Washington Mutual Announces Fourth Quarter and 2005 Earnings; Diluted EPS Increased 12 Percent for the Quarter and 14 Percent for the Year Board of Directors Increases Cash Dividend

Business Wire, Jan 18, 2006

SEATTLE -- Washington Mutual, Inc. (NYSE:WM) today announced fourth quarter 2005 net income of $865 million, or $0.85 per diluted share, up 12 percent on a per share basis when compared with net income of $668 million, or $0.76 per diluted share, in the fourth quarter of 2004. Net income of $3.43 billion, or $3.73 per diluted share, for 2005 increased 14 percent on a per share basis when compared with net income of $2.88 billion, or $3.26 per diluted share, in 2004.

Washington Mutual's Board of Directors declared a cash dividend of 50 cents per share on the company's common stock, up from 49 cents per share in the previous quarter. Dividends on the common stock are payable on February 15, 2006 to shareholders of record as of January 31, 2006.

"Despite the challenging environment, especially in the home loans business, we delivered solid performance, achieving 12 percent earnings per share growth for the quarter and 14 percent for the year," said Kerry Killinger, chairman and chief executive officer. "Our strategies are sound and we continue to execute on our growth and productivity initiatives. In addition, our risk management efforts are on track, and we have a proven management team in place as we enter 2006."

Key Results

--The company closed its merger with Providian Financial Corporation on October 1, 2005. The financial results for the fourth quarter and for all of 2005 reflect a full quarter's activity for the Card Services Group.

--Total average assets of $349.93 billion in the fourth quarter of 2005 increased 7 percent from $327.29 billion in the third quarter of 2005 and included the addition of $13.42 billion of Providian assets in the fourth quarter. Average assets were up 15 percent for all of 2005, reflecting the company's continued strong asset generation capability.

--The net interest margin increased to 2.77 percent in the fourth quarter from 2.61 percent in the third quarter of 2005, as the addition of Card Services' higher-yielding assets more than offset the effect of a flattening yield curve.

--Depositor and other retail banking fees of $586 million in the fourth quarter of 2005 were up $71 million, or 14 percent, from the fourth quarter of 2004 and for the full year retail banking fees of $2.19 billion increased $194 million, or 10 percent, from 2004, reflecting the strong growth in checking accounts over the periods. During 2005, checking accounts grew by 902,000 accounts, or 10 percent.

--During the fourth quarter, Card Services added $313 million in revenue from sales and servicing of consumer loans and $139 million in credit card fees to the company's total noninterest income.

--Revenue from sales and servicing of home mortgage loans, including the results of all MSR risk management instruments, was $264 million in the fourth quarter of 2005, compared with $497 million in the third quarter of 2005 and $384 million in the fourth quarter of 2004. The further flattening of the yield curve in the fourth quarter significantly increased the cost of MSR risk management, which contributed to the decrease in revenue. For the full year, revenues were $1.79 billion, compared with $1.47 billion in 2004. The improved year-over-year performance reflected increased sales volume of the company's Option ARM product.

--The provision for loan and lease losses was $121 million in the fourth quarter of 2005, of which $99 million was allocated for credit card loans. The loan loss provision of $220 million for 2005 also included $37 million for potential hurricane-related losses. The remaining provision of $84 million compares favorably with the $209 million provision in 2004 and reflected a positive credit environment for most of 2005.

--Noninterest expense of $2.28 billion in the fourth quarter increased by $353 million from $1.93 billion in the third quarter of 2005 and increased by $340 million from $1.94 billion in the fourth quarter of 2004, primarily due to the addition of Card Services.

FOURTH QUARTER FINANCIAL SUMMARY

Net Interest Income

The net interest margin in the fourth quarter was 2.77 percent, up 16 basis points from 2.61 percent in the third quarter of 2005, as the addition of Card Services' higher-yielding assets more than offset the margin compression on the remainder of the company's portfolio. While the net interest margin was up on a linked-quarter basis, it was down 2 basis points from 2.79 percent in the fourth quarter of 2004. The decrease in the net interest margin from a year ago reflects the flattening of the yield curve and the continuing rise in short-term interest rates since June of 2004, the impact of which was mostly offset by the addition of Card Services. On an annual basis, the 2005 net interest margin of 2.67 percent was down 15 basis points from 2.82 percent during 2004. The decline reflected the impact of a 200 basis point increase in the Fed Funds rate over the past twelve months. The upward repricing of the company's interest-bearing assets continues to lag the increase in the cost of its interest-bearing liabilities.