (1,612) (1,138)
Residential construction (190) (297) (937)
Commercial real estate (2,263) (13,786) (14,932)
Manufactured housing, second mortgage and other consumer (5,223) (2,664) (1,028)
Commercial credits (1,712) (2,590) (1,096)
- -----------------------------------------------------------------------------------------------
(10,992) (20,949) (19,131)
Reserves recovered:
Residential 17 45 17
Commercial real estate 1,945 514 494
Manufactured housing, second mortgage and other consumer 944 600 145
Commercial credits -- 34 820
- -----------------------------------------------------------------------------------------------
2,906 1,193 1,476
- -----------------------------------------------------------------------------------------------
Balance, end of year $128,049 $115,214 $53,970
===============================================================================================
</TABLE>
61
<PAGE> 64
As part of the ongoing process to determine the adequacy of the reserve for
loan losses, the Company reviews the components of its loan portfolio for
specific risk of principal loss. A portion of the reserve is then allocated to
reflect the identified loss exposure. An analysis of the reserve for loan losses
was as follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated reserves:
Commercial real estate $ 15,594 $ 19,354
Commercial credits -- 1,718
Residential construction 1,327 1,503
- ----------------------------------------------------------------------------------------------
16,921 22,575
Unallocated reserves 111,128 92,639
- ----------------------------------------------------------------------------------------------
$128,049 $115,214
==============================================================================================
Total reserve for loan losses as a percentage of:
Total loans 1.03% 1.06%
Nonperforming loans 210.47 149.55
</TABLE>
NOTE 7: REO
REO consisted of the following:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired through foreclosure $24,574 $38,309
Other repossessed assets 979 1,223
Reserve for losses (6,505) (5,475)
- ----------------------------------------------------------------------------------------------
$19,048 $34,057
==============================================================================================
</TABLE>
Changes in the REO reserve for losses were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31,
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $5,475 $ 11,239 $ 8,440
Provision for REO losses 100 7,300 4,686
Reserves added through business combinations -- -- 249
Reserves charged-off, net of recoveries 930 (13,064) (2,136)
- -----------------------------------------------------------------------------------------------
Balance, end of year $6,505 $ 5,475 $11,239
===============================================================================================
</TABLE>
REO operations, inclusive of write-downs were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations $ 88 $ 665 $ 2,711
Gain on sale of REO -- 340 (136)
Provision for REO losses (100) (7,300) (4,686)
- -----------------------------------------------------------------------------------------------
$ (12) $(6,295) $(2,111)
===============================================================================================
</TABLE>
62
<PAGE> 65
NOTE 8: PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $125,058 $107,706
Buildings 70,719 55,472
Leasehold improvements 35,280 37,216
- ----------------------------------------------------------------------------------------------
231,057 200,394
Accumulated depreciation (89,126) (70,715)
- ----------------------------------------------------------------------------------------------
141,931 129,679
Land 31,874 29,248
- ----------------------------------------------------------------------------------------------
$173,805 $158,927
==============================================================================================
</TABLE>
Depreciation expense for 1994, 1993 and 1992 was $18.9 million, $13.4
million and $7.6 million, respectively.
The Company has noncancelable operating leases for financial centers and
for office facilities and equipment. Rental expense, including amounts paid
under month-to-month cancelable leases, amounted to $25.7 million, $25.7 million
and $16.4 million for 1994, 1993 and 1992, respectively.
Future minimum net rental commitments, including maintenance and other
associated costs, for all noncancelable leases were as follows:
<TABLE>
<CAPTION>
December 31, 1994
- -------------------------------------------------------------------------------------------------
Land & Furniture &
(dollars in thousands) Buildings Equipment
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments:
Due within one year $ 19,305 $2,689
After one but within two years 16,233 1,535
After two but within three years 15,451 643
After three but within four years 13,998 122
After four but within five years 12,561 --
After five years 67,319 --
- -------------------------------------------------------------------------------------------------
$144,867 $4,989
=================================================================================================
</TABLE>
NOTE 9: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FSB and Washington Mutual Federal Savings Bank ("WMFSB"), net of
amortization of $71,239 and $43,780 $186,407 $210,911
Murphey Favre and Composite Research & Management Co., net of
amortization of $8,653 and $7,918 2,203 2,938
Mutual Travel, Inc., net of amortization of $3,136 and $2,371 1,799 2,773
Other, net of amortization of $164 and $1,525 589 490
- -----------------------------------------------------------------------------------------------
$190,998 $217,112
===============================================================================================
</TABLE>
Goodwill and other intangible assets result from business combinations
accounted for as a purchase of assets and an assumption of liabilities. Other
intangible assets primarily consist of core deposit intangibles and
covenants-not-to-compete resulting from acquisitions of thrift branch systems.
Goodwill and other intangible assets are amortized using the straight-line
method over the period that is expected to be benefited, which
63
<PAGE> 66
ranges from three to 10 years. The average remaining amortization period at Dec.
31, 1994, was approximately six and one-half years.
During 1994, WMFSB acquired three branches from Far West Federal Savings
Bank, two of which were subsequently sold to FSB. This transaction was accounted
for as a purchase of assets and an assumption of liabilities and increased
goodwill and other intangible assets by $2.2 million.
During 1993, FSB acquired Pacific First. This transaction was accounted for
as a purchase of assets and assumption of liabilities and increased goodwill and
other intangible assets by $178.2 million.
NOTE 10: DEPOSITS
Deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Checking accounts:
Interest bearing $ 798,465 $ 809,392
Noninterest bearing 319,080 415,462
- -----------------------------------------------------------------------------------------------
1,117,545 1,224,854
Savings accounts 1,018,637 1,355,578
Money market accounts 2,250,060 1,705,153
Time deposit accounts:
Due within one year 3,868,134 3,851,209
After one but within two years 749,372 545,730
After two but within three years 308,655 205,054
After three but within four years 190,588 244,008
After four but within five years 214,896 197,131
After five years 60,025 22,685
- -----------------------------------------------------------------------------------------------
5,391,670 5,065,817
- -----------------------------------------------------------------------------------------------
$9,777,912 $9,351,402
===============================================================================================
</TABLE>
Deposits with individual account balances of $100,000 or greater aggregated
$1,912.9 million and $1,668.1 million at Dec. 31, 1994 and 1993, respectively.
Included in these accounts were wholesale time deposit accounts totaling $619.1
million and $208.4 million and Bank Investment Contracts ("BICs") totaling $22.8
million and $53.0 million at Dec. 31, 1994 and 1993, respectively. At Dec. 31,
1994, wholesale time deposit accounts and BICs of $305.8 million mature within
three months, $126.8 million mature in three months to six months, $155.3
million mature in six months to one year, and $54.0 million mature after one
year. The related interest expense on these two wholesale products was $17.7
million, $17.4 million and $32.6 million for 1994, 1993 and 1992, respectively.
Deposits, principally wholesale time deposit accounts, from political
subdivisions and public agencies in Washington, were $281.3 million and $186.1
million at Dec. 31, 1994 and 1993, respectively.
Financial data pertaining to the weighted average cost of deposits were as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted daily average interest rate during the year 3.81% 3.91% 5.20%
</TABLE>
NOTE 11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company sold, under agreements to repurchase, specific securities of
the U.S. government and its agencies and other approved investments to
broker-dealers and customers. The securities underlying the agreements with
broker-dealers were delivered to the dealer who arranged the transaction or were
held by a
64
<PAGE> 67
safekeeping agent for the Company's account. Securities delivered to
broker-dealers may be loaned out in the ordinary course of operations. The
securities underlying the agreements with customers were held in a segregated
account by a safekeeping agent for the Company.
Scheduled maturities or repricing of securities sold under agreements to
repurchase were as follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to repurchase:
Due within 30 days $1,706,693 $1,373,417
After 30 but within 90 days -- 120,000
After 90 but within 180 days 394,123 --
After 180 but within one year 244,360 499,103
After one year 250,475 181,173
- -----------------------------------------------------------------------------------------------
$2,595,651 $2,173,693
===============================================================================================
</TABLE>
Financial data pertaining to the weighted average cost, the level of
securities sold under agreements to repurchase and the related interest expense
were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate at end of year 5.64% 3.49% 4.40%
Weighted daily average interest rate during the year 4.70 3.84 5.89
Daily average of securities sold under agreements to
repurchase $2,202,778 $1,526,197 $ 826,044
Maximum securities sold under agreements to repurchase
at any month end 2,676,447 2,173,693 1,107,893
Interest expense during the year 98,425 58,613 48,623
</TABLE>
NOTE 12: ADVANCES FROM THE FHLB
During 1994, three Washington Mutual subsidiaries -- WMB, WM Life and
WMFSB -- joined FSB as members of the FHLB. As members of the FHLB, each entity
maintains a credit line that is a percentage of their total regulatory assets,
subject to collateralization requirements. At Dec. 31, 1994, the credit lines
were 35 percent, 12 percent and 20 percent of regulatory assets for FSB, WMB and
WM Life, respectively. At Dec. 31, 1994, WMFSB did not yet have a credit line.
Advances outstanding at Dec. 31, 1994, were collateralized in aggregate, as
provided for in the Advances, Security and Deposit Agreements with the FHLB, by
all FHLB stock owned, by deposits with the FHLB, and by certain mortgages or
deeds of trust and securities of the U.S. government and agencies thereof.
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------------------
Range of Range of
Interest Interest
(dollars in thousands) Amount Rates Amount Rates
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLB advances:
Due within one year $1,456,133 3.95% - 7.89% $1,257,800 3.11% - 8.00%
After one but within two years 1,369,852 4.74 - 5.78 538,500 3.06 - 9.10
After two but within three years 774,478 4.38 - 5.60 119,000 3.18 - 8.35
After three but within four years 57,575 5.95 - 5.99 42,000 4.38 - 8.45
After four but within five years 60,403 6.19 - 6.28 57,000 3.12 - 8.50
After five years 19,170 4.50 - 8.65 65,634 4.50 - 8.65
- ---------------------------------------------------------------------------------------------------
$3,737,611 $2,079,934
===================================================================================================
</TABLE>
65
<PAGE> 68
Financial data pertaining to the weighted average cost, the level of FHLB
advances and the related interest expense were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate at end of year 5.66% 3.82% 5.30%
Weighted daily average interest rate during the year 4.54 4.19 6.15
Daily average of FHLB advances $3,002,174 $1,573,678 $ 680,060
Maximum FHLB advances at any month end 3,737,611 2,079,934 1,057,768
Interest expense during the year 144,163 65,890 41,830
</TABLE>
NOTE 13: OTHER BORROWINGS
Other borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------
Range of Range of
(dollars in thousands) Amount Interest Rates Amount Interest Rates
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medium-term notes $ -- --% $ 2,000 7.90%
Notes payable 79,039 6.13 - 8.75 81,635 6.13 - 10.00
- --------------------------------------------------------------------------------------------------------
$79,039 $83,635
========================================================================================================
</TABLE>
As part of the acquisition of Pacific First, the Company assumed a $2.0
million medium-term note. The note matured in 1994. The Company also assumed a
$75.0 million note payable to the City of Tampa. The City of Tampa issued
capital improvement revenue bonds in 1988 and invested a portion of the receipts
with Pacific First. The note matures in 1998 and is subject to periodic
withdrawals.
Financial data pertaining to the weighted average cost, the level of other
borrowings and the related interest expense were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate at end of year 6.13% 6.21% 8.11%
Weighted daily average interest rate during the year 6.22 6.14 7.09
Daily average of other borrowings $81,071 $67,572 $8,635
Maximum other borrowings at any month end 82,925 89,548 9,565
Interest expense during the year 5,037 4,152 612
</TABLE>
NOTE 14: INTEREST RATE RISK MANAGEMENT
From time to time, the following strategies may be used by the Company to
reduce its exposure to interest rate risk: the origination of adjustable-rate
mortgage loans and the purchase of adjustable-rate mortgage-backed securities;
the sale of fixed-rate residential mortgage loan production; and the use of
derivative instruments, such as interest rate exchange agreements, interest rate
cap agreements and options on such instruments.
As of Dec. 31, 1994, interest-sensitive assets of $7,081.5 million and
interest-sensitive liabilities of $11,890.7 million were scheduled to mature or
reprice within one year. At Dec. 31, 1994, the Company had entered into interest
rate exchange agreements and interest rate cap agreements with notional values
of $759.0 million and $1,700.0 million, respectively. Without these instruments
the Company's one-year gap at Dec. 31, 1994, would have been a negative 26.1
percent as opposed to a negative 14.3 percent.
Interest rate exchange agreements and interest rate cap agreements expose
the Company to credit risk in the event of nonperformance by counterparties to
such agreements. This risk consists primarily of the amount
66
<PAGE> 69
of collateral pledged against the agreements and the termination value of
agreements where the Company is in a favorable position. The Company controls
the credit risk associated with its interest rate exchange agreements and
interest rate cap agreements through counterparty credit review, counterparty
exposure limits and monitoring procedures.
The Company's use of derivative instruments reduces the negative effect
that changing interest rates may have on net interest income. The Company uses
such instruments to reduce the volatility of net interest income over an
interest rate cycle. None of the Company's derivative instruments are what are
termed leveraged derivative instruments. These types of instruments are riskier
than the derivatives used by the Company in that they have significant embedded
options that enhance the performance in certain circumstances but dramatically
reduce the performance in other circumstances.
From time to time, the Company terminates interest rate exchange agreements
and interest rate cap agreements prior to maturity. Such circumstances arise if,
in the judgment of management, such instruments no longer cost-effectively meet
policy objectives. Often such instruments are within one year of maturity.
During 1994, the Company terminated interest rate exchange agreements with a
notional value of $370.0 million for deferred gains of $1.4 million and deferred
losses of $4.8 million. In 1993, interest rate exchange agreements with a
notional value of $90.0 million were terminated for deferred losses of $3.4
million. During 1994, the Company terminated interest rate cap agreements with a
notional value of $375.0 million for deferred gains of $860,000. No interest
rate cap agreements were terminated in 1993.
Scheduled maturities of interest rate exchange agreements were as follows:
<TABLE>
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------------------
Short-Term
Notional Receipt Long-Term Carrying Fair
(dollars in thousands) Amount Rate(1) Payment Rate Value Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Designated against
available-for-sale securities:
Due within one year $150,000 6.38% 4.33% $ 4,700 $ 4,700
After one but within two years 350,000 5.69 4.54 13,954 13,954
Designated against short-term
borrowings and deposits:
Due within one year 69,000 5.79 7.46 -- (209)
After one but within two years 190,000 5.80 6.75 -- 2,319
- ------------------------------------------------------------------------------------------------------
$759,000 5.86% 5.32% $ 18,654 $20,764
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------------------
Short-Term
Notional Receipt Long-Term Carrying Fair
(dollars in thousands) Amount Rate(1) Payment Rate Value Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Designated against short-term
borrowings and deposits:
Due within one year $ 75,000 3.50% 6.23% $ -- $ (1,409)
After one but within two years 510,000 3.36 5.97 -- (11,831)
After two but within three
years 140,000 3.41 6.31 -- (5,375)
- ------------------------------------------------------------------------------------------------------
$725,000 3.38% 6.06% $ -- $(18,615)
======================================================================================================
</TABLE>
(1) The terms of each agreement have specific London Interbank Offering Rate
reset and index requirements, which result in different short-term receipt
rates for each agreement.
67
<PAGE> 70
Scheduled maturities of interest rate cap agreements were as follows:
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------------------------------------------
Notional Strike Short-Term Carrying Fair
(dollars in thousands) Amount Rate Receipt Rate Value Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Designated against available-for-sale
securities:
Due after one but within two years $ 600,000 5.13% 5.76% $24,936 $24,936
After two years 275,000 4.80 5.70 16,754 16,754
Designated against short-term borrowings
and deposits:
Due after one but within two years(1) 825,000 5.50 5.89 -- 20,421
- ---------------------------------------------------------------------------------------------------------
$1,700,000 5.25% 5.81% $41,690 $62,111
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------------------------------------------
Notional Strike Short-Term Carrying Fair
(dollars in thousands) Amount Rate Receipt Rate Value Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Designated against short-term borrowings
and deposits:
Due within one year $100,000 6.00% 3.25% $ -- $ 3
After one but within two years 275,000 5.48 3.63 -- 545
After two years 300,000 4.54 3.21 -- 5,560
- ---------------------------------------------------------------------------------------------------------
$675,000 5.14% 3.39% $ -- $6,108
=========================================================================================================
</TABLE>
(1) Includes $425.0 million notional amount with a weighted average cap ceiling
of 8.06%.
Changes in interest rate exchange agreements and interest rate cap
agreements were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
- --------------------------------------------------------------------------------------------------
Interest Rate Interest Rate
(dollars in thousands) Exchange Agreements Cap Agreements
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Notional balance, beginning of year $ 725,000 $ 675,000
Purchases 404,000 1,400,000
Terminations and maturities (370,000) (375,000)
- --------------------------------------------------------------------------------------------------
Notional balance, end of year $ 759,000 $1,700,000
==================================================================================================
</TABLE>
The unamortized balance of prepaid fees and deferred gains and losses from
terminated interest rate exchange agreements and interest rate cap agreements
are scheduled to be amortized into interest expense as follows:
<TABLE>
<CAPTION>
December 31, 1994
- --------------------------------------------------------------------------------------------------------
Gain on Gain on Short- Loss on Short- Net
Available-For- Term Borrowings Term Borrowings Gain
(dollars in thousands) Sale Securities and Deposits and Deposits (Loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $2,016 $502 $(3,802) $(1,284)
1996 344 -- (423) (79)
1997 -- -- (48) (48)
- --------------------------------------------------------------------------------------------------------
Unamortized deferred gain
(loss) $2,360 $502 $(4,273) $(1,411)
========================================================================================================
</TABLE>
68
<PAGE> 71
Financial data pertaining to the weighted average net effective (benefit)
cost, the level of interest rate exchange agreements and the related cost
(benefit) were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average net effective (benefit) cost at end of
year (0.54)% 2.92% 3.77%
Weighted average net effective cost during the year 1.73 4.25 3.58
Monthly average notional amount of interest rate
exchange agreements $ 890,250 $670,767 $1,040,027
Maximum notional amount of interest rate exchange
agreements at any month end 1,125,000 855,000 1,150,000
Net cost included with interest expense on deposits
during the year 15,289 24,268 23,110
Net cost included with interest expense on borrowings
during the year 1,426 4,210 14,124
Net (benefit) included with available-for-sale
securities during the year (1,316) -- --
</TABLE>
Financial data pertaining to the level of interest rate cap agreements and
related net (benefit) cost were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Monthly average notional amount of interest rate cap
agreements $1,064,583 $462,500 $125,000
Maximum notional amount of interest rate cap agreements
at any month end 1,700,000 675,000 250,000
Net (benefit) included with interest expense on deposits
during the year (301) -- --
Net cost included with available-for-sale securities
during the year 1,365 -- --
</TABLE>
NOTE 15: GAIN ON SALE OF OTHER ASSETS
Gain on sale of other assets consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trading account securities $ 165 $ 746 $ 261
Available-for-sale securities 3,794 -- --
Held-to-maturity securities -- 26,706 5,222
Premises and equipment 140 1,397 928
Other (358) (1,326) 164
- -----------------------------------------------------------------------------------------------
$3,741 $27,523 $6,575
===============================================================================================
</TABLE>
NOTE 16: WRITE-DOWN OF OTHER ASSETS
Write-down of other assets consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held-to-maturity securities $ -- $ -- $2,516
Real estate held for investment -- 2,488 196
- -----------------------------------------------------------------------------------------------
$ -- $2,488 $2,712
===============================================================================================
</TABLE>
69
<PAGE> 72
NOTE 17: INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes $ 87,054 $72,003 $64,857
Deferred income tax expense (benefit) 15,393 17,687 (6,721)
- -----------------------------------------------------------------------------------------------
$102,447 $89,690 $58,136
===============================================================================================
</TABLE>
In determining taxable income, savings banks are allowed bad debt
deductions based on a percentage of taxable income or on actual experience. Each
year, savings banks may select whichever method results in the most tax savings.
The Company primarily used the experience method in 1994, 1993 and 1992.
Effective with the adoption of SFAS No. 109, this bad debt deduction is no
longer treated as a permanent difference.
The significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Purchase accounting adjustments $ 37,331 $ 56,853
FHLB stock dividends 35,783 30,509
Deferred loan fees 19,163 24,785
Deferred gains 11,655 21,891
Other 31,318 43,469
- ----------------------------------------------------------------------------------------------
135,250 177,507
Deferred tax assets:
Book reserves 44,655 42,446
Purchase accounting adjustments 16,167 36,972
Deferred loan fees -- 30,522
Tax benefits/credit carry forwards -- 22,595
Deferred losses 12,166 4,144
Other 14,181 36,080
- ----------------------------------------------------------------------------------------------
87,169 172,759
- ----------------------------------------------------------------------------------------------
$ 48,081 $ 4,748
==============================================================================================
</TABLE>
In April 1994, revenue procedures were issued allowing the Company to
change its method of accounting for loan fees, effective for 1993. The change
allowed the Company to defer the recognition of loan fees for income tax
purposes. As a result, a reclassification to the deferred tax liability was
created during 1994 to offset the deferred tax asset related to deferred loan
fees recorded at Dec. 31, 1993.
At Dec. 31, 1994, deferred tax assets included the tax effect of net
unrealized losses under SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" on available-for-sale securities. The tax effect is made
directly to stockholders' equity and is not included in the provision for income
taxes.
The change in the net deferred tax liability was as follows:
<TABLE>
<CAPTION>
(dollars in thousands) Year Ended December 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C>
Deferred tax liability, beginning of year $ 4,748
Reclassification related to change in tax accounting for loan fees and
other miscellaneous items 43,528
Tax effect of valuation adjustment on available-for-sale securities at
Dec. 31, 1994 (15,588)
Deferred income tax expense 15,393
- --------------------------------------------------------------------------------------------
Deferred tax liability, end of year $ 48,081
============================================================================================
</TABLE>
70
<PAGE> 73
Reconciliations between income taxes computed at statutory rates and income
taxes included in the Consolidated Statements of Income were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at statutory rates $ 96,163 $95,126 $59,437
Tax effect of:
Provision for loan losses -- -- 4,094
Amortization of goodwill and other intangible
assets 6,688 6,281 2,706
Dividends received deduction (506) (441) (477)
Tax exempt income (1,624) (1,838) (1,217)
Bad debt deduction -- -- (3,572)
Other 1,726 (5,363) (724)
- -----------------------------------------------------------------------------------------------
Income taxes before extraordinary items 102,447 93,765 60,247
Tax effect of:
Call of subordinated capital notes -- (709) (1,139)
Penalty for prepayment of FHLB advances -- (3,366) (972)
- -----------------------------------------------------------------------------------------------
Income taxes included in the Consolidated Statements of
Income $102,447 $89,690 $58,136
===============================================================================================
</TABLE>
NOTE 18: EXTRAORDINARY ITEMS
Extraordinary items consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Call of subordinated capital notes $ -- $ (2,266) $(3,108)
Penalty for prepayment of FHLB advances -- (10,762) (3,641)
- -----------------------------------------------------------------------------------------------
-- (13,028) (6,749)
Federal income tax benefits -- 4,075 2,111
- -----------------------------------------------------------------------------------------------
$ -- $ (8,953) $(4,638)
===============================================================================================
</TABLE>
On Sept. 15, 1993, the Company redeemed for cash all $40.0 million in
principal of its 10.50 percent subordinated capital notes due March 15, 1999.
The Company called on June 15, 1992, all $60.0 million of its 15.00 percent
subordinated capital notes due June 15, 1997.
The Company prepaid $432.6 million and $175.0 million in advances from the
FHLB during 1993 and 1992, respectively.
NOTE 19: STOCKHOLDERS' EQUITY
COMMON STOCK
In the third quarter of 1993 and the first quarter of 1992, Washington
Mutual's Board of Directors declared 50 percent stock dividends on its shares of
common stock. The stock dividends had the effect of a three-for-two stock split.
Cash dividends declared, as adjusted for the above mentioned stock dividends,
were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $0.16 $0.10 $0.07
Second quarter 0.17 0.11 0.08
Third quarter 0.18 0.14 0.09
Fourth quarter 0.19 0.15 0.09
</TABLE>
71
<PAGE> 74
Not only is the dividend policy of Washington Mutual influenced by legal,
regulatory and economic restrictions, but it is also predicated on the ability
of its subsidiaries to declare and pay dividends to Washington Mutual. These
subsidiaries are in turn subject to legal and regulatory restrictions on their
ability to pay dividends.
Retained earnings of the Company at Dec. 31, 1994, included a bad debt
reserve for tax purposes of approximately $234.3 million for which no federal
income taxes had been provided. In the future, if this tax bad debt reserve is
used for any purpose other than to absorb bad debt losses or if any of the
banking subsidiaries do not meet the 60 percent qualified assets test, the
Company will incur a federal income tax liability at the then prevailing
corporate tax rate.
On Oct. 16, 1990, the Company's Board of Directors adopted a shareholder
rights plan and declared a dividend of one right for each outstanding share of
common stock to shareholders of record on Oct. 31, 1990. The rights have certain
anti-takeover effects. They are intended to discourage coercive or unfair
takeover tactics and to encourage any potential acquirer to negotiate a price
fair to all shareholders. The rights may cause substantial dilution to an
acquiring party that attempts to acquire the Company on terms not approved by
the Board of Directors, but they will not interfere with any friendly merger or
other business combination. The plan was not adopted in response to any specific
effort to acquire control of the Company.
PREFERRED STOCK
In August 1989, the Company issued 1,300,000 shares of Noncumulative
Convertible Perpetual Preferred Stock, Series A, at $50 per share for net
proceeds of $63.2 million. In January 1993, the Company issued a notice of
redemption to all holders of its Preferred Stock, Series A. Virtually all
holders of the Preferred Stock, Series A, converted their shares into common
stock prior to the redemption date of Feb. 12, 1993.
In December 1992, the Company issued 2,800,000 shares of Noncumulative
Perpetual Preferred Stock, Series C, at $25 per share for net proceeds of $67.4
million. The stock has a liquidation preference of $25 per share plus dividends
accrued and unpaid for the then current dividend period. Dividends, if and when
declared by Washington Mutual's Board of Directors, are at an annual rate of
$2.28 per share. Dividends have been declared and paid in all quarters since
issuance. The Company may redeem the stock on or after Dec. 31, 1997, at the
redemption price of $25 per share plus unpaid dividends, whether or not
declared, for the then current dividend period up to the date fixed for
redemption.
Also in December 1992, the Company issued 1,400,000 shares of Noncumulative
Convertible Perpetual Preferred Stock, Series D, at $100 per share for net
proceeds of $136.4 million. The stock has a liquidation preference of $100 per
share plus dividends accrued and unpaid for the then current dividend period.
The stock is convertible at a rate of 3.870891 shares of common stock per share
of preferred stock (after adjustment for the third quarter 1993 50 percent stock
dividend discussed below). Dividends, if and when declared by Washington
Mutual's Board of Directors, are at an annual rate of $6.00 per share. Dividends
have been declared and paid in all quarters since issuance. The Company may
redeem the stock on or after Dec. 31, 1996, at an initial redemption price of
$103.60 per share. The redemption price declines to $100 per share by the year
2003.
In September 1993, the Company issued 2,000,000 shares of Noncumulative
Perpetual Preferred Stock, Series E, at $25 per share for net proceeds of $48.2
million. The stock has a liquidation preference of $25 per share plus dividends
accrued and unpaid for the then current dividend period. Dividends, if and when
declared by Washington Mutual's Board of Directors, are at an annual rate of
$1.90 per share. Dividends have been declared and paid in all quarters since
issuance. The Company may redeem the stock on or after Sept. 15, 1998, at the
redemption price of $25 per share plus unpaid dividends, whether or not
declared, for the then current dividend period up to the date fixed for
redemption.
The Preferred Stocks, Series C, Series D and Series E, are senior to common
stock as to dividends and liquidation, but they do not confer general voting
rights.
72
<PAGE> 75
NOTE 20: EARNINGS PER COMMON SHARE
Primary earnings per common share have been calculated by dividing net
income, after deducting dividends on preferred stock, by the weighted average
number of shares outstanding for the period. Fully diluted earnings per common
share assume conversion of the outstanding convertible preferred stock. Primary
and fully diluted earnings per common share for 1992 have been adjusted for the
third quarter 1993 50 percent stock dividend, which had the effect of a
three-for-two stock split.
Information used to calculate earnings per share was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $172,304 $179,676 $110,469
Preferred stock dividends:
Noncumulative Perpetual, Series C (6,384) (5,628) --
Noncumulative Perpetual, Series E (3,800) (538) --
Noncumulative Convertible Perpetual, Series A -- -- (4,875)
Noncumulative Convertible Perpetual, Series D (8,400) (7,392) --
- -------------------------------------------------------------------------------------------------
Net income available to primary common stock $153,720 $166,118 $105,594
=================================================================================================
Net income $172,304 $179,676 $110,469
Preferred stock dividends:
Noncumulative Perpetual, Series C (6,384) (5,628) --
Noncumulative Perpetual, Series E (3,800) (538) --
- -------------------------------------------------------------------------------------------------
Net income available to fully diluted common stock $162,120 $173,510 $110,469
=================================================================================================
Average number of common shares outstanding:
Primary 60,494,945 58,954,059 52,529,967
Noncumulative Convertible Perpetual, Series A -- 643,121 5,174,055
Noncumulative Convertible Perpetual, Series D 5,419,247 5,419,247 59,230
- -------------------------------------------------------------------------------------------------
Fully diluted 65,914,192 65,016,427 57,763,252
=================================================================================================
</TABLE>
NOTE 21: REGULATORY CAPITAL REQUIREMENTS
WMI is not subject to any regulatory capital requirements. However, each of
its subsidiary depository and insurance institutions is subject to various
capital requirements. WMB is subject to FDIC capital requirements, while FSB and
WMFSB are subject to OTS capital requirements.
The FDIC currently measures an institution's capital using a leverage limit
together with certain risk-based ratios. The FDIC requires most banks it
regulates to maintain a minimum leverage ratio, defined as core ("Tier 1")
capital divided by total regulatory assets, of at least 4.00 percent to 5.00
percent. It also requires total capital of at least 8.00 percent of
risk-weighted assets; and Tier 1 capital of at least 4.00 percent of risk-
weighted assets. The OTS requires savings associations, such as FSB and WMFSB,
to meet each of three separate capital adequacy standards: a core capital
leverage requirement, a tangible capital requirement and a risk-based capital
requirement. OTS regulations require savings associations to maintain core
capital (which may include, for a limited time, certain amounts of qualifying
supervisory goodwill) of at least 3.00 percent of assets and tangible capital
(excluding all goodwill) of at least 1.50 percent of assets. Most savings
institutions are required to maintain a minimum leverage capital ratio of at
least 4.00 percent. OTS regulations incorporate a risk-based capital requirement
that is designed to be no less stringent than the capital standard applicable to
national banks and is modeled in many respects on, but not identical to, the
risk-based capital requirements adopted by the FDIC. These regulations require a
core risk-based capital ratio of at least 4.00 percent and a total risk-based
capital ratio of at least 8.00 percent.
73
<PAGE> 76
FDICIA created a statutory framework that increased the importance of
meeting applicable capital requirements. For WMB, FSB and WMFSB, FDICIA
establishes five capital categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. An institution's category depends upon where its capital
levels are in relation to relevant capital measures, which include a risk-based
capital measure, a leverage ratio capital measure and certain other factors. The
federal banking agencies (including the FDIC and the OTS) have adopted
regulations which implement this statutory framework. Under these regulations,
in order to be well capitalized a bank must have a ratio of total capital to
risk-weighted assets of not less than 10.00 percent, a ratio of Tier 1 capital
to risk-weighted assets of not less than 6.00 percent, and a leverage ratio of
Tier 1 capital to total average assets of not less than 5.00 percent and must
not be subject to any federal supervisory order or directive to meet a specific
capital level. In order to be adequately capitalized, an institution must have a
total risk-based capital ratio of not less than 8.00 percent, a Tier 1
risk-based capital ratio of not less than 4.00 percent, and a leverage ratio of
not less than 4.00 percent. Any institution which is neither well capitalized
nor adequately capitalized will be considered undercapitalized. Undercapitalized
institutions are subject to certain regulatory controls and restrictions which
become more extensive as an institution becomes more severely undercapitalized.
The OTS has adopted a rule, to be implemented as of March 31, 1995,
incorporating an interest rate risk component into the risk-based capital
requirement for savings associations such as FSB and WMFSB. Such an institution
will be required to deduct from its total risk-based capital an amount equal to
one-half of the difference between its measured interest rate risk and 2
percent, multiplied by the estimated economic value of its assets. Management
has analyzed the effect of the regulation and believes that the effect of
including such an interest rate risk component in the calculation of
risk-adjusted capital will not cause either FSB or WMFSB to cease to be well
capitalized.
Capital ratios for WMB (on a consolidated basis), FSB (on a consolidated
basis) and WMFSB were as follows:
<TABLE>
<CAPTION>
December 31, 1994
- --------------------------------------------------------------------------------------------
WMB FSB WMFSB
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible capital ratio n.a.% 7.24% 14.90%
Leverage capital ratio 5.90 7.29 14.90
Total risk-based capital ratio 11.89 12.56 109.97
Tier 1 or core risk-based capital ratio 10.97 12.13 109.97
</TABLE>
Reconciliation of WMB's consolidated stockholders' equity to regulatory
capital was as follows:
<TABLE>
<CAPTION>
(dollars in thousands) December 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C>
Stockholders' equity $1,207,328
Reporting differences:
Goodwill and identifiable assets (190,275)
Valuation reserve for available-for-sale securities 24,467
Investment in securities-related subsidiaries (8,125)
Purchased mortgage servicing rights (881)
Other nonqualifying assets (723)
- --------------------------------------------------------------------------------------------
Total regulatory capital $1,031,791
============================================================================================
</TABLE>
NOTE 22: STOCK OPTION PLAN
On March 8, 1984, the Company's stockholders approved the adoption of the
1983 incentive stock option plan, providing for the award of incentive stock
options or nonqualified stock options and stock appreciation rights ("SARs") to
certain officers of the Company at the discretion of the Board of Directors. On
April 19, 1994, the Company's stockholders' approved the adoption of the 1994
stock option plan in which the right to purchase common stock of the Company may
be granted to employees, directors, consultants and advisers of the Company. The
1994 plan is similar in some respects to the 1983 plan, which terminated
according to its
74
<PAGE> 77
terms in 1993. Consistent with the Company's practice under the 1983 plan, it is
anticipated that the majority of options available under the plan will be
granted to the most senior management of the Company. The 1994 plan does not
affect any options granted under the 1983 plan.
Under the 1994 stock option plan, on the date of the grant, the exercise
price of the option must at least equal the market value per share of the
Company's common stock. The 1994 plan provides for the granting of options for a
maximum of 4,000,000 common shares.
A SAR represents the right to receive in cash an amount equal to the
difference between the market value of one share of the Company's common stock
on the date of exercise of the SAR and the market value of such a share on the
date of the grant. The market value is the closing stock price on the date of
the grant. During 1994, due to the decline in the price of the Company's common
stock, a credit of $49,000 was recorded against compensation expense. The
increased value of SARs during 1993 and 1992, which had been recorded as
compensation expense, was $15,000 and $486,000, respectively.
Stock options and SARs are exercisable on a phased-in schedule. At Dec. 31,
1994, stock options of 842,906 and 6,750 SARs were fully exercisable.
Stock options and SARs granted, exercised or terminated were as follows:
<TABLE>
<CAPTION>
Stock Options(1) SARs(1)
- -----------------------------------------------------------------------------------------------------
Average Price Number Average Price Number
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding January 1, 1992 $ 6.18 1,966,005 $3.47 82,687
Granted in 1992 13.06 222,315 -- --
Exercised in 1992 4.89 (731,461) 3.26 (75,937)
- -----------------------------------------------------------------------------------------------------
Outstanding December 31, 1992 7.86 1,456,859 5.86 6,750
Granted in 1993 22.25 202,500 -- --
Exercised in 1993 6.04 (519,019) -- --
- -----------------------------------------------------------------------------------------------------
Outstanding December 31, 1993 11.24 1,140,340 5.86 6,750
Granted in 1994 22.27 191,631 -- --
Exercised in 1994 7.96 (106,399) -- --
- -----------------------------------------------------------------------------------------------------
Outstanding December 31, 1994 $13.25 1,225,572 $5.86 6,750
=====================================================================================================
</TABLE>
(1) Average price and number of stock options and SARs granted, exercised and
terminated in 1992 and 1993 have been adjusted for the third quarter 1993 50
percent stock dividend, which had the effect of a three-for-two stock split.
NOTE 23: EMPLOYEE BENEFITS PROGRAMS
The Company maintains a noncontributory cash balance defined benefit
pension plan ("Plan") for substantially all eligible employees. Benefits earned
for each year of service are based primarily on the level of compensation in
that year plus a stipulated rate of return on the benefit balance. It is the
Company's policy to fund the Plan on a current basis to the extent deductible
under federal income tax regulations. The net periodic pension cost for the Plan
was $1.3 million, $575,000 and $189,000 for 1994, 1993 and 1992, respectively.
The weighted average discount rate was 8.00 percent, 7.25 percent and 9.00
percent for 1994, 1993 and 1992, respectively. The long-term rate of return on
assets was 8.00 percent for 1994 and 9.00 percent for 1993 and 1992. The assumed
rate of increase in future compensation levels was 6.00 percent for all years
presented. The Plan's assets consist primarily of listed common stocks, U. S.
government obligations, corporate debt obligations and annuity contracts.
75
<PAGE> 78
The Plan's funded status and amounts recognized in the Company's financial
statements were as follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligations:
Vested benefits $(34,885) $(25,108)
Nonvested benefits (4,690) (2,006)
- ----------------------------------------------------------------------------------------------
Accumulated benefit obligation (39,575) (27,114)
Effect of future compensation increases (1,429) (376)
- ----------------------------------------------------------------------------------------------
Projected benefit obligation (41,004) (27,490)
Plan assets at fair value 53,037 32,910
- ----------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 12,033 5,420
Unrecognized loss (gain) due to past experience different from
assumptions 1,710 (4,064)
Unrecognized net asset at transition being recognized over 18.6 years (3,682) (2,679)
- ----------------------------------------------------------------------------------------------
Prepaid pension asset (liability) $ 10,061 $ (1,323)
==============================================================================================
</TABLE>
Net periodic pension expense included the following:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 2,952 $ 1,643 $ 1,754
Interest cost on projected benefit obligation 2,695 1,904 1,665
Actual gain on Plan assets 463 (5,637) (2,613)
Amortization and deferral, net (4,779) 2,665 (617)
- -----------------------------------------------------------------------------------------------
$ 1,331 $ 575 $ 189
===============================================================================================
</TABLE>
During 1994, the defined benefit pension plan acquired in the acquisition
of Pacific First was merged into the Company's defined benefit pension plan. The
fair value of plan assets exceeded the projected benefit obligation and the
accrued pension cost was reduced by $10.8 million.
In addition, the Company currently provides eligible retired employees with
access to medical coverage on the same basis as active employees and provides
certain other health care insurance benefits to a limited number of retired
employees. Effective Jan. 1, 1993, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
requires accrual of postretirement benefits, such as retiree health benefits,
during the years an employee provides services. The effect of this statement
required the Company to recognize a transition obligation of $3.1 million to be
amortized over 20 years. An additional liability of $1.0 million was established
for retiree health care obligations assumed in the acquisition of Pacific First.
The net periodic expense under SFAS No. 106 was $689,000 and $621,000 for 1994
and 1993, respectively. Prior to the adoption of the statement, the cost of
retiree health insurance benefits was recognized as an expense on a
pay-as-you-go basis. These costs were $262,000 during 1992.
The funded status of these benefits were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation $(4,488) $(4,478)
Unrecognized transition obligation 2,650 2,797
Unrecognized (gain)loss (189) 136
- ----------------------------------------------------------------------------------------------
Prepaid postretirement liability $(2,027) $(1,545)
==============================================================================================
</TABLE>
76
<PAGE> 79
Net periodic postretirement expense included the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $220 $154
Interest cost 322 320
Amortization of transition obligation 147 147
- ---------------------------------------------------------------------------------------------
$689 $621
=============================================================================================
</TABLE>
The weighted average discount rate was 8.00 percent and 7.25 percent for
1994 and 1993, respectively. The medical trend rate starts at 13.00 percent for
1993 and declines steadily to 6 percent by the year 2000. The effect of a 1
percent increase in the trend rates is not significant.
The Company also maintains a savings plan for substantially all eligible
employees that allows participants to make contributions by salary deduction
equal to 15 percent or less of their salary pursuant to section 401(k) of the
Internal Revenue Code. Employees' contributions vest immediately. The Company's
partial matching contributions vest over five years. The Company's contributions
to the savings plan in 1994, 1993 and 1992 were $8.0 million, $4.5 million and
$4.3 million, respectively.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement establishes standards of financial
accounting and reporting for the estimated cost of benefits provided by an
employer to former or inactive employees after employment but before retirement.
Effective Jan. 1, 1994, the Company adopted SFAS No. 112. There were no costs
accrued under this pronouncement in 1994.
NOTE 24: CONTINGENCIES
The Company has certain litigation and negotiations in progress resulting
from activities arising from normal operations. In the opinion of management,
none of these matters is likely to have a materially adverse effect on the
Company's financial position.
On March 15, 1993, a lawsuit was filed in Washington state court against
WMSB, WM Financial, Inc. (the holding company for Murphey Favre), Murphey Favre,
and certain present and former directors and officers of Murphey Favre. The
lawsuit concerned claims related to the sale by Murphey Favre between 1987 and
1990 of bonds issued by Homestead Savings of Millbrae, California. During 1994,
the parties negotiated a settlement of the lawsuit, which was subsequently
approved by the court. The Company recognized as expense $5.0 million in
connection with the settlement.
At periodic intervals, the FDIC and OTS regulators examine the Company's
financial statements as part of their legally prescribed oversight. Based on
these examinations, the regulators can direct that the Company's financial
statements be adjusted in accordance with their findings. A future examination
by the FDIC or the OTS could include a review of certain transactions or other
amounts reported in the Company's 1994 financial statements. The regulators have
not proposed significant adjustments to the Company's financial statements in
prior years and management is not aware of any basis for any such adjustments
for 1994. But, in view of the uncertain regulatory environment in which the
Company operates, the extent, if any, to which a forthcoming examination may
ultimately result in regulatory adjustments to the 1994 financial statements
cannot presently be determined.
NOTE 25: ACQUISITIONS
On March 1, 1993, the Company merged with Pioneer Savings Bank ("Pioneer")
of Lynnwood, Washington. Pioneer operated 17 branches and one mortgage lending
center. At Feb. 28, 1993, Pioneer had assets of $926.5 million, deposits of
$659.5 million and stockholders' equity of $114.4 million. The Company issued
8,779,581 shares of common stock (after adjustment for the third quarter 1993 50
percent stock dividend) to complete the merger with Pioneer. The financial
information presented in this document reflects the pooling-of-interests method
of accounting for the merger of Pioneer into the Company. Accordingly, under
77
<PAGE> 80
generally accepted accounting principles, the assets and liabilities of Pioneer
were recorded on the books of the resulting institution at their values as
reported on the books of Pioneer immediately prior to the consummation of the
merger with Pioneer. No goodwill was created in the merger with Pioneer. This
presentation required the restatement of prior periods as if the companies had
been combined.
The following pro forma information represents the results of operations of
the Company and Pioneer for 1993 and 1992, on an individual as well as combined
basis. The pro forma results do not necessarily indicate the actual results that
would have been obtained, nor are they necessarily indicative of the future
operations of the combined companies. The unaudited pro forma results of
operations were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands, except for per share amounts) 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Washington Mutual:
Net interest income $522,816 $294,909
Income before extraordinary items and cumulative effect of
change in tax accounting method 173,428 99,994
Extraordinary items, net of federal income tax effect (8,953) (4,638)
Cumulative effect of change in tax accounting method 13,365 --
- ----------------------------------------------------------------------------------------------
Net income $177,840 $ 95,356
==============================================================================================
Net income attributable to common stock $164,282 $ 90,481
==============================================================================================
Per share amounts -- primary
Income before extraordinary items and cumulative effect of
change in tax accounting method $ 2.78 $ 2.17
Extraordinary items, net of federal income tax effect (0.15) (0.10)
Cumulative effect of change in tax accounting method 0.23 --
- ----------------------------------------------------------------------------------------------
Net income $ 2.86 $ 2.07
==============================================================================================
Per share amounts -- fully diluted
Income before extraordinary items and cumulative effect of
change in tax accounting method $ 2.63 $ 2.04
Extraordinary items, net of federal income tax effect (0.14) (0.09)
Cumulative effect of change in tax accounting method 0.21 --
- ----------------------------------------------------------------------------------------------
Net income $ 2.70 $ 1.95
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Pioneer:
Net interest income $6,615 $34,649
Income before extraordinary items and cumulative effect of
change in tax accounting method 1,836 15,113
- ----------------------------------------------------------------------------------------------
Net income $1,836 $15,113
==============================================================================================
Net income attributable to common stock $1,836 $15,113
==============================================================================================
</TABLE>
78
<PAGE> 81
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands, except for per share amounts) 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Washington Mutual and Pioneer combined:
Net interest income $529,431 $329,558
Income before extraordinary items and cumulative effect of change in
tax accounting method 175,264 115,107
Extraordinary items, net of federal income tax effect (8,953) (4,638)
Cumulative effect of change in tax accounting method 13,365 --
- ----------------------------------------------------------------------------------------------
Net income $179,676 $110,469
==============================================================================================
Net income attributable to common stock $166,118 $105,594
==============================================================================================
Per share amounts -- primary
Income before extraordinary items and cumulative effect of change
in tax accounting method $ 2.74 $ 2.10
Extraordinary items, net of federal income tax effect (0.15) (0.09)
Cumulative effect of change in tax accounting method 0.23 --
- ----------------------------------------------------------------------------------------------
Net income $ 2.82 $ 2.01
==============================================================================================
Per share amounts -- fully diluted
Income before extraordinary items and cumulative effect of change
in tax accounting method $ 2.60 $ 1.99
Extraordinary items, net of federal income tax effect (0.14) (0.08)
Cumulative effect of change in tax accounting method 0.21 --
- ----------------------------------------------------------------------------------------------
Net income $ 2.67 $ 1.91
==============================================================================================
</TABLE>
On April 9, 1993, the Company acquired Pacific First from RT Holdings, Inc.
("RTH"), a subsidiary of Royal Trustco Limited of Toronto, Canada. In April,
Pacific First operated 129 branches and 14 home loan centers in Washington and
Oregon. At March 31, 1993, Pacific First had assets of $5,847.5 million and
deposits of $3,825.7 million.
As part of the acquisition of Pacific First, the Company negotiated several
provisions designed to reduce the effect of any Pacific First asset quality
problems on the resulting combined loan portfolio. As a result of the
provisions, RTH purchased $656.2 million book value in assets from Pacific First
prior to the sale to the Company.
As part of the purchase agreement, the Company received indemnification
from RTH for a variety of problems Pacific First had that could result in future
losses to the Company. These indemnification provisions were secured by both
specific funds held in escrow and by a guarantee from RTH's parent company. The
largest individual component is a $20.0 million general indemnity escrow that
can be drawn upon to pay a variety of claims, including any exposure arising
from transactions or acts prior to the purchase date.
The acquisition of Pacific First was treated as a purchase for accounting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of Pacific First have been recorded on the books of the
Company at their respective fair market values at the time of the consummation
of the acquisition of Pacific First. Goodwill, the excess of the purchase price
over the net fair value of the assets and liabilities, including identified
intangible assets, was recorded at $178.2 million. Amortization of goodwill over
a 10-year period will result in a charge to earnings of approximately $17.8
million per year. Because of the amount of assets of Pacific First acquired by
the Company, the financial results for Dec. 31, 1993, are not generally
comparable to those of a year ago. The combined organization at Dec. 31, 1993,
was significantly larger than it was a year ago.
The accompanying financial statements include the operations of the two
institutions from April 1, 1993, to Dec. 31, 1993. The following pro forma
information presents the results of operations for 1993 and 1992, as though the
acquisition had occurred on Jan. 1, 1992. The pro forma results do not
necessarily indicate the
79
<PAGE> 82
actual results that would have been obtained, nor are they necessarily
indicative of the future operations of the combined companies. The unaudited pro
forma results of operations were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------
(dollars in thousands, except for per share amounts) 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $571,220 $502,284
Income before extraordinary items and cumulative effect of change
in tax accounting method 198,327 171,578
Extraordinary items, net of federal income tax effect (8,953) (15,099)
Cumulative effect of change in tax accounting method 13,365 24,425
- ----------------------------------------------------------------------------------------------
Net income $202,739 $180,904
==============================================================================================
Net income attributable to common stock $189,181 $176,029
==============================================================================================
Per share amounts -- primary
Income before extraordinary items and cumulative effect of change
in tax accounting method $ 3.13 $ 3.17
Extraordinary items, net of federal income tax effect (0.15) (0.29)
Cumulative effect of change in tax accounting method 0.23 0.47
- ----------------------------------------------------------------------------------------------
Net income $ 3.21 $ 3.35
==============================================================================================
Per share amounts -- fully diluted
Income before extraordinary items and cumulative effect of change
in tax accounting method $ 2.95 $ 2.97
Extraordinary items, net of federal income tax effect (0.14) (0.26)
Cumulative effect of change in tax accounting method 0.21 0.42
- ----------------------------------------------------------------------------------------------
Net income $ 3.02 $ 3.13
==============================================================================================
</TABLE>
On Nov. 14, 1994, Washington Mutual merged with Summit Bancorp, Inc. The
merger was treated as a pooling-of-interests for accounting purposes. Due to the
immaterial nature of the transaction, prior period information has not been
restated as if the companies had been combined.
On July 25, 1994, Washington Mutual announced the signing of a merger
agreement with Olympus Capital Corporation, of Salt Lake City, Utah ("Olympus"),
the holding company of Olympus Bank, a Federal Savings Bank ("Olympus Bank"). At
Dec. 31, 1994, Olympus (on a consolidated basis) had assets of $392.3 million,
deposits of $286.6 million and stockholders' equity of $35.0 million. Olympus
Bank operates nine branches in Utah, as well as one branch and a satellite
facility in Butte, Montana. Under the terms of the transaction, Olympus Bank
will merge into WMFSB. Approvals from banking regulators and the Olympus
shareholders are anticipated during the second quarter of 1995.
80
<PAGE> 83
NOTE 26: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Results of operations on a quarterly basis were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
- -------------------------------------------------------------------------------------------------
(dollars in thousands, except for per share First Second Third Fourth
amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $276,166 $287,784 $308,427 $335,436
Interest expense 132,629 146,041 164,887 193,031
- -------------------------------------------------------------------------------------------------
Net interest income 143,537 141,743 143,540 142,405
Provision for loan losses 5,000 5,000 5,000 5,000
Other income 28,348 27,747 25,782 25,961
Other expense 100,583 96,890 93,722 93,117
- -------------------------------------------------------------------------------------------------
Income before income taxes 66,302 67,600 70,600 70,249
Income taxes 24,607 25,531 26,517 25,792
- -------------------------------------------------------------------------------------------------
Net income $ 41,695 $ 42,069 $ 44,083 $ 44,457
=================================================================================================
Net income attributable to common stock $ 37,049 $ 37,423 $ 39,437 $ 39,811
=================================================================================================
Net income per common share(1)
Primary $0.62 $0.62 $0.65 $0.65
Fully diluted 0.60 0.60 0.63 0.63
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
- -------------------------------------------------------------------------------------------------
(dollars in thousands, except for per share First Second Third Fourth
amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $204,805 $277,457 $272,990 $280,687
Interest expense 102,753 137,484 132,074 134,197
- -------------------------------------------------------------------------------------------------
Net interest income 102,052 139,973 140,916 146,490
Provision for loan losses 12,500 7,500 7,500 7,500
Other income 32,985 42,548 31,614 36,715
Other expense 73,216 102,433 92,982 100,633
- -------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary items
and cumulative effect of change in tax
accounting method 49,321 72,588 72,048 75,072
Income taxes 16,501 25,563 25,162 26,539
Extraordinary items, net of federal income tax
effect (7,499) (1,454) -- --
Cumulative effect of change in tax accounting
method 13,365 -- -- --
- -------------------------------------------------------------------------------------------------
Net income $ 38,686 $ 45,571 $ 46,886 $ 48,533
=================================================================================================
Net income attributable to common stock $ 36,754 $ 41,875 $ 43,190 $ 44,299
=================================================================================================
Per share amounts -- primary(1)
Income before extraordinary items and
cumulative effect of change in tax
accounting method $ 0.55 $ 0.73 $0.72 $0.74
Extraordinary items, net of federal income tax
effect (0.13) (0.03) -- --
Cumulative effect of change in tax accounting
method 0.23 -- -- --
- -------------------------------------------------------------------------------------------------
Net income $ 0.65 $ 0.70 $0.72 $0.74
=================================================================================================
Per share amounts -- fully diluted(1)
Income before extraordinary items and
cumulative effect of change in tax
accounting method $ 0.49 $ 0.70 $0.70 $0.71
Extraordinary items, net of federal income tax
effect (0.12) (0.02) -- --
Cumulative effect of change in tax accounting
method 0.21 -- -- --
- -------------------------------------------------------------------------------------------------
Net income $ 0.58 $ 0.68 $0.70 $0.71
=================================================================================================
</TABLE>
(1) Net income per common share for the first two quarters of 1993 has been
adjusted for the third quarter 1993 50 percent stock dividend, which had the
effect of a three-for-two stock split.
81
<PAGE> 84
NOTE 27: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
The fair value of financial instruments were as follows:
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 222,435 $ 222,435 $ 194,389 $ 194,389
Trading account securities 572 572 1,098 1,098
Available-for-sale securities 2,535,018 2,535,018 -- --
Held-to-maturity securities 2,608,585 2,406,659 4,012,000 4,091,432
Loans, exclusive of reserve for loan
losses 12,534,638 12,085,196 11,006,316 11,096,595
- ---------------------------------------------------------------------------------------------------
17,901,248 17,249,880 15,213,803 15,383,514
Financial liabilities
Deposits 9,777,912 9,771,116 9,351,402 9,390,295
Annuities 799,178 777,507 713,383 693,895
Securities sold under agreements to
repurchase 2,595,651 2,594,802 2,173,693 2,173,693
Advances from the FHLB 3,737,611 3,671,503 2,079,934 2,087,834
Other borrowings 79,039 79,039 83,635 90,393
- ---------------------------------------------------------------------------------------------------
16,989,391 16,893,967 14,402,047 14,436,110
Derivative instruments(1):
Interest rate exchange agreements:
Designated against available-for-sale
securities 18,654 18,654 -- --
Designated against short-term
borrowings and deposits -- 2,110 -- (18,615)
Interest rate cap agreements:
Designated against available-for-sale
securities 41,690 41,690 -- --
Designated against short-term
borrowings and deposits -- 20,421 -- 6,108
- ---------------------------------------------------------------------------------------------------
60,344 82,875 -- (12,507)
- ---------------------------------------------------------------------------------------------------
Net financial instruments $ 972,201 $ 438,788 $ 811,756 $ 934,897
===================================================================================================
</TABLE>
(1) See "Note 14: Interest Rate Risk Management."
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument as of Dec. 31, 1994 and 1993:
Cash and cash equivalents -- The carrying amount represented fair value.
Trading account securities -- Fair values were based on quoted market
prices.
Available-for-sale securities -- Fair values were based on quoted market
prices or dealer quotes. If a quoted market price was not available, fair value
was estimated using quoted market prices for similar securities.
82
<PAGE> 85
Held-to-maturity securities -- Fair values were based on quoted market
prices or dealer quotes. If a quoted market price was not available, fair value
was estimated using quoted market prices for similar securities.
Loans -- Loans were priced using the discounted cash flow method. The
discount rate used was the rate currently offered on similar products.
Deposits -- The fair value of checking accounts, savings accounts and money
market accounts was the amount payable on demand at the reporting date. For time
deposit accounts, the fair value was determined using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
products.
Annuities -- Fair value was estimated to be the present surrender value for
annuities with no defined maturity. The fair value of annuities with defined
maturities is estimated by projecting cash flows using rates which would be
offered for similar contracts with the same remaining maturities.
Securities sold under agreements to repurchase -- These were valued using
the discounted cash flow method. The discount rate was equal to the rate
currently offered on similar borrowings.
Advances from the FHLB -- These were valued using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
borrowings.
Other borrowings -- These were valued using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
borrowings.
Derivative instruments -- The market value for interest rate exchange
agreements was determined using the discounted cash flow method. The market
prices for similar instruments were used to value interest rate cap agreements.
NOTE 28: FINANCIAL INFORMATION -- WMI
WMI was formed Aug. 17, 1994. The following WMI (parent company only)
financial information should be read in conjunction with the other notes to the
consolidated financial statements.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Period of August 17, 1994
(dollars in thousands) (inception) to December 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME
Available-for-sale securities $ 1,641
Cash equivalents 44
- -----------------------------------------------------------------------------------------------
Total interest income 1,685
INTEREST EXPENSE
Borrowings 884
- -----------------------------------------------------------------------------------------------
Total interest expense 884
- -----------------------------------------------------------------------------------------------
Net interest income 801
OTHER INCOME
Equity in net earnings of subsidiaries(1) 13,103
- -----------------------------------------------------------------------------------------------
Total other income 13,103
OTHER EXPENSE
Other operating expense 228
- -----------------------------------------------------------------------------------------------
Total other expense 228
- -----------------------------------------------------------------------------------------------
Income before income taxes 13,676
Income taxes 201
- -----------------------------------------------------------------------------------------------
Net Income(1) $13,475
===============================================================================================
</TABLE>
(1) Contains intercompany transactions eliminated upon consolidation.
83
<PAGE> 86
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(dollars in thousands) December 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash and cash equivalents $ 5,903
Available-for-sale securities 104,987
Investment in subsidiaries(1) 1,284,709
Other assets 654
- -----------------------------------------------------------------------------------------------
Total assets $1,396,253
===============================================================================================
LIABILITIES
Securities sold under agreements to repurchase $ 84,329
Other liabilities (14)
- -----------------------------------------------------------------------------------------------
Total liabilities 84,315
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 10,000,000 shares
authorized -- 6,200,000 shares issued and outstanding --
Common stock, no par value: 100,000,000 shares authorized --
61,970,704 shares issued and outstanding --
Capital surplus(1) 747,562
Valuation reserve for available-for-sale securities (2,511)
Retained earnings(1) 566,887
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 1,311,938
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,396,253
===============================================================================================
</TABLE>
(1) Contains intercompany transactions eliminated upon consolidation.
84
<PAGE> 87
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period of August 17, 1994
(dollars in thousands) (inception) to December 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(1) $ 13,475
Adjustments to reconcile net income to net cash provided by
operating activities:
(Increase) in interest receivable (693)
Increase in interest payable 884
(Decrease) in income taxes payable (1,151)
Equity in undistributed earnings of subsidiaries(1) (13,103)
Decrease in other assets 39
Increase in other liabilities 252
- -----------------------------------------------------------------------------------------------
Net cash (used) by operating activities (297)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (111,984)
Principal repayments of available-for-sale securities 4,486
Acquisition of wholly-owned subsidiary(1) (82,877)
- -----------------------------------------------------------------------------------------------
Net cash (used) by investing activities (190,375)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in securities sold under agreements to repurchase 84,329
Issuance of common stock through stock options and employee stock plans 994
Contribution from wholly-owned subsidiary(1) 111,252
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 196,575
- -----------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 5,903
Cash and cash equivalents at beginning of year --
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,903
===============================================================================================
</TABLE>
(1) Contains intercompany transactions eliminated upon consolidation.
85
<PAGE> 88
WASHINGTON MUTUAL, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
<C> <S> <C>
-----------------------------------------------------------------------------------------
2.1* Agreement for Reorganization between the Registrant and Washington
Mutual, dated October 19, 1994.....................................
2.2 Amended and Restated Agreement for Merger among Washington Mutual,
Inc., Washington Mutual Bank, Washington Mutual Federal Savings
Bank and Olympus Capital Corporation and Olympus Bank, a Federal
Savings Bank, dated as of January 20, 1995 (Incorporated by
reference to Appendix A to the Washington Mutual, Inc. Registration
Statement on Form S-4, registration no. 33-57413)..................
3.1* Restated Articles of Incorporation of the Registrant, filed
November 28, 1994 (the "Articles").................................
3.2* Bylaws of the Registrant...........................................
4.1* Article II, Sections D(2), D(3), and D(4) of the Articles, which
define the rights of holders of the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock (filed
together with Exhibit 3.1 hereto)..................................
4.2* Rights Agreement, dated October 16, 1990...........................
4.3* Amendment No. 1 to Rights Agreement, dated October 31, 1994........
4.4* Supplement to Rights Agreement, dated November 29, 1994............
10.1* Washington Mutual 1994 Stock Option Plan...........................
10.2* Amended and Restated Incentive Stock Option Plan...................
10.3* Amended and Restated Washington Mutual Restricted Stock Plan
(1986).............................................................
10.4* Washington Mutual Employees' Stock Purchase Program................
10.5* Washington Mutual Retirement Savings and Investment Plan...........
10.6* Washington Mutual Employee Service Award Plan......................
10.7* Supplemental Employee's Retirement Plan for Salaried Employees of
Washington Mutual..................................................
10.8* Employment Contract of Kerry K. Killinger..........................
10.9* Employment Contract of William A. Longbrake........................
10.10* Employment Contract of Lee D. Lannoye..............................
10.11* Employment Contract of Deanna Oppenheimer..........................
10.12* Employment Contract of Craig E. Tall...............................
10.13* Employment Contract of Michael D. Towers...........................
10.14* Employment Contract of S. Liane Wilson.............................
10.15* Lease Agreement between Third and University Limited Partnership
and Washington Mutual Savings Bank, dated September 1, 1988........
10.16* First Amendment to Stock Purchase Agreement between Washington
Mutual Savings Bank; Washington Mutual, a Federal Savings Bank; RT
Holdings, Inc.; Pacific First Financial Corporation; RT Capital
Corporation; RT Finance Corporation; and Royal Trustco Limited
dated April 9, 1993................................................
10.17* Agreement for Merger between Washington Mutual Savings Bank, FSB
and Pioneer Savings Bank, dated August 20, 1992....................
21.00 List of Subsidiaries of the Registrant.............................
</TABLE>
- ---------------
* Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 0-25188).
86
