WAMU Earnings:
Tuesday October 20, 7:28 pm Eastern Time
Company Press Release
Washington Mutual Announces Record Third-Quarter Earnings, Increases Cash Dividend
SEATTLE--(BUSINESS WIRE)--Oct. 20, 1998--Washington Mutual, Inc. (Nasdaq:WAMU - news) today announced record third-quarter earnings of $274.3 million compared with an after-tax loss of $127.0 million, one year ago.
(Last year's results were significantly affected by pretax transaction charges of $466.9 million related to the company's merger with Great Western Financial Corporation.) Diluted earnings per share were 73 cents compared with a loss of 36 cents per share in the third quarter of 1997.
Earnings from operations, defined as net income excluding transaction-related charges, for the third quarter of 1998 were $287.1 million, versus $214.2 million for the same period in 1997. On a diluted basis, earnings from operations were 76 cents per share, as compared with 56 cents per share in the third quarter one year ago.
Reflecting Washington Mutual's continued strong profitability and capital position, the company's board of directors declared a cash dividend on the common stock of 22 cents per share, an increase from the previous quarter's cash dividend of 20.67 cents per share. Dividends on the common stock are payable on Nov. 13, 1998, to shareholders of record as of Oct. 30, 1998.
''Despite a challenging interest rate environment, Washington Mutual posted another solid quarterly performance highlighted by record third-quarter earnings and continued strength in our underlying business fundamentals,'' said Kerry Killinger, the company's chairman, president and chief executive officer. He pointed out the company's 19.23 percent return on average common equity (20.14 percent on an operating basis), 24 percent year over year increase in total loan originations and strong growth in its checking account and household base during the quarter.
''We also took steps to significantly strengthen our banking franchise, culminating with the Oct. 1 closing of our merger with H.F. Ahmanson & Company,'' Killinger said. ''Ahmanson's third-quarter financial performance (see below) is indicative of the quality of the company and its talented employees. We look forward to bringing our highly successful companies together.''
THIRD-QUARTER RESULTS
Net Interest And Other Income
The relatively flat yield curve contributed to a spread for the quarter of 2.70 percent, down from 2.76 percent for the same period last year. Similarly, the margin was 2.88 percent in the most recent quarter versus 2.94 percent for third quarter 1997. However, a larger base of interest earning assets from a year ago generated net interest income of $716.1 million for the third quarter of 1998, up 9 percent from $655.7 million a year earlier.
Total other income was $246.7 million, up from $111.1 million in last year's third quarter. Total other income in last year's third quarter was affected by the company's write-down of $100 million (pretax) resulting from the planned securitization of approximately $1.2 billion of higher-risk residential mortgage loans originated by Great Western prior to its merger with Washington Mutual.
A net increase of approximately 400,000 checking accounts, year over year, contributed to increased depositor and other retail banking fees of $121.1 million, up 31 percent over last year's figure of $92.4 million. During the most recent quarter, the company added more than 77,000 checking accounts.
Mortgage banking gains for the quarter were $26.6 million compared with a loss of $89.2 million in third quarter 1997 reflecting the previously mentioned $100 million write-down. Strong consumer demand for fixed-rate mortgages in the most recent period and the company's strategy of selling the majority of those assets on the secondary market also contributed to stronger mortgage banking gains.
Loan Originations
Lower interest rates for residential mortgages and the health of the regional economies served by the company contributed to the continued strong demand for home purchase loans and the refinancing of existing loans. Total loan originations of $9.8 billion for the quarter were up 24 percent from $7.9 billion a year ago. In the third quarter, single-family residential loan originations (excluding residential construction) were $7.6 billion, up from $5.9 billion one year ago.
Of the total single-family residential originations in the current quarter, $3.9 billion were adjustable-rate mortgages versus $4.1 billion for the same period in 1997. Fixed-rate mortgages were $3.7 billion for the most recent quarter, as compared with $1.8 billion one year ago.
Reflecting the period's increased residential mortgage refinancing activity, originations of shorter-term, higher-yielding consumer loans were $469.3 million compared with $495.3 million a year ago. Single-family residential construction lending for the period was $494.8 million, up 38 percent from $358.2 million in third quarter 1997.
The company's consumer finance group, Aristar, Inc., reported loan originations of $725.0 million, up 36 percent from $531.8 million in the same period one year ago. Killinger noted that the positive results were, in part, a result of the revised business strategy introduced by Aristar's recently hired CEO, Craig Chapman.
Efficiency Ratio
Washington Mutual's efficiency ratio (defined as other expense, excluding amortization of intangible assets arising from acquisitions, as a percentage of net interest income and other income) was 49.40 percent versus 105.58 percent a year ago. (As previously mentioned, last year's third quarter included significant transaction-related charges associated with completing the Great Western merger.) Excluding transaction-related charges for both periods, the efficiency ratio was 47.28 percent in the most recent quarter versus 51.08 percent in the third quarter of 1997.
Total other expense for the quarter was $489.4 million, down from $826.0 million in last year's third quarter. Excluding the amortization of intangible assets, other expense was $475.6 million for the third quarter of this year as compared with $809.6 million for the same period one year ago. Excluding both amortization of intangible assets and transaction charges, other expense for the quarter was $455.2 million versus $442.7 million in third quarter of 1997, and $465.9 million in the second quarter of 1998.
Credit Quality
The continued health of the major regional real estate markets in which the company operates contributed to a decline in total nonperforming assets to $748.5 million at Sept. 30, 1998, compared with $768.6 million at June 30, 1998. Nonperforming assets were 0.69 percent of total assets at the end of the quarter, compared with 0.74 percent at June 30, 1998.
In the quarter, the company recorded a $35.3 million provision for loan losses, versus $52.1 million the previous year. Net loan charge offs declined to $32.7 million from $46.3 million a year earlier. In addition, the company took $8.2 million in write-downs of loans securitized and retained in the third quarter of 1998, as compared with $7.7 million for the same period one year ago.
At Sept. 30, 1998, loan loss reserves totaled $686.2 million, and represented 116 percent of nonaccrual loans. The company's long-term goal is to maintain a ratio of reserves to nonaccrual loans of at least 100 percent.
''We continue to closely monitor credit quality in the major real estate markets we serve and our recent loan loss provisions reflect the relatively low level of net loan charge offs we've incurred,'' Killinger said.
Assets, Deposits, Stockholders' Equity and Capital Ratios
Washington Mutual purchased $4.2 billion of agency and private issue mortgage-backed securities and $1.0 billion of adjustable-rate and fixed-rate loans late in the period, which contributed to an increase in the company's quarter-end asset base. Consolidated assets at Sept. 30, 1998, were $108.4 billion, up from $103.4 billion at June 30, 1998.
Total deposits rose slightly to $50.6 billion at Sept. 30, 1998, compared with $50.5 billion at the end of second quarter 1998.
Stockholders' equity at Sept. 30, 1998, was $5.8 billion, or 5.35 percent of assets, and capital ratios of the company's banking subsidiaries continued to exceed the FDIC's requirements for classification as ''well-capitalized,'' the highest regulatory standard.
Consumer Finance
Aristar, Inc., the holding company for Washington Mutual's consumer finance group, reported third-quarter net income of $14.2 million, versus $10.0 million for the same period in 1997. The previous year's third-quarter total had been reduced as a result of a pretax interest accrual reversal of $4.6 million.
Ahmanson Merger Update
The completion of Washington Mutual's merger with Ahmanson further solidified the company's position as the nation's largest savings institution, with pro forma assets as of Sept. 30, 1998, of $158.5 billion.
Since completing the transaction on Oct. 1, Washington Mutual announced the following Ahmanson board members have joined the Washington Mutual Board of Directors: Phillip D. Matthews, chairman of the executive committee for Wolverine World Wide, Inc.; Elizabeth A. Sanders, principal, Sanders Partnership; and William D. Schulte, retired vice chairman, KPMG Peat Marwick LLP.
In addition, the company identified 161 branch consolidations in California that will result from the merger. The consolidations are scheduled for the second quarter of 1999 and will coincide with the conversion of Home Savings branches in California to Washington Mutual's systems and signage.
As previously announced, Washington Mutual anticipates taking a one-time charge in the fourth quarter of 1998 for costs related to the transaction. Those costs are currently estimated to be $257 million (after-tax).
Ahmanson Third-Quarter Results
As an independent company, Ahmanson posted record third-quarter earnings of $286.2 million, or $2.32 per diluted share, as compared with earnings of $95.5 million, or 84 cents per diluted share for the same period last year. Earnings for the most recent quarter included a one-time after-tax gain of $171.1 million, or $1.39 per diluted share, resulting from the sale of Ahmanson's 27 branches on the east coast of Florida.
Other Ahmanson stand-alone financial highlights included:
•Net interest income was $337.7 million for the quarter versus $302.8 million one year ago. Other income, which included a pretax gain of $289.0 million on the Florida branch sale proceeds, was $370.2 million as compared with $64.1 million for the same period in 1997. •Total loan originations of $2.9 billion, an 81 percent increase over last year's $1.6 billion for the same period.
Other News
Washington Mutual redeemed its Series E preferred stock (Nasdaq:WAMUM - news) on Sept. 16, 1998, at $25.00 per share, plus unpaid dividends up to the redemption date.
As previously announced, Ahmanson completed the redemption of its 6% Cumulative Convertible Preferred Stock, Series D, on Sept. 1, 1998, at $51.50 per depositary share, plus accrued and unpaid dividends to and including the redemption date.
OUTLOOK
''Our top priority for the immediate future is ensuring the successful integration of Ahmanson and achieving the financial objectives of the merger,'' Killinger said. ''We are now beginning the integration process and will continue that implementation through the middle of next year.''
''From an operating standpoint, we are encouraged by the Federal Reserve's recent easing of short-term interest rates and will closely monitor the situation, given the challenging interest rate environment. In the meantime, we will continue to manage the company appropriately, keeping in mind that our attractive banking franchise, strong operating fundamentals and proven business strategy place our company in an excellent position to deliver shareholder value over the long-term,'' Killinger said.
With a history dating back to 1889, Washington Mutual is a financial services company that provides a diversified line of products and services to consumers and small- to mid-sized businesses. At Sept. 30, 1998, Washington Mutual and Ahmanson had pro forma consolidated assets of $158.5 billion. Washington Mutual currently operates more than 2,000 offices throughout the nation.
Washington Mutual, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share amounts)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Interest Income
Loans $ 1,407,008 $ 1,320,754 $ 4,154,969 $ 3,826,055
Available-for-sale
securities 256,724 230,337 710,358 773,559
Held-to-maturity
securities 216,426 136,027 678,558 305,084
Cash equivalents
and other 31,669 41,435 95,331 109,620
Total interest
income 1,911,827 1,728,553 5,639,216 5,014,318
Interest Expense
Deposits 512,662 547,798 1,540,445 1,629,078
Borrowings 683,024 525,104 1,943,285 1,416,662
Total interest
expense 1,195,686 1,072,902 3,483,730 3,045,740
Net interest
income 716,141 655,651 2,155,486 1,968,578
Provision for loan
losses 35,250 52,131 126,998 155,940
Net interest income
after provision
for loan losses 680,891 603,520 2,028,488 1,812,638
Other Income
Depositor and other
retail banking
fees 121,082 92,431 319,042 267,409
Securities and
insurance fees
and commissions 51,632 53,344 154,504 156,402
Loan servicing fees 16,283 22,066 49,729 65,150
Loan related income 17,679 14,431 52,106 38,663
Mortgage banking
gains (losses) 26,551 (89,173) 69,644 (76,707)
Gain on sale of
other assets 8,455 6,691 25,318 17,697
Write down of loans
securitized and
retained (8,234) (7,744) (18,371) (20,166)
Other operating
income 13,238 19,067 38,360 39,063
Total other income 246,686 111,113 690,332 487,511
Other Expense
Salaries and employee
benefits 205,444 198,038 600,444 598,417
Occupancy and
equipment 76,047 80,871 227,260 239,718
Telecommunications and
outsourced information
services 51,141 40,137 153,114 126,210
Regulatory assessments 9,102 8,822 27,457 26,026
Transaction-related
expense 20,465 366,860 53,588 424,886
Amortization of intangible
assets arising from
acquisitions 13,733 16,387 40,761 47,833
Foreclosed asset
expense (9,546) 5,166 (5,945) 9,710
Other operating
expenses 122,996 109,685 337,577 320,454
Total other
expense 489,382 825,966 1,434,256 1,793,254
Income (loss)
before income
taxes 438,195 (111,333) 1,284,564 506,895
Income taxes 163,898 15,621 492,525 263,017
Net Income (Loss) $ 274,297 $ (126,954) $ 792,039 $ 243,878
Net Income (Loss)
Attributable to Common
Stock $ 273,028 $ (132,883) $ 788,096 $ 226,091
Net income (loss) per common share:
Basic $ 0.73 $ (0.36) $ 2.10 $ 0.62
Diluted 0.73 (0.36) 2.10 0.62
Washington Mutual, Inc.
Selected Financial Information
(dollars in thousands)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Data Used To Compute
Per Share Amounts
Net income (loss)$ 274,297 $ (126,954) $ 792,039 $ 243,878
Preferred stock
dividends:
Noncumulative
Perpetual,
Series C -- (1,569) (802) (4,707)
Noncumulative
Perpetual,
Series E (1,269) (936) (3,141) (2,808)
Nonconvertible
cumulative
preferred,
Series F -- (3,424) -- (10,272)
Net income (loss)
available to basic
common stock $ 273,028 $ (132,883) $ 788,096 $ 226,091
Net income (loss)$ 274,297 $ (126,954) $ 792,039 $ 243,878
Preferred stock dividends:
Noncumulative
Perpetual,
Series C -- (1,569) (802) (4,707)
Noncumulative
Perpetual,
Series E (1,269) (936) (3,141) (2,808)
Nonconvertible
cumulative
preferred,
Series F -- (3,424) -- (10,272)
Net income (loss)
available to diluted
common stock $ 273,028 $ (132,883) $ 788,096 $ 226,091
Average common shares used to
calculate earnings per share:
Basic 375,361,082 370,959,425 374,879,413 365,854,485
Common stock
equivalents 1,015,334 1,529,020 1,237,622 1,369,254
Diluted 376,376,416 372,488,445 376,117,035 367,223,739
Financial Ratios
Return on average
assets 1.06% (0.54)% 1.04% 0.36%
Return on average
equity 19.18 (9.48) 19.10 6.30
Return on average
common equity 19.23 (10.47) 19.19 6.18
Efficiency ratio:
Including amortization
of intangible assets
arising from
acquisitions 50.83 107.72 50.40 73.01
Excluding amortization
of intangible assets
arising from
acquisitions 49.40 105.58 48.97 71.07
Weighted Average Interest Rates
Yield on loan
portfolio 7.87% 7.86% 7.94% 7.89%
Yield on investment
portfolio 6.93 7.11 6.95 7.06
Combined yield on
loans and
investment
portfolio 7.60 7.67 7.65 7.68
Cost of deposits 4.03 4.21 4.06 4.19
Cost of borrowings 5.85 5.94 5.89 5.94
Combined cost of
deposits and
borrowings 4.90 4.91 4.91 4.85
Net interest spread 2.70% 2.76% 2.74% 2.83%
Net interest margin 2.88% 2.94% 2.92% 3.00%
Average Balances
Loans $ 71,417,642 $ 67,037,118 $ 69,809,714 $ 64,647,077
Investments 29,124,944 22,935,483 28,466,636 22,428,951
Total interest
earning
assets 100,542,586 89,972,601 98,276,350 87,076,028
Deposits 50,407,583 51,670,233 50,738,940 52,004,850
Borrowings 46,360,159 35,061,690 44,083,025 31,904,807
Total interest
bearing
liabilities 96,767,742 86,731,923 94,821,965 83,909,657
Total assets 103,944,145 93,764,401 101,845,313 90,386,754
Stockholders'
equity 5,719,128 5,358,598 5,528,083 5,161,239
Washington Mutual, Inc.
Consolidated Statements of Financial Position
(dollars in thousands, except per share amounts)
(unaudited)
Sept. 30, Dec. 31,
1998 1997
Assets
Cash $ 1,313,409 $ 1,285,222
Cash equivalents 40,750 275,668
Trading securities 38,452 23,364
Available-for-sale securities:
Mortgage-backed securities ("MBS") 17,899,773 10,188,107
Investment securities 556,209 1,185,815
Held-to-maturity securities:
MBS 11,283,139 12,659,217
Investment securities 130,790 120,397
Loans:
Loans held in portfolio 72,010,875 67,124,935
Loans held for sale 1,083,435 685,716
Reserve for loan losses (686,156) (670,494)
Total loans 72,408,154 67,140,157
Investment in Federal Home Loan Banks
("FHLBs") 1,408,871 1,059,491
Foreclosed assets 157,500 205,272
Premises and equipment 1,077,958 937,198
Intangible assets arising from
acquisitions 316,398 356,650
Mortgage servicing rights 262,340 215,360
Other assets 1,465,323 1,329,181
Total assets $108,359,066 $96,981,099
Liabilities
Deposits:
Checking accounts $ 8,133,689 $ 7,914,375
Savings accounts and money market
deposit accounts 17,033,630 14,940,045
Time deposit accounts 25,391,716 28,131,597
Total deposits 50,559,035 50,986,017
Federal funds purchased and commercial
paper 4,448,523 2,928,282
Securities sold under agreements to
repurchase 13,991,989 12,279,040
Advances from FHLBs 26,795,229 20,301,963
Other borrowings 3,288,679 3,489,362
Other liabilities 3,474,624 1,687,364
Total liabilities 102,558,079 91,672,028
Stockholders' Equity
Preferred stock, liquidation preference,
no par value: 10,000,000 shares authorized -
none and 4,722,500 shares issued and
outstanding -- 118,063
Common stock, no par value: 800,000,000
shares authorized - 387,599,422 and
386,340,027 shares issued and
outstanding -- --
Capital surplus - common stock 1,975,074 1,943,294
Accumulated other comprehensive income 159,488 134,610
Retained earnings 3,666,425 3,113,104
Total stockholders' equity 5,800,987 5,309,071
Total liabilities and stockholders'
equity $108,359,066 $ 96,981,099
Book value per common share $ 15.44 $ 13.87
Tangible book value per common share 14.79 13.13
Washington Mutual, Inc.
Selected Financial Information
(dollars in thousands, except per share amounts)
(unaudited)
Note: The following analysis of operating and nonoperating earnings is
based upon the Company's opinion and is intended to provide the
user additional information about the Company's operations. It is
not intended to replace traditional financial statement
disclosures in accordance with generally accepted accounting
principles and may not be comparable to similarly titled measures
reported by other companies.
Quarter Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
1998 1998 1998 1997 1997
Reported Financial Results
Net income (loss) $274,297 $261,271 $256,471 $237,900 $(126,954)
Net income (loss)
per diluted common
share $ 0.73 $ 0.69 $ 0.68 $ 0.63 $ (0.36)
Financial Ratios on
Reported Financial Results:
Return on average
assets 1.06% 1.01% 1.04% 0.99% (0.54)%
Return on average
equity 19.18 18.94 19.17 17.93 (9.48)
Return on average
common equity 19.23 19.04 19.22 18.25 (10.47)
Efficiency ratio
(excluding
amortization
of intangible
assets) 49.40 50.22 47.15 49.53 105.58
Earnings from Operations
Reported net income
(loss) $274,297 $261,271 $256,471 $237,900 $(126,954)
Nonoperating acquisition
and restructuring-
related charges:
Write down of
loans securitized
and retained
in the trading
portfolio -- -- -- -- (100,000)
Transaction-related
and restructuring
charges (20,465) (24,473) (8,650) (6,239) (366,860)
Nonoperating
loss before
income
taxes (20,465) (24,473) (8,650) (6,239) (466,860)
Income tax
benefit 7,654 9,341 3,357 2,474 125,699
Net nonoperating
loss (12,811) (15,132) (5,293) (3,765) (341,161)
Earnings from
operations $287,108 $276,403 $261,764 $241,665 $214,207
Earnings per diluted common share:
Reported net income
(loss) $0.73 $0.69 $0.68 $0.63 $(0.36)
Net nonoperating
loss (0.03) (0.04) (0.01) -- (0.92)
Earnings from
operations $0.76 $0.73 $0.69 $0.63 $0.56
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