Washington Mutual Inc. third-quarter net income plummeted 72% as the company took a bruising hit to cover home-loan losses.
Nonetheless, the drop was slightly lower than WaMu had predicted earlier in the month.
The Seattle bank recorded net income of $210 million, or 23 cents a share, compared with $748 million, or 77 cents a share, a year earlier. Earlier in October, the banked warned net income would drop 75% for the quarter, calling market conditions "very challenging."
WaMu's shares traded down slightly to $33 in after-market trading.
The latest quarter's results included a slightly lower-than-expected $967 million loan-loss provision, covering loans that have soured as the loose lending practices of the last several years come home to roost. The company had expected to record a pretax provision of $975 million.
"We're disappointed with our third-quarter results, but they reflect the increasingly difficult market conditions that are challenging the banking industry," Chairman and Chief Executive Kerry Killinger said.
The company kept its dividend steady at 56 cents, ending 48 straight quarters of dividend increases.
WaMu also had a $147 million write-down on mortgage loans it planned to sell but were instead were moved to the company's investment portfolio due to the summer's credit-market seizure that essentially dried up demand for mortgage-related securities.
In addition, the firm recorded $153 million in trading losses, and losses of $104 million on investment-grade mortgage-backed securities that are available for sale.
WaMu's return on equity, an important measure of profitability, fell to just over 3.5% from above 11% a year earlier. Net interest margin, a measure of the difference between the bank's borrowing costs and lending rates, rose to 2.9% from 2.5%.
Net interest income grew 3.4% to $2.01 billion, while noninterest income dropped 12%. The value of the company's total assets as of Sept. 30 dropped 5.4%.
WaMu's home loans unit's loss widened to $348 million from $37 million a year earlier, due to housing weakness and capital markets disruption. Home loan volume also slowed 22% for the quarter. Subprime mortgage production dropped 80%.
Earnings at the company's retail banking operations fell 18% reflecting the higher loan-loss provision. Earnings at the company's credit-card business fell 50% to $102 million, also due to the provision.
Of the top-five mortgage lenders, WaMu's portfolio has most exposure to risky loans, with 29% of its 2006 loans in the high-cost category, mostly subprime, and 15% backed by homes other than the owner's primary residence. Mortgages on second homes and speculative properties are considered more vulnerable to default because owners are more likely to abandon investment properties if prices head south than their primary residences.
The company is trying to stop up the flood of bad mortgages, eliminating the riskiest types of loans and asking third-party mortgage brokers to provide more information on potential borrowers than was previously required.
