Profit at Washington Mutual ( WM) rose 22% in the fourth quarter, fueled by the sale of its mutual fund subsidiary and the repositioning of its loan portfolio.

In the fourth quarter, the $346 billion-asset bank made $1.06 billion, or $1.10 a share compared to $865 million or 85 cents a share a year earlier. Profit for the year rose just 3.7%, to $3.56 billion, or $3.64 a share.

WaMu earned $640 million from continuing operations, or 66 cents a share in the fourth quarter.

WaMu beat the average analyst earnings estimate of 88 cents a share, but revenue fell short of the $3.7 billion estimate. The bank's total revenue fell 4.7% in the quarter, to $3.6 billion.

During the quarter, WaMu had an after-tax gain of $415 million from the sale of WM Advisors, its retail mutual fund and asset management company, to Principal Financial on Dec. 31.

The gain offset tax charges of $202 million during 2006 that were related to the company's ongoing efficiency initiative. It also offset after tax charges of $137 million related to the sale of WaMu's mortgage servicing platform.

WaMu recategorized sold $17.8 billion of adjustable-rate loans to held-for-sale during the quarter and recognized a gain of $74 million related to the transfer of these assets. In addition, the company also sold $4.73 billion of mortgage-backed securities.

"The sale of these loans is expected to increase the company's net interest margin, improve the company's interest rate risk profile and reduce its geographic credit concentration," WaMu said.

Credit quality at the Seattle lender was a damper to earnings. WaMu said the subprime mortgage industry "significantly weakened" during the fourth quarter and negatively impacted the company's pretax earnings by approximately $160 million.

Shares fell 30 cents to $43.43 in afterhours trading.

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