Edgar Filing: WASHINGTON FEDERAL INC

WAFD 6.30.2014 10-Q

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 June 30, 2014



o	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 001-34654

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 o

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 x No o

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	o
Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 July 31, 2014
Common stock, $1.00 par value	99,512,647

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES



PART I

Item 1.	Financial Statements (Unaudited)

	The 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 June 30, 2014 and September 30, 2013	3

	Consolidated Statements of Operations for the quarter and nine months ended June 30, 2014 and June 30, 2013	4

	Consolidated Statements of Comprehensive Income for the quarter and nine months ended June 30, 2014 and June 30, 2013	5

	Consolidated Statements of Stockholders' Equity for the nine months ended June 30, 2014 and June 30, 2013	6

	Consolidated Statements of Cash Flows for the nine months ended June 30, 2014 and June 30, 2013	7

	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	48

PART II

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults Upon Senior Securities	49

Item 4.	Mine Safety Disclosures	49

Item 5.	Other Information	49

Item 6.	Exhibits	49

	Signatures	51

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)



	June 30, 2014			September 30, 2013
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	861,304		$	203,563
Available-for-sale securities, at fair value	3,103,021			2,360,948
Held-to-maturity securities, at amortized cost	1,583,853			1,654,666
Loans receivable, net	7,965,954			7,528,030
Covered loans, net	207,207			295,947
Interest receivable	51,392			49,218
Premises and equipment, net	246,800			206,172
Real estate held for sale	57,352			72,925
Real estate held for investment	10,780			9,392
Covered real estate held for sale	26,339			30,980
FDIC indemnification asset	44,065			64,615
FHLB & FRB stock	162,904			173,009
Intangible assets, net	303,983			264,318
Federal and state income tax assets, net	25,258			44,000
Other assets	139,743			125,076
	$	14,789,955		$	13,082,859
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts	$	5,315,781		$	3,540,842
Time deposit accounts	5,449,899			5,549,429
	10,765,680			9,090,271
FHLB advances	1,930,000			1,930,000
Advance payments by borrowers for taxes and insurance	28,513			42,443
Accrued expenses and other liabilities	75,127			82,510
	12,799,320			11,145,224
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000 shares authorized; 133,332,272 and 132,572,475 shares issued; 100,296,268 and 102,484,671 shares outstanding	133,332			132,573
Paid-in capital	1,638,070			1,625,051
Accumulated other comprehensive income, net of taxes	24,421			6,378
Treasury stock, at cost; 33,036,004 and 30,087,804 shares	(485,048		)	(420,817		)
Retained earnings	679,860			594,450
	1,990,635			1,937,635
	$	14,789,955		$	13,082,859

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Quarter Ended June 30,					Nine Months Ended June 30,
	2014			2013		2014			2013
	(In thousands, except per share data)
INTEREST INCOME
Loans	$	108,089		$	112,932	$	321,650		$	342,654
Mortgage-backed securities	20,507			11,951		60,947			34,325
Investment securities and cash equivalents	6,415			3,293		16,023			9,010
	135,011			128,176		398,620			385,989
INTEREST EXPENSE
Customer accounts	14,238			16,385		44,517			51,851
FHLB advances and other borrowings	17,494			17,075		51,877			50,966
	31,732			33,460		96,394			102,817
Net interest income	103,279			94,716		302,226			283,172
Provision for (reversal of) loan losses	(3,000		)	—		(11,936		)	3,600
Net interest income after provision for (reversal of) loan losses	106,279			94,716		314,162			279,572

OTHER INCOME	8,072			5,059		20,562			16,062

OTHER EXPENSE
Compensation and benefits	28,946			24,582		81,908			68,731
Occupancy	6,060			4,530		17,668			13,801
FDIC insurance premiums	2,978			2,831		8,679			9,280
Information technology	3,505			2,371		10,365			7,661
Amortization of intangible assets	1,052			660		2,601			1,386
Other	10,752			6,636		28,250			20,214
	53,293			41,610		149,471			121,073

Gain (loss) on real estate acquired through foreclosure, net	(2,056		)	176		(3,454		)	(7,145		)
Income before income taxes	59,002			58,341		181,799			167,416
Income tax provision	21,092			21,003		64,996			58,818
NET INCOME	$	37,910		$	37,338	$	116,803		$	108,598

PER SHARE DATA
Basic earnings	$	0.38		$	0.36	$	1.15		$	1.03
Diluted earnings	0.37			0.36		1.14			1.03
Basic weighted average number of shares outstanding	100,979,219			104,143,915		101,777,112			105,119,097
Diluted weighted average number of shares outstanding, including dilutive stock options	101,393,936			104,192,444		102,234,350			105,167,959

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Quarter Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
	(In thousands)

Net income	$	37,910		$	37,338		$	116,803		$	108,598
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) on available-for-sale securities	22,026			(10,697		)	28,527			(12,925		)
Related tax benefit (expense)	(8,095		)	3,931			(10,484		)	4,750
Other comprehensive income (loss)	13,931			(6,766		)	18,043			(8,175		)

Comprehensive income	$	51,841		$	30,572		$	134,846		$	100,423

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)



	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
					(In thousands)
Balance at October 1, 2013	$	132,573	$	1,625,051	$	594,450		$	6,378		$	(420,817	)	$	1,937,635
Net income					116,803									116,803
Other comprehensive income adjustment								18,043						18,043
Dividends paid on common stock					(31,393		)							(31,393		)
Compensation expense related to common stock options			900											900
Proceeds from exercise of common stock options	759		9,599											10,358
Restricted stock			2,520											2,520
Treasury stock acquired											(64,231		)	(64,231		)
Balance at June 30, 2014	$	133,332	$	1,638,070	$	679,860		$	24,421		$	(485,048	)	$	1,990,635

(In thousands)	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
					(In thousands)
Balance at October 1, 2012	$	129,950	$	1,586,295	$	480,780		$	13,306		$	(310,579	)	$	1,899,752
Net income					108,598									108,598
Other comprehensive income adjustment								(8,175		)				(8,175		)
Dividends paid on common stock					(27,591		)							(27,591		)
Compensation expense related to common stock options			900											900
Proceeds from exercise of common stock options	26		271											297
Proceeds from issuance of common stock	1,996		31,495											33,491
Restricted stock	418		2,239											2,657
Treasury stock acquired											(87,037		)	(87,037		)
Balance at June 30, 2013	$	132,390	$	1,621,200	$	561,787		$	5,131		$	(397,616	)	$	1,922,892

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended June 30,
	2014			2013
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	116,803		$	108,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,467			10,507
Cash received from FDIC under loss share	949			13,014
Stock option compensation expense	900			900
(Reversal of) provision for loan losses	(11,936		)	3,600
Loss (gain) on real estate held for sale, net	598			(18		)
(Increase) decrease in accrued interest receivable	(2,174		)	872
Increase in FDIC loss share receivable	(2,029		)	(1,346		)
Increase (decrease) in income taxes payable	8,258			(9,446		)
(Increase) decrease in other assets	(14,514		)	36,665
Decrease in accrued expenses and other liabilities	(10,487		)	(23,177		)
Net cash provided by operating activities	94,835			140,169
CASH FLOWS FROM INVESTING ACTIVITIES
Net (loan originations) principal collections	(329,076		)	475,354
FHLB & FRB stock redemption	9,952			4,391
Available-for-sale securities purchased	(1,080,476		)	(506,966		)
Principal payments and maturities of available-for-sale securities	363,103			198,555
Available-for-sale securities sold	—			43,198
Held-to-maturity securities purchased	—			(821,215		)
Principal payments and maturities of held-to-maturity securities	68,981			428,827
Net cash received from acquisitions	1,776,660			202,308
Proceeds from real estate owned and held for investment	66,766			104,360
Premises and equipment purchased	(35,647		)	(22,941		)
Net cash provided by investing activities	840,263			105,871
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in customer accounts	(178,161		)	(250,364		)
Net proceeds from borrowings	—			27,529
Proceeds from exercise of common stock options and related tax benefit	10,358			297
Dividends paid on common stock	(31,393		)	(26,651		)
Treasury stock purchased	(64,231		)	(87,037		)
Decrease in advance payments by borrowers for taxes and insurance	(13,930		)	(14,387		)
Net cash used by financing activities	(277,357		)	(350,613		)
Increase (decrease) in cash and cash equivalents	657,741			(104,573		)
Cash and cash equivalents at beginning of period	203,563			751,430
Cash and cash equivalents at end of period	$	861,304		$	646,857

(CONTINUED)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)



	Nine Months Ended June 30,
	2014			2013
	(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Non-covered real estate acquired through foreclosure	$	32,818		$	72,762
Covered real estate acquired through foreclosure	6,163			10,245
Cash paid during the period for
Interest	97,485			104,370
Income taxes	54,072			48,111
The following summarizes the non-cash activities related to acquisitions
Fair value of assets acquired	$	80,384		$	819,904
Fair value of liabilities assumed	(1,857,044		)	(776,009		)
Net fair value of (liabilities) assets	$	(1,776,660	)	$	43,895

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED JUNE 30, 2014 AND 2013

(UNAUDITED)

NOTE A – Summary of Significant Accounting Policies

Nature of Operations. Washington Federal is a Washington corporation headquartered in Seattle, Washington. The Company is a bank holding company that conducts its operations through a federally-insured national bank subsidiary. The Bank is principally engaged in the business of attracting deposits from the general public and investing these funds, together with borrowings and other funds, in one-to-four family residential real estate loans, multi-family real estate loans and commercial loans. As used throughout this document, the terms "Washington Federal" or the "Company" refer to Washington Federal, Inc. and its consolidated subsidiaries and the term "Bank" refers to the operating subsidiary Washington Federal, National Association.

Use of Estimates. The consolidated unaudited interim financial statements included in this report have been prepared by Washington Federal. 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.

Summary of Significant Accounting Policies. The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 2013 Form 10-K. Other than as discussed below, there have not been any additions or material changes in its significant accounting policies compared to those contained in its 2013 Form 10-K.

Off-Balance-Sheet Credit Exposures – The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance at June 30, 2014, excluding covered loans, of $528 million. The Company estimates losses on off-balance-sheet credit exposures by including the exposures with the related principal balance outstanding and then applying its general reserve methodology.

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, 2013 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 2013 Annual Report on Form 10-K (“2013 Form 10-K”) as filed with the Securities and Exchange Commission. Interim results are not necessarily indicative of results for a full year.

NOTE B - Acquisitions

Certain Branches of Bank of America, National Association

During this fiscal year, the Bank has acquired seventy-four branches from Bank of America, National Association. Effective as of the close of business on October 31, 2013, the Bank completed the acquisition of eleven branches that are located in New Mexico. Effective as of the close of business on December 6, 2013, the Bank completed the acquisition of another forty branches that are located in Washington, Oregon, and Idaho. Effective as of the close of business on May 2, 2014, the Bank completed the acquisition of another twenty-three branches that are located in Arizona and Nevada.

Management believes that these transactions represent a significant enhancement of our branch network. This transaction will bring new customers to the Company and improve the deposit mix and reduce overall funding costs.

The combined acquisitions provided $1.9 billion in deposit accounts, $13 million of loans, and $25 million in branch properties. The Bank paid a 1.99% premium on the total deposits and received $1.8 billion in cash from the transactions.

The acquisition method of accounting was used to account for the acquisitions. The purchased assets and assumed liabilities are recorded at their respective acquisition date estimated fair values. The Bank recorded $11 million in core deposit intangible and $31 million in goodwill related to these transactions.

The operating results of the Company include the operating results produced by the first eleven branches for the period from November 1, 2013 to June 30, 2014, for the additional forty branches from December 7, 2013 to June 30, 2014, and for the most recent twenty-three branches from May 3, 2014 to June 30, 2014.

The table below displays the adjusted fair value as of the acquisition date for each major class of assets acquired and liabilities assumed:

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)




	Adjusted Fair Value Recorded by
	Washington Federal
	(In thousands)
Assets:
Cash	$	1,776,660
Loans receivable, net	12,881
Property and equipment, net	25,097
Core deposit intangible	11,040
Goodwill	31,225
Other assets	70
Total Assets	1,856,973

Liabilities:
Customer accounts	1,853,798
Other liabilities	3,175
Total Liabilities	1,856,973

Net assets acquired	$	—

NOTE C – Dividends

On July 18, 2014, the Company paid its 126th consecutive quarterly cash dividend. Dividends per share were $.11 and $.09 for the quarters ended June 30, 2014 and 2013, respectively.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE D – Loans Receivable (excluding Covered Loans)



	June 30, 2014				September 30, 2013
	(In thousands)
Non-acquired loans
Single-family residential	$	5,466,771	64.7	%	$	5,359,149	67.1	%
Construction - speculative	126,926		1.5		130,778		1.6
Construction - custom	372,789		4.4		302,722		3.8
Land - acquisition & development	88,319		1.1		77,775		1.1
Land - consumer lot loans	111,919		1.4		121,671		1.5
Multi-family	893,742		10.6		831,684		10.4
Commercial real estate	523,850		6.2		414,961		5.1
Commercial & industrial	333,552		3.9		243,199		3.0
HELOC	117,177		1.4		112,186		1.4
Consumer	132,062		1.5		47,141		0.6
Total non-acquired loans	8,167,107		96.7		7,641,266		95.6
Non-impaired acquired loans
Single-family residential	12,014		0.2		14,468		0.2
Construction - speculative	—		—		—		—
Construction - custom	—		—		—		—
Land - acquisition & development	1,069		—		1,489		—
Land - consumer lot loans	2,654		—		3,313		—
Multi-family	3,057		—		3,914		0.1
Commercial real estate	103,215		1.1		133,423		1.7
Commercial & industrial	60,349		0.7		75,326		0.9
HELOC	8,469		0.1		10,179		0.1
Consumer	6,427		0.1		8,267		0.1
Total non-impaired acquired loans	197,254		2.2		250,379		3.1
Credit-impaired acquired loans
Single-family residential	326		—		333		—
Construction - speculative	—		—		—		—
Land - acquisition & development	1,670		—		2,396		—
Multi-family	—		—		—		—
Commercial real estate	66,356		0.9		76,909		1.1
Commercial & industrial	4,280		0.1		7,925		0.1
HELOC	10,658		0.1		11,266		0.1
Consumer	58		—		71		—
Total credit-impaired acquired loans	83,348		1.1		98,900		1.3
Total loans
Single-family residential	5,479,111		64.9		5,373,950		67.3
Construction - speculative	126,926		1.5		130,778		1.6
Construction - custom	372,789		4.4		302,722		3.8
Land - acquisition & development	91,058		1.1		81,660		1.1
Land - consumer lot loans	114,573		1.4		124,984		1.5
Multi-family	896,799		10.6		835,598		10.5
Commercial real estate	693,421		8.2		625,293		7.9
Commercial & industrial	398,181		4.7		326,450		4.0

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



HELOC	136,304		1.6		133,631		1.6
Consumer	138,547		1.6		55,479		0.7
Total Loans	8,447,709		100	%	7,990,545		100	%
Less:
Allowance for probable losses	114,150				116,741
Loans in process	303,084				275,577
Discount on acquired loans	28,480				34,143
Deferred net origination fees	36,041				36,054
	481,755				462,515
	$	7,965,954			$	7,528,030

Changes in the carrying amount and accretable yield for acquired non-impaired and credit-impaired loans (excluding covered loans) for the nine months ended June 30, 2014 and the fiscal year ended September 30, 2013 were as follows:



June 30, 2014	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance as of beginning of period	$	37,236		$	69,718		$	4,977		$	245,373
Reclassification from nonaccretable balance, net (1)	7,300			—			—			—
Accretion	(8,884		)	8,884			(606		)	606
Transfers to REO	—			(1,188		)	—			(4,710		)
Payments received, net	—			(17,616		)	—			(48,988		)
Balance as of end of period	$	35,652		$	59,798		$	4,371		$	192,281
(1) reclassification due to improvements in expected cash flows of the underlying loans.



September 30, 2013	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance as of beginning of period	$	16,928		$	77,613		$	—		$	—
Reclassification from nonaccretable balance, net (1)	30,026			—			—			—
Additions (2)	—			9,865			10,804			351,335
Accretion	(9,718		)	9,718			(5,827		)	5,827
Transfers to REO	—			(3,975		)	—			(7,755		)
Payments received, net	—			(23,503		)	—			(104,034		)
Balance as of end of period	$	37,236		$	69,718		$	4,977		$	245,373
(1) reclassification due to improvements in expected cash flows of the underlying loans.
(2) includes loans which were acquired as part of the South Valley Bank acquisition.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table sets forth information regarding non-accrual loans (excluding covered loans) held by the Company as of the dates indicated:



	June 30, 2014				September 30, 2013
	(In thousands)
Non-accrual loans:
Single-family residential	$	78,317	83.2	%	$	100,460	76.5	%
Construction - speculative	1,966		2.1		4,560		3.5
Construction - custom	143		0.2		—		—
Land - acquisition & development	2,295		2.4		2,903		2.2
Land - consumer lot loans	1,879		2.0		3,337		2.5
Multi-family	2,103		2.2		6,573		5.0
Commercial real estate	5,442		5.8		11,736		8.9
Commercial & industrial	516		0.5		477		0.4
HELOC	970		1.0		263		0.2
Consumer	595		0.6		990		0.8
Total non-accrual loans	$	94,226	100	%	$	131,299	100	%

The following tables provide an analysis of the age of loans (excluding covered loans) in past due status as of June 30, 2014 and September 30, 2013, respectively. These balances are net of LIP and charge-offs only.



June 30, 2014	Amount of Loans		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loan	Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
	(In thousands)
Non-acquired loans
Single-Family Residential	$	5,464,370	$	5,367,245	$	18,990	$	12,878	$	65,257	$	97,125	1.78	%
Construction - Speculative	85,412		84,635		301		—		476		777		0.91
Construction - Custom	201,475		201,288		44		—		143		187		0.09
Land - Acquisition & Development	72,241		70,183		227		—		1,831		2,058		2.85
Land - Consumer Lot Loans	111,860		108,591		1,220		170		1,879		3,269		2.92
Multi-Family	868,968		865,518		2,829		214		407		3,450		0.40
Commercial Real Estate	476,863		474,923		95		—		1,845		1,940		0.41
Commercial & Industrial	333,543		333,430		3		—		110		113		0.03
HELOC	117,178		116,188		53		370		567		990		0.84
Consumer	132,156		130,797		774		421		164		1,359		1.03
Total non-acquired loans	7,864,066		7,752,798		24,536		14,053		72,679		111,268		1.41	%

Non-impaired acquired loans
Single-Family Residential	12,014		11,990		—		—		24		24		0.20	%
Construction - Speculative	—		—		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	1,069		663		—		—		406		406		37.98

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(UNAUDITED)



Land - Consumer Lot Loans	2,651		2,651		—		—		—		—		—
Multi-Family	3,057		3,057		—		—		—		—		—
Commercial Real Estate	103,189		102,421		—		—		768		768		0.74
Commercial & Industrial	60,348		60,136		212		—		—		212		0.35
HELOC	8,468		8,335		133		—		—		133		1.57
Consumer	6,427		5,626		12		358		431		801		12.46
Total non-impaired acquired loans	197,223		194,879		357		358		1,629		2,344		1.19	%

Credit-impaired acquired loans
Single-Family Residential	326		326		—		—		—		—		—	%
Construction - Speculative	—		—		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	1,670		1,670		—		—		—		—		—
Land - Consumer Lot Loans	—		—		—		—		—		—		NM
Multi-Family	—		—		—		—		—		—		NM
Commercial Real Estate	66,344		65,996		—		—		348		348		0.52
Commercial & Industrial	4,281		3,863		12		—		406		418		9.76
HELOC	10,658		10,027		228		—		403		631		5.92
Consumer	58		58		—		—		—		—		—
Total credit-impaired acquired loans	83,337		81,940		240		—		1,157		1,397		1.68	%

Total Loans	$	8,144,626	$	8,029,617	$	25,133	$	14,411	$	75,465	$	115,009	1.41	%



September 30, 2013	Amount of Loans		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loan	Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
	(In thousands)
Non-acquired loans
Single-Family Residential	$	5,356,200	$	5,237,413	$	26,888	$	12,373	$	79,526	$	118,787	2.22	%
Construction - Speculative	82,422		80,047		—		—		2,375		2,375		2.88
Construction - Custom	130,095		129,678		417		—		—		417		0.32
Land - Acquisition & Development	71,567		70,106		—		—		1,461		1,461		2.04
Land - Consumer Lot Loans	121,473		117,076		806		355		3,236		4,397		3.62
Multi-Family	790,564		785,793		—		—		4,771		4,771		0.60
Commercial Real Estate	404,680		398,114		2,942		351		3,273		6,566		1.62
Commercial & Industrial	249,405		249,363		42		—		—		42		0.02
HELOC	112,186		111,407		493		213		73		779		0.69
Consumer	47,142		45,620		849		283		390		1,522		3.23
Total non-acquired loans	7,365,734		7,224,617		32,437		13,575		95,105		141,117		1.92	%

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(UNAUDITED)



Non-impaired acquired loans
Single-Family Residential	14,468		14,343		82		—		43		125		0.86	%
Construction - Speculative	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	1,489		1,241		—		—		248		248		16.66
Land - Consumer Lot Loans	3,313		2,987		125		100		101		326		9.84
Multi-Family	3,914		3,914		—		—		—		—		—
Commercial Real Estate	133,398		128,610		134		617		4,037		4,788		3.59
Commercial & Industrial	75,323		74,992		10		153		168		331		0.44
HELOC	10,179		10,063		—		16		100		116		1.14
Consumer	8,266		7,568		90		8		600		698		8.44
Total non-impaired acquired loans	250,350		243,718		441		894		5,297		6,632		2.65	%

Credit-impaired acquired loans
Single-Family Residential	333		333		—		—		—		—		—	%
Construction - Speculative	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	2,393		1,929		—		464		—		464		19.39
Land - Consumer Lot Loans	—		—		—		—		—		—		—
Multi-Family	—		—		—		—		—		—		—
Commercial Real Estate	83,116		80,095		2,301		—		720		3,021		3.63
Commercial & Industrial	1,705		1,396		—		—		309		309		18.12
HELOC	11,266		11,176		—		—		90		90		0.80
Consumer	71		71		—		—		—		—		—
Total credit-impaired acquired loans	98,884		95,000		2,301		464		1,119		3,884		3.93	%

Total Loans	$	7,714,968	$	7,563,335	$	35,179	$	14,933	$	101,521	$	151,633	1.97	%

Most loans restructured in troubled debt restructurings ("TDRs") are accruing and performing loans where the borrower has proactively approached the Company about modification due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. The concession for these loans is typically a payment reduction through a rate reduction of between 100 to 200 basis points for a specific term, usually six to twenty-four months. Interest-only payments may also be approved during the modification period. As of June 30, 2014, single-family residential loans comprised 86.1% of TDRs.

The Company reserves for restructured loans within its allowance for loan loss methodology by taking into account the following performance indicators: 1) time since modification, 2) current payment status and 3) geographic area.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide information related to loans that were restructured during the periods indicated:



	Quarter Ended June 30,
	2014					2013
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
		(In thousands)					(In thousands)
Troubled Debt Restructurings:
Single-Family Residential	48	$	10,693	$	10,693	111	$	27,619	$	27,619
Construction - Speculative	—	—		—		—	—		—
Construction - Custom	—	—		—		—	—		—
Land - Acquisition & Development	3	756		756		—	—		—
Land - Consumer Lot Loans	5	573		573		4	685		685
Multi-Family	—	—		—		—	—		—
Commercial Real Estate	2	1,398		1,398		1	2,411		2,411
Commercial & Industrial	—	—		—		—	—		—
HELOC	—	—		—		—	—		—
Consumer	—	—		—		1	11		11
	58	$	13,420	$	13,420	117	$	30,726	$	30,726

	Nine Months Ended June 30,
	2014					2013
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
		(In thousands)					(In thousands)
Troubled Debt Restructurings:
Single-Family Residential	199	45,132		45,132		337	88,085		88,085
Construction - Speculative	—	—		—		1	2,481		2,481
Construction - Custom	—	—		—		—	—		—
Land - Acquisition & Development	3	756		756		—	—		—
Land - Consumer Lot Loans	10	1,746		1,746		20	3,027		3,027
Multi-Family	2	1,201		1,201		1	44		44
Commercial Real Estate	3	2,197		2,197		1	2,411		2,411
Commercial & Industrial	—	—		—		—	—		—
HELOC	1	261		261		1	199		199
Consumer	3	207		207		1	11		11
	221	$	51,500	$	51,500	362	$	96,258	$	96,258

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide information on restructured loans for which a payment default occurred during the periods indicated and that had been modified as a TDR within 12 months or less of the payment default:



	Quarter Ended June 30,
	2014			2013
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(In thousands)			(In thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Single-Family Residential	17	$	3,088	25	$	6,833
Construction - Speculative	—	—		—	—
Construction - Custom	—	—		—	—
Land - Acquisition & Development	—	—		—	—
Land - Consumer Lot Loans	1	69		1	109
Multi-Family	—	—		—	—
Commercial Real Estate	—	—		—	—
Commercial & Industrial	—	—		—	—
HELOC	—	—		1	79
Consumer	1	170		—	—
	19	$	3,327	27	$	7,021

	Nine Months Ended June 30,
	2014			2013
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(In thousands)			(In thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Single-Family Residential	42	$	9,206	65	$	15,366
Construction - Speculative	—	—		—	—
Construction - Custom	—	—		—	—
Land - Acquisition & Development	—	—		1	838
Land - Consumer Lot Loans	4	445		2	237
Multi-Family	—	—		—	—
Commercial Real Estate	—	—		—	—
Commercial & Industrial	—	—		—	—
HELOC	—	—		2	113
Consumer	1	170		—	—
	47	$	9,821	70	$	16,554

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE E – Allowance for Losses on Loans

The Company has an asset quality review function that analyzes its loan portfolios and reports the results of the review to the Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as follows:


•	Pass – the credit does not meet one of the definitions below.

•

Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and Management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

•

Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard.

•

Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

•

Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible. Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes the activity in the allowance for loan losses (excluding acquired and covered loans) for the quarter ended June 30, 2014 and fiscal year ended September 30, 2013:



Quarter Ended June 30, 2014	Beginning Allowance		Charge-offs			Recoveries		Provision & Transfers			Ending Allowance
	(In thousands)
Single-family residential	$	63,348	$	(2,530	)	$	4,717	$	(3,175	)	$	62,360
Construction - speculative	6,773		—			2		(388		)	6,387
Construction - custom	1,599		—			—		79			1,678
Land - acquisition & development	6,027		—			85		843			6,955
Land - consumer lot loans	2,974		(86		)	—		(26		)	2,862
Multi-family	4,187		—			—		(46		)	4,141
Commercial real estate	5,924		(32		)	24		773			6,689
Commercial & industrial	20,403		(38		)	4		(1,673		)	18,696
HELOC	975		(18		)	—		58			1,015
Consumer	2,721		(696		)	787		555			3,367
	$	114,931	$	(3,400	)	$	5,619	$	(3,000	)	$	114,150



Fiscal Year Ended September 30, 2013	Beginning Allowance		Charge-offs			Recoveries		Provision & Transfers			Ending Allowance
	(In thousands)
Single-family residential	$	81,815	$	(20,947	)	$	9,416	$	(6,100	)	$	64,184
Construction - speculative	12,060		(1,446		)	501		(2,708		)	8,407
Construction - custom	347		(481		)	—		1,016			882
Land - acquisition & development	15,598		(3,983		)	4,105		(6,555		)	9,165
Land - consumer lot loans	4,937		(1,363		)	40		(62		)	3,552
Multi-family	5,280		(1,043		)	171		(592		)	3,816
Commercial real estate	1,956		(747		)	17		4,369			5,595
Commercial & industrial	7,626		(1,145		)	95		10,038			16,614
HELOC	965		(163		)	—		200			1,002
Consumer	2,563		(2,783		)	2,000		1,744			3,524
	$	133,147	$	(34,101	)	$	16,345	$	1,350		$	116,741

The Company recorded a $3,000,000 reversal of the provision for loan losses during the quarter ended June 30, 2014, while $0 provision was recorded for the same quarter one year ago. The primary reason for the current period recovery is the credit quality of the portfolio has been improving significantly and economic conditions are more favorable.

Non-performing assets (“NPAs”) amounted to $162,357,000, or 1.10%, of total assets at June 30, 2014, compared to $213,616,000, or 1.63%, of total assets as of September 30, 2013. Acquired loans, including covered loans, are not initially classified as non-performing loans because, at acquisition, the carrying value of these loans is adjusted to reflect fair value. Non-accrual loans decreased from $131,299,000 at September 30, 2013, to $94,226,000 at June 30, 2014, a 28.2% decrease.

The Company had net recoveries of $2,219,000 for the quarter ended June 30, 2014, compared with $4,780,000 of net charge-offs for the same quarter one year ago. A loan is charged-off when the loss is estimable and it is confirmed that the borrower will not be able to meet its contractual obligations.

For the period ending June 30, 2014, $114,090,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $60,000 was made up of specific reserves on loans that were deemed to be impaired. For the period ending September 30, 2013, these amounts were $113,268,000 and $3,473,000, respectively. The shift in total allowance allocation from specific reserves to general reserves is due to the Company having already addressed many of the problem loans

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

focused in the speculative construction and land A&D portfolios, combined with an increase in delinquencies and elevated charge-offs in the single family residential portfolio as compared to prior to the 2009-2011 financial crisis.

The following tables shows a summary of loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves as of June 30, 2014 and September 30, 2013:



June 30, 2014	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	General Reserve Allocation		Gross Loans Subject to General Reserve (1)		Ratio		Specific Reserve Allocation		Gross Loans Subject to Specific Reserve (1)		Ratio
	(In thousands)						(In thousands)
Single-family residential	$	62,360	$	5,388,306	1.2	%	$	—	$	78,464	—	%
Construction - speculative	6,327		116,420		5.4		60		10,506		0.6
Construction - custom	1,678		372,789		0.5		—		—		—
Land - acquisition & development	6,955		86,030		8.1		—		2,289		—
Land - consumer lot loans	2,862		98,860		2.9		—		13,059		—
Multi-family	4,141		888,346		0.5		—		5,395		—
Commercial real estate	6,689		495,988		1.4		—		27,863		—
Commercial & industrial	18,696		377,271		5.0		—		40		—
HELOC	1,015		116,174		0.9		—		1,004		—
Consumer	3,367		132,061		2.6		—		—		—
	$	114,090	$	8,072,245	1.4	%	$	60	$	138,620	—	%


(1)	Excludes acquired loans with discounts sufficient to absorb potential losses and covered loans



September 30, 2013	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	General Reserve Allocation		Gross Loans Subject to General Reserve (1)		Ratio		Specific Reserve Allocation		Gross Loans Subject to Specific Reserve (1)		Ratio
	(In thousands)						(In thousands)
Single-family residential	$	64,184	$	5,262,159	1.2	%	$	—	$	96,989	—	%
Construction - speculative	7,307		115,554		6.3		1,100		15,224		7.2
Construction - custom	882		302,722		0.3		—		—		—
Land - acquisition & development	6,943		67,521		10.3		2,222		10,254		21.7
Land - consumer lot loans	3,506		107,216		3.3		46		14,455		0.3
Multi-family	3,711		824,279		0.5		105		7,405		1.4
Commercial real estate	5,595		400,789		1.4		—		14,172		—
Commercial & industrial	16,614		256,954		6.5		—		48		—
HELOC	1,002		111,169		0.9		—		1,017		—
Consumer	3,524		47,141		7.5		—		—		—
	$	113,268	$	7,495,504	1.5	%	$	3,473	$	159,564	2.2	%

(1) Excludes acquired loans with discounts sufficient to absorb potential losses and covered loans

The following tables provide information on loans based on credit quality indicators (defined above) as of June 30, 2014 and September 30, 2013.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Credit Risk Profile by Internally Assigned Grade (excludes covered loans):



June 30, 2014	Internally Assigned Grade															Total
	Pass			Special mention			Substandard			Doubtful			Loss			Gross Loans
	(In thousands)
Non-acquired loans
Single-family residential	$	5,325,757		$	2,993		$	138,021		$	—		$	—		$	5,466,771
Construction - speculative	116,002			—			10,924			—			—			126,926
Construction - custom	372,789			—			—			—			—			372,789
Land - acquisition & development	79,820			—			8,499			—			—			88,319
Land - consumer lot loans	111,459			—			460			—			—			111,919
Multi-family	888,836			—			4,906			—			—			893,742
Commercial real estate	490,940			17,097			15,813			—			—			523,850
Commercial & industrial	312,811			16,508			4,123			110			—			333,552
HELOC	116,929			—			248			—			—			117,177
Consumer	131,910			—			152			—			—			132,062
	7,947,253			36,598			183,146			110			—			8,167,107

Non-impaired acquired loans
Single-family residential	12,014			—			—			—			—			12,014
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	663			—			406			—			—			1,069
Land - consumer lot loans	2,654			—			—			—			—			2,654
Multi-family	3,057			—			—			—			—			3,057
Commercial real estate	89,566			2,516			11,133			—			—			103,215
Commercial & industrial	42,571			13,600			4,144			34			—			60,349
HELOC	8,469			—			—			—			—			8,469
Consumer	6,427			—			—			—			—			6,427
	165,421			16,116			15,683			34			—			197,254

Credit-impaired acquired loans
Pool 1 - Construction and land A&D	1,340			—			330			—			—			1,670
Pool 2 - Single-family residential	326			—			—			—			—			326
Pool 3 - Multi-family	—			—			—			—			—			—
Pool 4 - HELOC & other consumer	10,716			—			—			—			—			10,716
Pool 5 - Commercial real estate	50,556			2,155			13,645			—			—			66,356
Pool 6 - Commercial & industrial	712			3,162			—			406			—			4,280
Total credit impaired acquired loans	63,650			5,317			13,975			406			—			83,348
Total gross loans	$	8,176,324		$	58,031		$	212,804		$	550		$	—		$	8,447,709

Total grade as a % of total gross loans	96.9		%	0.7		%	2.4		%	—		%	—		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



September 30, 2013	Internally Assigned Grade															Total
	Pass			Special mention			Substandard			Doubtful			Loss			Gross Loans
	(In thousands)
Non-acquired loans
Single-family residential	$	5,184,101		$	4,595		$	170,453		$	—		$	—		$	5,359,149
Construction - speculative	99,436			3,199			28,143			—			—			130,778
Construction - custom	302,722			—			—			—			—			302,722
Land - acquisition & development	64,355			775			12,645			—			—			77,775
Land - consumer lot loans	121,039			—			632			—			—			121,671
Multi-family	819,911			2,114			9,659			—			—			831,684
Commercial real estate	373,012			21,652			20,297			—			—			414,961
Commercial & industrial	240,441			1,049			1,709			—			—			243,199
HELOC	112,186			—			—			—			—			112,186
Consumer	46,720			—			421			—			—			47,141
	7,363,923			$	33,384		$	243,959		$	—		$	—		$	7,641,266

Non-impaired acquired loans
Single-family residential	14,468			—			—			—			—			14,468
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	312			—			1,177			—			—			1,489
Land - consumer lot loans	3,313			—			—			—			—			3,313
Multi-family	3,227			—			687			—			—			3,914
Commercial real estate	105,055			4,190			24,178			—			—			133,423
Commercial & industrial	64,933			1,309			9,084			—			—			75,326
HELOC	10,179			—			—			—			—			10,179
Consumer	8,267			—			—			—			—			8,267
	209,754			5,499			35,126			—			—			250,379

Credit-impaired acquired loans
Pool 1 - Construction and land A&D	980			461			955			—			—			2,396
Pool 2 - Single-family residential	333			—			—			—			—			333
Pool 3 - Multi-family	—			—			—			—			—			—
Pool 4 - HELOC & other consumer	11,337			—			—			—			—			11,337
Pool 5 - Commercial real estate	52,509			3,155			21,245			—			—			76,909
Pool 6 - Commercial & industrial	881			—			7,044			—			—			7,925
Total credit impaired acquired loans	66,040			3,616			29,244			—			—			98,900
Total gross loans	$	7,639,717		$	42,499		$	308,329		$	—		$	—		$	7,990,545

Total grade as a % of total gross loans	95.6		%	0.5		%	3.9		%	—		%	—		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Credit Risk Profile Based on Payment Activity (excludes acquired and covered loans):



June 30, 2014	Performing Loans				Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands)
Single-family residential	$	5,388,454	98.6	%	$	78,317	1.4	%
Construction - speculative	124,960		98.5		1,966		1.5
Construction - custom	372,646		100.0		143		—
Land - acquisition & development	86,024		97.4		2,295		2.6
Land - consumer lot loans	110,040		98.3		1,879		1.7
Multi-family	891,639		99.8		2,103		0.2
Commercial real estate	518,408		99.0		5,442		1.0
Commercial & industrial	333,036		99.8		516		0.2
HELOC	116,207		99.2		970		0.8
Consumer	131,467		99.5		595		0.5
	$	8,072,881	98.8	%	$	94,226	1.2	%



September 30, 2013	Performing Loans				Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands)
Single-family residential	$	5,258,688	98.1	%	$	100,460	1.9	%
Construction - speculative	126,218		96.5		4,560		3.5
Construction - custom	302,722		100.0		—		—
Land - acquisition & development	74,872		96.3		2,903		3.7
Land - consumer lot loans	118,334		97.3		3,337		2.7
Multi-family	825,111		99.2		6,573		0.8
Commercial real estate	389,423		97.1		11,736		2.9
Commercial & industrial	256,525		99.8		477		0.2
HELOC	111,923		99.8		263		0.2
Consumer	46,151		97.9		990		2.1
	$	7,509,967	98.3	%	$	131,299	1.7	%

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table provides information on impaired loan balances and the related allowances by loan types as of June 30, 2014 and September 30, 2013:




June 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment
	(In thousands)
With no related allowance recorded:
Single-family residential	$	24,929	$	27,853	$	—		$	22,460
Construction - speculative	1,755		2,378		—			1,762
Construction - custom	360		360		—			180
Land - acquisition & development	1,934		8,931		—			1,794
Land - consumer lot loans	812		910		—			714
Multi-family	130		130		—			130
Commercial real estate	28,024		34,904		—			23,625
Commercial & industrial	3,916		24,183		—			3,809
HELOC	1,154		1,835		—			708
Consumer	439		554		—			380
	63,453		102,038		—			55,562
With an allowance recorded:
Single-family residential	333,814		339,578		10,956			333,527
Construction - speculative	8,751		9,181		60			8,927
Construction - custom	1,196		1,196		—			1,196
Land - acquisition & development	5,092		6,032		—			5,085
Land - consumer lot loans	12,922		13,305		—			12,852
Multi-family	5,266		5,486		—			5,278
Commercial real estate	19,292		20,160		—			16,837
Commercial & industrial	23		23		—			27
HELOC	1,198		1,198		—			1,198
Consumer	236		236		—			152
	387,790		396,395		11,016		(1)	385,079
Total:
Single-family residential	358,743		367,431		10,956			355,987
Construction - speculative	10,506		11,559		60			10,689
Construction - custom	1,556		1,556		—			1,376
Land - acquisition & development	7,026		14,963		—			6,879
Land - consumer lot loans	13,734		14,215		—			13,566
Multi-family	5,396		5,616		—			5,408
Commercial real estate	47,316		55,064		—			40,462
Commercial & industrial	3,939		24,206		—			3,836
HELOC	2,352		3,033		—			1,906
Consumer	675		790		—			532
	$	451,243	$	498,433	$	11,016	(1)	$	440,641

(1)Includes $60,000 of specific reserves and $10,956,000 included in the general reserves.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



September 30, 2013	Recorded Investment		Unpaid Principal Balance		Related Allowance			2013 Average Recorded Investment
	(In thousands)
With no related allowance recorded:
Single-family residential	$	33,883	$	38,928	$	—		$	21,458
Construction - speculative	3,891		4,099		—			3,339
Construction - custom	—		—		—			—
Land - acquisition & development	3,020		10,705		—			2,548
Land - consumer lot loans	3,186		3,376		—			1,839
Multi-family	4,929		4,929		—			1,734
Commercial real estate	23,537		31,876		—			9,651
Commercial & industrial	7,279		31,197		—			3,123
HELOC	446		946		—			133
Consumer	601		618		—			127
	80,772		126,674		—			43,952
With an allowance recorded:
Single-family residential	335,140		341,910		15,137			330,407
Construction - speculative	8,892		9,342		1,100			12,362
Construction - custom	—		—		—			—
Land - acquisition & development	2,598		4,002		—			8,315
Land - consumer lot loans	12,631		13,014		2,222			12,301
Multi-family	5,958		6,178		46			7,731
Commercial real estate	7,539		8,476		105			9,321
Commercial & industrial	56		56		—			11
HELOC	938		938		—			858
Consumer	33		33		—			9
	373,785		383,949		18,610		(1)	381,315
Total:
Single-family residential	369,023		380,838		15,137			351,865
Construction - speculative	12,783		13,441		1,100			15,701
Construction - custom	—		—		—			—
Land - acquisition & development	5,618		14,707		—			10,863
Land - consumer lot loans	15,817		16,390		2,222			14,140
Multi-family	10,887		11,107		46			9,465
Commercial real estate	31,076		40,352		105			18,972
Commercial & industrial	7,335		31,253		—			3,134
HELOC	1,384		1,884		—			991
Consumer	634		651		—			136
	$	454,557	$	510,623	$	18,610	(1)	$	425,267


(1)	Includes $3,473,000 of specific reserves and $15,137,000 included in the general reserves.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE F – New Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-11, Transfers and Servicing (Topic 860) - Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures. Under this new accounting guidance, repurchase-to-maturity transactions will be accounted for as secured borrowings rather than sales of an asset, and transfers of financial assets with contemporaneous repurchase financings will no longer be evaluated to determine whether they should be accounted for on a combined basis as forward contracts. The new guidance also prescribes additional disclosures particularly on the nature of collateral pledged in repurchase financings accounted for as secured borrowings. The new guidance is effective beginning on January 1, 2015. The Company does not expect this guidance to have a material impact on its consolidated financial position or results of operation.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new accounting guidance clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on a retrospective basis beginning on January 1, 2017. The Company does not expect the new guidance to have a material impact on its consolidated financial position or results of operation.

In January 2014, the FASB issued ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. This new guidance permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). Those not electing the proportional amortization method would account for the investment using the equity method or cost method. This new guidance is effective on a retrospective basis beginning after December 15, 2014 with early adoption permitted. The Company has adopted this ASU prospectively as of December 31, 2013 as the retrospective adjustments were not material. The amount of affordable housing tax credits that are expected to be recognized during the 2014 fiscal year is $3 million. The net investment balance recognized as of June 30, 2014 is $38 million. Using the proportional amortization method, the amount recognized as a component of income tax expense for the 2014 fiscal year is $4 million. Contingent commitments for equity contributions during the 2014 calendar year are $31 million. Overall, this adoption does not have a material impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The new guidance clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The amendments are effective beginning after December 15, 2014. This ASU is not expected to have a material impact on the Company's consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists. Some entities present unrecognized tax benefits as a liability unless the unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in, or that resulted in, the recognition of a net operating loss or tax credit carryforward for that year and the net operating loss or tax credit carryforward has not been utilized. Other entities present unrecognized tax benefits as a reduction of a deferred tax asset for a net operating loss or tax credit carryforward in certain circumstances. The objective of the new guidance is to eliminate this diversity in practice. The new guidance is effective beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This new guidance is not expected to have a material impact on the Company's consolidated financial statements.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

We have established and documented the Company's process for determining the fair values of the Company's assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, fair value is determined using valuation models or third-party appraisals. The following is a description of the valuation methodologies used to measure and report the 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. Most securities at fair value are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under the provisions of the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification are considered a Level 2 input method. Securities that are traded on active exchanges are considered a Level 1 input method.

The following tables present the balance of assets measured at fair value on a recurring basis at June 30, 2014 and September 30, 2013:



	Fair Value at June 30, 2014
	Level 1		Level 2		Level 3		Total
	(In thousands)
Available-for-sale securities
Equity securities	$	101,981	$	—	$	—	$	101,981
Obligations of U.S. government	—		721,312		—		721,312
Obligations of states and political subdivisions	—		23,277		—		23,277
Corporate debt securities	—		485,083		—		485,083
Mortgage-backed securities					—
Agency pass-through certificates	—		1,662,001		—		1,662,001
Other Commercial MBS	—		109,367		—		109,367
Total balance at end of period	$	101,981	$	3,001,040	$	—	$	3,103,021

There were no transfers between, into and/or out of Levels 1, 2 or 3 during the quarter ended June 30, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Fair Value at September 30, 2013
	Level 1		Level 2		Level 3		Total
	(In thousands)
Available-for-sale securities
Equity securities	$	101,237	$	—	$	—	$	101,237
Obligations of U.S. government	—		533,975		—		533,975
Obligations of states and political subdivisions	—		22,545		—		22,545
Corporate debt securities	—		452,015		—		452,015
Mortgage-backed securities
Agency pass-through certificates	—		1,251,176		—		1,251,176
Total balance at end of period	$	101,237	$	2,259,711	$	—	$	2,360,948

There were no transfers between, into and/or out of Levels 1, 2 or 3 during the fiscal year ended September 30, 2013 other than a transfer from Level 2 to Level 1 of $511 in Equity securities.

Measured on a Nonrecurring Basis

Impaired Loans & Real Estate Held for Sale

From time to time, and on a nonrecurring basis, fair value adjustments to collateral-dependent loans and real estate held for sale are recorded to reflect write-downs of principal balances based on the current appraised or estimated value of the collateral. When management determines that the fair value of the collateral or the real estate held for sale requires additional adjustments, either as a result of a non-current appraisal value or when there is no observable market price, the Company classifies the impaired loan or real estate held for sale as Level 3. Level 3 assets recorded at fair value on a nonrecurring basis at June 30, 2014 included loans for which a specific reserve allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as covered REO and real estate held for sale for which fair value of the properties was less than the cost basis.

Real estate held for sale consists principally of properties acquired through foreclosure.

The following tables present the aggregated balance of assets that were measured at estimated fair value on a nonrecurring basis through the nine months ended June 30, 2014 and June 30, 2013, and the total losses (gains) resulting from those fair value adjustments for the quarters and nine months ended June 30, 2014 and June 30, 2013. These estimated fair values are shown gross of estimated selling costs.



	Nine Months Ended June 30, 2014								Quarter Ended June 30, 2014			Nine Months Ended June 30, 2014
	Level 1		Level 2		Level 3		Total		Total Losses (Gains)
	(In thousands)
Impaired loans (1)	$	—	$	—	$	10,156	$	10,156	$	(775	)	$	(1,311	)
Covered REO (2)	—		—		8,935		8,935		374			503
Real estate held for sale (2)	—		—		43,082		43,082		10,400			16,782
Balance at end of period	$	—	$	—	$	62,173	$	62,173	$	9,999		$	15,974

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Nine Months Ended June 30, 2013								Quarter Ended June 30, 2013		Nine Months Ended June 30, 2013
	Level 1		Level 2		Level 3		Total		Total Losses
	(In thousands)
Impaired loans (1)	$	—	$	—	$	64,500	$	64,500	$	1,967	$	13,005
Covered REO (2)	—		—		18,312		18,312		231		603
Real estate held for sale (2)	—		—		77,080		77,080		5,626		19,650
Balance at end of period	$	—	$	—	$	159,892	$	159,892	$	7,824	$	33,258

___________________


(1)	The losses represents remeasurements of collateral-dependent loans.


(2)	The losses represents aggregate writedowns and charge-offs on real estate held for sale.

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at June 30, 2014 or June 30, 2013.

The following describes the process used to value Level 3 assets measured on a nonrecurring basis:

Impaired loans - The Company adjusts the carrying amount of impaired loans when there is evidence of probable loss and the expected fair value of the loan is less than its contractual amount. The amount of the impairment may be determined based on the estimated present value of future cash flows or the fair value of the underlying collateral. Impaired loans with a specific reserve allowance based on cash flow analysis or the value of the underlying collateral are classified as Level 3 assets.

The evaluations for impairment are prepared by the Problem Loan Review Committee, which is chaired by the Chief Credit Officer and includes the Loan Review manager and Special Credits manager, as well as senior credit officers, division managers and group executives, as applicable. These evaluations are performed in conjunction with the quarterly allowance for probable loan & lease losses process.

Applicable loans are evaluated for impairment on a quarterly basis. Loans included in the previous quarter's review are reevaluated and if their values are materially different from the prior quarter evaluation, the underlying information (loan balance and collateral value) are compared. Material differences are evaluated for reasonableness and discussions are held between the relationship manager and their division manager to understand the difference and determine if any adjustment is necessary. The inputs are developed and substantiated on a quarterly basis, based on current borrower developments, market conditions and collateral values. The following method is used to value impaired loans:

•

The fair value of the collateral, which may take the form of real estate or personal property, is based on internal estimates, field observations, assessments provided by third-party appraisers and other valuation models. The Company performs or reaffirms valuations of collateral-dependent impaired loans at least annually. Adjustments are made if management believes that more recent information is available and relevant with respect to the fair value of the collateral.

Real estate held for sale ("REO") - These assets are valued based on inputs such as appraisals and third-party price opinions, less estimated selling costs. Assets that are acquired through foreclosure are recorded initially at the lower of the loan balance or fair value at the date of foreclosure. After foreclosure, valuations are updated periodically, and current market conditions may require the assets to be written down further to a new cost basis. The following method is used to value real estate held for sale:

•

When a loan is reclassified from loan status to real estate held for sale due to the Company taking possession of the collateral, a Special Credits officer, along with the Special Credits manager, obtains a valuation, which may include a third-party appraisal, which is used to establish the fair value of the underlying collateral. The determined fair value net of selling costs, to the extent it does not exceed the carrying value of the loan, becomes the carrying value of the REO asset. In addition to the valuations from independent third-party sources, the carrying balance of REO assets are written down once a bona fide offer is contractually accepted, through execution of a Purchase and Sale Agreement, where the accepted price is lower than the current balance of the particular REO asset. The fair value of REO assets is re-evaluated quarterly and the REO asset is adjusted to reflect the lower of cost or fair value as necessary.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.



		June 30, 2014				September 30, 2013
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(In thousands)
Financial assets
Cash and cash equivalents	1	$	861,304	$	861,304	$	203,563	$	203,563
Available-for-sale securities
Equity securities	1	101,981		101,981		101,237		101,237
Obligations of U.S. government	2	721,312		721,312		533,975		533,975
Obligations of states and political subdivisions	2	23,277		23,277		22,545		22,545
Corporate debt securities	2	485,083		485,083		452,015		452,015
Mortgage-backed securities
Agency pass-through certificates	2	1,662,001		1,662,001		1,251,176		1,251,176
Other Commercial MBS	2	109,367		109,367		—		—
Total available-for-sale securities		3,103,021		3,103,021		2,360,948		2,360,948
Held-to-maturity securities	2
Total held-to-maturity securities		1,583,852		1,534,239		1,654,666		1,582,849

Loans receivable	3	7,965,954		8,516,535		7,528,030		8,070,279
Covered loans	3	207,207		212,002		295,947		300,610
FDIC indemnification asset	3	44,065		43,117		64,615		62,300
FHLB and FRB stock	2	162,904		162,904		173,009		173,009

Financial liabilities
Customer accounts	2	10,765,680		10,050,132		9,090,271		8,585,068
FHLB advances and other borrowings	2	1,930,000		2,055,239		1,930,000		2,064,248

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 – Securities at fair value are primarily priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under the provisions of the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification are considered a Level 2 input method. Equity securities which are exchange traded are considered a Level 1 input method.

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

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FDIC indemnification asset – The fair value of the indemnification asset is estimated by discounting the expected future cash flows using the current rates.

FHLB and FRB 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.

The following tables provide a reconciliation of amortized cost to fair value of available-for-sale and held-to-maturity securities as of June 30, 2014, and September 30, 2013:



	June 30, 2014
	Amortized Cost		Gross Unrealized					Fair Value		Yield
	Amortized Cost		Gains		Losses			Fair Value		Yield
	(In thousands)
Available-for-sale securities
U.S. government and agency securities due
1 to 5 years	$	111,002	$	2,834	$	(381	)	$	113,455	1.57
5 to 10 years	140,989		562		(62		)	141,489		1.55
Over 10 years	465,229		1,761		(622		)	466,368		1.56
Equity Securities
Within 1 year	500		13		—			513		1.80
1 to 5 years	100,000		1,468		—			101,468		1.90
5 to 10 years	—		—		—			—		—
Corporate bonds due
Within 1 year	—		—		—			—		—
1 to 5 years	317,452		2,562		—			320,014		0.72
5 to 10 years	113,165		2,064		(160		)	115,069		1.49
Over 10 years	50,000		—		—			50,000		3.00
Municipal bonds due
Over 10 years	20,407		2,870		—			23,277		6.45
Mortgage-backed securities
Agency pass-through certificates	1,636,366		27,896		(2,261		)	1,662,001		2.59
Other Commercial MBS	109,300		67		—			109,367		1.69
	3,064,410		42,097		(3,486		)	3,103,021		2.09
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates	1,583,853		6,010		(55,623		)	1,534,240		3.13
	$	4,648,263	$	48,107	$	(59,109	)	$	4,637,261	2.46	%

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	September 30, 2013
	Amortized Cost		Gross Unrealized						Fair Value		Yield
	Amortized Cost		Gains		Losses				Fair Value		Yield
	(In thousands)
Available-for-sale securities
U.S. government and agency securities due
1 to 5 years	$	61,002	$	3,393		$	(252	)	$	64,143	1.98
5 to 10 years	129,219		—			(1,547		)	127,672		0.86
Over 10 years	344,571		—			(2,411		)	342,160		0.93
Equity Securities
1 to 5 years	500		11			—			511		2.17
5 to 10 years	100,000		726			—			100,726		1.80
Corporate bonds due
Within 1 year	19,500		3			—			19,503		0.49
1 to 5 years	317,190		1,980			(130		)	319,040		0.75
5 to 10 years	113,060		1,180			(768		)	113,472		1.53
Municipal bonds due
Over 10 years	20,422		2,123			—			22,545		6.45
Mortgage-backed securities
Agency pass-through certificates	1,245,400		10,270			(4,494		)	1,251,176		2.18
	2,350,864		19,686			(9,602		)	2,360,948		1.70
Mortgage-backed securities
Agency pass-through certificates	1,654,666		3,387			(75,204		)	1,582,849		3.14
	$	4,005,530	$	23,073		$	(84,806	)	$	3,943,797	2.30	%

During the quarter ended June 30, 2014, there were no available-for-sale securities sold. There were $43,198,000 of available-for-sale securities sold during the fiscal year ended June 30, 2013, resulting in a gain of $0. These securities were acquired from South Valley Bank and sold on the same day. Substantially all mortgage-backed securities have contractual due dates that exceed 10 years.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables indicate the total unrealized gross losses in the securities portfolio (shown above). The unrealized gross losses and fair value of securities as of June 30, 2014 and September 30, 2013 are also shown by the length of time that individual securities in each category have been in a continuous loss position. Management believes that the declines in fair value of these investments are not an other than temporary impairment.



June 30, 2014	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)
Corporate bonds due	$	(98	)	$	24,903	$	(62	)	$	9,938	$	(160	)	$	34,841
U.S. government and agency securities due	(464		)	74,536		(602		)	217,016		(1,066		)	291,552
Agency pass-through certificates	(3,332		)	156,691		(54,551		)	1,434,549		(57,883		)	1,591,240
	$	(3,894	)	$	256,130	$	(55,215	)	$	1,661,503	$	(59,109	)	$	1,917,633



September 30, 2013	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)
Corporate bonds due	$	(660	)	$	52,434	$	(238	)	$	9,763	$	(898	)	$	62,197
U.S. government and agency securities due	(4,144		)	309,109		(66		)	14,091		(4,210		)	323,200
Agency pass-through certificates	(78,291		)	1,703,948		(1,407		)	166,503		(79,698		)	1,870,451
	$	(83,095	)	$	2,065,491	$	(1,711	)	$	190,357	$	(84,806	)	$	2,255,848

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE H – Covered Assets

Covered assets represent loans and real estate held for sale acquired from the FDIC that are subject to loss sharing agreements and were $233,546,000 as of June 30, 2014 compared to $326,927,000 as of September 30, 2013.

Changes in the net carrying amount and accretable yield for acquired impaired and non-impaired covered loans for the year to date period ended June 30, 2014 and the fiscal year ended September 30, 2013 were as follows:



June 30, 2014	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net Carrying Amount of Loans			Accretable Yield			Net Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	78,277		$	138,091		$	17,263		$	157,856
Reclassification from nonaccretable balance, net (1)	5,885			(2,069		)	—			—
Accretion	(20,230		)	20,230			(4,409		)	4,409
Transfers to REO	—			(6,359		)	—			—
Payments received, net	—			(62,946		)	—			(42,005		)
Balance at end of period	$	63,932		$	86,947		$	12,854		$	120,260
(1) reclassification due to improvements/impairments in expected cash flows of the underlying pools.



September 30, 2013	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	50,902		$	74,953		$	23,789		$	213,423
Additions (1)	43,299			107,946			—			—
Reclassification from nonaccretable balance, net (2)	17,850			—			—			—
Accretion	(33,774		)	33,774			(6,526		)	6,526
Transfers to REO	—			(11,196		)	—			—
Payments received, net	—			(67,386		)	—			(62,093		)
Balance at end of period	$	78,277		$	138,091		$	17,263		$	157,856
(1) includes FDIC covered loans which were acquired as part of the South Valley Bank acquisition.
(2) reclassification due to improvements/impairments in expected cash flows of the underlying pools.

At June 30, 2014, none of the acquired impaired or non-impaired covered loans were classified as non-performing assets. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans. The allowance for credit losses related to the acquired loans results from decreased expectations of future cash flows due to increased credit losses for certain acquired loan pools.

The outstanding principal balance of acquired covered loans was $251,520,000 and $362,248,000 as of June 30, 2014 and September 30, 2013, respectively. The discount balance related to the acquired covered loans was $42,244,000 and $66,301,000 as of June 30, 2014 and September 30, 2013, respectively.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table shows the year to date activity for the FDIC indemnification asset:



	June 30, 2014			September 30, 2013
	(In thousands)
Balance at beginning of fiscal year 2014 and 2013	$	64,615		$	87,571
Additions (1)	2,029			18,101
Payments made (received)	(949		)	(13,421		)
Amortization	(22,236		)	(28,722		)
Accretion	606			1,086
Balance at end of period	$	44,065		$	64,615

(1) Includes FDIC covered loans which were acquired as part of the South Valley Bank acquisition in 2013.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide information on covered loans based on credit quality indicators (defined in Note E ) as of June 30, 2014 and September 30, 2013:



June 30, 2014	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss			Total Net Loans
	(In thousands)
Acquired non-impaired loans:
Single-family residential	$	21,812		$	—		$	2,656		$	—		$	—		$	24,468
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	1,441			—			395			—			—			1,836
Land - consumer lot loans	74			—			—			—			—			74
Multi-family	16,472			—			—			—			—			16,472
Commercial real estate	38,410			136			24,486			—			—			63,032
Commercial & industrial	2,831			—			2,748			—			—			5,579
HELOC	12,725			—			—			—			—			12,725
Consumer	501			—			—			—			—			501
	$	94,266		$	136		$	30,285		$	—		$	—		$	124,687
Total grade as a % of total net loans	75.6		%	0.1		%	24.3		%	—		%	—		%

Acquired credit-impaired loans:
Pool 1 - Construction and land A&D	$	9,429		$	—		$	17,919		$	—		$	—		$	27,348
Pool 2 - Single-family residential	16,429			—			982			—			—			17,411
Pool 3 - Multi-family	54			—			836			—			—			890
Pool 4 - HELOC & other consumer	2,938			—			1,227			—			—			4,165
Pool 5 - Commercial real estate	36,298			707			31,377			—			—			68,382
Pool 6 - Commercial & industrial	4,982			—			3,121			534			—			8,637
	$	70,130		$	707		$	55,462		$	534		$	—		$	126,833
										Total covered loans						251,520
													Discount			(42,244		)
													Allowance			(2,069		)
													Covered loans, net			$	207,207

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



September 30, 2013	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss			Total Net Loans
	(In thousands)
Acquired non-impaired loans:
Single-family residential	$	26,426		$	—		$	2,034		$	—		$	—		$	28,460
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,069			1,019			722			—			—			4,810
Land - consumer lot loans	245			—			—			—			—			245
Multi-family	17,217			—			1,635			—			—			18,852
Commercial real estate	56,120			9,235			24,144			—			—			89,499
Commercial & industrial	5,175			500			3,741			—			—			9,416
HELOC	14,750			—			—			—			—			14,750
Consumer	604			—			—			—			—			604
	$	123,606		$	10,754		$	32,276		$	—		$	—		$	166,636
Total grade as a % of total net loans	74.2		%	6.4		%	19.4		%	—		%	—		%

Acquired credit-impaired loans:
Pool 1 - Construction and land A&D	$	14,361		$	4,296		$	25,363		$	—		$	—		$	44,020
Pool 2 - Single-family residential	21,541			—			—			—			—			21,541
Pool 3 - Multi-family	4,131			—			1,100			—			—			5,231
Pool 4 - HELOC & other consumer	4,111			—			1,880			—			—			5,991
Pool 5 - Commercial real estate	36,494			15,113			53,946			—			—			105,553
Pool 6 - Commercial & industrial	4,265			204			8,807			—			—			13,276
	$	84,903		$	19,613		$	91,096		$	—		$	—		$	195,612
										Total covered loans						362,248
													Discount			(66,301		)
													Allowance			—
													Covered loans, net			$	295,947

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide an analysis of the age of acquired non credit-impaired covered loans in past due status as of June 30, 2014 and September 30, 2013:



June 30, 2014	Amount of Loans Net of LIP & Chg.-Offs		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loans	Amount of Loans Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
Single-Family Residential	$	24,468	$	23,056	$	108	$	13	$	1,291	$	1,412	5.77	%
Construction - Speculative	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	1,836		1,800		—		—		36		36		1.96
Land - Consumer Lot Loans	74		74		—		—		—		—		—
Multi-Family	16,472		16,472		—		—		—		—		—
Commercial Real Estate	63,032		61,937		—		—		1,095		1,095		1.74
Commercial & Industrial	5,579		5,579		—		—		—		—		—
HELOC	12,725		12,628		97		—		—		97		0.76
Consumer	501		486		2		13		—		15		2.99
	$	124,687	$	122,032	$	207	$	26	$	2,422	$	2,655	2.13	%



September 30, 2013	Amount of Loans Net of LIP & Chg.-Offs		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loans	Amount of Loans Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
Single-Family Residential	$	28,460	$	27,411	$	78	$	—	$	971	$	1,049	3.69	%
Construction - Speculative	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	4,810		4,774		—		—		36		36		0.75
Land - Consumer Lot Loans	245		199		—		—		46		46		18.78
Multi-Family	18,852		17,511		—		—		1,341		1,341		7.11
Commercial Real Estate	89,499		84,949		2,779		455		1,316		4,550		5.08
Commercial & Industrial	9,416		9,416		—		—		—		—		—
HELOC	14,750		14,334		103		74		239		416		2.82
Consumer	604		601		3		—		—		3		0.50
	$	166,636	$	159,195	$	2,963	$	529	$	3,949	$	7,441	4.47	%

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE I – Derivatives and Hedging Activities

The Bank periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rate payments, while the Bank retains a variable rate loan. Under these agreements, the Bank enters into a variable rate loan agreement and a swap agreement with the client. The swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Bank enters into a corresponding swap agreement with a third party in order to offset its exposure on the variable and fixed components of the client's swap agreement. The interest rate swap agreements with the clients and third parties are not designated as hedges under ASC 815, the Derivatives and Hedging topic; the instruments are marked to market in earnings.

The notional amount of open interest rate swap agreements at June 30, 2014 was $256,007,000 compared to $83,594,000 as of September 30, 2013. There was no impact to the statement of operations for the nine months ended June 30, 2014 as the asset and liability side of the swaps offset each other. The fee income related to swaps was $838,005 for the nine months ended June 30, 2014.

The Bank periodically enters into forward contracts to purchase mortgage-backed securities as part of its interest rate risk management program. The notional amount of commitments to purchase mortgage-backed securities at June 30, 2014 was $50,000,000 and at September 30, 2013 was $200,000,000. When there is a balance, the fair value of these contracts is included with the available-for-sale securities on the statement of financial condition.

The following table presents the fair value and balance sheet classification of derivatives not designated as hedging instruments at June 30, 2014 and September 30, 2013:

Asset Derivatives

Liability Derivatives

June 30, 2014

September 30, 2013

June 30, 2014

September 30, 2013

Balance Sheet

Location

Fair Value

Location

Fair Value

Location

Fair Value

Location

Fair Value

(In thousands)

Interest rate contracts

Other assets

2,731

Other assets

Other liabilities

2,731

Other liabilities

Commitments to purchase MBS

AFS securities

—

AFS securities

3,188

N/A

Table of Contents

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 as amended (the "Exchange Act"), 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, including without limitation the potential effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations being promulgated thereunder; 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 is a Washington corporation headquartered in Seattle, Washington. The Company is a bank holding company that conducts its operations through the Bank, a federally-insured national bank subsidiary.

On July 17, 2013, the Bank converted from a federal savings association to a national bank charter with the Office of the Comptroller of the Currency and is now a national bank. At the same time, the Company which had previously been a savings and loan holding company, became a bank holding company under the Bank Holding Company Act.

The Company's fiscal year end is September 30th. All references to 2013 and 2012 represent balances as of September 30, 2013 and September 30, 2012, respectively, or activity for the fiscal years then ended.

The results discussed below were impacted by the acquisition on close of business October 31, 2013 of eleven branches from Bank of America, National Association; these branches are located in New Mexico. Effective as of the close of business on December 6, 2013, the Bank completed the acquisition of another forty branches from Bank of America, National Association; these branches are located in Washington, Oregon, and Idaho. Effective as of the close of business on May 2, 2014, the Bank completed the acquisition of an additional twenty-three branches from Bank of America, National Association; these branches are located in Arizona and Nevada. The combined acquisitions provided $1.9 billion in deposit accounts, $13 million of loans, and $28 million in branch properties. Washington Federal paid a 1.99% premium on the total deposits and received $1.8 billion in cash from the transactions.

The operating results of the Company include the operating results produced by the first eleven branches for the period from November 1, 2013 to June 30, 2014, the additional forty branches from December 7, 2013 to June 30, 2014 and the twenty-three branches from May 3, 2014 to June 30, 2014.

INTEREST RATE RISK

Based on Management's assessment of the current interest rate environment, the Bank has taken steps to reduce its interest rate risk profile compared to its historical norms, including growing shorter-term business loans, transaction deposit accounts and extending the maturity on borrowings. The recent branch acquisitions have accelerated these efforts. The mix of transaction accounts is now approximately 50% of total deposits. The Bank has also been purchasing more variable rate investments. The composition of the investment portfolio is now 45% variable and 55% fixed rate. In addition, $1.6 billion of its purchased 30-year fixed rate mortgage-backed securities have been designated as held-to-maturity. With rising interest rates, these securities may be subject to unrealized losses. As of June 30, 2014, the unrealized net losses on these securities were $50 million.

The Company relies on various measures of interest rate risk, including an asset/liability maturity gap analysis, modeling of changes in forecasted net interest income under various rate change scenarios, and the impact of interest rate changes on the net portfolio value (“NPV”) of the Company.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

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

Maturity Gap Analysis. At June 30, 2014, the Company had approximately $1.6 billion more in liabilities subject to repricing in the next year than assets, which resulted in a negative one-year maturity gap of 10.6% of total assets. There were $1.7 billion more in liabilities subject to repricing as of September 30, 2013, resulting in a 12.9% negative gap. The percentage decrease in the negative gap is primarily due to an increase in total assets. Additionally, the estimated maturities of mortgage securities and loans has extended as prepayments have slowed. A negative maturity gap implies that funding costs will change more rapidly than interest income on earning assets with movements in interest rates. Typically, a negative maturity gap results in lower margins when interest rates rise and higher margins when interest rates decline. Gap analysis provides management with a high-level indication of interest rate risk, but it is considered less reliable than more detailed modeling.

Net Interest Income Sensitivity. The potential impact of rising interest rates on future net interest income is estimated using a model that is based on account level detail for loans and deposits. In the event of an immediate and parallel increase of 200 basis points in both short and long-term interest rates, the model estimates that net interest income will decrease by 0.5% in the next year. This compares to an estimated decrease of 1.6% as of the September 30, 2013 analysis. This analysis assumes zero balance sheet growth and a constant percentage composition of assets and liabilities for consistency. Actual results will differ from the assumptions used in this model, as Management monitors and adjusts loan and deposit pricing and the size and composition of the balance sheet to respond to changing interest rates.

NPV Sensitivity. The NPV estimates the market value of shareholder's equity based upon forecasted interest rate scenarios. It is derived by calculating the difference between the present value of expected cash flows from interest-earning assets and the present value of expected cash flows from interest-paying liabilities and off-balance-sheet contracts. The sensitivity of the NPV to changes in interest rates provides a longer term view of interest rate risk as it incorporates all future expected cash flows. In the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decline by $493 million and the NPV to total assets ratio to decline to 16.32% from a base of 18.51%. As of September 30, 2013, the estimated decrease in NPV in this event was $314 million and the NPV to total assets ratio was estimated to decline to 17.42% from a base of 18.74%. The increased NPV sensitivity and lower base NPV ratio as of June 30, 2014 is due to the impact of the branch acquisitions, including the characteristics of the acquired deposits and the deployment of cash into securities.

Interest Rate Spread. The interest rate spread decreased to 2.65% at June 30, 2014 from 2.73% at September 30, 2013. The spread decreased due to a decline in the average rate on loans and investment securities. As of June 30, 2014, the weighted average rate on customer deposit accounts and borrowings decreased by 21 basis points compared to September 30, 2013, while the weighted average rates on earning assets decreased by 29 basis points over the same period.

Net Interest Margin. The net interest margin decreased to 3.05% for the quarter ended June 30, 2014 from 3.15% for the quarter ended June 30, 2013. The yield on earning assets declined 28 basis points to 3.99% and the cost of interest bearing liabilities declined 21 basis points to 1.02%. The greater decline in the yield on earning assets was due to lower loan yields on new originations compared to prepaying and maturing loans. In addition, there is a greater portion of floating rate loans and securities than in the prior year.

As of June 30, 2014, the Company had increased total assets by $1,707,096,000 from $13,082,859,000 at September 30, 2013 due to the branch acquisitions during the fiscal year that brought $1,853,798,000 in deposits. For the quarter ended June 30, 2014, compared to September 30, 2013, loans (both non-covered and covered) increased $349,184,000, or 4.5%. Investment securities increased $671,260,000, or 16.7%. Cash and cash equivalents of $861,304,000 and stockholders’ equity of $1,990,635,000 as of June 30, 2014 provides management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net worth at June 30, 2014 was $1,990,635,000, or 13.46% of total assets. This was an increase of $53,000,000 from September 30, 2013 when net worth was $1,937,635,000, or 14.81% of total assets. The Company’s net worth was impacted in the nine months ended June 30, 2014 by net income of $116,803,000, the payment of $31,393,000 in cash dividends, treasury stock purchases of $64,231,000, as well as an increase in other comprehensive income of $18,043,000.

Management believes this strong net worth position will help the Company manage its inherent risks and resultant profitability and provide the capital support needed for controlled growth in a regulated environment. To be categorized as well capitalized, Washington Federal must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table.

Table of Contents

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				Categorized as Well Capitalized Under Prompt Corrective Action Provisions
	Capital		Ratio		Capital		Ratio		Capital	Ratio
	(In thousands)
June 30, 2014
Total capital (to risk-weighted assets)
The Company	$	1,751,035	24.52	%	$	571,202	8.00	%	NA	NA
The Bank	1,743,057		24.41	%	571,334		8.00	%	$714,168	10.00	%
Tier I capital (to risk-weighted assets)
The Company	1,660,786		23.26	%	285,601		4.00	%	NA	NA
The Bank	1,652,787		23.14	%	285,667		4.00	%	428,501	6.00	%
Tier I Capital (to average assets)
The Company	1,660,786		11.64	%	570,874		4.00	%	NA	NA
The Bank	1,652,787		11.58	%	570,970		4.00	%	713,712	5.00	%

September 30, 2013
Total capital (to risk-weighted assets)
The Company	1,749,383		26.49	%	528,243		8.00	%	NA	NA
The Bank	1,693,227		25.64	%	528,380		8.00	%	660,475	10.00	%
Tier I capital (to risk-weighted assets)
The Company	1,666,091		25.23	%	264,121		4.00	%	NA	NA
The Bank	1,609,914		24.38	%	264,190		4.00	%	396,285	6.00	%
Tier I Capital (to average assets)
The Company	1,666,091		13.03	%	511,334		4.00	%	NA	N/A
The Bank	1,609,914		12.59	%	511,358		4.00	%	639,197	5.00	%

The Company's cash and cash equivalents amounted to $861,304,000 at June 30, 2014, an increase from $203,563,000 at September 30, 2013. The Company continues to hold higher than normal amounts of liquidity due to concern about potentially rising interest rates. It is anticipated that the funds will be invested opportunistically over time as risk adjusted investment opportunities to enhance yields improve. Additionally, see "Interest Rate Risk" above and the "Statement of Cash Flows" included in the financial statements.

CHANGES IN FINANCIAL CONDITION

Available-for-sale and held-to-maturity securities: Available-for-sale securities increased $742,073,000, or 31.4%, during the nine months ended June 30, 2014, which included the purchase of $1,080,476,000 of available-for-sale securities. Most of these investments made with the proceeds from the recent branch acquisitions. There were no available-for-sale securities sold during the nine months ended June 30, 2014. During the same period, there were no held-to-maturity securities purchased or sold. As of June 30, 2014, the Company had net unrealized gains on available-for-sale securities of $24,421,000, net of tax, which were recorded as part of stockholders’ equity.

Loans receivable: During the nine months ended June 30, 2014, the balance of loans receivable increased to $7,965,954,000 compared to $7,528,030,000 at September 30, 2013. This increase includes net loan activity (originations less principal payments and maturities) for non covered loans of $451,916,000, which includes the acquisition of $12,881,000 in loans as described in Note B. During the nine month period, $32,818,000 of non covered loans were transferred to REO.

Covered loans: As of June 30, 2014, FDIC covered loans decreased 30.0%, or $88,740,000 to $207,207,000, compared to September 30, 2013 due primarily to $104,951,000 of net principal payments and maturities. The FDIC loss share coverage for the majority of these loans will expire during fiscal year 2015. If all FDIC loss share coverage had expired as of June 30, 2014, the NPA ratio would increase from 1.10% to 1.16% and the delinquency rate would rise from 1.41% to 1.57%.

Table of Contents

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 shows the loan portfolio by category for the last three quarters.



Loan Portfolio by Category *	June 30, 2014			March 31, 2014				December 31, 2013
Total Loans
Single-family residential	5,479,111		64.9	5,462,093		66.7		5,436,083		67.0
Construction - speculative	126,926		1.5	135,001		1.7		135,868		1.7
Construction - custom	372,789		4.4	354,279		4.3		333,954		4.1
Land - acquisition & development	91,058		1.1	77,049		0.9		75,506		0.9
Land - consumer lot loans	114,573		1.4	116,864		1.4		122,467		1.5
Multi-family	896,799		10.6	869,635		10.6		846,116		10.5
Commercial real estate	693,421		8.2	634,457		7.8		622,240		7.7
Commercial & industrial	398,181		4.7	351,705		4.4		354,166		4.4
HELOC	136,304		1.6	131,852		1.6		131,949		1.6
Consumer	138,547		1.6	48,239		0.6		51,960		0.6
Total Loans	8,447,709		100.0	8,181,174		100	%	8,110,309		100	%
Less:
Allowance for probable losses	114,150			114,931				118,158
Loans in process	303,084			264,946				273,263
Discount on acquired loans	28,480			29,286				31,485
Deferred net origination fees	36,041			34,902				35,845
	481,755			444,065				458,751
	$	7,965,954		$	7,737,109			$	7,651,558

____________________

* Excludes covered loans

Non-performing assets (excludes discounted acquired assets): NPAs decreased during the quarter ended June 30, 2014 to $162,357,000 from $213,616,000 at September 30, 2013, a 24.0% decrease, due to improving credit conditions and credit quality. Non-performing assets as a percentage of total assets was 1.10% at June 30, 2014 compared to 1.63% at September 30, 2013.

This level of NPAs is significantly higher than the Company's history prior to 2007 of 0.50%. The Company’s 30-year average of NPAs is 0.97%.

Table of Contents

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 non-accrual loans and REO held by the Company at the dates indicated.



	June 30, 2014					September 30, 2013
	(In thousands)
Restructured loans:
Single-family residential	$	333,814		86.1	%	$	356,577		85.7	%
Construction - speculative	8,554			2.2		10,733			2.6
Construction - custom	1,196			0.3		1,196			0.3
Land - acquisition & development	5,092			1.3		7,211			1.7
Land - consumer lot loans	12,922			3.3		12,706			3.1
Multi - family	5,266			1.4		7,557			1.8
Commercial real estate	19,292			5.0		18,539			4.5
Commercial & industrial	23			—		56			—
HELOC	1,198			0.3		1,088			0.3
Consumer	236			0.1		33			—
Total restructured loans (1)	$	387,593		100	%	$	415,696		100	%

Non-accrual loans:
Single-family residential	$	78,317		83.2	%	$	100,460		76.5	%
Construction - speculative	1,966			2.1		4,560			3.5
Construction - custom	143			0.2		—			—
Land - acquisition & development	2,295			2.4		2,903			2.2
Land - consumer lot loans	1,879			2.0		3,337			2.5
Multi-family	2,103			2.2		6,573			5.0
Commercial real estate	5,442			5.8		11,736			8.9
Commercial & industrial	516			0.5		477			0.4
HELOC	970			1.0		263			0.2
Consumer	595			0.6		990			0.8
Total non-accrual loans (2)	94,226			100	%	131,299			100	%
Total REO (3)	57,352					72,925
Total REHI (3)	10,780					9,392
Total non-performing assets	$	162,358				$	213,616
Total non-performing assets and performing restructured loans as a percentage of total assets	3.54		%			4.62		%

(1) Restructured loans were as follows:
Performing	$	361,918		93.4	%	$	391,415		94.2	%
Non-performing (included in non-accrual loans above)	25,675			6.6		24,281			5.8
	$	387,593		100	%	$	415,696		100	%

(2)

The Company recognized interest income on nonaccrual loans of approximately $4,460,000 in the nine months ended June 30, 2014. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $3,988,000 for the nine months ended June 30, 2014. The recognized interest income may include more than nine months of interest for some of the loans that were brought current.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

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

In addition to the nonaccrual loans reflected in the above table, at June 30, 2014 the Company had $49,806,000 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 NPAs and performing restructured loans as a percent of total assets would have increased to 3.88% at June 30, 2014.


(3)	Total REO and REHI includes real estate held for sale acquired in settlement of loans or acquired from purchased institutions in settlement of loans. Excludes covered REO.

Restructured single-family residential loans are reserved for under the Company’s general reserve methodology. If any individual loan is significant in balance, the Company may establish a specific reserve as warranted.

Most restructured loans are accruing and performing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. Single-family residential loans comprised 86.1% of restructured loans as of June 30, 2014. The concession for these loans is typically a payment reduction through a rate reduction of from 100 to 200 bps for a specific term, usually six to twelve months. Interest-only payments may also be approved during the modification period.

For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status. In some instances after the required six consecutive payments are made, a management assessment will conclude that collection of the entire principal balance is still in doubt. In those instances, the loan will remain on non-accrual. Homogeneous loans may or may not be on accrual status at the time of restructuring, but all are placed on accrual status upon the restructuring of the loan. Homogeneous loans are restructured only if the borrower can demonstrate the ability to meet the restructured payment terms; otherwise, collection is pursued and the loan remains on non-accrual status until liquidated. If the homogeneous restructured loan does not perform it will be placed in non-accrual status when it is 90 days delinquent.

A loan that defaults and is subsequently modified would impact the Company’s delinquency trend, which is part of the qualitative risk factors component of the general reserve calculation. Any modified loan that re-defaults and is charged-off would impact the historical loss factors component of the Company's general reserve calculation.

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.



	June 30, 2014						September 30, 2013
	Amount		Loans to Total Loans (1)		Coverage Ratio (2)		Amount		Loans to Total Loans (1)		Coverage Ratio (2)
	(In thousands)						(In thousands)
Single-family residential	$	62,360	66.6	%	1.1	%	$	64,184	69.9	%	1.2	%
Construction - speculative	6,387		1.5		5.0		8,407		1.7		6.4
Construction - custom	1,678		4.5		0.5		882		4.0		0.3
Land - acquisition & development	6,955		1.1		7.9		9,165		1.0		11.8
Land - consumer lot loans	2,862		1.4		2.6		3,552		1.6		2.9
Multi-family	4,141		10.9		0.5		3,816		10.9		0.5
Commercial real estate	6,689		6.4		1.3		5,595		5.4		1.3
Commercial & industrial	18,696		4.6		5.0		16,614		3.4		6.5
HELOC	1,015		1.4		0.9		1,002		1.5		0.9
Consumer	3,367		1.6		2.5		3,524		0.6		7.5
	$	114,150	100	%	1.4	%	$	116,741	100	%	1.5	%


(1)	Represents the total amount of the loan category as a % of total gross loans, excluding non-acquired and non-covered loans outstanding not subject to the allowance for loan loss.


(2)	Represents the allocated allowance of the loan category as a % of total gross loans, excluding non-acquired and non-covered loans outstanding not subject to the allowance for loan loss, for the same loan category.

Table of Contents

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 $1,675,409,000, or 18.43%, to $10,765,680,000 at June 30, 2014 compared with $9,090,271,000 at September 30, 2013.

The following table shows the composition of the Bank’s customer accounts by deposit type as of the dates shown:



	June 30, 2014						September 30, 2013
	(In thousands)
					Wtd. Avg. Rate						Wtd. Avg. Rate
Non-interest checking	$	818,273	7.6	%	—	%	$	447,368	4.9	%	—	%
Interest checking	1,378,379		12.8		0.03	%	800,516		8.8		0.13	%
Savings (passbook/stmt)	620,415		5.8		0.10	%	404,938		4.5		0.15	%
Money Market	2,498,714		23.2		0.19	%	1,888,020		20.8		0.23	%
CD’s	5,449,899		50.6		0.94	%	5,549,429		61.0		1.03	%
Total	$	10,765,680	100	%	0.53	%	$	9,090,271	100	%	0.69	%

FHLB advances and other borrowings: Total borrowings were $1,930,000,000 as of June 30, 2014 which is the same balance as of September 30, 2013. The Bank has a credit line with the FHLB Seattle equal to 50% of total assets, providing a substantial source of liquidity if needed. FHLB advances are collateralized as provided for in the Advances, Pledge and Security Agreement by all FHLB stock owned by the Bank, deposits with the FHLB and certain mortgages or deeds of trust securing such properties as provided in the agreements with the FHLB.

RESULTS OF OPERATIONS

Net Income: The quarter ended June 30, 2014 produced net income of $37,910,000 compared to $37,338,000 for the same quarter one year ago. For the nine months ended June 30, 2014, net income totaled $116,803,000 compared to $108,598,000 for the same period one year ago. Net income for the quarter and nine months ended June 30, 2014 benefited from higher net interest income and overall lower credit costs, which included the reversal of loan loss provision and reduced losses on real estate acquired through foreclosure for the nine month period. Some of this benefit was offset by higher other expense during these periods.

For the quarter and nine months ended June 30, 2014, net interest income was higher by $8,563,000 and $19,054,000, respectively. The provision for loan losses amounted to a reversal of $3,000,000 and $11,936,000 for the quarter and nine months ended June 30, 2014, respectively, as compared to a provision of $0 and $3,600,000 for the quarter and nine months ended June 30, 2013, respectively. Gains/losses recognized on real estate acquired through foreclosure was a net loss of $2,056,000 and $3,454,000 for the quarter and nine months ended June 30, 2014, respectively, as compared to a net gain of $176,000 and a net loss of $7,145,000 for the quarter and nine month periods one year ago, respectively. For the quarter and nine months ended June 30, 2014, other income was $3,013,000 and $4,500,000 higher, respectively, and other expense was $11,683,000 and $28,398,000 higher, respectively. Income tax provision was $89,000 and $6,178,000 higher for the quarter and nine months ended June 30, 2014, respectively. Please see the related discussions below about these changes.

Net Interest Income: Net interest income was $103,279,000 for the quarter ended June 30, 2014, compared to $94,716,000 for the same quarter one year ago, due to increased interest income on mortgage-backed securities and lower rates on customer deposits.

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.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

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

Rate / Volume Analysis:



	Comparison of Quarters Ended 6/30/14 and 6/30/13								Comparison of Nine months Ended 6/30/14 and 6/30/13
	Volume		Rate			Total			Volume		Rate			Total
	(In thousands)								(In thousands)
Interest income:
Loans and covered loans	$	4,536	$	(9,379	)	$	(4,843	)	$	3,516	$	(24,520	)	$	(21,004	)
Mortgaged-backed securities	4,471		4,085			8,556			11,985		14,637			26,622
Investments (1)	933		2,189			3,122			2,394		4,619			7,013
All interest-earning assets	9,940		(3,105		)	6,835			17,895		(5,264		)	12,631
Interest expense:
Customer accounts	2,622		(4,769		)	(2,147		)	6,031		(13,365		)	(7,334		)
FHLB advances and other borrowings	—		419			419			2,154		(1,243		)	911
All interest-bearing liabilities	2,622		(4,350		)	(1,728		)	8,185		(14,608		)	(6,423		)
Change in net interest income	$	7,318	$	1,245		$	8,563		$	9,710	$	9,344		$	19,054

___________________


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

Provision for Loan Losses: The Company recorded a $3,000,000 reversal of the provision for loan losses during the quarter ended June 30, 2014, while $0 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $162,357,000, or 1.10% , of total assets at June 30, 2014, compared to $233,403,000, or 1.79%, of total assets one year ago. Non-accrual loans decreased from $148,655,000 at June 30, 2013, to $94,226,000 at June 30, 2014, a 36.6% decrease. The Company had net recoveries of $2,219,000 for the quarter ended June 30, 2014, compared with $4,780,000 of net charge-offs for the same quarter one year ago. The improvement in the provision for loan losses is in response to three primary factors: first, the amount of NPAs improved year-over-year; second, non-accrual loans as a percentage of net loans decreased from 2.01% at June 30, 2013, to 1.20% at June 30, 2014; and third, the percentage of loans 30 days or more delinquent decreased from 2.27% at June 30, 2013, to 1.41% at June 30, 2014. Management believes the allowance for loan losses, totaling $114,150,000, or 1.35% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio. See Note E for further discussion and analysis of the allowance for loan losses for the quarter ended June 30, 2014.

Other Income: The quarter ended June 30, 2014 produced total other income of $8,072,000 compared to $5,059,000 for the same quarter one year ago, an increase of $3,013,000, due primarily to increased transaction fee income related to deposit accounts acquired as part of the acquisition of branches from Bank of America, National Association as of the close of business on October 31, 2013, December 6, 2013, and May 2, 2014. Please see Note B for additional information.

Other Expense: The quarter ended June 30, 2014 produced total other expense of $53,293,000 compared to $41,610,000 for the same quarter one year ago, a 28.1% increase. Total other expense for the quarters ended June 30, 2014 and 2013 equaled 1.47% and 1.28%, respectively, of average assets. The number of staff, including part-time employees on a full-time equivalent basis, was 1,948 and 1,423 at June 30, 2014 and 2013, respectively. Higher staff and occupancy expense was due to an increase in the number of branches from 185 as of June 30, 2013 to 253 as of June 30, 2014. Additionally, information technology, ATM expenses and debit card charges were higher.

Loss on Real Estate Acquired Through Foreclosure: The quarter ended June 30, 2014, produced a net loss on the sale of real estate acquired through foreclosure of $2,056,000 compared to a net gain of $176,000 for the same quarter one year ago. The table below indicates some of the activity in the gain (loss) on real estate acquired through foreclosure.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

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



	Quarter Ended June 30,
	2014			2013
	(In thousands)

Net Gain on Sale	$	2,466		$	2,973
REO Writedowns	(2,953		)	(2,032		)
REO Operating Expenses	(1,569		)	(765		)
Gain (loss) on real estate acquired through foreclosure, net	$	(2,056	)	$	176

Taxes: Income taxes increased to $21,092,000 for the quarter ended June 30, 2014, as compared to $21,003,000 for the same period one year ago. The effective tax rate for the quarter ended June 30, 2014 was 35.75% compared to 36.00% for the quarter ended June 30, 2013. The Company expects an effective tax rate of 35.75% going forward.

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, 2013. 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 2013 Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting. During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

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

In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the 2013 Form 10-K for the year ended September 30, 2013. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause its actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

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 June 30, 2014.



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
April 1, 2014 to April 30, 2014	441,033	$	22.10	441,033	7,983,601
May 1, 2014 to May 31, 2014	742,900	21.14		742,900	7,240,701
June 1, 2014 to June 30, 2014	316,067	22.23		316,067	6,924,634
Total	1,500,000	$	21.64	1,500,000	6,924,634

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(1)	The Company's only stock repurchase program was publicly announced by its Board of Directors on February 3, 1995 and has no expiration date. Under this ongoing program, a total of 41,956,264 shares have been authorized for repurchase.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits

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(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

	101	Financial Statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 formatted in XBRL

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

SIGNATURES

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



August 11, 2014	/S/ ROY M. WHITEHEAD
	ROY M. WHITEHEAD Chairman, President and Chief Executive Officer

August 11, 2014	/S/ DIANE L. KELLEHER
	DIANE L. KELLEHER Senior Vice President and Chief Financial Officer