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WaMu Shakes Off Mortgage Slump

Shares rise on an earnings beat.

Updated from 4:12 p.m.

Washington Mutual

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shares rose in postclose trading after the big lender overcame a weak mortgage-business performance to beat Wall Street's quarterly targets.

The bank also boosted its quarterly dividend by a penny to 55 cents.

For the first quarter ended March 31, WaMu made $784 million, or 86 cents a share. That's down from the year-ago $985 million, or 98 cents a share, but 3 cents ahead of the Thomson Financial analyst consensus estimate.

The news lifted shares in WaMu and some of its rivals with big subprime lending businesses. WaMu shares rose $1.34 to $41.47, and

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added 38 cents to $37.05.

Revenue fell 5% to $3.6 billion.

The $320 billion-asset lender's mortgage lending business reported a $113 million loss over "weakening subprime mortgage credit performance" and "widening market credit spreads."

Mortgage volume in the quarter fell 34% to $29.6 billion. WaMu said the decrease in home loan volume reflected several strategic actions to reduce its subprime exposure and exit the correspondent loan business last year. Subprime mortgage production in the first quarter fell 51% from a year earlier, it said.

The news comes as the business of making subprime loans, those to homebuyers with poor credit histories, has ground to a halt amid rising defaults and delinquencies.

"Our home loans business was challenged during the first quarter by difficult market conditions," said CEO Kerry Killinger. "Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry. These actions, along with a diversified business mix, limited our exposure to the mortgage market's downturn and position us well to expand and grow as market conditions improve."

WaMu also had net losses of $164 million from the sale of subprime mortgage loans and other "adjustments" to reflect declines in market values of loans held for sale.

The company said the value of its subprime mortgage residual portfolio fell $88 million to $105 million at the end of the quarter.

WaMu's provision for loan losses nearly tripled in the quarter from a year earlier but fell 32% from the fourth quarter to $234 million, reflecting the "housing downturn," it said.

The company's total net charge-offs rose 34% from the fourth quarter to $183 million.