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Washington Federal's Problem Assets Increase

Washington Federal produced earnings that were in line with expectations in the fourth quarter of 2007, though nonperforming assets rose significantly.

Washington Federal earned $0.38 per share in the three-month period ending Dec. 1, 2007. That was a penny better than the Wall Street consensus estimate. Earnings were flat compared with the year-earlier period.

However, Washington Federal said that nonperforming assets increased by 149% to $39.7 million. Despite the increase, Washington Federal noted that its nonperforming asset ratio, at 0.38% of total assets, remains only slightly above its 10-year average and is significantly below the company's 20-year NPA ratio.

Total loans increased 15% to $8.4 billion at the end of 2007.

In the company's earnings release, CEO Roy Whitehead said the company's mortgage portfolio, which consists primarily of prime quality, 30-year fixed-rate loans, continues to perform well, but he suggested the housing weakness will affect Washington Federal nonetheless.

"With the tightening of credit standards by major lenders, fewer qualified homebuyers are affecting inventory turns of homebuilders, and we have seen an increase in homes that are finished at least 90 days and remain unsold," he said.

Analysts at Friedman Billings Ramsey, worried by the increase in nonperforming assets, lowered their rating on Washington Federal's stock to "market perform" from buy.

FBR said that while earnings were in line with Wall Street predictions, "a sharp increase in nonperforming assets reflected deterioration in the company's construction and land development portfolios."

FBR reduced its earnings estimate for Washington Federal to $1.50 per share, down $0.25 from the previous estimate for this year. FBR also lowered its price target from $27 to $17 for the company's shares.

"We consider Washington Federal a relatively conservative underwriter and strong LTVs should keep actual losses manageable," the FBR report said.

Snapshot: Nonperforming Assets

Total $39.7 Million

Change Yr-over-Yr Up 149%

NPA Ratio 0.38% (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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