The Slow and Sure Approach

Washington Federal Savings has had the same strategy for 92 years: lend long, borrow short and make money on the margins.

Through the savings and loan fallout of the early 1980s and the more recent boom-and-bust in the real estate market, the bank hasn't strayed from that strategy. Now, the institution founded in Seattle's Ballard neighborhood by a group of Norwegian fishermen stands as one of the largest Washington-based banks, with $12 billion in tangible assets. And its market cap is $1.3 billion, making the company worth four times as much as Columbia Banking System, the next most highly valued, publicly traded bank in Washington state.

"Here's this bank that has stuck to its knitting, and you're seeing a validation of that strategy," says Sara Hasan, an analyst for Seattle-based investment firm McAdams Wright Ragen, which has had a buy rating on Washington Federal stock since July of 2006. (McAdams Wright Ragen was a co-manager of Washington Federal's $300 million share offering this fall.)

Like its competitors, Washington Federal has watched its bottom line take hits due to loan losses in the current recession, and its investors have seen their quarterly dividends pared back at times. The bank posted a net loss in the fourth quarter of 2008 due to the precipitous decline in value of its Fannie Mae and Freddie Mac preferred stock.

"This is an economy that affects everyone," says Washington Federal Chairman, President and CEO Roy Whitehead. "If you are involved in the housing industry, you can't avoid the carnage."

That's the bad news for Washington Federal, but compared with many of its peers, it's not so bad. While its dividend was reduced, the company has been able to offer a dividend for 106 consecutive quarters. Despite the loss in the fourth quarter of 2008, Washington Federal finished the year in the black. The company has posted a profit in each of the first three quarters of its fiscal year 2009. Other than that one quarter, the bank has been profitable every quarter since 1965, which is as far back as institutional memory goes.

The bank's stability, even in tough times, is based on its conservative approach. It competes for fixed-rate home loans and markets its certificates of deposit aggressively, making money on the gap between the interest it brings in on its home loans and the money it pays out on its CDs.

Whitehead says 75 percent of Washington Federal's loan portfolio consists of

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