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Washington Mutual, Inc. Prepared Remarks for Fourth Quarter and Year End 2006 Earnings Conference Call January 17, 2007

Washington Mutual, Inc.
Prepared Remarks for Fourth Quarter and Year End 2006 Earnings Conference Call
January 17, 2007

Please see the Forward-Looking Statement at the end of this document

Remarks of Kerry Killinger
Chairman and CEO




Good afternoon, everyone. Thank you for joining us today as we review our fourth quarter
and full-year 2006 results and take a look ahead to 2007.

Joining me today on the call is Tom Casey, our CFO. And our President, Steve Rotella, will
also be available to answer questions at the end of our remarks today.

Now, lets get started.

Fourth Quarter and Full-Year 2006 Earnings
During the fourth quarter, we continued to achieve strong performance in our Retail
Banking, Card Services and Commercial Groups which Ill discuss in more detail in my review
of our business segments. At the same time, our results were impacted by the continuation
of the very difficult interest rate and operating environment, which, along with a significant
weakening of subprime mortgage credit, had a particularly negative impact on the
performance of our Home Loans business.

Although 2006 proved to be a challenging year with difficult business and interest rate
conditions, we remained focused on executing on our strategies and took advantage of
several opportunities to better position the company going into 2007.

Now earlier today, we announced fourth quarter net income of $1.06 billion or $1.10 per
diluted share. Our fourth quarter earnings included an after tax gain of $415 million on the
sale of our mutual fund subsidiary, WM Advisors, which closed on December 31. We also
incurred after tax charges of $100 million related to our ongoing efficiency initiatives.

So for the full year, our net income totaled $3.56 billion, or $3.64 per diluted share,
compared with net income in 2005 of $3.43 billion, or $3.73 per diluted share. During 2006,
we incurred after tax charges of $202 million associated with our efficiency initiatives, which
we accelerated after deciding to sell WM Advisors, as well as after tax charges of
$137 million associated with the sale of a significant portion of our mortgage servicing rights
during the year. When we announced the sale of WM Advisors, we told you that we expected
the gain from the sale to more than offset those charges for the year, which it did.

And, for the 46
th
consecutive quarter, The Board once again increased the quarterly cash
dividend by one cent to 54 cents per share.

So, let me walk you through some of the significant transactions, strategic initiatives and
efficiency efforts undertaken in the fourth quarter and earlier in the year.

First, at the beginning of this year (2007), we executed an accelerated share repurchase
agreement to buy back $2.7 billion of our common stock. We determined that in the current
environment share buyback and dividends offer a better return on capital than growing the
balance sheet.


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Prepared Remarks January 17, 2007 Page 2
Income from Continuing Operations
Discontinued Operations
$0.84
$0.66
$0.44
$0.01
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Q4 '05
Q4 '06
$3.69
$3.18
$0.46
$0.04
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
2005
2006
WaMu Earnings Per Share
$0.85
$1.10
$3.73
$3.64
Income from Continuing Operations
Discontinued Operations
$0.84
$0.66
$0.44
$0.01
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Q4 '05
Q4 '06
$3.69
$3.18
$0.46
$0.04
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
2005
2006
WaMu Earnings Per Share
$0.85
$1.10
$3.73
$3.64


During the fourth quarter, we saw an opportunity to further reposition our balance sheet to
reduce interest rate risk and geographic credit concentrations in our portfolio. As the bond
market rallied in December we saw the market value of our portfolio rise. As a result, we
identified and transferred $17.8 billion of low margin loans to loans held for sale and we
executed hedges to lock in those favorable prices. We also identified and sold $4.7 billion in
available for sale mortgage-backed securities. These actions are expected to have a positive
impact on our net interest margin in 2007.

As I mentioned, we also completed the sale of our retail mutual fund asset management
company at the end of the fourth quarter for an after tax gain of $415 million, which allowed
us to significantly accelerate our productivity and efficiency efforts.

This summers sale of a significant portion of our MSRs reduced our market risk profile,
accelerated the winding down of certain non-strategic home loan products and enhanced our
ability to focus on higher margin products.

In 2006, we also made considerable progress on our efficiency initiatives which contributed
to a reduction of more than 10,000 positions, or 18 percent during the year. We continued
to focus on managing our expenses, achieving a quarterly run rate, excluding efficiency
initiatives, of $2.1 billion in the fourth quarter of 2006, down 5 percent from a run rate of
$2.2 billion in the fourth quarter of 2005. We achieved this while continuing to grow our
consumer and small business banking franchise.

On October 1st, we completed the acquisition of Commercial Capital Bancorp, which
enhanced our commercial and retail banking business in California.

Im very pleased with the efforts of our entire team, the result of which have put us in a
strong position going into 2007. Tom will provide more details on many of these actions, as
well as review our expectations around our 2007 earnings drivers, in his remarks.

Now, Id like to give you some of the highlights from our business segment performance in
the quarter and for the year, as well as provide some insight into our plans for 2007.

Retail Banking
Looking first at the strong performance from Retail Banking, net income from continuing
operations for the full year of $2.2 billion was up 12 percent from 2005. Excluding the
contribution from portfolio management, which was impacted by rising short-term interest
rates and an inverted yield curve, net income from continuing operations for full-year 2006
was up 22 percent from 2005.

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Prepared Remarks January 17, 2007 Page 3
Retail Banking Income from Continuing Operations
(in millions)
$159
$90
$584
$504
$1,724
$1,410
$454
$394
$0
$500
$1,000
$1,500
$2,000
$2,500
Q4 '05
Q4 '06
2005
2006
Retail Banking Network
Portfolio Management
$553
$544
$1,994
$2,228
Retail Banking Income from Continuing Operations
(in millions)
$159
$90
$584
$504
$1,724
$1,410
$454
$394
$0
$500
$1,000
$1,500
$2,000
$2,500
Q4 '05
Q4 '06
2005
2006
Retail Banking Network
Portfolio Management
$553
$544
$1,994
$2,228


We continued to attract new households and grow accounts. By the end of the year, we had
added a record 848,000 net new retail households. The introduction of our new WaMu Free
Checking product in March contributed to a record 1.23 million net new checking accounts
opened during the year far exceeding our stated goal of one million accounts.

Growing small business continues to be an area of focus. For 2006, small business checking
accounts grew 33 percent over 2005, contributing to the growth in net new checking
accounts opened during the year. In the fourth quarter, we also saw strong quarter-over-
quarter growth in small business deposits and loan originations.

Retail Banking Households
(in millions)
9.371
9.248
8.992
8.733
8.523
7.5
8.0
8.5
9.0
9.5
10.0
Q4 '05
Q1 '06
Q2 '06
Q3 '06
Q4 '06
Net Change in Retail:
Households
143,000
210,000 259,000 256,000 123,000
Checking
203,190
340,157 404,190 307,433
179,784
Cross Sell Ratio 6.31 6.46
6.53 6.55
6.66
10%
Retail Banking Households
(in millions)
9.371
9.248
8.992
8.733
8.523
7.5
8.0
8.5
9.0
9.5
10.0
Q4 '05
Q1 '06
Q2 '06
Q3 '06
Q4 '06
Net Change in Retail:
Households
143,000
210,000 259,000 256,000 123,000
Checking
203,190
340,157 404,190 307,433
179,784
Cross Sell Ratio 6.31 6.46
6.53 6.55
6.66
Retail Banking Households
(in millions)
9.371
9.248
8.992
8.733
8.523
7.5
8.0
8.5
9.0
9.5
10.0
Q4 '05
Q1 '06
Q2 '06
Q3 '06
Q4 '06
Net Change in Retail:
Households
143,000
210,000 259,000 256,000 123,000
Checking
203,190
340,157 404,190 307,433
179,784
Cross Sell Ratio 6.31 6.46
6.53 6.55
6.66
10%


As a result of the record growth in checking accounts in the year and an increase in fees,
depositor and other retail banking fees in the fourth quarter were up 6 percent from the third
quarter. For the full year, depositor and other retail banking fees were up 17 percent at the
high end of our guidance range.

During the year, the Retail Banking group broadened its