Washington Mutual yesterday reported third quarter 2004 earnings of $674 million, or $0.76 per diluted share, a 30 percent drop on a per share basis from the same period a year ago.

WaMu’s performance this quarter, however, was up 38 percent on a per share basis from the second quarter’s $489 million, or $0.55 per diluted share.

The company said in a statement that the decrease in year-over-year net income was due primarily to reduced mortgage refinancing activity this year and higher gains from the sale of securities in the third quarter of 2003. The increase from the second quarter of 2004 was mainly a result of improved performance of the company’s mortgage servicing rights (MSR) and related hedges, according to the company.

Net income for the mortgage banking business was $271 million in the third quarter compared with a $63 million loss in the second quarter of 2004 and net income of $117 million in the third quarter of 2003.

Other mortgage banking highlights include:

  • Total loan volume from the mortgage banking business was $40.49 billion, compared to $111.95 billion in the third quarter of 2003 and down $15.73 billion from $56.22 billion in the second quarter of 2004.
  • Adjustable-rate mortgage loan volume was 63 percent of total mortgage banking loan volume, up from 25 percent in the third quarter of 2003.
  • MSR performance, including amortization and the effect of hedges, improved to a net cost of $123 million in the quarter, compared to a net cost of $724 million in the second quarter.
  • The company closed about 100 home loan centers in non-strategic markets in 18 states and completed the sale of 94 of those offices.
  • Non-interest expense declined $47 million from the previous quarter, reflecting consolidations of locations and functions, headcount reduction, the closure of approximately 100 home loan centers and the conversion to a single loan servicing platform.

In a June statement, WaMu warned that increases in long-term interest rates would significantly impact its mortgage banking business. The lowered forecast was the second in seven months.

It also said its mortgage business might lose money as home-loan volume and profit from selling mortgages fall below expectations.

Those woes led to speculation that the company could become a takeover target.

WaMu’s stock (NYSE: WM) was trading at $38.38 this morning.

***

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