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Washington Federal Savings Pinched by Fannie and Freddie

Washington Federal LogoWashington Federal Savings, with thrift operations in eight western states, disclosed last week that it would report the first quarterly loss in its history of approximately $39 million for the quarter ending September 30, as a result of its holdings in Fannie Mae and Freddie Mac Preferred Stock. A look at the company's third-quarter 10-Q suggests, however, that as the housing market continues to deteriorate, Washington Federal could feel more pain:

  • The Company recorded a $13,216,000 provision for loan losses during the quarter ended June 30, 2008, while a $1,000,000 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $85,107,000 or .72% of total assets at June 30, 2008 compared to $12,074,000 or .12% of total assets one year ago.
  • The Company believes that higher non-performing assets and charge-offs may continue going forward until the housing market begins to recover.
As of the third-quarter ended June 30, about 68 percent of the company's total loan portfolio, or approximately $6.7 billion, was held in single-family residential loans -- almost equal to the $7.1 in customer account assets (checking, savings, money-market, and CDs). Chairman, President & CEO Roy M. Whitehead admitted Friday the company is bolstering its reserve for possible future loan losses by taking a provision for loan losses of an additional $35 million for the fourth-quarter ended September 30. As of quarter end, non-performing assets are expected to approximate $180 million, or 1.5% of total assets -- the highest ratio in the company's history since the S&L disaster of 1987.

Of additional concern, Washington Federal holds about $1.8 billion in raw land and construction loans. Unknown is how much of this portfolio is considered "sub-standard," or close to 90-days delinquent. Nonetheless, going forward, I suspect more increases in non-performing assets and writedowns lay ahead for the company.

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