updated 4/17/2007 6:55:33 PM ET 2007-04-17T22:55:33

Washington Mutual Inc. reported a 20 percent slide in its first-quarter earnings Tuesday, citing a nationwide implosion of the subprime home loan market. Even so, the company beat Wall Street estimates, and its stock rose in after-hours trading.

Kerry Killinger, Washington Mutual’s chairman and chief executive, said the company’s retail banking, card services and commercial groups fared well, while the home loan market — particularly the subprime segment for consumers with high-risk credit histories — remained a serious challenge.

“Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry,” Killinger said in a statement. “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.”

The nation’s largest savings and loan said its net income was $784 million, or 86 cents a share, for the three months ended March 31, down from $985 million, or 98 cents per share, in the same period a year ago.

Revenue in the January-March period, including net interest income and noninterest income, was $3.62 billion, up from $3.59 billion in the same period last year.

Analysts surveyed by Thomson Financial were predicting earnings of 83 cents per share on $3.6 billion in revenue.

Shares of Washington Mutual closed down 60 cents, or 1.5 percent, to $40.13, then rose $1.12 to $41.25 in after-hours trading. The company’s stock has been trading from $38.73 to $47.01 per share over the past year.

Washington Mutual’s home loans group posted a first-quarter loss of $113 million compared to a $52 million profit during the year-ago period. The company suffered a quarterly loss of $164 million on sales of subprime mortgages, which it said overshadowed improvements in home loans to consumers with good credit.

To limit further damage as the housing slump continues, Washington Mutual said it had scaled back its subprime portfolio and had set aside more money to cover future loan losses: $234 million for the quarter compared to $82 million in first quarter 2006.

Washington Mutual’s retail banking group posted strong growth, adding 328,000 new checking accounts and collecting $665 million in depositor and other banking fees, a 15 percent increase. The company also said it was pleased with its card services segment, which opened 782,000 new accounts during the quarter.

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