Washington Mutual Announces Third Quarter 2005 Earnings; Diluted EPS Increased 21 Percent; Board of Directors Increases Cash Dividend

Business Wire, Oct 19, 2005

SEATTLE -- Washington Mutual, Inc. (NYSE:WM) today announced third quarter 2005 net income of $821 million, or $0.92 per diluted share, up 21 percent on a per share basis when compared with net income of $674 million, or $0.76 per diluted share, in the third quarter of 2004.

Washington Mutual's Board of Directors declared a cash dividend of 49 cents per share on the company's common stock, up from 48 cents per share in the previous quarter. Dividends on the common stock are payable on November 15, 2005 to shareholders of record as of October 31, 2005.

"Our solid third quarter earnings reflected excellent retail banking household growth driven by our long track record of industry leading customer service, as well as our ability to adjust to a challenging interest rate environment," said Kerry Killinger, chairman and chief executive officer. "The results also highlight our continued focus on balanced growth, earnings diversity and risk management."

Killinger added: "This month we welcomed Providian to the Washington Mutual family as our new Card Services Division. We continue to make outstanding progress on our integration efforts and I believe that we will look back on this acquisition as a transformational event for Washington Mutual."

On October 1, Washington Mutual completed its acquisition of Providian Financial in a stock and cash transaction valued at approximately $6.1 billion. For each share of Providian common stock, Providian stockholders received 0.4005 shares of Washington Mutual common stock and $2.00 in cash.

Key Results:

--Total average assets of $327.29 billion in the third quarter of 2005 increased $6.45 billion, or 2 percent, from $320.85 billion in the second quarter of 2005 and increased $43.62 billion, or 15 percent, from $283.67 billion in the third quarter of 2004, reflecting continued strong asset generation;

--The net interest margin declined to 2.61 percent in the third quarter from 2.66 percent in the second quarter of 2005 and 2.77 percent in the third quarter of 2004, reflecting the flattening of the yield curve and the impact of a 200 basis point increase in the Fed Funds rate over the past twelve months;

--Net interest income of $1.92 billion in the third quarter of 2005 was down slightly from the second quarter of 2005, but was up from $1.74 billion in the third quarter of 2004 as the growth in average interest-earning assets over the past 12 months more than offset net interest margin compression;

--The provision for loan and lease losses was $52 million in the third quarter of 2005, of which $37 million represents a special provision related to Hurricane Katrina. The quarter's provision reflects the continuing positive credit environment and, excluding the special provision for Katrina, compares favorably with the second quarter provision of $31 million and the $56 million in the third quarter of 2004;

--Depositor and other retail banking fees of $578 million in the third quarter of 2005 were up $38 million, or 7 percent, from the second quarter of 2005 and $64 million, or 12 percent, from the third quarter of 2004. The improvement reflects the strong 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 $497 million in the third quarter of 2005 compared with $403 million in the second quarter of 2005 and $549 million in the third quarter of 2004. The solid results reflect the company's success in managing the MSR in an increasingly challenging interest rate environment and a continuing high volume of loans sold into the secondary market;

--Noninterest expense of $1.93 billion in the third quarter was up from $1.83 billion in the second quarter of 2005 and $1.87 billion in the third quarter of 2004, reflecting the continued build out of the franchise. The company remains confident in its ability to keep expenses for the full year essentially flat with 2004 at around $7.5 billion.

THIRD QUARTER FINANCIAL SUMMARY

Net Interest Income

The net interest margin in the third quarter was 2.61 percent, down 5 basis points from 2.66 percent in the second quarter of 2005 and 16 basis points from 2.77 percent in the third quarter of 2004. The decrease in the net interest margin from prior quarters reflects the flattening of the yield curve and the continuing rise in short-term interest rates since June of 2004. The upward repricing of the company's interest-bearing assets continues to lag the increase in the cost of its interest-bearing liabilities.

Net interest income of $1.92 billion in the third quarter was down slightly compared with the second quarter of 2005 as the decline in the net interest margin more than offset the 2 percent increase in average interest-earning assets. Compared with the third quarter a year ago, net interest income was up 10 percent from $1.74 billion which reflected an 18 percent increase in average interest-earning assets that more than offset the margin compression.