Washington Federal Inc. projected late Friday that it would post a loss of $39 million for its fiscal fourth quarter, which will end Sept. 30, because of an $88 million writedown in the value of its holdings of preferred stock in Fannie Mae and Freddie Mac.

The $11.8 billion-asset Seattle thrift company also said it expects to set aside about $35 million for loan losses, or 165% more than it did in the previous quarter. It forecast that its ratio of nonperforming assets to total assets would more than double from June 30, to about 1.5% at Sept. 30.

In a note issued Monday, Paul Miller, an analyst at Friedman, Billings, Ramsey Group Inc.'s FBR Capital Markets, wrote that he considers Washington Federal "a relatively conservative underwriter, and its strong loan-to-value … ratio should keep actual losses manageable," though its earnings are being pressured by deterioration in the housing market.

"The company's speculative construction and land acquisition and development" portfolios are areas of particular concern, Mr. Miller wrote. Those two categories made up 13% of Washington Federal's $9.8 billion of loans at June 30.

Washington Federal said the anticipated loss would leave it with a tangible capital ratio of 9.6%, or almost twice the level required by the Office of Thrift Supervision to be considered well capitalized.

The company also projected deposit growth of 6% from a year earlier, excluding its acquisition of First Mutual Bancshares Inc.

Fannie and Freddie were put into conservatorship this month as a part of a rescue that nearly erased the market value of their preferred stock and generated losses at many banking companies that held the securities.

Washington Federal said its holdings are now worth $2 million, versus $64 million on June 30.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.