Edgar Filing: WASHINGTON FEDERAL INC

WAFD 06.30.2012 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, 2012



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 August 3, 2012
Common stock, $1.00 par value	106,494,239

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES



PART I

Item 1.	Financial Statements (Unaudited)

	The Condensed Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows:

	Consolidated Statements of Financial Condition as of June 30, 2012 and September 30, 2011	3

	Consolidated Statements of Operations for the quarters and nine months ended June 30, 2012 and 2011	4

	Consolidated Statements of Comprehensive Income for the quarters and nine months ended June 30, 2012 and 2011	5

	Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and 2011	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

PART II

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

	Signatures	48

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)



	June 30, 2012			September 30, 2011
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	963,766		$	816,002
Available-for-sale securities, including encumbered securities of $964,338 and $965,927, at fair value	3,626,115			3,255,144
Held-to-maturity securities, including encumbered securities of $34,433 and $45,086, at amortized cost	35,228			47,036
Loans receivable, net	7,616,205			7,935,877
Covered loans, net	302,681			382,183
Interest receivable	53,043			52,332
Premises and equipment, net	175,125			166,593
Real estate held for sale	107,457			159,829
Covered real estate held for sale	33,142			56,383
FDIC indemnification asset	97,380			101,634
FHLB stock	151,674			151,755
Intangible assets, net	256,431			256,271
Federal and state income taxes	2,514			—
Other assets	44,588			59,710
	$	13,465,349		$	13,440,749
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts	$	2,868,442		$	2,662,188
Time deposit accounts	5,814,739			6,003,715
	8,683,181			8,665,903
FHLB advances	1,957,146			1,962,066
Other borrowings	800,000			800,000
Advance payments by borrowers for taxes and insurance	24,313			39,548
Federal and State income taxes	—			1,535
Accrued expenses and other liabilities	67,428			65,164
	11,532,068			11,534,216
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000 shares authorized; 129,936,563 and 129,853,534 shares issued; 106,884,239 and 108,976,410 shares outstanding	129,937			129,854
Paid-in capital	1,585,797			1,582,843
Accumulated other comprehensive income, net of taxes	62,736			85,789
Treasury stock, at cost; 23,052,324 and 20,877,124 shares	(298,972		)	(268,665		)
Retained earnings	453,783			376,712
	1,933,281			1,906,533
	$	13,465,349		$	13,440,749

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,
	2012		2011			2012			2011
	(In thousands, except per share data)
INTEREST INCOME
Loans	$	118,115	$	127,736		$	369,366		$	394,286
Mortgage-backed securities	25,101		30,529			80,079			80,386
Investment securities and cash equivalents	2,168		3,266			6,446			10,988
	145,384		161,531			455,891			485,660
INTEREST EXPENSE
Customer accounts	20,903		27,581			66,868			89,765
FHLB advances and other borrowings	27,946		27,818			84,172			83,474
	48,849		55,399			151,040			173,239
Net interest income	96,535		106,132			304,851			312,421
Provision for loan losses	10,367		21,000			39,576			77,750
Net interest income after provision for loan losses	86,168		85,132			265,275			234,671
OTHER INCOME
Gain on sale of investments	—		—			—			8,147
Other	3,590		4,277			13,263			13,067
	3,590		4,277			13,263			21,214
OTHER EXPENSE
Compensation and benefits	19,281		18,471			58,141			54,018
Occupancy	3,952		3,628			11,977			10,780
FDIC insurance premiums	4,000		5,100			12,543			15,299
Other	8,730		6,975			24,479			21,677
	35,963		34,174			107,140			101,774
Gain (loss) on real estate acquired through foreclosure, net	1,146		(8,171		)	(11,005		)	(28,369		)
Income before income taxes	54,941		47,064			160,393			125,742
Income tax provision	19,778		16,943			57,742			45,267
NET INCOME	$	35,163	$	30,121		$	102,651		$	80,475

PER SHARE DATA
Basic earnings	$	0.33	$	0.27		$	0.96		$	0.72
Diluted earnings	0.33		0.27			0.96			0.72
Cash dividends per share	0.08		0.06			0.24			0.18
Basic weighted average number of shares outstanding	106,877,112		111,158,254			107,308,948			111,962,708
Diluted weighted average number of shares outstanding, including dilutive stock options	106,926,755		111,248,177			107,347,668			112,043,350

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,
	2012			2011		2012			2011
	(In thousands)

Net income	$	35,163		$	30,121	$	102,651		$	80,475
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) on available-for-sales securities,
net of quarter-to-date tax of $1,422 and $14,154, and
year-to-date tax of $13,394 and $4,498, respectively	(2,447		)	24,360		(23,053		)	(12,895		)
Reclassification adjustment of net gain from sale
of available-for-sale securities included in net income	—			—		—			5,153
Other comprehensive income (loss)	(2,447		)	24,360		(23,053		)	(7,742		)
Comprehensive income	$	32,716		$	54,481	$	79,598		$	72,733

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, 2012			June 30, 2011
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	102,651		$	80,475
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (accretion) of fees, discounts, premiums and intangible assets, net	40,397			32,456
Cash received from FDIC under loss share	276			20,977
Depreciation	5,625			4,950
Stock option compensation expense	900			815
Provision for loan losses	39,576			77,750
Loss (gain) on real estate held for sale, net	(8,366		)	20,222
Increase in accrued interest receivable	(460		)	(2,853		)
Increase in FDIC loss share receivable	(5,742		)	(3,143		)
Increase in income taxes payable	9,345			3,575
Decrease in other assets	15,908			11,671
Increase (decrease) in accrued expenses and other liabilities	1,229			(25,175		)
Net cash provided by operating activities	201,339			221,720
CASH FLOWS FROM INVESTING ACTIVITIES
Net principal collections (loan originations)	372,802			336,426
FHLB stock redemptions	1,830			—
Available-for-sale securities purchased	(1,499,227		)	(1,279,983		)
Principal payments and maturities of available-for-sale securities	1,065,254			485,597
Available-for-sale securities sold	3,500			131,361
Principal payments and maturities of held-to-maturity securities	11,899			31,383
Net cash received from acquisition	50,576			—
Proceeds from sales of real estate held for sale	138,689			63,575
Proceeds from sales of covered REO	28,343			—
Increase in intangible assets	(1,061		)	—
Premises and equipment purchased	(14,157		)	(7,695		)
Net cash provided (used) by investing activities	158,448			(239,336		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in customer accounts	(118,505		)	(138,850		)
Net decrease in borrowings	(22,595		)	(2,551		)
Proceeds from exercise of common stock options	199			1,045
Dividends paid on common stock	(25,580		)	(20,232		)
Treasury stock purchased	(30,307		)	(36,620		)
Decrease in advance payments by borrowers for taxes and insurance	(15,235		)	(15,638		)
Net cash used by financing activities	(212,023		)	(212,846		)
Increase (decrease) in cash and cash equivalents	147,764			(230,462		)
Cash and cash equivalents at beginning of period	816,002			888,622
Cash and cash equivalents at end of period	$	963,766		$	658,160

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)



	Nine Months Ended
	June 30, 2012			June 30, 2011
	(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Non-covered real estate acquired through foreclosure	$	124,482		$	64,873
Covered real estate acquired through foreclosure	13,094			46,008
Cash paid during the period for
Interest	151,805			174,511
Income taxes	48,331			41,627
The following summarizes the non-cash activities related to acquisitions
Fair value of assets acquired	$	124,594		$	—
Fair value of liabilities assumed	(154,493		)	—
Net fair value of liabilities assumed	(29,899		)	—

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

NOTE A – Summary of Significant Accounting Policies

The consolidated unaudited interim financial statements included in this report have been prepared by Washington Federal, Inc. (“Company”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The September 30, 2011 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 2011 Annual Report on Form 10-K (“2011 Form 10-K”) as filed with the SEC. Interim results are not necessarily indicative of results for a full year.

Loans receivable – When a borrower defaults on a loan, the Company attempts to cure the deficiency by working with the borrower. In most cases, deficiencies are cured promptly, sometimes as a result of a negotiated modification of terms. If the delinquency is not promptly cured, and negotiations do not lead to a modification of terms, the Company may institute appropriate legal action to collect the loan, which may include foreclosure of collateral. If foreclosed, the collateral is liquidated in a reasonable time frame at prices available in the market place.

The Company will consider modifying the interest rates and terms of a loan if it determines that a modification is a better alternative to foreclosure.

Loans are placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. The Company does not accrue interest on loans 90 days past due or more. If payment is made on a loan so that the loan becomes less than 90 days past due, and the Company expects full collection of principal and interest, the loan is returned to full accrual status. Any interest ultimately collected is credited to income in the period of recovery. 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.

The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable and estimable losses inherent in the loan portfolio. The Company’s methodology for assessing the appropriateness of the allowance consists of two components, which include the general allowance and specific allowances.

The general loan loss allowance is established by applying a loss percentage factor to the different loan types. Management believes loan types are the most relevant factor to group loans for the allowance calculation as the risk characteristics in these groups are similar. The loss percentage factor is made up of 2 parts – the historical loss factor (“HLF”) and the qualitative loss factor (“QLF”). The HLF takes into account historical charge-offs, while the QLF is determined by loan type and allows management to augment reserve levels to reflect the current environment and portfolio performance trends including recent charge-off trends. The allowances are provided based on Management’s continuing evaluation of the pertinent factors underlying the quality of the loan portfolio, including changes in the size and composition of the loan portfolio, actual loan loss experience, current economic conditions, collateral values, geographic concentrations, seasoning of the loan portfolio, specific industry conditions, and the duration of the current business cycle. The recovery of the carrying value of loans is susceptible to future market conditions beyond the Company’s control, which may result in losses or recoveries differing from those provided.

Specific allowances are established for loans which are individually evaluated, in cases where Management has identified weaknesses that it believes indicate the probability that a loss has been incurred.

Impaired loans consist of loans receivable that are not expected to have their principal and interest repaid in accordance with their contractual terms. Collateral dependent impaired loans are measured using the fair value of the collateral, less selling costs. Non-collateral dependent loans are measured at the present value of expected future cash flows.

The Company receives fees for originating loans in addition to various fees and charges related to existing loans, which may include prepayment charges, late charges and assumption fees. Deferred loan fees and costs are recognized over the life of the loans using the effective interest method.

Off-Balance-Sheet Credit Exposures – The only material off-balance-sheet credit exposure is loans in process (“LIP”), which had a balance at June 30, 2012, excluding covered loans, of $155,051,000. The Company estimates losses on LIP by including LIP

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

with the related principal balance outstanding and then applying its general reserve methodology to the gross amount.

Certain reclassifications have been made to the financial statements to conform prior periods to current classifications.

NOTE B - Acquisitions

Western National Bank

Effective December 16, 2011, Washington Federal, acquired certain assets and liabilities, including most of the loans and deposits, of Western National Bank, headquartered in Phoenix, Arizona (“WNB”) from the Federal Deposit Insurance Corporation (“FDIC”) in an FDIC assisted transaction. Under the terms of the Purchase and Assumption Agreement, the Company and the FDIC agreed to a discount of $53 million on net assets and no loss sharing provision or premium on deposits.

WNB operated three full-service offices in Arizona. The Company acquired certain assets with a book value of $177 million, including $143 million in loans and $7 million in foreclosed real estate, and selected liabilities with a book value of $153 million, including $136 million in deposits. Pursuant to the purchase and assumption agreement with the FDIC, the Company received a cash payment from the FDIC for $30 million.

The acquisition was accounted for under the acquisition method of accounting. The purchased assets and assumed liabilities were recorded at their respective acquisition date estimated fair values. The purchase accounting for acquired assets and liabilities were provisionally recorded at their estimated fair values as of the December 16, 2011 acquisition date. The initial accounting for acquired loans, real estate held for sale and deposits was incomplete as of December 31, 2011. The amounts recognized at December 31, 2011 were determined provisionally as the fair value analysis of those assets was incomplete as of December 31, 2011. These amounts have been retrospectively adjusted to reflect the completion of the fair value analysis during the quarter ended June 30, 2012. The adjustments recorded in the quarter ended June 30, 2012 were a decrease in acquired loans of $716,000, a decrease in real estate held for sale of $252,000 and an increase in other assets of $836,000 to reflect the core deposit intangible.

The operating results of the Company include the operating results produced by the acquired assets and assumed liabilities for the period December 16, 2011 to June 30, 2012.

The table below displays the amounts recognized 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

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	Received from		Fair Value			Recorded by
	FDIC		Adjustments			WAFD
	(In thousands)
Assets:
Cash and cash equivalents	$	20,677	$	—		$	20,677
Available-for-sale securities	3,500		—			3,500
FHLB & FRB stock	1,744		4			1,748
Loans receivable, net	143,328		(49,637		)	93,691
Interest receivable	251		—			251
Property and equipment, net	—		—			—
Real estate held for sale	7,149		(3,462		)	3,687
Other assets	79		961			1,040
Total Assets	176,728		(52,134		)	124,594

Liabilities:
Customer accounts	135,783		—			135,783
FHLB advances	17,666		9			17,675
Other liabilities	40		995			1,035
Total Liabilities	153,489		1,004			154,493

Net assets (liabilities) acquired	$	23,239	$	(53,138	)	$	(29,899	)

Aggregate fair value adjustments			$	(53,138	)

Net liabilities acquired						$	(29,899	)
Cash received from the FDIC						29,899

South Valley Bancorp, Inc.

On April 4, 2012, the Company and South Valley Bancorp, Inc. (“South Valley”) announced the signing of a definitive merger agreement. The merger agreement calls for the merger of South Valley with and into the Company, followed by the merger of South Valley's wholly owned subsidiary, South Valley Bank & Trust, into the Company's wholly owned subsidiary, Washington Federal. Under the terms of the definitive merger agreement, each outstanding share of South Valley common stock will be converted into the right to receive: (i) 0.2962 of a share of the Company's common stock, (ii) a contingent cash payment equal to the pro rata portion of an earn-out from the net proceeds collected from a pool of specified assets of South Valley with a value of approximately $39 million as of March 31, 2012, and (iii) a contingent cash payment equal to the pro rata portion of the net proceeds, if any, received by South Valley from the sale of its trust business and/or wealth management business prior to the closing of the merger. Assuming a per share price of $16.88 for the Company's common stock, the aggregate value of the stock portion of the merger consideration is approximately $33.7 million. After consummation of the merger, the combined company will have 190 offices in eight western states with total assets of approximately $14.4 billion and total deposits of approximately $9.6 billion, based on financial results as of December 31, 2011. The merger is expected to close in the third calendar quarter of 2012, pending the receipt of all requisite regulatory approvals and the satisfaction of other customary closing conditions. On June 28, 2012, the shareholders of South Valley approved the merger transaction, with over 82% of the outstanding shares of South Valley common stock voting in favor of the merger.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

NOTE C – Dividends

On July 19, 2012, the Company paid its 118^th consecutive quarterly cash dividend on common stock. Dividends per share were $.08 and $.06 for the quarters ended June 30, 2012 and 2011, respectively.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

NOTE D – Loans Receivable (excluding Covered Loans)



	June 30, 2012				September 30, 2011
	(In thousands)
Non-acquired loans
Single-family residential	$	5,904,805	74.0	%	$	6,218,878	74.9	%
Construction - speculative	130,741		1.6		140,459		1.7
Construction - custom	210,488		2.6		279,851		3.4
Land - acquisition & development	135,392		1.7		200,692		2.4
Land - consumer lot loans	145,129		1.8		163,146		2.0
Multi-family	692,763		8.7		700,673		8.4
Commercial real estate	310,588		3.9		303,442		3.7
Commercial & industrial	148,577		1.9		109,332		1.3
HELOC	113,559		1.4		115,092		1.4
Consumer	68,202		0.9		67,509		0.8
Total non-acquired loans	7,860,244		98.5		8,299,074		100
Credit-impaired acquired loans
Single-family residential	343		—		—		—
Construction - speculative	1,889		—		—		—
Construction - custom	—		—		—		—
Land - acquisition & development	4,211		0.1		—		—
Land - consumer lot loans	—		—		—		—
Multi-family	1,074		—		—		—
Commercial real estate	91,006		1.1		—		—
Commercial & industrial	5,100		0.1		—		—
HELOC	15,037		0.2		—		—
Consumer	115		—		—		—
Total credit-impaired acquired loans	118,775		1.5		—		—
Total loans
Single-family residential	5,905,148		74.0		6,218,878		74.9
Construction - speculative	132,630		1.7		140,459		1.7
Construction - custom	210,488		2.6		279,851		3.4
Land - acquisition & development	139,603		1.7		200,692		2.4
Land - consumer lot loans	145,129		1.8		163,146		2
Multi-family	693,837		8.7		700,673		8.4
Commercial real estate	401,594		5.1		303,442		3.7
Commercial & industrial	153,677		1.9		109,332		1.3
HELOC	128,596		1.6		115,092		1.4
Consumer	68,317		0.9		67,509		0.8
Total loans	7,979,019		100	%	8,299,074		100	%
Less:
Allowance for probable losses	137,951				157,160
Loans in process	155,051				170,229
Discount on acquired loans	35,200				—
Deferred net origination fees	34,612				35,808
	362,814				363,197
	$	7,616,205			$	7,935,877

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

The following table presents the changes in the accretable yield for credit impaired acquired loans as of June 30, 2012:



	Credit impaired acquired loans
	Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance as of October 1, 2011	$	—		$	—
Additions	21,606			92,981
Accretion	(3,278		)	3,278
Transfers to REO	—			—
Payments received, net	—			(12,714		)
Balance as of June 30, 2012	$	18,328		$	83,545

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



	June 30, 2012				September 30, 2011
	(In thousands)
Non-accrual loans:
Single-family residential	$	129,295	75.6	%	$	126,624	60.3	%
Construction - speculative	12,424		7.3		15,383		7.3
Construction - custom	539		0.3		635		0.3
Land - acquisition & development	12,514		7.3		37,339		17.7
Land - consumer lot loans	5,844		3.4		8,843		4.2
Multi-family	3,405		2.0		7,664		3.6
Commercial real estate	6,285		3.7		11,380		5.4
Commercial & industrial	—		—		1,679		0.8
HELOC	388		0.2		481		0.2
Consumer	339		0.2		437		0.2
Total non-accrual loans	$	171,033	100	%	$	210,465	100	%

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

The following tables provide an analysis of the age of loans in past due status as of June 30, 2012 and September 30, 2011, respectively.



June 30, 2012	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	$	5,902,633	$	5,736,969	$	33,571	$	19,127	$	112,966	$	165,664	2.81	%
Construction - Speculative	94,930		87,134		899		509		6,388		7,796		8.21
Construction - Custom	123,965		123,382		1		43		539		583		0.47
Land - Acquisition & Development	127,953		114,563		234		3,226		9,930		13,390		10.46
Land - Consumer Lot Loans	145,037		136,545		1,753		895		5,844		8,492		5.86
Multi-Family	675,334		670,859		569		594		3,312		4,475		0.66
Commercial Real Estate	305,046		300,668		334		—		4,044		4,378		1.44
Commercial & Industrial	148,565		148,546		9		10		—		19		0.01
HELOC	113,559		112,824		29		318		388		735		0.65
Consumer	68,202		66,222		1,117		524		339		1,980		2.90
Total non-acquired loans	7,705,224		7,497,712		38,516		25,246		143,750		207,512		2.69

Credit-impaired acquired loans
Single-Family Residential	343		—		—		343		—		343		100.00
Construction - Speculative	1,889		1,889		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	4,210		3,685		—		—		525		525		12.47
Land - Consumer Lot Loans	—		—		—		—		—		—		—
Multi-Family	1,074		1,074		—		—		—		—		—
Commercial Real Estate	90,977		80,860		2,072		1,698		6,347		10,117		11.12
Commercial & Industrial	5,099		4,244		125		730		—		855		16.77
HELOC	15,037		13,912		1,125		—		—		1,125		7.48
Consumer	115		69		5		40		1		46		40.00
Total credit-impaired acquired loans	118,744		105,733		3,327		2,811		6,873		13,011		10.96

Total loans	$	7,823,968	$	7,603,445	$	41,843	$	28,057	$	150,623	$	220,523	2.82

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



September 30, 2011	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)
Single-Family Residential	$	6,217,670	$	6,015,464	$	54,140	$	21,985	$	126,082	$	202,207	3.25	%
Construction - Speculative	115,409		106,843		330		—		8,236		8,566		7.42
Construction - Custom	147,764		147,129		—		—		635		635		0.43
Land - Acquisition & Development	193,613		159,357		679		—		33,577		34,256		17.69
Land - Consumer Lot Loans	163,146		151,849		1,163		1,291		8,843		11,297		6.92
Multi-Family	699,340		690,765		—		1,202		7,373		8,575		1.23
Commercial Real Estate	300,307		292,015		1,016		—		7,276		8,292		2.76
Commercial & Industrial	108,995		106,708		55		553		1,679		2,287		2.10
HELOC	115,092		114,059		452		100		481		1,033		0.90
Consumer	67,509		65,434		1,191		446		437		2,074		3.07
	$	8,128,845	$	7,849,623	$	59,026	$	25,577	$	194,619	$	279,222	3.43

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 twelve months. Interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans. As of June 30, 2012, single-family residential loans comprised 83.2% 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.

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



	Quarter Ended June 30,
	2012					2011
		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	$	43,104	$	43,104	155	$	39,362	$	39,362
Construction - Speculative	—	—		—		1	337		337
Construction - Custom	1	1,196		1,196		—	—		—
Land - Acquisition & Development	—	—		—		3	4,427		4,427
Land - Consumer Lot Loans	8	965		965		9	1,335		1,335
Multi-Family	1	389		389		1	985		985
Commercial Real Estate	2	5,572		5,572		—	—		—
Commercial & Industrial	—	—		—		—	—		—
HELOC	2	113		113		—	—		—
Consumer	—	—		—		—	—		—
	213	$	51,339	$	51,339	169	$	46,446	$	46,446

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	Nine Months Ended June 30,
	2012					2011
		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	681	$	159,651	$	159,651	481	$	131,018	$	131,018
Construction - Speculative	22	6,253		6,253		2	529		529
Construction - Custom	1	1,196		1,196		—	—		—
Land - Acquisition & Development	26	5,565		5,565		3	4,427		4,427
Land - Consumer Lot Loans	30	3,906		3,906		34	5,175		5,175
Multi-Family	3	2,257		2,257		7	9,146		9,146
Commercial Real Estate	3	5,881		5,881		—	—		—
Commercial & Industrial	1	2		2		—	—		—
HELOC	2	113		113		—	—		—
Consumer	—	—		—		—	—		—
	769	$	184,824	$	184,824	527	$	150,295	$	150,295

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,
	2012			2011
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
		(In thousands)			(In thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Single-Family Residential	30	$	8,225	10	$	3,295
Construction - Speculative	—	—		—	—
Construction - Custom	—	—		—	—
Land - Acquisition & Development	—	—		—	—
Land - Consumer Lot Loans	—	—		3	404
Multi-Family	—	—		1	3,589
Commercial Real Estate	—	—		—	—
Commercial & Industrial	—	—		—	—
HELOC	—	—		—	—
Consumer	—	—		—	—
	30	$	8,225	14	$	7,288

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	Nine Months Ended June 30,
	2012			2011
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
		(In thousands)			(In thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Single-Family Residential	97	$	21,687	29	$	7,783
Construction - Speculative	—	—		—	—
Construction - Custom	—	—		—	—
Land - Acquisition & Development	—	—		—	—
Land - Consumer Lot Loans	4	603		3	404
Multi-Family	—	—		1	3,589
Commercial Real Estate	—	—		—	—
Commercial & Industrial	—	—		—	—
HELOC	—	—		—	—
Consumer	—	—		—	—
	101	$	22,290	33	$	11,776

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.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

The following table summarizes the activity in the allowance for loan losses for the quarter ended June 30, 2012 and fiscal year ended September 30, 2011:



Quarter Ended June 30, 2012	Beginning Allowance		Charge-offs			Recoveries		Provision & Transfers			Ending Allowance
	(In thousands)
Single-family residential	$	83,875	$	(14,134	)	$	2,240	$	9,363		$	81,344
Construction - speculative	15,943		(2,288		)	86		(888		)	12,853
Construction - custom	384		—			—		(40		)	344
Land - acquisition & development	19,929		(1,519		)	533		(1,549		)	17,394
Land - consumer lot loans	7,712		(670		)	—		295			7,337
Multi-family	4,837		—			279		(278		)	4,838
Commercial real estate	2,869		(206		)	148		337			3,148
Commercial & industrial	4,427		(69		)	70		2,535			6,963
HELOC	969		(147		)	6		144			972
Consumer	2,874		(955		)	391		448			2,758
	$	143,819	$	(19,988	)	$	3,753	$	10,367		$	137,951



Fiscal Year Ended September 30, 2011	Beginning Allowance		Charge-offs			Recoveries		Provision & Transfers			Ending Allowance
	(In thousands)
Single-family residential	$	47,160	$	(38,465	)	$	3,072	$	71,540		$	83,307
Construction - speculative	26,346		(13,197		)	2,143		(1,464		)	13,828
Construction - custom	770		(237		)	—		90			623
Land - acquisition & development	61,637		(39,797		)	2,271		8,608			32,719
Land - consumer lot loans	4,793		(4,196		)	—		4,923			5,520
Multi-family	5,050		(1,950		)	71		4,452			7,623
Commercial real estate	3,165		(1,593		)	328		2,431			4,331
Commercial & industrial	6,193		(4,733		)	1,925		1,714			5,099
HELOC	586		(939		)	185		1,307			1,139
Consumer	7,394		(4,602		)	1,429		(1,250		)	2,971
	$	163,094	$	(109,709	)	$	11,424	$	92,351		$	157,160

The Company recorded a $10,367,000 provision for loan losses during the quarter ended June 30, 2012, while a $21,000,000 provision was recorded for the same quarter one year ago. Non-performing assets (“NPAs”) amounted to $278,490,000, or 2.07%, of total assets at June 30, 2012, compared to $394,679,000, or 2.96%, of total assets one year ago. Acquired loans, including covered loans, are not classified as non-performing loans because, at acquisition, the carrying value of these loans was adjusted to reflect fair value. There was no additional provision for loan losses recorded on acquired or covered loans during the quarter ended June 30, 2012. Non-accrual loans decreased from $232,752,000 at June 30, 2011, to $171,033,000 at June 30, 2012, a 26.5% decrease. The Company had net charge-offs of $16,235,000 for the quarter ended June 30, 2012, compared with $23,519,000 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. The percentage of loans 30 days or more delinquent decreased from 3.66% at June 30, 2011, to 2.69% at June 30, 2012. Delinquencies in the single-family residential portfolio, the largest portion of the loan portfolio, decreased from 3.43% at June 30, 2011, to 2.81% at June 30, 2012. In addition to these improving asset quality trends, real estate values are beginning to increase in most of the Company's primary markets. As a result, the Company recorded a smaller provision for loan losses in the current quarter as compared to the same quarter one year ago. $116,164,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $21,787,000 was made up of specific reserves on loans that were deemed to be impaired at June 30, 2012. For the period ending June 30, 2011,

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

$114,159,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $46,940,000 was made up of specific reserves on loans that were deemed to be impaired. The primary reasons for 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 focused in the speculative construction and land A&D portfolios, combined with a still weak macro economic environment which may negatively impact the single-family residential portfolio.

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, 2012 and September 30, 2011:



June 30, 2012	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	$	80,437	$	5,823,964	1.4	%	$	907	$	80,842	1.1	%
Construction - speculative	8,615		98,980		8.7		4,238		31,760		13.3
Construction - custom	344		210,488		0.2		—		—		—
Land - acquisition & development	5,777		40,803		14.2		11,617		94,589		12.3
Land - consumer lot loans	6,447		142,712		4.5		890		2,417		36.8
Multi-family	2,728		671,837		0.4		2,110		20,927		10.1
Commercial real estate	1,136		286,779		0.4		2,012		23,808		8.5
Commercial & industrial	6,950		147,394		4.7		13		1,183		1.1
HELOC	972		113,559		0.9		—		—		—
Consumer	2,758		68,202		4.0		—		—		—
	$	116,164	$	7,604,718	1.5		$	21,787	$	255,526	8.5

___________________


(1)	Excludes acquired and covered loans



September 30, 2011	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	$	77,441	$	6,186,322	1.3	%	$	5,866	$	32,556	18.0	%
Construction - speculative	6,969		89,986		7.7		6,859		50,473		13.6
Construction - custom	623		279,851		0.2		—		—		—
Land - acquisition & development	10,489		61,277		17.1		22,230		139,415		15.9
Land - consumer lot loans	4,385		160,906		2.7		1,135		2,240		50.7
Multi-family	3,443		679,823		0.5		4,180		20,850		20.0
Commercial real estate	2,730		268,906		1.0		1,601		34,536		4.6
Commercial & industrial	5,058		106,406		4.8		41		2,926		1.4
HELOC	1,139		115,092		1.0		—		—		—
Consumer	2,971		67,509		4.4		—		—		—
	$	115,248	$	8,016,078	1.4		$	41,912	$	282,996	14.8


(1)	Excludes covered loans

The following tables provide information on loans based on credit quality indicators (defined in Note A) as of June 30, 2012 and

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

September 30, 2011:

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



June 30, 2012	Internally Assigned Grade															Total
	Pass			Special mention			Substandard			Doubtful			Loss			Gross Loans
	(In thousands)
Non-acquired loans
Single-family residential	$	5,714,905		$	299		$	189,601		$	—		$	—		$	5,904,805
Construction - speculative	80,542			6,695			43,504			—			—			130,741
Construction - custom	210,488			—			—			—			—			210,488
Land - acquisition & development	42,907			21,935			70,550			—			—			135,392
Land - consumer lot loans	144,658			356			115			—			—			145,129
Multi-family	660,948			7,574			24,241			—			—			692,763
Commercial real estate	271,050			4,608			34,930			—			—			310,588
Commercial & industrial	146,075			352			2,150			—			—			148,577
HELOC	113,559			—			—			—			—			113,559
Consumer	67,301			528			373			—			—			68,202
	7,452,433			42,347			365,464			—			—			7,860,244

Credit impaired acquired loans
Pool 1 - Construction and land A&D	2,514			—			3,587			—			—			6,101
Pool 2 - Single-family residential	343			—			—			—			—			343
Pool 3 - Multi-family	—			—			1,074			—			—			1,074
Pool 4 - HELOC & other consumer	15,151			—			—			—			—			15,151
Pool 5 - Commercial real estate	52,223			5,493			32,257			1,033			—			91,006
Pool 6 - Commercial & industrial	2,548			805			1,343			404			—			5,100
Total credit impaired acquired loans	72,779			6,298			38,261			1,437			—			118,775
Total gross loans	$	7,525,212		$	48,645		$	403,725		$	1,437		$	—		$	7,979,019

Total grade as a % of total gross loans	94.3		%	0.6		%	5.1		%	—		%	—		%

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



September 30, 2011	Internally Assigned Grade															Total
	Pass			Special mention			Substandard			Doubtful			Loss			Gross Loans
	(In thousands)
Single-family residential	$	6,047,279		$	—		$	171,599		$	—		$	—		$	6,218,878
Construction - speculative	56,485			21,035			62,939			—			—			140,459
Construction - custom	279,851			—			—			—			—			279,851
Land - acquisition & development	44,888			44,840			110,964			—			—			200,692
Land - consumer lot loans	162,670			—			476			—			—			163,146
Multi-family	663,582			4,629			32,462			—			—			700,673
Commercial real estate	264,083			4,125			35,234			—			—			303,442
Commercial & industrial	104,171			1,128			1,407			2,245			381			109,332
HELOC	115,092			—			—			—			—			115,092
Consumer	66,512			528			469			—			—			67,509
	$	7,804,613		$	76,285		$	415,550		$	2,245		$	381		$	8,299,074
Total grade as a % of total gross loans	94.1		%	0.9		%	5.0		%	—		%	—		%

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



June 30, 2012	Performing Loans				Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands)
Single-family residential	$	5,775,510	97.8	%	$	129,295	2.2	%
Construction - speculative	118,317		90.5		12,424		9.5
Construction - custom	209,949		99.7		539		0.3
Land - acquisition & development	122,878		90.8		12,514		9.2
Land - consumer lot loans	139,285		96.0		5,844		4.0
Multi-family	689,358		99.5		3,405		0.5
Commercial real estate	304,303		98.0		6,285		2.0
Commercial & industrial	148,577		100.0		—		—
HELOC	113,171		99.7		388		0.3
Consumer	67,863		99.5		339		0.5
	$	7,689,211	97.8		$	171,033	2.2

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



September 30, 2011	Performing Loans				Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands)
Single-family residential	$	6,092,254	98.0	%	$	126,624	2.0	%
Construction - speculative	125,076		89.0		15,383		11.0
Construction - custom	279,216		99.8		635		0.2
Land - acquisition & development	163,353		81.4		37,339		18.6
Land - consumer lot loans	154,303		94.6		8,843		5.4
Multi-family	693,009		98.9		7,664		1.1
Commercial real estate	292,062		96.2		11,380		3.8
Commercial & industrial	107,653		98.5		1,679		1.5
HELOC	114,611		99.6		481		0.4
Consumer	67,072		99.4		437		0.6
	$	8,088,609	97.5	%	$	210,465	2.5	%

The following table provides information on impaired loans based on loan types as of June 30, 2012 and September 30, 2011:

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



								Average Recorded Investment
June 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance			Quarter Ended June 30, 2012		Nine Months Ended June 30, 2012
	(In thousands)
With no related allowance recorded:
Single-family residential	$	76,505	$	94,492	$	—		$	60,077	$	33,103
Construction - speculative	14,041		16,819		—			15,463		13,697
Construction - custom	—		157		—			—		—
Land - acquisition & development	16,213		35,449		—			16,422		18,025
Land - consumer lot loans	794		1,000		—			438		219
Multi-family	8,276		8,484		—			7,889		6,638
Commercial real estate	26,038		39,965		—			14,982		7,962
Commercial & industrial	1,568		13,265		—			885		443
HELOC	90		3,018		—			83		42
Consumer	—		60		—			—		—
	143,525		212,709		—			116,239		80,129
With an allowance recorded:
Single-family residential	345,103		345,103		25,796			334,249		333,820
Construction - speculative	14,602		14,602		4,238			14,600		14,519
Construction - custom	—		—		—			—		—
Land - acquisition & development	26,985		26,984		11,617			27,232		27,966
Land - consumer lot loans	1,622		1,622		890			811		406
Multi-family	11,312		11,312		2,110			11,332		11,367
Commercial real estate	7,269		7,269		2,012			6,912		6,656
Commercial & industrial	13		13		13			18		28
HELOC	—		—		—			—		—
Consumer	—		—		—			—		—
	406,906		406,905		46,676		(1)	395,154		394,762
Total:
Single-family residential	421,608		439,595		25,796			394,326		366,923
Construction - speculative	28,643		31,421		4,238			30,063		28,216
Construction - custom	—		157		—			—		—
Land - acquisition & development	43,198		62,433		11,617			43,654		45,991
Land - consumer lot loans	2,416		2,622		890			1,249		625
Multi-family	19,588		19,796		2,110			19,221		18,005
Commercial real estate	33,307		47,234		2,012			21,894		14,618
Commercial & industrial	1,581		$	13,278	13			903		471
HELOC	90		3,018		—			83		42
Consumer	—		60		—			—		—
	$	550,431	$	619,614	$	46,676	(1)	$	511,393	$	474,891

____________________

(1)Includes $21,787,000 of specific reserves and $24,889,000 included in the general reserves.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



September 30, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment
	(In thousands)
With no related allowance recorded:
Single-family residential	$	5,597	$	9,575	$	—		$	5,935
Construction - speculative	8,286		11,026		—			7,374
Construction - custom	—		—		—			—
Land - acquisition & development	22,436		50,970		—			28,168
Land - consumer lot loans	—		—		—			—
Multi-family	3,233		4,508		—			4,058
Commercial real estate	3,462		3,963		—			2,141
Commercial & industrial	—		—		—			—
HELOC	—		—		—			—
Consumer	—		—		—			—
	43,014		80,042		—			47,676
With an allowance recorded:
Single-family residential	331,546		331,546		29,378			261,736
Construction - speculative	29,255		29,255		6,859			26,385
Construction - custom	—		—		—			—
Land - acquisition & development	49,036		49,912		22,230			41,006
Land - consumer lot loans	352		352		1,135			110
Multi-family	17,149		17,149		4,180			12,380
Commercial real estate	6,429		6,429		1,601			3,351
Commercial & industrial	41		41		41			31
HELOC	—		—		—			—
Consumer	—		—		—			—
	433,808		434,684		65,424		(1)	344,999
Total:
Single-family residential	337,143		341,121		29,378			267,671
Construction - speculative	37,541		40,281		6,859			33,759
Construction - custom	—		—		—			—
Land - acquisition & development	71,472		100,882		22,230			69,174
Land - consumer lot loans	352		352		1,135			110
Multi-family	20,382		21,657		4,180			16,438
Commercial real estate	9,891		10,392		1,601			5,492
Commercial & industrial	41		41		41			31
HELOC	—		—		—			—
Consumer	—		—		—			—
	$	476,822	$	514,726	$	65,424	(1)	$	392,675


(1)	Includes $41,912,000 of specific reserves and $23,512,000 included in the general reserves.

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

NOTE F – New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities. The amendments in this ASU will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with current U.S. GAAP or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current U.S. GAAP. The guidance in this ASU is effective for the first interim or annual period beginning on or after January 1, 2013 and should be applied retrospectively. This new guidance is not expected to have a material impact on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. Under the amendments in ASU 2011-05, entities are required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments in ASU 2011-05 require that reclassification adjustments be presented in interim financial periods. The amendments in ASU 2011-12 supersede and defer changes to those paragraphs in ASU 2011-05 that pertain to how, when and where reclassification adjustments are presented while the FASB redeliberates the presentation of reclassification adjustments. All other requirements of ASU 2011-05 are not affected by ASU 2011-12.

In July 2012, the FASB issued ASU 2012-02, Intangibles - Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. This ASU permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance in Subtopic 350-30 required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the fair value of the asset is less than its carrying amount, an entity should recognize an impairment loss in the amount of the difference. In accordance with the amendments in this ASU, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in Update 2011-08. The Company early adopted this ASU and the guidance had no impact on the Company's financial condition and results of operations.

NOTE G – Fair Value Measurements

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

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

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

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

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

We have established and documented the Company's process for determining the fair values of our 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. 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.

The following table presents the balance of assets measured at fair value on a recurring basis at June 30, 2012:



	Fair Value at June 30, 2012
	Level 1		Level 2		Level 3		Total
	(In thousands)
Available-for-sale securities
Equity securities	$	—	$	—	$	—	$	—
Obligations of U.S. government	—		114,141		—		114,141
Obligations of states and political subdivisions	—		24,001		—		24,001
Obligations of foreign governments	—		—		—		—
Corporate debt securities	—		303,214		—		303,214
Mortgage-backed securities					—
Agency pass-through certificates	—		3,184,759		—		3,184,759
Other debt securities	—		—		—		—
Balance at end of period	$	—	$	3,626,115	$	—	$	3,626,115

There were no transfers between, into and/or out of Levels 1, 2 or 3 during the quarter ended June 30, 2012.

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, 2012 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 table presents the aggregated balance of assets measured at estimated fair value on a nonrecurring basis through the quarter ended June 30, 2012, and the total losses resulting from those fair value adjustments for the quarter and nine months ended June 30, 2012. The following estimated fair values are shown gross of estimated selling costs:

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	Through June 30, 2012								Quarter Ended June 30, 2012		Nine Months Ended June 30, 2012
	Level 1		Level 2		Level 3		Total		Total Losses
	(In thousands)
Impaired loans (1)	$	—	$	—	$	133,929	$	133,929	$	13,459	$	36,291
Covered REO (2)	—		—		32,817		32,817		923		2,124
Real estate held for sale (2)	—		—		157,547		157,547		21,756		61,100
Balance at end of period	$	—	$	—	$	324,293	$	324,293	$	36,138	$	99,515

___________________


(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, 2012.

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 loan loss ("ALLL") 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 my 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, 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.

Fair Values of Financial Instruments

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

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, 2012				September 30, 2011
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(In thousands)
Financial assets
Cash and cash equivalents	1	$	963,766	$	963,766	$	816,002	$	816,002
Available-for-sale securities	2
Equity securities		—		—		—		—
Obligations of U.S. government		114,141		114,141		190,527		190,527
Obligations of states and political subdivisions		24,001		24,001		23,568		23,568
Obligations of foreign governments		—		—		—		—
Corporate debt securities		303,214		303,214		29,959		29,959
Mortgage-backed securities
Agency pass-through certificates		3,184,759		3,184,759		3,011,090		3,011,090
Other debt securities		—		—		—		—
Total available-for-sale securities		3,626,115		3,626,115		3,255,144		3,255,144
Held-to-maturity securities	2
Equity securities		—		—		—		—
Obligations of U.S. government		—		—		—		—
Obligations of states and political subdivisions		795		812		1,950		2,023
Obligations of foreign governments		—		—		—		—
Corporate debt securities		—		—		—		—
Mortgage-backed securities
Agency pass-through certificates		34,433		37,215		45,086		48,593
Other debt securities		—		—		—		—
Total held-to-maturity securities		35,228		38,027		47,036		50,616
Loans receivable	3	7,616,205		8,262,700		7,935,877		8,479,307
Covered loans	3	302,681		304,420		382,183		375,027
FDIC indemnification asset	3	97,380		95,138		98,871		101,751
FHLB stock	2	151,674		151,674		151,755		151,755
Financial liabilities
Customer accounts	2	8,683,181		8,500,515		8,665,903		8,557,357
FHLB advances and other borrowings	2	2,757,146		3,097,509		2,762,066		3,038,127

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

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 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.

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.

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

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

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

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

The following is a reconciliation of amortized cost to fair value of available-for-sale and held-to-maturity securities:

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	June 30, 2012
	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
Within 1 year	$	500	$	36	$	—		$	536	4.00	%
1 to 5 years	—		—		—			—		—
5 to 10 years	109,300		4,330		(25		)	113,605		1.34
Over 10 years	—		—		—			—		—
Corporate bonds due
1 to 5 years	273,658		350		(58		)	273,950		0.87
5 to 10 years	30,000		464		(1,200		)	29,264		4.00
Municipal bonds due
Over 10 years	20,446		3,555		—			24,001		6.45
Mortgage-backed securities
Agency pass-through certificates	3,093,024		94,775		(3,040		)	3,184,759		4.48
	3,526,928		103,510		(4,323		)	3,626,115		4.11
Held-to-maturity securities
Tax-exempt municipal bonds due
Within 1 year	795		17		—			812		5.72
1 to 5 years	—		—		—			—		—
5 to 10 years	—		—		—			—		—
Over 10 years	—		—		—			—		—
U.S. government and agency securities due
1 to 5 years	—		—		—			—		—
Mortgage-backed securities
Agency pass-through certificates	34,433		2,782		—			37,215		5.31
	35,228		2,799		—			38,027		5.32
	$	3,562,156	$	106,309	$	(4,323	)	$	3,664,142	4.12	%

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	September 30, 2011
	Amortized Cost		Gross Unrealized						Fair Value		Yield
			Gains		Losses
	(In thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year	$	500	$	34		$	—		$	534	4.00	%
1 to 5 years	—		—			—			—		—
5 to 10 years	9,300		4,547			—			13,847		10.38
Over 10 years	175,515		631			—			176,146		2.57
Corporate bonds due
5 to 10 years	30,000		284			(325		)	29,959		4.00
Municipal bonds due
Over 10 years	20,461		3,107			—			23,568		6.45
Mortgage-backed securities
Agency pass-through certificates	2,883,734		127,356			—			3,011,090		4.72
	3,119,510		135,959			(325		)	3,255,144		4.62
Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years	405		5			—			410		6.52
5 to 10 years	1,545		68			—			1,613		5.60
Over 10 years	—		—			—			—		—
U.S. government and agency securities due
1 to 5 years	—		—			—			—		—
Mortgage-backed securities
Agency pass-through certificates	45,086		3,507			—			48,593		5.31
	47,036		3,580			—			50,616		5.33
	$	3,166,546	$	139,539		$	(325	)	$	3,305,760	4.63	%

During the period ending June 30, 2012, $3,500,000 of available-for-sale securities were sold, resulting in a gain of $0. $131,361,000 of available-for-sale securities were sold during the period ending June 30, 2011, resulting in a gain of $8,147,000.

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

The following table shows the unrealized gross losses and fair value of securities at June 30, 2012, by 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.



	Less than 12 months					12 months or more					Total
	Unrealized Gross Losses			Fair Value		Unrealized Gross Losses			Fair Value		Unrealized Gross Losses			Fair Value

Corporate bonds due	$	(1,258	)	$	32,400	$	—		$	—	$	(1,258	)	$	32,400
U.S. government and agency securities due	(25		)	99,975		—			—		(25		)	99,975
Agency pass-through certificates	(2,787		)	401,777		(253		)	33,822		(3,040		)	435,599
	(4,070		)	$	534,152	$	(253	)	$	33,822	(4,323		)	$	567,974

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(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 $335,823,000 as of June 30, 2012, versus $438,566,000 as of September 30, 2011.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans were as follows:



June 30, 2012	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	37,072		$	116,061		$	30,370		$	269,888
Accretion	(15,142		)	15,142			(4,939		)	4,939
Transfers to REO	—			(13,094		)	—			—
Payments received, net	—			(43,361		)	—			(46,894		)
Balance at end of period	$	21,930		$	74,748		$	25,431		$	227,933



September 30, 2011	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	27,019		$	190,530		$	39,813		$	343,944
Reclassification from nonaccretable balance, net	24,025			—			—			—
Accretion	(13,972		)	13,972			(9,443		)	9,443
Transfers to REO	—			(54,638		)	—			—
Payments received, net	—			(33,803		)	—			(83,499		)
Balance at end of period	$	37,072		$	116,061		$	30,370		$	269,888

At June 30, 2012, none of the acquired impaired or non-impaired 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 resulted from decreased expectations of future cash flows due to increased credit losses for certain acquired loan pools.

The outstanding principal balance of acquired loans was $399,768,000 and $495,358,000 as of June 30, 2012 and September 30, 2011, respectively. The discount balance related to the acquired loans was $93,321,000 and $109,409,000 as of June 30, 2012 and September 30, 2011, respectively.

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

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



	June 30, 2012			September 30, 2011
	(In thousands)
Balance at beginning of period	$	101,634		$	131,128
Additions	5,742			10,470
Payments made (received)	(276		)	(32,828		)
Amortization	(11,023		)	(10,239		)
Accretion	1,303			3,103
Balance at end of period	$	97,380		$	101,634

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of June 30, 2012 and September 30, 2011:

Credit Risk Profile by Internally Assigned Grade:



June 30, 2012	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	34,874		$	—		$	3,868		$	—		$	—		$	38,742
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	4,623			2,669			6,031			—			—			13,323
Land - consumer lot loans	503			—			—			—			—			503
Multi-family	29,347			—			2,754			—			—			32,101
Commercial real estate	93,387			1,104			30,843			—			—			125,334
Commercial & industrial	6,953			917			6,707			—			—			14,577
HELOC	19,307			—			—			—			—			19,307
Consumer	973			—			—			—			—			973
	189,967			4,690			50,203			—			—			244,860
Total grade as a % of total net loans	77.6		%	1.9		%	20.5		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	9,807			5,865			39,582			—			—			55,254
Pool 2 - Single-family residential	379			—			3,959			—			—			4,338
Pool 3 - Multi-family	—			3,019			—			—			—			3,019
Pool 4 - HELOC & other consumer	1,171			—			3,469			—			—			4,640
Pool 5 - Commercial real estate	408			27,739			42,447			—			—			70,594
Pool 6 - Commercial & industrial	3,881			1,497			11,685			—			—			17,063
	$	15,646		$	38,120		$	101,142		$	—		$	—		154,908
													Total covered loans			399,768
													Discount			(93,321		)
													Allowance			(3,766		)
													Covered loans, net			$	302,681

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)



September 30, 2011	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	45,619		$	—		$	595		$	—		$	—		$	46,214
Construction - speculative	1,315			—			—			—			—			1,315
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	8,383			6,315			360			—			—			15,058
Land - consumer lot loans	543			—			111			—			—			654
Multi-family	32,448			—			2,458			—			—			34,906
Commercial real estate	118,124			1,361			28,979			—			—			148,464
Commercial & industrial	13,717			4,481			4,239			444			—			22,881
HELOC	21,730			—			—			—			—			21,730
Consumer	1,199			—			—			—			—			1,199
	243,078			12,157			36,742			444			—			292,421
Total grade as a % of total net loans	83.1		%	4.2		%	12.6		%	0.2		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	9,982			2,980			54,682			—			—			67,644
Pool 2 - Single-family residential	3,667			—			8,263			—			—			11,930
Pool 3 - Multi-family	—			—			3,324			—			—			3,324
Pool 4 - HELOC & other consumer	3,544			—			5,411			—			—			8,955
Pool 5 - Commercial real estate	418			30,579			48,069			—			—			79,066
Pool 6 - Commercial & industrial	2,859			2,725			25,662			772			—			32,018
	$	20,470		$	36,284		$	145,411		$	772		$	—		202,937
													Total covered loans			495,358
													Discount			(109,409		)
													Allowance			(3,766		)
													Covered loans, net			$	382,183

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

The following tables provide an analysis of the age of purchased non credit-impaired loans in past due status for the periods ended June 30, 2012 and September 30, 2011:



June 30, 2012	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	$	38,742	$	36,523	$	81	$	—	$	2,138	$	2,219	5.73	%
Construction - Speculative	—		—		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	13,323		12,847		476		—		—		476		3.57
Land - Consumer Lot Loans	503		405		—		—		98		98		19.48
Multi-Family	32,101		30,593		—		—		1,508		1,508		4.70
Commercial Real Estate	125,334		123,411		—		—		1,923		1,923		1.53
Commercial & Industrial	14,577		11,094		30		—		3,453		3,483		23.89
HELOC	19,307		18,814		18		244		231		493		2.55
Consumer	973		961		1		11		—		12		1.23
	$	244,860	$	234,648	$	606	$	255	$	9,351	$	10,212	4.17	%



September 30, 2011	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	$	46,214	$	43,445	$	1,034	$	30	$	1,705	$	2,769	5.99	%
Construction - Speculative	1,315		1,315		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	15,058		13,344		487		—		1,227		1,714		11.38
Land - Consumer Lot Loans	654		527		16		—		111		127		19.42
Multi-Family	34,906		33,398		—		—		1,508		1,508		4.32
Commercial Real Estate	148,464		142,060		1,527		—		4,877		6,404		4.31
Commercial & Industrial	22,881		18,049		3,606		703		523		4,832		21.12
HELOC	21,730		20,339		731		391		269		1,391		6.40
Consumer	1,199		1,123		31		8		37		76		6.34
	$	292,421	$	273,600	$	7,432	$	1,132	$	10,257	$	18,821	6.44	%

NM - not meaningful

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, 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 to be 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, including without limitation the Bank’s ability to comply in a timely and satisfactory manner with the requirements of the memorandum of understanding entered into with the Office of The Comptroller of the Currency. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

GENERAL

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

INTEREST RATE RISK

The Company accepts a higher level of interest rate volatility as a result of its significant holdings of fixed-rate single-family home loans that are longer in term than the characteristics of its primary liabilities of customer accounts and borrowings. As a result, assets do not respond as quickly to changes in interest rates as liabilities and net interest income typically declines when interest rates rise and expands when interest rates fall as compared to a portfolio of matched maturities of assets and liabilities.

At June 30, 2012, the Company had approximately $1.18 billion more liabilities subject to repricing in the next year than assets, which amounted to a negative one-year maturity gap of 8.8% of total assets. This was a decrease from the 16.5% negative gap as of September 30, 2011.

The potential impact of rising interest rates on net income for one year has also been estimated using a model that is based on account level of detail for loans and deposits. In the event of an immediate and parallel increase of 200 basis points in interest rates, we would expect net interest income to decrease by 1.35%. In the event of a gradual increase from current rates by 200 basis points over a twelve-month period, we would expect a decrease in net interest income of .5%.

This analysis assumes zero balance sheet growth and constant percentage composition of assets and liabilities. It also assumes that loan and deposit prices respond in full to the increase in market rates. 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.

The net portfolio value (“NPV”) is 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 is another measure of interest rate risk. This approach 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 $451 million and the NPV to total assets ratio to decline to 12.78%. As of September 30, 2011 the estimated decrease in NPV in the event of a 200 basis point increase in rates was estimated to decline by $619 million and the NPV to total assets ratio to decline to 11.04%.

The interest rate spread decreased to 2.88% at June 30, 2012 from 3.13% at September 30, 2011. The spread decreased due to a decline in the average rate on earning assets. As of June 30, 2012, the weighted average rate on earning assets decreased by 40 basis points compared to September 30, 2011, while the weighted average rates on customer deposit accounts and borrowings

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

decreased by 15 basis points over the same period.

As of June 30, 2012, the Company had increased total assets by $24,600,000 from $13,440,749,000 at September 30, 2011. For the quarter ended June 30, 2012, compared to September 30, 2011, loans (both non-covered and covered) decreased $399,174,000, or 4.8%. To help offset the reduced income from loans, investment securities increased $359,163,000, or 10.9%. Cash and cash equivalents of $963,766,000 and stockholders’ equity of $1,933,281,000 provides management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net worth at June 30, 2012 was $1,933,281,000, or 14.36% of total assets. This was an increase of $26,748,000 from September 30, 2011 when net worth was $1,906,533,000, or 14.18% of total assets. The Company’s net worth was impacted in the nine months ended June 30, 2012 by net income of $102,651,000, the payment of $25,580,000 in cash dividends, treasury stock purchases that totaled $30,307,000, as well as a decrease in other comprehensive income of $23,053,000.

Management believes this strong net worth position will help the Company manage its interest rate risk 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.



	Actual				Capital Adequacy Guidelines				Categorized as Well Capitalized Under Prompt Corrective Action Provisions
	Capital		Ratio		Capital		Ratio		Capital		Ratio
	(In thousands)
June 30, 2012
Total capital to risk-weighted assets	$	1,646,427	26.43	%	$	498,333	8.00	%	$	622,917	10.00	%
Tier I capital to risk-weighted assets	1,567,757		25.17	%	N/A		N/A		373,750		6.00	%
Core capital to adjusted tangible assets	1,567,757		11.87	%	N/A		N/A		660,630		5.00	%
Core capital to total assets	1,567,757		11.87	%	528,504		4.00	%	N/A		N/A
Tangible capital to tangible assets	1,567,757		11.87	%	528,504		4.00	%	N/A		N/A

September 30, 2011
Total capital to risk-weighted assets	1,624,817		24.68	%	526,765		8.00	%	658,456		10.00	%
Tier I capital to risk-weighted assets	1,543,438		23.44	%	N/A		N/A		395,074		6.00	%
Core capital to adjusted tangible assets	1,543,438		11.82	%	N/A		N/A		652,672		5.00	%
Core capital to total assets	1,543,438		11.82	%	391,603		3.00	%	N/A		N/A
Tangible capital to tangible assets	1,543,438		11.82	%	195,802		1.50	%	N/A		N/A

CHANGES IN FINANCIAL CONDITION

Available-for-sale and held-to-maturity securities: Available-for-sale securities increased $370,971,000, or 11.4%, during the nine months ended June 30, 2012, which included the purchase of $1,499,227,000 of available-for-sale securities. There were $3,500,000 of available-for-sale securities sold during the nine months ended June 30, 2012, resulting in no gain or loss. During the same period, there were no purchases or sales of held-to-maturity securities. As of June 30, 2012, the Company had net unrealized gains on available-for-sale securities of $62,736,000, net of tax, which were recorded as part of stockholders’ equity. The Company increased its available-for-sale investment portfolio to partially replace some of the lost interest income on maturing and prepaying loans and mortgage-backed securities.

Loans receivable: During the nine months ended June 30, 2012, the balance of loans receivable decreased 4.0% to $7,616,205,000 compared to $7,935,877,000 at September 30, 2011. This decrease is consistent with management’s strategy to reduce the Company’s exposure to land and construction loans and not aggressively compete for 30 year fixed-rate mortgages at current market rates. Additionally, during the year to date period, $124,482,000 of loans were transferred to REO. If the current low rates on 30 year fixed-rate mortgages persist, management will consider continuing to shrink the Company's loan portfolio. The following

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

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



Loan Portfolio by Category *	December 31, 2011				March 31, 2012				June 30, 2012
Non-Acquired loans	(In thousands)
Single-family residential	$	6,079,712	74.0	%	$	5,971,540	74.0	%	$	5,904,805	74.0	%
Construction - speculative	129,766		1.6		128,719		1.6		130,741		1.6
Construction - custom	271,227		3.3		235,566		3.3		210,488		2.6
Land - acquisition & development	171,678		2.1		151,967		2.1		135,392		1.7
Land - consumer lot loans	154,874		1.9		149,967		1.9		145,129		1.8
Multi-family	687,367		8.4		686,467		8.4		692,763		8.7
Commercial real estate	308,529		3.8		293,234		3.8		310,588		3.9
Commercial & industrial	85,463		1.0		94,919		1.0		148,577		1.9
HELOC	113,781		1.4		113,368		1.4		113,559		1.4
Consumer	63,106		0.8		71,081		0.8		68,202		0.9
Total non-acquired loans	8,065,503		98.3		7,896,828		98.3		7,860,244		98.5
Credit-impaired acquired loans
Single-family residential	2,778		—		2,093		—		343		—
Construction - speculative	354		—		139		—		1,889		—
Land - acquisition & development	4,287		0.1		4,490		0.1		4,211		0.1
Multi-family	1,782		—		1,229		—		1,074		—
Commercial real estate	106,345		1.3		101,254		1.3		91,006		1.1
Commercial & industrial	8,849		0.1		7,765		0.1		5,100		0.1
HELOC	18,308		0.2		17,215		0.2		15,037		0.2
Consumer	137		—		125		—		115		—
Total credit-impaired acquired loans	142,840		1.7		134,310		1.7		118,775		1.5
Total loans
Single-family residential	6,082,490		74.0		5,973,633		74.0		5,905,148		74.0
Construction - speculative	130,120		1.6		128,858		1.6		132,630		1.7
Construction - custom	271,227		3.3		235,566		3.3		210,488		2.6
Land - acquisition & development	175,965		2.2		156,457		2.2		139,603		1.7
Land - consumer lot loans	154,874		1.9		149,967		1.9		145,129		1.8
Multi-family	689,149		8.4		687,696		8.4		693,837		8.7
Commercial real estate	414,874		5.1		394,488		5.1		401,594		5.1
Commercial & industrial	94,312		1.1		102,684		1.1		153,677		1.9
HELOC	132,089		1.6		130,583		1.6		128,596		1.6
Consumer	63,243		0.8		71,206		0.8		68,317		0.9
Total loans	8,208,343		100	%	8,031,138		100	%	7,979,019		100	%
Less:
Allowance for probable losses	154,540				143,819				137,951
Loans in process	159,437				133,379				155,051
Discount on acquired loans	48,929				43,687				35,200
Deferred net origination fees	35,362				34,236				34,612
	398,268				355,121				362,814
	$	7,810,075			$	7,676,017			$	7,616,205

____________________

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

* Excludes covered loans

Covered loans: As of June 30, 2012, covered loans had decreased 20.8%, or $79,502,000, to $302,681,000, compared to September 30, 2011, due to continued paydowns and transfers of the properties into covered real estate owned.

Non-performing assets: Non-performing assets, which excludes discounted acquired assets, decreased during the quarter ended June 30, 2012 to $278,490,000 from $370,294,000 at September 30, 2011, a 24.8% decrease. The continued elevated level of NPAs is a result of the significant decline in housing values in the western United States and the national recession over the last three years. Non-performing assets as a percentage of total assets was 2.07% at June 30, 2012 compared to 2.76% at September 30, 2011. This level of NPAs remains significantly higher than the 0.91% average in the Company’s 28+ year history as a public company. The Company anticipates NPAs will continue to be elevated in the future until the residential real estate market stabilizes and values recover.

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

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



	June 30, 2012					September 30, 2011
	(In thousands)
Restructured loans:
Single-family residential	$	360,150		83.2	%	$	309,372		82.0	%
Construction - speculative	15,875			3.7		15,481			4.1
Construction - custom	1,196			0.3		—			—
Land - acquisition & development	17,075			3.9		18,033			4.8
Land - consumer lot loans	14,107			3.3		13,124			3.5
Multi - family	17,007			3.9		19,046			5.0
Commercial real estate	7,049			1.6		1,435			0.4
Commercial & industrial	2			—		828			0.2
HELOC	290			0.1		177			—
Consumer	—			—		—			—
Total restructured loans (1)	432,751			100	%	377,496			100	%
Non-accrual loans:
Single-family residential	129,295			75.6	%	126,624			60.3	%
Construction - speculative	12,424			7.3		15,383			7.3
Construction - custom	539			0.3		635			0.3
Land - acquisition & development	12,514			7.3		37,339			17.7
Land - consumer lot loans	5,844			3.4		8,843			4.2
Multi-family	3,405			2.0		7,664			3.6
Commercial real estate	6,285			3.7		11,380			5.4
Commercial & industrial	—			—		1,679			0.8
HELOC	388			0.2		481			0.2
Consumer	339			0.2		437			0.2
Total non-accrual loans (2)	171,033			100	%	210,465			100	%
Total REO (3)	88,231					129,175
Total REHI (3)	19,226					30,654
Total non-performing assets	$	278,490				$	370,294
Total non-performing assets and performing restructured loans as a percentage of total assets	5.03		%			5.14		%
(1) Restructured loans were as follows:
Performing	$	399,299		92.3	%	$	320,018		84.8	%
Non-accrual *	33,452			7.7		57,478			15.2
	$	432,751		100	%	$	377,496		100	%


*	Included in "Total non-accrual loans" above


(2)	The Company recognized interest income on nonaccrual loans of approximately $2,224,000 in the nine months ended June 30, 2012. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $7,891,000 for the nine months ended June 30, 2012.

In addition to the nonaccrual loans reflected in the above table, at June 30, 2012, the Company had $156,281,000 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 6.19% at June 30, 2012.


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

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

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 83.2% of restructured loans as of June 30, 2012. 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 our 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, 2012						September 30, 2011
	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	$	81,344	75.1	%	1.4	%	$	83,307	74.9	%	1.3	%
Construction - speculative	12,853		1.7		9.8		13,828		1.7		9.8
Construction - custom	344		2.7		0.2		623		3.4		0.2
Land - acquisition & development	17,394		1.7		12.8		32,719		2.4		16.3
Land - consumer lot loans	7,337		1.8		5.1		5,520		2.0		40.0
Multi-family	4,838		8.8		0.7		7,623		8.4		1.1
Commercial real estate	3,148		4.0		1.0		4,331		3.7		1.4
Commercial & industrial	6,963		1.9		4.7		5,099		1.3		4.7
HELOC	972		1.4		0.9		1,139		1.4		1.0
Consumer	2,758		0.9		4.0		2,971		0.8		4.4
	$	137,951	100	%			$	157,160	100	%

__________________


(1)	Represents the total amount of the loan category as a % of total gross non-acquired and non-covered loans outstanding.


(2)	Represents the allocated allowance of the loan category as a % of total gross non-acquired and non-covered loans outstanding for the same loan category.

Customer accounts: Customer accounts increased $17,278,000, or 0.20%, to $8,683,181,000 at June 30, 2012 compared with $8,665,903,000 at September 30, 2011. The following table shows the composition of the Company’s customer accounts as of the dates shown:

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

Deposits by Type



	June 30, 2012						September 30, 2011
	(In thousands)
					Wtd. Avg. Rate						Wtd. Avg. Rate
Non-interest checking	$	272,819	3.1	%	—	%	$	235,146	2.7	%	—	%
Interest checking	595,208		6.9		0.14	%	543,907		6.3		0.13	%
Savings (passbook/stmt)	300,182		3.5		0.20	%	255,396		2.9		0.20	%
Money Market	1,700,233		19.5		0.26	%	1,627,739		18.8		0.26	%
CD’s	5,814,739		67.0		1.32	%	6,003,715		69.3		1.55	%
Total	$	8,683,181	100	%	0.95	%	$	8,665,903	100	%	1.14	%

FHLB advances and other borrowings: Total borrowings decreased slightly to $2,757,146,000 at June 30, 2012, compared with $2,762,066,000 at September 30, 2011. The Company 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 Company, deposits with the FHLB and certain mortgages or deeds of trust securing such properties as provided in the agreements with the FHLB.

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

RESULTS OF OPERATIONS

Net Income: The quarter ended June 30, 2012, produced net income of $35,163,000 compared to $30,121,000 for the same quarter one year ago. For the nine months ended June 30, 2012, net income totaled $102,651,000 compared to $80,475,000 for the nine months ended June 30, 2011. The net income for the quarter and nine months ended June 30, 2012 benefited from overall lower credit costs, which included the provision for loan losses, and gains/losses on sales of REO. The provision for loan losses amounted to $10,367,000 and $39,576,000 for the quarter and nine months ended June 30, 2012, as compared to $21,000,000 and $77,750,000 for the three and nine month period one year ago. See related discussion in “Provision for Loan Losses” section below for reasons for the decrease in the provision for loan losses. In addition, gains/losses recognized on real estate acquired through foreclosure was a net gain of $1,146,000 for the three months ended June 30, 2012 and a net loss of $11,005,000 for the nine months ended June 30, 2012 as compared to net losses of $8,171,000 and $28,369,000 for the three and nine month periods one year ago.

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

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

Rate / Volume Analysis:



	Comparison of Quarters Ended 6/30/12 and 6/30/11									Comparison of Nine Months Ended 6/30/12 and 6/30/11
	Volume			Rate			Total			Volume			Rate			Total
	(In thousands)
Interest income:
Loans and covered loans	$	(8,563	)	$	(1,058	)	$	(9,621	)	$	(26,116	)	$	1,196		$	(24,920	)
Mortgaged-backed securities	5,015			(10,443		)	(5,428		)	22,801			(23,108		)	(307		)
Investments (1)	822			(1,920		)	(1,098		)	(214		)	(4,328		)	(4,542		)
All interest-earning assets	(2,726		)	(13,421		)	(16,147		)	(3,529		)	(26,240		)	(29,769		)
Interest expense:
Customer accounts	13			(6,691		)	(6,678		)	(554		)	(22,343		)	(22,897		)
FHLB advances and other borrowings	960			(832		)	128			3,066			(2,368		)	698
All interest-bearing liabilities	973			(7,523		)	(6,550		)	2,512			(24,711		)	(22,199		)
Change in net interest income	$	(3,699	)	$	(5,898	)	$	(9,597	)	$	(6,041	)	$	(1,529	)	$	(7,570	)

___________________


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

Provision for Loan Losses: The Company recorded a $10,367,000 provision for loan losses during the quarter ended June 30, 2012, while a $21,000,000 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $278,490,000, or 2.07% , of total assets at June 30, 2012, compared to $394,679,000, or 2.96%, of total assets one year ago. Non-accrual loans decreased from $232,752,000 at June 30, 2011, to $171,033,000 at June 30, 2012, a 26.5% decrease. The Company had net charge-offs of $16,235,000 for the quarter ended June 30, 2012, compared with $23,519,000 of net charge-offs for the same quarter one year ago. The decrease in the provision for loan losses is in response to four primary factors: first, the amount of NPA's improved; second, non-accrual loans as a percentage of net loans decreased from 2.9% at June 30, 2011, to 2.25% at June 30, 2012; third, the percentage of loans 30 days or more delinquent decreased from from 3.66% at June 30, 2011, to 2.69% at June 30, 2012; and finally, the Company's exposure in the land A&D and speculative construction portfolios, the source of the majority of losses during this period of the cycle, has decreased from a combined 4.5% of the gross loan portfolio at June 30, 2011, to 3.4% at June 30, 2012. Management believes the allowance for loan losses, totaling $137,951,000, is sufficient to absorb

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

estimated losses inherent in the portfolio.

See Note F for further discussion and analysis of the allowance for loan losses for the quarter ended June 30, 2012.

Other Income: The quarter ended June 30, 2012 produced total other income of $3,590,000 compared to $4,277,000 for the same quarter one year ago, a decrease of $687,000.

Other Expense: The quarter ended June 30, 2012, produced total other expense of $35,963,000 compared to $34,174,000 for the same quarter one year ago, a 5.2% increase. The increase in total other expense over the same comparable period one year ago was primarily due to the increase of $810,000 in compensation and benefits, which, for the quarter ended June 30, 2012 included the addition of the employees from the Charter Bank acquisition October 2011 and the Western National Bank transaction with the FDIC in December 2011. Also impacted by these acquisitions were the increases in occupancy expense and other expense of $324,000 and $1,755,000 respectively, for the quarter ended June 30, 2012 as compared to the prior year. Total other expense for the quarters ended June 30, 2012 and 2011 equaled 1.06% and 1.02%, respectively, of average assets. The number of staff, including part-time employees on a full-time equivalent basis, was 1,237 and 1,215 at June 30, 2012 and 2011, respectively.

Taxes: Income taxes increased to $19,778,000 for the quarter ended June 30, 2012, as compared to $16,943,000 for the same period one year ago. The effective tax rate for the quarters ended June 30, 2012 and 2011, was 36.00%. The Company expects an effective tax rate of 36.00% 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, 2011. 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 2011 Form 10-K.

(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 Securities Exchange Act of 1934, as amended (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 President and Chief Executive Officer along with the Company’s Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Company’s President and Chief Executive Officer, along with the Company’s Executive Vice President and 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 President and Chief Executive Officer along with the Company’s Executive Vice President and 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 contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

Financial reform legislation has, among other things, eliminated the Office of Thrift Supervision (“OTS”), tightened capital standards, created a new Consumer Financial Protection Bureau and resulted in new laws and regulations that may increase our costs of operations.

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). This new law significantly changed the current bank regulatory structure and affected the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. It requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Act may not be known for many months or years.

One change that was particularly significant to the Company and the Bank was the abolition of the OTS, the Bank’s historical federal financial institution regulator. After the OTS was abolished, supervision and regulation of the Company moved to the Board of Governors of the Federal Reserve System (“Federal Reserve”) and supervision and regulation of the Bank moved to the Office of the Comptroller of the Currency (“OCC”). Except as described below, however, the laws and regulations applicable to the Company and the Bank will not generally change – the Home Owners Loan Act and the regulations issued under the Act will generally still apply (although these laws and regulations will be interpreted by the Federal Reserve and the OCC, respectively).

In addition, the Company for the first time is subject to consolidated capital requirements and is required to serve as a source of strength to the Bank. The Bank is subject to the same lending limits as national banks. At this time, we do not anticipate that being subject to any of these provisions will have a material effect on the Company or the Bank.

The Act also broadened the base for Federal Deposit Insurance Corporation insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. This could result in an increase in deposit insurance assessments to be paid by the Bank. The Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts will have unlimited deposit insurance from March 31, 2011 through December 31, 2012. The Federal Reserve also adopted a rule addressing interchange fees applicable to debit card transactions that lowers fee income generated from this source. At this time, we do not anticipate that being subject to any of these provisions will have a material effect on the Company or the Bank.

The Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates for election as directors using a company’s proxy materials. The legislation also directs the federal financial institution regulatory agencies to promulgate rules prohibiting excessive compensation being paid to financial institution executives.

The Act created a new Consumer Financial Protection Bureau to take over responsibility for the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others, with broad rule-making, supervisory and examination authority in this area over institutions that have assets of $10 billion or more, such as the Bank. The Act also narrowed the scope of federal preemption of state laws related to federally chartered institutions.

Many of the provisions of the Act did not become effective until a year or more after its enactment and some provisions require the adoption and implementation of new or revised regulations. In addition, the scope and impact of many of the Act’s provisions

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART II – Other Information

will be determined through the rulemaking process. As a result, we cannot predict the ultimate impact of the Act on the Company or the Bank at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. Nor can we predict the impact or substance of other future legislation or regulation. However, it is expected that at a minimum they will increase our operating and compliance costs.

The Bank has entered into a memorandum of understanding with the OTS that will entail compliance costs. Failure to comply with the memorandum could result in formal enforcement action or regulatory constraints on the Bank.

As previously disclosed, the Bank entered into a memorandum of understanding (“MOU”) with the OTS on July 28, 2010. The MOU and our compliance with it is being monitored by the OCC since the OTS was abolished in July 2011. The MOU does not affect dividend policy or require additional capital, but a finding by the OCC that the Bank failed to comply with the MOU could result in additional regulatory scrutiny, constraints on the Bank's business, or formal enforcement action. Any of those events could have a material adverse effect on the Bank's future operations, financial condition, growth or other aspects of our business.

The MOU will remain in effect until the OCC, as the successor to the OTS, decides to modify, suspend or terminate it.

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, 2012.



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, 2012 to April 30, 2012	—	$	—	—	6,908,314
May 1, 2012 to May 31, 2012	—	—		—	6,908,314
June 1, 2012 to June 30, 2012	—	—		—	6,908,314
Total	—	$	—	—	6,908,314

___________________


(1)	The Company's only stock repurchase program was publicly announced by the Board of Directors on February 3, 1995 and has no expiration date. Under this ongoing program, a total of 31,956,264 shares have been authorized for repurchase.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 5. Other Information

In June 2011, the FASB issued guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. We adopted this standard as of October 1, 2011 and present net income and other comprehensive income in two separate, but consecutive, statements. The table below reflects the retrospective application of this guidance for each of the three years ended September 30. The retrospective application did not have a material impact on our financial condition or results of operations.

Table of Contents



	Fiscal Years Ended September 30,
	2011		2010			2009
	(In thousands)

Net income	$	111,141	$	118,653		$	48,172
Other comprehensive income (loss) net of tax:
Net unrealized gains (losses) on available-for-sales securities,
net of taxes of $16,981 for 2011	30,852		(19,203		)	51,273
Reclassification adjustment of net gains from sale
of available-for-sale securities included in net income,
net of taxes of $2,892 for 2011	5,255		14,454			686
Other comprehensive income (loss)	36,107		(4,749		)	51,959
Comprehensive income	$	147,248	$	113,904		$	100,131

Item 6. Exhibits



(a)	Exhibits

	31.1	Section 302 Certification by the Chief Executive Officer

	31.2	Section 302 Certification by the Chief Financial Officer

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

	101	Financial Statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter and nine months ended June 30, 2012 formatted in XBRL

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

SIGNATURES

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



August 7, 2012	/S/ ROY M. WHITEHEAD
	ROY M. WHITEHEAD Chairman, President and Chief Executive Officer

August 7, 2012	/S/ BRENT J. BEARDALL
	BRENT J. BEARDALL Executive Vice President and Chief Financial Officer