Washington Mutual Announces Second Quarter 2005 Earnings; Net Income and EPS Increased 73 Percent; Board of Directors Increases Cash Dividend

Business Wire, July 20, 2005

SEATTLE -- Washington Mutual, Inc. (NYSE:WM) today announced second quarter 2005 net income of $844 million, or $0.95 per diluted share, up 73 percent when compared with net income of $489 million, or $0.55 per diluted share in the second quarter of 2004.

Washington Mutual's Board of Directors declared a cash dividend of 48 cents per share on the company's common stock, up from 47 cents per share in the previous quarter. Dividends on the common stock are payable on August 15, 2005 to shareholders of record as of July 29, 2005.

"We recorded solid performance across all of our businesses this quarter as we continue to make excellent progress toward achieving our long-term financial goals," said Kerry Killinger, chairman and chief executive officer. "Our Retail Bank's earnings were strong, Home Loans had another good quarter, the Commercial Group's lending volume was robust and the company continued to demonstrate excellent expense control."

Killinger added: "A year ago we acknowledged our challenges in integrating our mortgage banking acquisitions effectively into our operations and enhancing the risk management of our mortgage servicing asset. I said we would face those challenges head-on and build a mortgage team that is one of the industry's best. I am proud to say that we have done exactly that and after four consecutive quarters of solid performance, our Home Loans Group is now positioned for growth."

Washington Mutual has already taken several steps to ensure a timely and effective integration of the previously announced acquisition of the credit card company Providian Financial. The company has filed its application and related notices with the Office of Thrift Supervision, and Providian and Washington Mutual have filed the initial proxy and registration statement with the Securities and Exchange Commission. Providian has set August 31, 2005, as the date for its special meeting of shareholders to vote on the adoption of the merger agreement. The transaction is expected to close early in the fourth quarter of this year.

"Both companies are committed to completing this transaction quickly and to take advantage of the revenue synergies immediately after the transaction closes," Killinger said.

Key Results:

--Total assets of $323.53 billion at the end of the second quarter of 2005 increased $3.84 billion from $319.70 billion at the end of the first quarter of 2005 and $44.99 billion from $278.54 billion at the end of the second quarter of 2004, reflecting continued strong asset generation capability;

--The net interest margin declined modestly to 2.66 percent in the second quarter from 2.73 percent in the first quarter of 2005 and 2.86 percent in the second quarter of 2004, despite a 225 basis point increase in the Fed Funds rate over the twelve-month period;

--Net interest income increased to $1.93 billion in the second quarter of 2005 from $1.89 billion in the first quarter of 2005 and $1.79 billion in the second quarter of 2004, as the growth in average interest-earning assets more than offset net interest margin compression;

--The provision for loan and lease losses was $31 million in the second quarter of 2005. While up when compared with $16 million in the first quarter of 2005, it was down from $60 million in the second quarter of 2004 and reflects a continuing favorable credit environment;

--Depositor and other retail banking fees of $540 million in the second quarter of 2005 were up $50 million, or 10 percent from the first quarter of 2005 and $33 million, or 7 percent from the second quarter of 2004. The improvement reflects not only the expected seasonal recovery from the first quarter of 2005 but also growth in net new checking accounts over the period;

--Revenue from sales and servicing of home mortgage loans, including the results of all MSR risk management instruments, was $403 million in the second quarter of 2005 compared with $624 million in the first quarter of 2005 and zero in the second quarter of 2004. The year-over-year improvement reflects the company's success in reducing the earnings volatility associated with the MSR asset;

--Noninterest expense of $1.83 billion in the second quarter was down slightly from both the first quarter of 2005 and the second quarter of 2004, reflecting continued success on productivity improvements and expense management.

SECOND QUARTER FINANCIAL SUMMARY

Net Interest Income

The net interest margin in the second quarter was 2.66 percent, down 7 basis points from 2.73 percent in the first quarter of 2005 and 20 basis points from 2.86 percent in the second quarter of 2004. The decrease in the net interest margin from prior quarters reflects the increase in the cost of interest-bearing liabilities, which was driven by the continuing rise in short-term interest rates since June of 2004. This downward pressure was partially offset by disciplined deposit pricing, the partial restructuring of available-for-sale securities in the first quarter of 2005, which increased the yield of this portfolio, and the effect from the termination of higher cost debt in the third quarter of 2004.