Washington Federal (WAFD) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 0-25454

WASHINGTON FEDERAL, INC.

(Exact name of registrant as specified in its charter)

Washington	91-1661606
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

425 Pike Street Seattle, Washington 98101

(Address of principal executive offices and zip code)

(206) 624-7930

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x            Accelerated filer  ¨            Non-accelerated filer  ¨            Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of class:	at January 25, 2010
Common stock, $1.00 par value	112,446,911

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I

Item 1.	Financial Statements (Unaudited)
	The Condensed Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows:
	Consolidated Statements of Financial Condition as of December 31, 2009 and September 30, 2009	Page 3
	Consolidated Statements of Operations for the quarters ended December 31, 2009 and 2008	Page 4
	Consolidated Statements of Cash Flows for the quarters ended December 31, 2009 and 2008	Page 5
	Notes to Consolidated Financial Statements	Page 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 25
Item 4.	Controls and Procedures	Page 26
PART II
Item 1.	Legal Proceedings	Page 27
Item 1A.	Risk Factors	Page 27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 27
Item 3.	Defaults Upon Senior Securities	Page 27
Item 4.	Submission of Matters to a Vote of Security Holders	Page 27
Item 5.	Other Information	Page 28
Item 6.	Exhibits	Page 28
	Signatures	Page 29

2

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

	December 31, 2009			September 30, 2009
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	936,833		$	498,388
Available-for-sale securities, including encumbered securities of$918,499 and $860,655, at fair value		1,920,165			2,201,083
Held-to-maturity securities, including encumbered securities of$76,488 and $80,717, at amortized cost		97,795			103,042
Loans receivable, net		8,855,533			8,983,430
Interest receivable		49,459			53,288
Premises and equipment, net		134,397			133,477
Real estate held for sale		183,508			176,863
FHLB stock		144,495			144,495
Intangible assets, net		256,069			256,797
Other assets		84,212			31,612
	$	12,662,466		$	12,582,475
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Customer accounts
Savings and demand accounts	$	7,921,117		$	7,786,467
Repurchase agreements with customers		50,137			55,843
		7,971,254			7,842,310
FHLB advances		2,074,507			2,078,930
Other borrowings		800,000			800,600
Advance payments by borrowers for taxes and insurance		15,075			38,376
Federal and state income taxes		13,384			18,075
Accrued expenses and other liabilities		54,496			58,699
		10,928,716			10,836,990
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000 shares authorized;
129,512,273 and 129,320,072 shares issued;
112,439,949 and 112,247,748 shares outstanding		129,512			129,320
Paid-in capital		1,576,352			1,574,555
Accumulated other comprehensive income, net of taxes		38,386			54,431
Treasury stock, at cost;17,072,324shares		(208,985	)		(208,985	)
Retained earnings		198,485			196,164
		1,733,750			1,745,485
	$	12,662,466		$	12,582,475

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarter Ended December 31,
	2009			2008
	(In thousands, except per share data)
INTEREST INCOME
Loans	$	137,451		$	152,319
Mortgage-backed securities		27,281			25,312
Investment securities and cash equivalents		938			908
		165,670			178,539
INTEREST EXPENSE
Customer accounts		36,485			55,908
FHLB advances and other borrowings		31,420			32,618
		67,905			88,526
Net interest income		97,765			90,013
Provision for loan losses		69,750			35,000
Net interest income after provision for loan losses		28,015			55,013
OTHER INCOME
Gain on sale of investments		20,428			—
Other		3,809			4,175
		24,237			4,175
OTHER EXPENSE
Compensation and fringe benefits		13,637			14,805
Occupancy		3,249			3,174
FDIC insurance		3,564			279
Other		6,525			6,329
		26,975			24,587
Gain (loss) on real estate acquired through foreclosure, net		(12,720	)		(1,239	)
Income before income taxes		12,557			33,362
Income taxes		4,646			11,844
NET INCOME		7,911			21,518
Preferred dividends accrued		—			1,349
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	7,911		$	20,169
PER SHARE DATA
Basic earnings	$	0.07		$	0.23
Diluted earnings		.07			.23
Cash dividends		.05			.05
Basic weighted average number of shares outstanding		112,353,941			87,966,308
Diluted weighted average number of shares outstanding, including dilutive stock options		112,583,127			88,028,272

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Quarter Ended
	December 31, 2009			December 31, 2008
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,911		$	20,169
Adjustments to reconcile net income to net cash provided by operating activities
Amortization (accretion) of fees, discounts, premiums and intangible assets, net		3,099			621
Depreciation		1,350			1,275
Stock option compensation expense		300			300
Provision for loan losses		69,750			35,000
Loss (gain) on investment securities and real estate held for sale, net		(7,708	)		1,055
Decrease (increase) in accrued interest receivable		3,829			(3,068	)
Increase in income taxes payable		4,632			11,855
FHLB stock dividends		—			(11	)
Decrease (increase) in other assets		(52,600	)		3,305
Decrease in accrued expenses and other liabilities		(4,203	)		(11,251	)
Net cash provided by operating activities		26,360			59,250
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated
Single-family residential loans		(181,228	)		(218,519	)
Construction loans - speculative		(21,524	)		(28,573	)
Construction loans - custom		(72,525	)		(64,752	)
Land - acquisition & development		(16,395	)		(12,693	)
Land - consumer lot loans		(3,359	)		(3,790	)
Multi-family loans		(18,840	)		(27,287	)
Commercial real estate		(11,815	)		(50,607	)
Commercial & industrial		(55,433	)		(60,229	)
HELOC		(17,381	)		(24,715	)
Consumer		(567	)		(12,765	)
		(399,067	)		(503,930	)
Loan principal repayments		453,184			353,585
Other changes in loans, net		(62,418	)		(56,775	)
FHLB stock redemption		—			394
Available-for-sale securities purchased		(237,080	)		(489,454	)
Principal payments and maturities of available-for-sale securities		195,273			36,596
Available-for-sale securities sold		315,836			—
Principal payments and maturities of held-to-maturity securities		5,285			2,824
Proceeds from sales of real estate held for sale		47,002			13,058
Premises and equipment purchased		(2,270	)		(2,475	)
Net cash provided (used) by investing activities		315,745			(646,177	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts		128,944			115,204
Net increase (decrease) in borrowings		(5,023	)		367,718
Proceeds from exercise of common stock options		1,310			17
Dividends paid		(5,590	)		(4,553	)
Proceeds from issuance of preferred stock and related warrants		—			200,000
Decrease in advance payments by borrowers for taxes and insurance		(23,301	)		(21,014	)
Net cash provided by financing activities		96,340			657,372
Increase in cash and cash equivalents		438,445			70,445
Cash and cash equivalents at beginning of period		498,388			82,600
Cash and cash equivalents at end of period	$	936,833		$	153,045
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure	$	66,367		$	38,938
Cash paid during the period for
Interest		68,872			95,393
Income taxes		14,150			275

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

NOTE A – Basis of Presentation

The consolidated unaudited interim financial statements included in this report have been prepared by Washington Federal, Inc. (“Company”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The September 30, 2009 Consolidated Statement of Financial Condition was derived from audited financial statements.

The information included in this Form 10-Q should be read in conjunction with Company’s 2009 Annual Report on Form 10-K (“2009 Form 10-K”) as filed with the SEC. Interim results are not necessarily indicative of results for a full year.

References to Net Income in this document refer to Net Income Available to Common Shareholders.

Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through January 27, 2010, the date of the filing of the consolidated financial statements with the Securities and Exchange Commission.

NOTE B – Subsequent Event

Effective January 8, 2010, Washington Federal Savings & Loan Association, a federally-chartered savings and loan association (the “Bank”) and wholly-owned subsidiary of the Company, acquired certain assets and liabilities, including most of the loans and deposits, of Horizon Bank, headquartered in Bellingham, Washington (“Horizon”) from the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Horizon (the “Acquisition”). As of September 30, 2009, Horizon reported total assets of $1.3 billion and total deposits of $1.2 billion. All branches of Horizon have reopened as offices of the Bank.

Horizon operated through eighteen full-service offices, four commercial loan centers and four real estate loan centers in Washington with approximately 225 employees. Total assets purchased by the Bank amounted to approximately $1.141 billion, including an estimated $971 million in loans and $32 million in foreclosed real estate, and total liabilities assumed were approximately $1.005 billion, including an estimated $874 million in deposits. Pursuant to the Agreement, the Bank received a discount of approximately $177 million on the assets and paid a 0% deposit premium. Following the acquisition, the Company received a cash payment from the FDIC for $41 million.

The loans and foreclosed real estate purchased are covered by two loss share agreements between the FDIC and the Bank (one for single family loans and the other for all other loans and foreclosed real estate), which affords the Bank significant loss protection. Under the loss share agreements, the FDIC will cover 80% of covered loan and foreclosed real estate losses up to $536 million and 95% of losses in excess of that amount. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on non-residential real estate loans is five years with respect to losses and eight years with respect to loss recoveries. The losses reimbursable by the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the loss share agreements.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

The assets acquired and liabilities assumed will be subject to purchase accounting adjustments when recorded on the Bank’s financial statements.

NOTE C – Dividends

On January 15, 2010 the Company paid its 108^th consecutive quarterly cash dividend on common stock. Dividends per share were $.05 for the quarters ended December 31, 2009 and 2008.

NOTE D – Comprehensive Income

The Company’s comprehensive income (loss) includes all items which comprise net income plus the unrealized gains (losses) on available-for-sale securities. Total comprehensive (loss) income for the quarters ended December 31, 2009 and 2008 totaled $(8,134,000) and $52,973,000, respectively. The difference between the Company’s net income and total comprehensive loss for the quarter ended December 31, 2009 was $16,045,000, which equals the change in the net unrealized gain on available-for-sale securities of $25,368,000, less tax of $9,323,000. In addition, $3,124,000 of net unrealized loss on available-for-sale securities were included in comprehensive income for the quarter ended December 31, 2009, which included $12,921,000 of gain on sale of investments reclassified into earnings for the same period.

NOTE E – Allowance for Losses on Loans

The following table summarizes the activity in the allowance for loan losses for the periods ended December 31, 2009 and 2008:

	Quarter Ended December 31,
	2009			2008
	(In thousands)
Balance at beginning of period	$	166,836		$	85,058
Provision for loan losses		69,750			35,000
Charge-offs		(46,745	)		(15,387	)
Recoveries		708			164
Acquired reserves		—			—
Balance at end of period	$	190,549		$	104,835

In comparison to the process used for the period ending December 31, 2008, the Company enhanced its general reserve allowance calculation to be more reflective of the current economic environment. Changes included shortening the look-back period for determining historical loss factors (“HLF”) and modifying the methodology to give more weighting to risks by asset type rather than geographic exposure. In addition to utilizing the HLF to calculate the general reserve, the Company utilizes a qualitative risk factor (“QRF”), which is determined by loan type and allows management to augment reserve levels to reflect the current environment and portfolio performance trends.

By shortening the look-back period the Company has taken into account the current housing environment where home values have declined substantially from the housing peak of 2007. We monitor delinquency trends as well as regional economic conditions including employment and housing values when determining the QRF.

The Company recorded a $69,750,000 provision for loan losses during the quarter ended December 31, 2009, while a $35,000,000 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $553,285,000, or 4.37%, of total assets at December 31, 2009 compared to $305,066,000, or 2.44%, of total assets one year ago. The Company had net charge-offs of $46,037,000 for the quarter ended December 31, 2009 compared with 15,223,000 of net charge-offs for the same quarter one year ago. This

7

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

significant increase in the provision for loan losses is in response to three primary factors: first, the overall deterioration in the housing market in general in the Company’s eight western state territory, second, the significant increase in the combined balance of non-performing assets in the land A&D and speculative construction portfolios, and finally, the material increase in net charge-offs for the quarter. Management expects the provision to remain at elevated levels until non-performing assets and charge-offs improve. $75,152,000 of the allowance was calculated under the formulas contained in our methodology and the remaining $115,397,000 was made up of specific reserves on loans that were deemed to be impaired at December 31, 2009. For the period ending December 31, 2008, $58,802,000 of the allowance was calculated under the formulas contained in our methodology and the remaining $46,033,000 was made up of specific reserves on loans that were deemed to be impaired.

At December 31, 2009, the Company’s recorded investment in impaired loans was $588,829,000, of which $305,742,000 had specific reserves of $115,397,000. At September 30, 2009, the Company’s recorded investment in impaired loans was $531,817,000, of which $318,543,000 had specific reserves of $107,375,000.

NOTE F – Accounting Pronouncements Not Yet Adopted

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 860-10,Transfers and Servicing. This standard was issued to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and the transferor’s continuing involvement, if any, in transferred financial assets. ASC 860-10 is effective for interim and annual reporting periods that begin after November 15, 2009. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial position and results of operations.

In June 2009, the FASB issued ASC 810-10,Consolidation. This standard significantly changes the criteria for determining whether the consolidation of a variable interest entity is required. ASC 810-10 is effective for interim and annual reporting periods that begin after November 15, 2009. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial position and results of operations.

NOTE G – Fair Value Measurements

U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

The following is a description of the valuation methodologies used to measure and report fair value of financial assets and liabilities on a recurring or nonrecurring basis:

Measured on a Recurring Basis

Securities

Securities available for sale are recorded at fair value on a recurring basis. Fair value is determined with quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data (Level 2).

The following table presents the balance of assets measured at fair value on a recurring basis at December 31, 2009:

	Fair Value at December 31, 2009
	Level 1		Level 2		Level 3		Total
	(In thousands)
Available-for-sale securities
Equity securities	$	—	$	515	$	—	$	515
Obligations of U.S. government		—		92,863		—		92,863
Obligations of states and political subdivisions		—		—		—		—
Obligations of foreign governments		—		—		—		—
Corporate debt securities		—		—		—		—
Mortgage-backed securities
Agency pass-through certificates		—		1,826,787		—		1,826,787
Other debt securities		—		—		—		—
Balance at end of period	$	—	$	1,920,165	$	—	$	1,920,165

Measured on a Nonrecurring Basis

Impaired Loans

From time to time, and on a nonrecurring basis, fair value adjustments to collateral dependent loans are recorded to reflect write-downs of principal balances based on the current appraised or estimated value of the collateral.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

REO

Real estate owned consists principally of properties acquired through foreclosure.

The following table presents the aggregated balance of assets measured at estimated fair value on a nonrecurring basis through the quarter ended December 31, 2009, and the total losses resulting from those fair value adjustments for the quarter ended December 31, 2009. The Company’s general estimate of selling costs for assets shown in the following table is 8%; as a result, the following estimated fair values are shown gross of the estimated selling costs:

	Through December 31, 2009								Quarter Ended December 31, 2009
	Level 1		Level 2		Level 3		Total		Total Losses
	(In thousands)
Impaired loans (1)	$	—	$	—	$	171,387	$	171,387	$	35,217
REO (2)		—		—		47,965		47,965		16,835
Balance at end of period	$	—	$	—	$	219,352	$	219,352	$	52,052

(1) The loss represents remeasurements of collateral dependent loans.

(2) The loss represents charge-offs on REO.

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at December 31, 2009.

Fair Values of Financial Instruments

U. S GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although Management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

	December 31, 2009				September 30, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Financial assets
Cash and cash equivalents	$	936,833	$	936,833	$	498,388	$	498,388
Available-for-sale securities:
Equity securities		515		515		—		—
Obligations of U.S. government		92,863		92,863		13,824		13,824
Obligations of states and political subdivisions		—		—		—		—
Obligations of foreign governments		—		—		—		—
Corporate debt securities		—		—		—		—
Mortgage-backed securities
Agency pass-through certificates		1,826,787		1,826,787		2,187,259		2,187,259
Other debt securities		—		—		—		—
Total available-for-sale securities		1,920,165		1,920,165		2,201,083		2,201,083
Held-to-maturity securities:
Equity securities		—		—		—		—
Obligations of U.S. government		—		—		—		—
Obligations of states and political subdivisions		7,080		7,544		7,435		7,980
Obligations of foreign governments		—		—		—		—
Corporate debt securities		—		—		—		—
Mortgage-backed securities
Agency pass-through certificates		90,715		94,165		95,607		99,283
Other debt securities		—		—		—		—
Total held-to-maturity securities		97,795		101,709		103,042		107,263
Loans receivable		8,855,533		9,195,242		8,983,430		9,223,038
FHLB stock		144,494		144,494		144,495		144,495
Financial liabilities
Customer accounts		7,971,254		7,995,177		7,842,310		7,861,129
FHLB advances and other borrowings		2,874,507		2,953,216		2,879,530		2,968,519

The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value.

Available-for-sale securities and held-to-maturity securities – Estimated fair value for investment securities is based on quoted market prices.

Loans receivable – For certain homogeneous categories of loans, such as fixed- and variable-rate residential mortgages, fair value is estimated using quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other loan types is estimated by discounting the

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types were valued at carrying value because of their floating rate or expected maturity characteristics. Net deferred loan fees are not included in the fair value calculation but are included in the carrying amount.

FHLB stock – The fair value is based upon the par value of the stock which equates to its carrying value.

Customer accounts – The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the estimated future cash flows using the rates currently offered for deposits with similar remaining maturities.

FHLB advances and other borrowings – The fair value of FHLB advances and other borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.

Reconciliation of amortized cost to fair value of available-for-sale and held-to-maturity securities:

	December 31, 2009
	Amortized Cost		Gross Unrealized					Fair Value		Yield
			Gains		Losses
	(In thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year	$	500	$	15	$	—			515	4.00	%
1 to 5 years		82,481		—		(2,576	)		79,905	4.00	%
5 to 10 years		9,300		3,658		—			12,958	10.38	%
Over 10 years		—		—		—			—	0.00	%
Mortgage-backed securities
Agency pass-through certificates		1,767,195		60,225		(633	)		1,826,787	5.72	%
		1,859,476		63,898		(3,209	)		1,920,165	5.67	%
Held-to-maturity securities
Tax-exempt municipal bonds due
Within 1 year		—		—		—			—	0.00	%
1 to 5 years		785		114		—			899	6.60	%
5 to 10 years		—		—		—			—	0.00	%
Over 10 years		6,295		386		—			6,681	5.72	%
U.S. government and agency securities due
1 to 5 years		—		—		—			—	0.00	%
Mortgage-backed securities
Agency pass-through certificates		90,715		3,450		—			94,165	5.58	%
		97,795		3,950		—			101,745	5.59	%
	$	1,957,271	$	67,848	$	(3,209	)	$	2,021,910	5.66	%

12

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

	September 30, 2009
	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses					Yield
	(In thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year	$	500	$	15	$	—		$	515	4.00	%
1 to 5 years		—		—		—			—	0.00	%
5 to 10 years		9,300		4,009		—			13,309	10.38	%
Over 10 years		—		—		—			—	0.00	%
Mortgage-backed securities
Agency pass-through certificates		2,105,227		82,041		(9	)		2,187,259	5.77	%
		2,115,027		86,065		(9	)		2,201,083	5.79	%
Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years		1,140		100		—			1,240	6.60	%
5 to 10 years		—		—		—			—	0.00	%
Over 10 years		6,295		445		—			6,740	5.72	%
U.S. government and agency securities due
1 to 5 years		—		—		—			—	0.00	%
Mortgage-backed securities
Agency pass-through certificates		95,607		3,676		—			99,283	5.57	%
		103,042		4,221		—			107,263	5.59	%
	$	2,218,069	$	90,286	$	(9	)	$	2,308,346	5.78	%

$315,836,000 of available-for-sale securities were sold during the period ending December 31, 2009, resulting in a gain of $20,428,000. There were no sales of available-for-sale securities during the period ending December 31, 2008.

Substantially all mortgage-backed securities have contractual due dates that exceed 10 years.

13

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

The following table shows the unrealized gross losses and fair value of securities at December 31, 2009, by length of time that individual securities in each category have been in a continuous loss position. The Company had only $262,000 in fair value of securities in a continuous loss position for 12 or more months at December 31, 2009, which consisted of mortgage-backed securities. This decline represents only a 1.5% decline of the book value of these investments. Management believes that the declines in fair value of these investments were due to changes in market interest rates and a temporary lack of liquidity in the mortgage market, not in estimated cash flows.

	Less than 12 months					12 months or more					Total
	Unrealized Gross Losses			Fair Value		Unrealized Gross Losses			Fair Value		Unrealized Gross Losses			Fair Value
	(In thousands)
U.S. agency securities	$	(2,576	)	$	79,904	$	—		$	—	$	(2,576	)	$	79,904
Agency pass-through certificates		(626	)		126,217		(7	)		262		(633	)		126,479
	$	(3,202	)	$	206,121	$	(7	)	$	262	$	(3,209	)	$	206,383

14

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q includes certain “forward-looking statements,” as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, based on current management expectations. Actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding the Company’s intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to: general economic conditions; legislative and regulatory changes; monetary fiscal policies of the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; cost of funds; demand for loan products; demand for financial services; competition; changes in the quality or composition of the Company’s loan and investment portfolios; changes in accounting principles; policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

GENERAL

Washington Federal, Inc. (“Company”) is a savings and loan holding company. The Company’s primary operating subsidiary is Washington Federal Savings.

INTEREST RATE RISK

The Company assumes a high level of interest rate risk as a result of its policy to originate and hold for investment fixed-rate single-family home loans, which are longer-term in nature than the short-term characteristics of its liabilities of customer accounts and borrowed money. At December 31, 2009, the Company had a negative one-year maturity gap of approximately 23% of total assets, a decrease from the 33% negative one-year gap as of September 30, 2009. The decrease was due to increasing cash balances and the deposit accounts shifting into maturities beyond one year.

The interest rate spread decreased to 3.08% at December 31, 2009 from 3.17% at September 30, 2009. The spread decreased primarily because of the decreasing yield on loans as a result of the repricing of variable rate loans and the impact of refinancing of fixed-rate mortgages into historically low long-term interest rates. As of December 31, 2009, the weighted average rates on earning assets decreased by 26 basis points since September 30, 2009, while the weighted average rates on customer accounts and borrowings decreased by 17 basis points over the same period. As of December 31, 2009, the Company had grown total assets by $79,991,000, or 0.6%, from $12,582,475,000 at September 30, 2009, by deploying funds obtained through lower cost short-term deposits. For the quarter ended December 31, 2009, compared to September 30, 2009, loans decreased $127,897,000, or 1.4%, and investment securities decreased $286,165,000, or 12.4%. Cash and cash equivalents of $936,833,000 and stockholders’ equity of $1,733,750,000 provides management with flexibility in managing interest rate risk going forward.

15

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net worth at December 31, 2009 was $1,733,750,000, or 13.69% of total assets. This was a decrease of $11,735,000 from September 30, 2009 when net worth was $1,745,485,000, or 13.87% of total assets. The decrease in the Company’s net worth included $7,911,000 from net income and a $16,045,000 decrease in accumulated other comprehensive income. The vast majority of the Company’s available for sale investments are fixed rate. As a result of market interest rates increasing, the value of fixed rate investments generally decreased. Net worth was reduced by $5,590,000 of cash dividend payments.

Management believes this strong net worth position will help the Company manage its interest rate risk and enable it to compete more effectively for controlled growth through acquisitions, de novo expansion and increased customer deposits. To be categorized as well capitalized, Washington Federal Savings must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table.

16

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Actual				Capital Adequacy Guidelines				Well Capitalized Under Prompt Corrective Action Provisions
	Capital		Ratio		Capital		Ratio		Capital		Ratio
	(In thousands)
December 31, 2009
Total capital to risk-weighted assets		1,505,230	22.36	%		538,661	8.00	%		673,326	10.00	%
Tier I capital to risk-weighted assets		1,424,078	21.15	%		N/A	N/A			403,996	6.00	%
Core capital to adjusted tangible assets		1,424,078	11.53	%		N/A	N/A			617,364	5.00	%
Core capital to total assets		1,424,078	11.53	%		370,419	3.00	%		N/A	N/A
Tangible capital to tangible assets		1,424,078	11.53	%		185,209	1.50	%		N/A	N/A
September 30, 2009
Total capital to risk-weighted assets	$	1,469,857	21.57	%	$	545,034	8.00	%	$	681,293	10.00	%
Tier I capital to risk-weighted assets		1,414,885	20.77	%		N/A	N/A			408,776	6.00	%
Core capital to adjusted tangible assets		1,414,885	11.56	%		N/A	N/A			612,094	5.00	%
Core capital to total assets		1,414,885	11.56	%		367,257	3.00	%		N/A	N/A
Tangible capital to tangible assets		1,414,885	11.56	%		183,628	1.50	%		N/A	N/A

CHANGES IN FINANCIAL CONDITION

Available-for-sale and held-to-maturity securities: Available-for-sale securities decreased $280,918,000, or 12.8%, during the quarter ended December 31, 2009, which included the purchase of $237,080,000 of available-for-sale investment securities. During the same period $315,836,000 of available-for-sale securities were sold, resulting in a gain of $20,428,000. There were no purchases or sales of held-to-maturity securities in the same period. As of December 31, 2009, the Company had net unrealized gains on available-for-sale securities of $38,386,000, net of tax, which were recorded as part of stockholders’ equity. The Company decreased its available-for-sale investment portfolio to take advantage of elevated mortgage-backed securities prices which were influenced by U.S. government participation in the mortgage-backed securities market.

Loans receivable: During the quarter ended December 31, 2009, the balance of loans receivable decreased 1.4% to $8,855,533,000 compared to $8,983,430,000 at September 30, 2009. This decrease is consistent with management’s strategy to reduce the Company’s exposure to land and construction loans and not aggressively compete for 30 year fixed-rate mortgages at current market rates. If the current low rates on 30 year fixed-rate mortgages persists, management will consider continuing to shrink its loan portfolio. The following table shows the loan portfolio by category for the last three quarters.

17

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Loan Portfolio by Category
(In thousands)
	AS OF 6/30/09				AS OF 9/30/09				AS OF 12/31/09
	AMOUNT		%		AMOUNT		%		AMOUNT		%
Single-family residential	$	6,763,040	71.2	%	$	6,785,723	72.3	%	$	6,755,256	72.8	%
Construction - speculative		311,995	3.3			267,430	2.8			216,793	2.3
Construction - custom		240,885	2.5			258,839	2.8			266,537	2.9
Land - acquisition & development		613,499	6.5			519,130	5.5			479,353	5.2
Land - consumer lot loans		198,127	2.1			195,812	2.1			191,413	2.1
Multi-family		695,795	7.3			705,212	7.5			706,494	7.6
Commercial real estate		306,994	3.2			294,109	3.1			301,932	3.3
Commercial & industrial		123,978	1.3			119,019	1.3			111,356	1.2
HELOC		118,001	1.2			122,184	1.3			128,277	1.4
Consumer		128,764	1.4			120,081	1.3			111,869	1.2
		9,501,078	100	%		9,387,539	100	%		9,269,280	100	%
Less:
ALL		161,695				166,836				190,549
Loans in Process		193,119				200,919				186,763
Deferred Net Origination Fees		34,924				36,354				36,435
		389,738				404,109				413,747
	$	9,111,340			$	8,983,430			$	8,855,533

Non-performing assets: Non-performing assets decreased during the quarter ended December 31, 2009 to $553,285,000 from $557,120,000 at September 30, 2008, a 0.69% decrease. A disproportionate share of the Company’s non-performing assets come from the land A&D and speculative construction portfolios. These assets have seen the largest declines in value in the loan portfolio. The continued elevated level of non-performing assets is attributable to the weakening economy and housing market throughout the Company’s eight state branch network. Non-performing assets as a percentage of total assets was 4.37% at December 31, 2009 compared to 4.43% at September 30, 2009. This level of non-performing assets is unprecedented in the Company’s 27 year history as a public company. The Company anticipates non-performing assets will continue to be elevated in the future until the residential real estate market stabilizes and values recover.

18

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth information regarding restructured and nonaccrual loans and REO held by the Company at the dates indicated.

	December 31, 2009					September 30, 2009
	(In thousands)
Restructured loans
Single-family residential	$	161,156		79.6	%	$	116,988		85.4	%
Construction - speculative		13,457		6.6			6,235		4.6
Construction - custom		—		0.0			—		0.0
Land - acquisition & development		24,337		12.0			11,186		8.2
Land - consumer lot loans		3,724		1.8			2,485		1.8
Multi-family		—		0.0			—		0.0
Commercial real estate		—		0.0			—		0.0
Commercial & industrial		—		0.0			—		0.0
HELOC		—		0.0			—		0.0
Consumer		—		0.0			—		0.0
Total restructured loans (1)		202,674		100	%		136,894		100	%
Non-accrual loans:
Single-family residential		134,123		36.4	%		116,268		30.6	%
Construction - speculative		61,558		16.6			50,348		13.2
Construction - custom		—		0.0			—		0.0
Land - acquisition & development		151,005		40.8			187,061		49.2
Land - consumer lot loans		—		0.0			—		0.0
Multi-family		2,587		0.7			4,368		1.1
Commercial real estate		908		0.2			2,733		0.7
Commercial & industrial		18,843		5.1			18,823		5.0
HELOC		—		0.0			—		0.0
Consumer		753		0.2			656		0.2
Total non-accrual loans (2)		369,777		100	%		380,257		100	%
Total REO (3)		133,235					120,105
Total REHI (3)		50,273					56,758
Total non-performing assets	$	553,285				$	557,120
Total non-performing assets and performing restructured loans	$	725,906				$	674,354
Total non-performing assets and performing restructured loans as a percentage of total assets		5.73	%				5.36	%
(1)    Restructured loans were as follows:
Performing	$	172,621		85.2	%	$	117,234		85.6	%
Non-accrual *		30,053		14.8	%		19,660		14.4	%
* - Included in “Total non-accrual loans” above	$	202,674		100.0	%	$	136,894		100.0	%

19

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(2) The Company recognized interest income on nonaccrual loans of approximately $10,053,000 in the quarter ended December 31, 2009. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $22,876,000 for the quarter ended December 31, 2009.

In addition to the nonaccrual loans reflected in the above table, at December 31, 2009, the Company had $301,747,000 of loans that were less than 90 days delinquent but which it had classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company’s ratio of total non-performing assets and restructured loans as a percent of total assets would have increased to 8.35% at December 31, 2009.

(3) Total REO and REHI (included in real estate held for sale on the Statement of Financial Condition) includes real estate held for sale acquired in settlement of loans.

Allocation of the allowance for loan losses: The following table shows the allocation of the Company’s allowance for loan losses at the dates indicated.

	December 31, 2009				September 30, 2009
	Amount		Loans to Total Loans (1)		Amount		Loans to Total Loans (1)
	(In thousands)
Single-family residential	$	24,450	72.8	%	$	18,547	72.3	%
Construction - speculative		25,072	2.3			21,841	2.8
Construction - custom		239	2.9			81	2.8
Land - acquisition & development		115,846	5.2			104,569	5.5
Land - consumer lot loans		1,768	2.1			1,298	2.1
Multi-family		2,647	7.6			1,878	7.5
Commercial real estate		1,825	3.3			1,344	3.1
Commercial & industrial		9,336	1.2			7,327	1.3
HELOC		641	1.4			377	1.3
Consumer		8,725	1.2			9,574	1.3
	$	190,549	100.0	%	$	166,836	100.0	%

(1) Represents the total amount of the loan category as a % of total loans outstanding.

20

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Customer accounts: Customer accounts increased $128,944,000, or 1.6%, to $7,971,254,000 at December 31, 2009 compared with $7,842,310,000 at September 30, 2009. The increase in customer deposits reflects the opportunity created in the marketplace by the failure and/or merger of several large institutions throughout the Company’s footprint. The following table shows the composition of the Company’s customer accounts as of the dates shown:

Deposits by Type
(In thousands)
	December 31, 2009						September 30, 2009
	Amount		%		Wtd. Avg. Rate		Amount		%		Wtd. Avg. Rate
Checking (noninterest)	$	112,041	1.5	%	0.00	%	$	119,654	1.5	%	0.00	%
NOW (interest)		442,312	5.5		0.50	%		406,667	5.2		0.50	%
Savings (passbook/stmt)		201,867	2.5		0.50	%		197,025	2.5		0.50	%
Money Market		1,333,251	16.7		0.87	%		1,214,812	15.5		0.87	%
CD’s		5,881,783	73.8		2.12	%		5,904,152	75.3		2.37	%
Total	$	7,971,254	100	%	1.75	%	$	7,842,310	100	%	1.96	%

FHLB advances and other borrowings: Total borrowings decreased $5,023,000, or 0.2%, to $2,874,507,000 at December 31, 2009, compared with $2,879,530,000 at September 30, 2009. See “Interest Rate Risk” above.

RESULTS OF OPERATIONS

Throughout this document we will refer to net income, which is defined as net income available to common shareholders after the payment of preferred dividends.

Net Income: The quarter ended December 31, 2009, produced net income of $7,911,000 compared to $20,169,000 for the same quarter one year ago. The decrease for the quarter resulted primarily from the significant increase in the provision for loan losses and other credit costs, offset somewhat by growth in net interest income as well as a gain on sale of available-for-sale securities of $20,428,000.

Net Interest Income: The largest component of the Company’s earnings is net interest income, which is the difference between the interest and dividends earned on loans and other investments and the interest paid on customer deposits and borrowings. Net interest income is impacted primarily by two factors; first, the volume of earning assets and liabilities and second, the rate earned on those assets or the rate paid on those liabilities.

21

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth certain information explaining changes in interest income and interest expense for the periods indicated compared to the same periods one year ago. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old volume). The change in interest income and interest expense attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

Rate / Volume Analysis:

	Comparison of Quarters Ended 12/31/09 and 12/31/08
	Volume			Rate			Total
	(In thousands)
Interest income:
Loan portfolio	$	(8,295	)	$	(6,573	)	$	(14,868	)
Mortgaged-backed securities		5,318			(3,349	)		1,969
Investments (1)		927			(897	)		30
All interest-earning assets		(2,050	)		(10,819	)		(12,869	)
Interest expense:
Customer accounts		5,674			(25,097	)		(19,423	)
FHLB advances and other borrowings		(5,843	)		4,645			(1,198	)
All interest-bearing liabilities		(169	)		(20,452	)		(20,621	)
Change in net interest income	$	(1,881	)	$	9,633		$	7,752

(1) Includes interest on cash equivalents and dividends on FHLB stock

22

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Provision for Loan Losses: The Company recorded a $69,750,000 provision for loan losses during the quarter ended December 31, 2009, while a $35,000,000 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $553,285,000, or 4.37%, of total assets at December 31, 2009, compared to $305,066,000, or 2.44%, of total assets one year ago. The Company had net charge-offs of $46,037,000 for the quarter ended December 31, 2009 compared with $15,223,000 of net charge-offs for the same quarter one year ago. This significant increase in the provision for loan losses is in response to three primary factors: first, the overall deterioration in the housing market in general in the Company’s eight western state territory, second, the significant increase in the combined balance of non-performing assets in the land A&D and speculative construction portfolios, and finally, the material increase in net charge-offs for the quarter. Management believes that higher non-performing assets and charge-offs may continue going forward until the housing market begins to recover. Similarly, management expects the provision to remain at elevated levels until non-performing assets and charge-offs improve.

23

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table analyzes the Company’s allowance for loan losses at the dates indicated.

	Quarter Ended December 31,
	2009			2008
	(In thousands)
Beginning balance	$	166,836		$	85,058
Charge-offs:
Single-family residential		7,636			3,079
Construction - speculative		7,151			4,503
Construction - custom		95			—
Land - acquisition & development		29,180			3,557
Land - consumer lot loans		331			720
Multi-family		—			—
Commercial real estate		—			—
Commercial & industrial		383			2,171
HELOC		69			—
Consumer		1,900			1,357
		46,745			15,387
Recoveries:
Single-family residential		89			2
Construction - speculative		200			—
Construction - custom		—			—
Land - acquisition & development		33			16
Land - consumer lot loans		—			—
Multi-family		—			—
Commercial real estate		1			—
Commercial & industrial		155			43
HELOC		—			—
Consumer		230			103
		708			164
Net charge-offs		46,037			15,223
Provision for loan losses		69,750			35,000
Acquired reserves		—			—
Ending balance	$	190,549		$	104,835
Ratio of net charge-offs to average loans outstanding		0.51	%		0.16	%

Other Income: The quarter ended December 31, 2009 produced total other income of $24,237,000 compared to $4,175,000 for the same quarter one year ago, an increase of $20,062,000. The quarter ended December 31, 2009, included $20,428,000 of gain on sale of investments, whereas the quarter ended December 31, 2008, included no gain on sale of investments.

24

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other Expense: The quarter ended December 31, 2009, produced total other expense of $26,975,000 compared to $24,587,000 for the same quarter one year ago, a 9.7% increase. The increase in total other expense over the same comparable period one year ago was primarily due to the increase in FDIC insurance premiums incurred by the Company. Total other expense for the quarters ended December 31, 2009 and 2008 equaled .85% and .80%, respectively, of average assets. The number of staff, including part-time employees on a full-time equivalent basis, was 1,085 and 1,103 at December 31, 2009 and 2008, respectively.

Taxes: Income taxes decreased $7,198,000, or 60.8%, for the quarter ended December 31, 2009, when compared to the same period one year ago. This decrease was a result of lower pretax income. The effective tax rate for the quarter ended December 31, 2009, was 37.00%, compared to 35.50% for the same period one year ago.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management believes that there have been no material changes in the Company’s quantitative and qualitative information about market risk since September 30, 2009. For a complete discussion of the Company’s quantitative and qualitative market risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2009 Form 10-K.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15. Based upon that evaluation, the Company’s President and Chief Executive Officer, along with the Company’s Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Disclosure controls and procedures are Company controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

26

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART II – Other Information

Item 1. Legal Proceedings

From time to time the Company or its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are considered to have a material impact on the Company’s financial position or results of operations.

Item 1A. Risk Factors

Not applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases made by or on behalf of the Company of the Company’s common stock during the three months ended December 31, 2009.

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (1)	Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period
October 1, 2009 to October 31, 2009	—	$	—	—	2,888,314
November 1, 2009 to November 30, 2009	—		—	—	2,888,314
December 1, 2009 to December 31, 2009	—		—	—	2,888,314
Total	—		—	—	2,888,314

(1) The Company’s only stock repurchase program was publicly announced by the Board of Directors on February 3, 1995 and has no expiration date. Under this ongoing program, a total of 21,956,264 shares have been authorized for repurchase.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART II – Other Information

Item 5. Other Information

Not applicable

Item 6. Exhibits

(a) Exhibits

31.1     Section 302 Certification by the Chief Executive Officer

31.2     Section 302 Certification by the Chief Financial Officer

32     Section 906 Certification by the Chief Executive Officer and the Chief Financial Officer

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

January 27, 2010	/s/    ROY M. WHITEHEAD
	ROY M. WHITEHEAD
	Chairman, President and Chief Executive Officer
January 27, 2010	/s/    BRENT J. BEARDALL
	BRENT J. BEARDALL
	Executive Vice President and Chief
	Financial Officer

29