- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2010

¨	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 ¨

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 ¨

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.

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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


Title of class:		at February 4, 2011
Common stock, $1.00 par value		112,381,348

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES


PART I

Item 1.	Financial Statements (Unaudited)

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

	Consolidated Statements of Financial Condition as of December 31, 2010 and September 30, 2010	Page 3

	Consolidated Statements of Operations for the quarters ended December 31, 2010 and 2009	Page 4

	Consolidated Statements of Cash Flows for the quarters ended December 31, 2010 and 2009	Page 5

	Notes to Consolidated Financial Statements	Page 6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 20

Item 4.	Controls and Procedures	Page 21

PART II

Item 1.	Legal Proceedings	Page 22

Item 1A.	Risk Factors	Page 22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 24

Item 3.	Defaults Upon Senior Securities	Page 24

Item 5.	Other Information	Page 24

Item 6.	Exhibits	Page 24

	Signatures	Page 25

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	December 31, 2010			September 30, 2010
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	842,888		$	888,622
Available-for-sale securities, including encumbered securities of $936,211 and $933,315, at fair value		2,812,115			2,481,093
Held-to-maturity securities, including encumbered securities of $55,426 and $60,970, at amortized cost		68,746			80,107
Loans receivable, net		8,142,948			8,423,703
Covered loans, net		492,947			534,474
Interest receivable		51,770			49,020
Premises and equipment, net		165,442			162,721
Real estate held for sale		186,265			188,998
Covered real estate held for sale		57,936			44,155
FDIC indemnification asset		116,160			131,128
FHLB stock		151,750			151,748
Intangible assets, net		257,339			257,718
Federal and state income taxes, net		3,893			8,093
Other assets		77,193			84,799

	$	13,427,392		$	13,486,379

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Customer accounts
Savings and demand accounts	$	8,805,802		$	8,825,918
Repurchase agreements with customers		39,830			26,622

		8,845,632			8,852,540
FHLB advances		1,864,078			1,865,548
Other borrowings		800,000			800,000
Advance payments by borrowers for taxes and insurance		15,429			39,504
Accrued expenses and other liabilities		63,653			87,640

		11,588,792			11,645,232
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000 shares authorized; 129,655,042 and 129,555,956 shares issued; 112,282,718 and 112,483,632 shares outstanding		129,655			129,556
Paid-in capital		1,579,220			1,578,527
Accumulated other comprehensive income, net of taxes		33,165			49,682
Treasury stock, at cost; 17,372,324 and 17,072,324 shares		(213,546	)		(208,985	)
Retained earnings		310,106			292,367

		1,838,600			1,841,147

	$	13,427,392		$	13,486,379

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarter Ended December 31,
	2010			2009
	(In thousands, except per share data)
INTEREST INCOME
Loans & covered loans	$	137,916		$	137,451
Mortgage-backed securities		23,694			27,281
Investment securities and cash equivalents		3,980			938

		165,590			165,670

INTEREST EXPENSE
Customer accounts		32,734			36,485
FHLB advances and other borrowings		28,122			31,420

		60,856			67,905


Net interest income		104,734			97,765
Provision for loan losses		26,000			69,750

Net interest income after provision for loan losses		78,734			28,015
OTHER INCOME
Gain on sale of investments		—			20,428
Other		4,426			3,810

		4,426			24,238
OTHER EXPENSE
Compensation and benefits		17,723			13,637
Occupancy		3,515			3,249
FDIC insurance premiums		5,099			3,564
Other		7,942			6,527

		34,279			26,977
Loss on real estate acquired through foreclosure, net		(10,553	)		(12,720	)

Income before income taxes		38,328			12,556
Income tax provision		13,798			4,645

NET INCOME	$	24,530		$	7,911


PER SHARE DATA
Basic earnings	$	.22		$	.08
Diluted earnings		.22			.07
Cash dividends per share		.06			.05
Basic weighted average number of shares outstanding		112,449,175			112,353,941
Diluted weighted average number of shares outstanding, including dilutive stock options		112,502,134			112,583,127

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Quarter Ended
	December 31, 2010			December 31, 2009
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	24,530		$	7,911
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (accretion) of fees, discounts, premiums and intangible assets, net		6,856			3,099
Decrease in FDIC indemnification asset		14,220			0
Depreciation		1,650			1,350
Stock option compensation expense		300			300
Provision for loan losses		26,000			69,750
Loss (gain) on investment securities and real estate held for sale, net		10,553			(7,708	)
Decrease (increase) in accrued interest receivable		(2,750	)		3,829
Increase in income taxes payable/receivable		13,796			4,632
FHLB stock dividends		(2	)		0
Decrease (increase) in other assets		7,606			(52,600	)
Decrease in accrued expenses and other liabilities		(23,987	)		(4,203	)

Net cash provided by operating activities		78,772			26,360
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations, net of principal collections		251,061			(8,301	)
Available-for-sale securities purchased		(572,539	)		(237,080	)
Principal payments and maturities of available-for-sale securities		209,768			195,273
Available-for-sale securities sold		0			315,836
Principal payments and maturities of held-to-maturity securities		11,555			5,285
Proceeds from sales of real estate held for sale		23,708			47,002
Premises and equipment purchased		(4,371	)		(2,270	)

Net cash provided (used) by investing activities		(80,818	)		315,745
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts		(6,908	)		128,944
Net decrease in borrowings		(1,470	)		(5,023	)
Proceeds from exercise of common stock options		117			1,310
Dividends paid		(6,791	)		(5,590	)
Treasury stock purchased		(4,561	)		0
Decrease in advance payments by borrowers for taxes and insurance		(24,075	)		(23,301	)

Net cash provided (used) by financing activities		(43,688	)		96,340
Increase (decrease) in cash and cash equivalents		(45,734	)		438,445
Cash and cash equivalents at beginning of period		888,622			498,388

Cash and cash equivalents at end of period	$	842,888		$	936,833

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Non-covered real estate acquired through foreclosure	$	31,528		$	66,367
Covered real estate acquired through foreclosure		18,446			0
Cash paid during the period for
Interest		63,074			68,872
Income taxes		2			14,150

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(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, 2010 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 2010 Annual Report on Form 10-K (“2010 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 fails to make a required payment on a loan, the Company attempts to cure the deficiency by contacting the borrower. Contact is made after a payment is 30 days past its grace period. In most cases, deficiencies are cured promptly. If the delinquency is not cured within 90 days, the Company may institute appropriate action to foreclose on the property. If foreclosed, the property will be sold at a public sale and may be purchased by the Company.

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.

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

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

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.

The Company’s general reserve methodology relating to troubled debt restructurings (“TDR”) was enhanced during the quarter ended December 31, 2010 to rely more heavily on actual losses experienced as an indicator of estimated future cash flows. The impact was to increase the reserves allocated to single-family residential TDRs by $5,930,000 at December 31, 2010, as compared to September 30, 2010.

Specific allowances are established for loans which are individually evaluated, in cases where Management has identified significant conditions or circumstances related to a loan that Management believes indicate the probability that a loss has been incurred.

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 defined 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,

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

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.

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 December 31, 2010, excluding covered loans, of $129,472,000. The Company estimates losses on LIP by including LIP 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 – Dividends

On January 14, 2011 the Company paid its 112 ^th consecutive quarterly cash dividend on common stock. Dividends per share were $.06 and $.05 for the quarters ended December 31, 2010 and 2009.

NOTE C – Comprehensive Income

The Company’s comprehensive income includes all items which comprise net income plus the unrealized gains (losses) on available-for-sale securities. Total comprehensive income (loss) for the quarters ended December 31, 2010 and 2009 totaled $8,013,000 and $(8,134,000), respectively. The difference between the Company’s net income and total comprehensive income for the quarter ended December 31, 2010 was $16,517,000, which equals the change in the net unrealized gain on available-for-sale securities of $26,113,000, less tax of $9,596,000.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

NOTE D – Loans Receivable (excluding Covered Loans)

		000000000000	000000000000			000000000000	000000000000
	December 31, 2010				September 30, 2010
	(In thousands)
Single-family residential	$	6,333,040	74.9	%	$	6,551,836	74.7	%
Construction - speculative		146,933	1.7			169,712	1.9
Construction - custom		239,337	2.8			256,384	2.9
Land - acquisition & development		275,396	3.3			307,230	3.5
Land - consumer lot loans		181,205	2.1			186,840	2.1
Multi-family		696,601	8.2			697,351	7.9
Commercial real estate		315,332	3.7			315,915	3.6
Commercial & industrial		78,082	0.9			83,070	1.0
HELOC		115,660	1.4			116,143	1.3
Consumer		85,987	1.0			92,624	1.1

		8,467,573	100	%		8,777,106	100	%

Less:
Allowance for probable losses		159,288				163,094
Loans in process		129,472				154,171
Deferred net origination fees		35,865				36,138

		324,625				353,403

	$	8,142,948			$	8,423,703

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

		000000000000	000000000000			000000000000	000000000000
	December 31, 2010				September 30, 2010
	(In thousands)
Non-accrual loans:
Single-family residential	$	132,694	51.7	%	$	115,155	46.9	%
Construction - speculative		33,625	13.1			39,915	16.3
Construction - custom		—	0.0			—	0.0
Land - acquisition & development		53,698	20.9			64,883	26.4
Land - consumer lot loans		8,174	3.2			7,540	3.1
Multi-family		14,069	5.5			4,931	2.0
Commercial real estate		11,721	4.6			10,831	4.4
Commercial & industrial		568	0.2			371	0.2
HELOC		1,170	0.5			929	0.4
Consumer		715	0.3			977	0.4

Total non-accrual loans	$	256,434	100	%	$	245,532	100	%

The following table provides an analysis of the age of loans in past due status for the period ended December 31, 2010.

		00000000		00000000		00000000		00000000		00000000		00000000		00000000
	Amount of Loans		Based on $ Amount of Loans										% based on $
Type of Loans	Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
	(In thousands)
Single-Family Residential	$	6,331,998	$	6,120,874	$	52,180	$	29,116	$	129,829	$	211,124		3.33	%
Construction - Speculative		123,192		103,855		1,556		1,440		16,341		19,337		15.70	%
Construction - Custom		146,470		145,992		478		—		—		478		0.33	%
Land - Acquisition & Development		264,747		244,280		1,886		2,004		16,577		20,467		7.73	%
Land - Consumer Lot Loans		181,205		170,256		1,395		1,380		8,174		10,949		6.04	%
Multi-Family		696,551		685,872		2,133		1,036		7,511		10,680		1.53	%
Commercial Real Estate		314,209		309,395		2,826		—		1,988		4,814		1.53	%
Commercial & Industrial		78,081		77,543		433		—		106		539		0.69	%
HELOC		115,660		112,866		1,208		416		1,170		2,794		2.42	%
Consumer		85,988		82,497		1,881		895		715		3,491		4.06	%

	$	8,338,101	$	8,053,430	$	65,976	$	36,287	$	182,411	$	284,673		3.41	%

NOTE E – Allowance for Losses on Loans

The following table summarizes the activity in the allowance for loan losses for the period ended December 31, 2010:


	Beginning Allowance		Charge-offs			Recoveries		Provision & Transfers			Ending Allowance
	(In thousands)
Single-family residential	$	47,160	$	(6,647	)	$	508	$	13,776		$	54,797
Construction - speculative		26,346		(5,768	)		330		1,857			22,765
Construction - custom		770		—			—		(411	)		359
Land - acquisition & development		61,637		(16,758	)		618		7,872			53,369
Land - consumer lot loans		4,793		(1,001	)		—		1,389			5,181
Multi-family		5,050		(675	)		—		1,921			6,296
Commercial real estate		3,165		(704	)		275		408			3,144
Commercial & industrial		6,193		(114	)		1,139		(560	)		6,658
HELOC		586		—			75		496			1,157
Consumer		7,394		(1,454	)		370		(748	)		5,562

	$	163,094	$	(33,121	)	$	3,315	$	26,000		$	159,288

The Company recorded a $26,000,000 provision for loan losses during the quarter ended December 31, 2010, while a $69,750,000 provision was recorded for the same quarter one year ago. Non-performing assets (“NPAs”) amounted to $442,699,000, or 3.30%, of total assets at December 31, 2010, compared to $553,285,000, or 4.37%, of total assets one year ago. Covered loans are not classified as non-performing loans because, at acquisition, the carrying value of these loans was adjusted to reflect fair value and are covered under FDIC loss sharing agreements. There was no allowance for loan losses related to the covered loans at December 31, 2010, as these loans are performing as anticipated in the projections used in the purchase accounting fair value calculations. The Company had net charge-offs of $29,806,000 for the quarter ended December 31, 2010, compared with $46,037,000 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 decrease in the provision for loan losses is in response to four primary factors: first, the improvement in the amount of NPAs year-over-year described at the beginning of this paragraph; second, non-accrual loans decreased from $369,777,000 at December 31, 2009, to $256,434,000 at December 31, 2010, a 30.7% decrease; third, the percentage of loans 30 days or more delinquent decreased from 4.74% at December 31, 2009, to 3.41% at December 31, 2010; and finally, the Company’s exposure in the land acquisition and development (“A&D”) and speculative construction portfolios, where the majority of losses have come from during this period of the cycle, has decreased from a combined 7.5% of the gross loan portfolio at December 31, 2009, to 5.0% at December 31, 2010. Management expects the provision to remain at elevated levels until NPAs and charge-offs improve measurably. $101,347,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $57,941,000 was made up of specific reserves on loans that were deemed to be impaired at December 31, 2010. For the period ending December 31, 2009, $75,152,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $115,397,000 was made up of specific reserves on loans that were deemed to be impaired. The

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

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 an increase in delinquencies and elevated charge-offs in the single-family residential portfolio. While overall delinquencies have decreased as discussed above, delinquencies in the single-family residential portfolio, the largest portion of the loan portfolio, increased from 3.20% at December 31, 2009 to 3.33% at December 31, 2010.

The following table shows a summary of loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves as of December 31, 2010:

		00000000		00000000		00000000			00000000		00000000		00000000
	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	$	49,090	$	6,309,599		0.8	%	$	5,707	$	23,441		24.3	%
Construction - speculative		14,993		94,403		15.9			7,772		52,530		14.8
Construction - custom		359		239,337		0.1			—		—		—
Land - acquisition & development		15,077		34,295		44.0			38,292		241,101		15.9
Land - consumer lot loans		3,572		178,153		2.0			1,609		3,052		52.7
Multi-family		3,446		678,344		0.5			2,850		18,257		15.6
Commercial real estate		1,623		297,998		0.5			1,521		17,334		8.8
Commercial & industrial		6,468		59,512		10.9			190		18,570		1.0
HELOC		1,157		115,660		1.0			—		—		—
Consumer		5,562		85,987		6.5			—		—		—

	$	101,347	$	8,093,288		1.3		$	57,941	$	374,285		15.5

(1)	Excludes covered loans

The following tables provide information on loans based on credit quality indicators (defined in Note A) as of December 31, 2010:

Credit Risk Profile by Internally Assigned Grade:

		00000000000			00000000000			00000000000			00000000000			00000000000			00000000000
	Internally Assigned Grade															Total
	Pass			Special mention			Substandard			Doubtful			Loss			Gross Loans
	(In thousands)
Single-family residential	$	6,200,346		$	—		$	132,694		$	—		$	—		$	6,333,040
Construction - speculative		33,147			5,561			108,225			—			—			146,933
Construction - custom		239,337			—			—			—			—			239,337
Land - acquisition & development		63,826			8,965			202,605			—			—			275,396
Land - consumer lot loans		173,031			—			8,174			—			—			181,205
Multi-family		655,735			1,756			39,110			—			—			696,601
Commercial real estate		271,308			2,425			41,501			—			98			315,332
Commercial & industrial		67,168			1,486			9,207			—			221			78,082
HELOC		114,490			—			1,170			—			—			115,660
Consumer		83,786			1,247			954			—			—			85,987

	$	7,902,174		$	21,440		$	543,640		$	—		$	319		$	8,467,573


Total grade as a % of total gross loans		93.3	%		0.3	%		6.4	%		0.0	%		0.0	%

Credit Risk Profile Based on Payment Activity:

		0000000000		0000000000			0000000000		0000000000
	Performing Loans					Non-performing Loans
	Amount		% of Total Gross Loans			Amount		% of Total Gross Loans
	(In thousands)
Single-family residential	$	6,200,346		97.9	%	$	132,694		2.1	%
Construction - speculative		113,308		77.1			33,625		22.9
Construction - custom		239,337		100.0			—		0.0
Land - acquisition & development		221,698		80.5			53,698		19.5
Land - consumer lot loans		173,031		95.5			8,174		4.5
Multi-family		682,532		98.0			14,069		2.0
Commercial real estate		303,611		96.3			11,721		3.7
Commercial & industrial		77,514		99.3			568		0.7
HELOC		114,490		99.0			1,170		1.0
Consumer		85,272		99.2			715		0.8

	$	8,211,139		97.0		$	256,434		3.0

The following table provides information on impaired loans based on loan types as of December 31, 2010:

With no related allowance recorded:

		0000000000		0000000000		0000000000			0000000000
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment
	(In thousands)
Single-family residential	$	—	$	—	$	—		$	—
Construction - speculative		26,364		32,421		—			25,722
Construction - custom		—		—		—			—
Land - acquisition & development		37,435		60,539		—			37,685
Land - consumer lot loans		—		—		—			—
Multi-family		9,013		9,183		—			5,627
Commercial real estate		16,888		16,888		—			8,444
Commercial & industrial		3,822		3,861		—			1,911
HELOC		—		—		—			—
Consumer		—		—		—			—

		93,522		122,892		—			79,389

With an allowance recorded:

Single-family residential		222,088		222,088		12,009			218,831
Construction - speculative		51,793		52,661		7,772			50,691
Construction - custom		—		—		—			—
Land - acquisition & development		110,481		110,481		38,292			100,163
Land - consumer lot loans		—		—		1,609			—
Multi-family		17,098		17,098		2,850			11,348
Commercial real estate		4,819		4,819		1,521			2,409
Commercial & industrial		241		316		190			120
HELOC		—		—		—			—
Consumer		—		—		—			—

		406,520		407,463		64,243	(1)		383,562

Total:

Single-family residential		222,088		222,088		12,009			218,831
Construction - speculative		78,157		85,082		7,772			76,413
Construction - custom		—		—		—			—
Land - acquisition & development		147,916		171,020		38,292			137,848
Land - consumer lot loans		—		—		1,609			—
Multi-family		26,111		26,281		2,850			16,975
Commercial real estate		21,707		21,707		1,521			10,853
Commercial & industrial		4,063		4,177		190			2,031
HELOC		—		—		—			—
Consumer		—		—		—			—

	$	500,042	$	530,355	$	64,243	(1)	$	462,951

(1)	Includes $57,941,000 of specific reserves and $6,302,000 included in the general reserves.

NOTE F – New Accounting Pronouncements

In January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-01, Receivables (Topic 310) – Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010- 20. This ASU temporarily delays the effective date of the disclosures about troubled debt restructurings (“TDR”) in Update 2010-20 for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a TDR. The effective date of the new disclosures about TDRs for public entities and the guidance for determining what constitutes a TDR will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. Except for the disclosures delayed by ASU 2011-01, the disclosures required by ASU 2010-20 related to significant accounting policies are in Note A; the disclosures related to loans, past due and nonaccrual balances are in Notes D and H and disclosures related to the allowance for losses on loans are in Note E.

In December 2010, the FASB issued ASU 2010-28, Intangibles – Goodwill and Other (Topic 350) – When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

Amounts . The amendments in this ASU affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. As the Company has only one reporting unit with a carrying amount greater than zero, this ASU has no impact on the financial statements.

In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations . The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance will be effective for any business combinations entered into by the Company for which the acquisition date is after October 1, 2011.

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.

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

Measured on a Recurring Basis

Securities

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

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

The following table presents the balance of assets measured at fair value on a recurring basis at December 31, 2010:


	Fair Value at December 31, 2010
	Level 1		Level 2		Level 3		Total
	(In thousands)
Available-for-sale securities
Equity securities	$	0	$	512	$	0	$	512
Obligations of U.S. government		0		409,324		0		409,324
Obligations of states and political subdivisions		0		20,958		0		20,958
Obligations of foreign governments		0		0		0		0
Corporate debt securities		0		9,900		0		9,900
Mortgage-backed securities
Agency pass-through certificates		0		2,371,421		0		2,371,421
Other debt securities		0		0		0		0

Balance at end of period	$	0	$	2,812,115	$	0	$	2,812,115

There were no transfers between, into and/or out of Levels 1, 2 or 3 during the quarter ended December 31, 2010.

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.

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 December 31, 2010, and the total losses resulting from those fair value adjustments for the same quarter end period. The following estimated fair values are shown gross of estimated selling costs:


									Quarter Ended December 31, 2010
	Through December 31, 2010								Quarter Ended December 31, 2010
	Level 1		Level 2		Level 3		Total		Total Losses
	(In thousands)
Impaired loans (1)	$	0	$	0	$	104,271	$	104,271	$	16,579
Real estate held for sale (2)		0		0		46,693		46,693		12,678

Balance at end of period	$	0	$	0	$	150,963	$	150,963	$	29,257

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

(2)	The loss 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 December 31, 2010.

Fair Values of Financial Instruments

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


	December 31, 2010				September 30, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Financial assets
Cash and cash equivalents	$	842,888	$	842,888	$	888,622	$	888,622
Available-for-sale securities:
Equity securities		0		0		0		0
Obligations of U.S. government		430,794		430,794		341,006		341,006
Obligations of states and political subdivisions		0		0		0		0
Obligations of foreign governments		0		0		0		0
Corporate debt securities		9,900		9,900		10,000		10,000
Mortgage-backed securities
Agency pass-through certificates		2,371,421		2,371,421		2,130,087		2,130,087
Other debt securities		0		0		0		0

Total available-for-sale securities		2,812,115		2,812,115		2,481,093		2,481,093
Held-to-maturity securities:
Equity securities		0		0		0		0
Obligations of U.S. government		0		0		0		0
Obligations of states and political subdivisions		1,950		2,091		7,055		7,269
Obligations of foreign governments		0		0		0		0
Corporate debt securities		0		0		0		0
Mortgage-backed securities
Agency pass-through certificates		66,796		71,588		73,052		77,631
Other debt securities		0		0		0		0

Total held-to-maturity securities		68,746		73,679		80,107		84,900
Loans receivable		8,142,948		8,648,638		8,423,703		8,899,937
Covered loans		492,947		488,707		534,474		534,474
FHLB stock		151,750		151,750		151,748		151,748

Financial liabilities
Customer accounts		8,845,632		8,693,913		8,852,540		8,811,009
FHLB advances and other borrowings		2,664,078		2,877,816		2,665,548		2,965,921

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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

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

Loans receivable and covered loans – For certain homogeneous categories of loans, such as fixed- and variable-rate residential mortgages, fair value is estimated using quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other loan types is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types were valued at carrying value because of their floating rate or expected maturity characteristics. Net deferred loan fees are not included in the fair value calculation but are included in the carrying amount.

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

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

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

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


	December 31, 2010
	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	$	13	$	0		$	513		4.00	%
1 to 5 years		25,000		173		0			25,173		3.25	%
5 to 10 years		108,925		5,543		0			114,468		3.86	%
Over 10 years		295,969		482		(5,811	)		290,640		3.07	%
Corporate bonds due
5 to 10 years		10,000				(100	)		9,900		6.00	%
Mortgage-backed securities
Agency pass-through certificates		2,319,286		69,727		(17,592	)		2,371,421		5.08	%

		2,759,680		75,938		(23,503	)		2,812,115		4.80	%

Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years		0		0		0			0		0.00	%
5 to 10 years		1,950		141		0			2,091		5.60	%
Over 10 years		0		0		0			0		0.00	%
U.S. government and agency securities due
1 to 5 years		0		0		0			0		0.00	%
Mortgage-backed securities
Agency pass-through certificates		66,796		4,792		0			71,588		5.57	%

		68,746		4,933		0			73,679		5.57	%

	$	2,828,426	$	80,871	($	23,503	)	$	2,885,794		4.82	%


	September 30, 2010
	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	$	26	$	0		$	526		4.00	%
1 to 5 years		25,000		180		0			25,180		3.25	%
5 to 10 years		158,915		5,344		(105	)		164,154		3.59	%
Over 10 years		150,000		1,161		(15	)		151,146		3.50	%
Corporate bonds due
5 to 10 years		10,000		0		0			10,000		6.00	%
Mortgage-backed securities
Agency pass-through certificates		2,058,130		72,853		(896	)		2,130,087		5.26	%

		2,402,545		79,564		(1,016	)		2,481,093		5.02	%

Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years		1,105		65		0			1,170		6.11	%
5 to 10 years		1,940		115		0			2,055		5.67	%
Over 10 years		4,010		34		0			4,044		5.60	%
U.S. government and agency securities due
1 to 5 years		0		0		0			0		0.00	%
Mortgage-backed securities
Agency pass-through certificates		73,052		4,579		0			77,631		5.59	%

		80,107		4,793		0			84,900		5.60	%

	$	2,482,652	$	84,357	($	1,016	)	$	2,565,993		5.04	%

There were no sales of available-for-sale securities during the period ending December 31, 2010. $315,836,000 of available-for-sale securities were sold during the period ending December 31, 2009, resulting in a gain of $20,428,000.

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 December 31, 2010, by length of time that individual securities in each category have been in a continuous loss position. There were no securities that were in a continuous loss position for 12 or more months as of December 31, 2010.


	Less than 12 months					12 months or more				Total
	Unrealized Gross Losses			Fair Value		Unrealized Gross Losses		Fair Value		Unrealized Gross Losses			Fair Value
	(In thousands)
U.S. agency securities	($	5,911	)	$	279,582	$	0	$	0	($	5,911	)	$	279,582
Agency pass-through certificates		(17,592	)		881,114		0		0		(17,592	)		881,114

	($	23,503	)	$	1,160,696	$	0	$	0	($	23,503	)	$	1,160,696

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERS ENDED DECEMBER 31, 2010 AND 2009

(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 $550,883,000 as of December 31, 2010, versus $578,629,000 as of September 30, 2010.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans were as follows for the quarter ended December 31, 2010:


	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
Accretion		(2,935	)		2,935			(1,975	)		1,975
Transfers to REO		0			(18,446	)		0			0
Payments received, net		0			(10,331	)		0			(17,660	)

Balance at end of period	$	24,084		$	164,688		$	37,838		$	328,259

At December 31, 2010, 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. There was no allowance for loan losses related to the covered loans at December 31, 2010, as these loans are performing as anticipated in the projections used in the purchase accounting fair value calculations.

The outstanding principal balance of acquired loans was $633,985,000 and $685,384,000 as of December 31, 2010 and September 30, 2010, respectively.

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


	December 31, 2010			September 30, 2010
	(In thousands)
Balance at beginning of period	$	131,128		$	—
Additions		—			227,500
Payments received		(14,220	)		(92,551	)
Amortization		(1,580	)		(8,150	)
Accretion		832			4,329

Balance at end of period	$	116,160		$	131,128

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of December 31, 2010:

Credit Risk Profile by Internally Assigned Grade:


	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss			Total Net Loans
	(In thousands)
Purchased non-credit impaired loans:
Single-family residential	$	55,866		$	—		$	—		$	—		$	—		$	55,866
Construction - speculative		2,828			—			—			—			—			2,828
Construction - custom		—			—			166			—			—			166
Land - acquisition & development		20,657			717			1,776			—			—			23,150
Land - consumer lot loans		825			—			69			—			—			894
Multi-family		39,267			—			2,468			—			—			41,735
Commercial real estate		154,780			297			20,074			—			—			175,151
Commercial & industrial		27,481			3,738			3,992			—			—			35,211
HELOC		24,033			—			—			—			—			24,033
Consumer		1,607			—			—			—			—			1,607

		327,344			4,752			28,545			—			—			360,641


Total grade as a % of total net loans		90.8	%		1.3	%		7.9	%		0.0	%		0.0	%

Purchased credit impaired loans:
Pool 1 - Construction and land A&D		13,490			4,957			82,662			—			—			101,109
Pool 2 - Single-family residential		5,404			—			22,442			—			—			27,846
Pool 3 - Multi-family		—			—			5,075			—			—			5,075
Pool 4 - HELOC & other consumer		1,358			30,063			54,579			—			—			86,000
Pool 5 - Commercial real estate		734			12,501			29,813			—			—			43,048
Pool 6 - Commercial & industrial		4,374			—			5,891			—			—			10,265

	$	25,360		$	47,521		$	200,462		$	—		$	—			273,343

														Total covered loans			633,984
														Discount			(141,037	)

														Covered loans, net		$	492,947

The following table provides an analysis of the age of purchased non-credit impaired loans in past due status for the period ended December 31, 2010.


	Amount of Loans Net of LIP & Chg.-Offs		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	$	55,866	$	48,958	$	2,796	$	167	$	3,945	$	6,908		12.37	%
Construction - Speculative		2,828		2,828		—		—		—		—		0.00	%
Construction - Custom		167		167		—		—		—		—		0.00	%
Land - Acquisition & Development		23,149		9,372		5,837		4,952		2,988		13,777		59.51	%
Land - Consumer Lot Loans		895		698		17		—		180		197		22.01	%
Multi-Family		41,116		38,782		1,508		—		1,444		2,952		7.18	%
Commercial Real Estate		177,015		154,549		12,301		3,007		5,292		20,600		11.64	%
Commercial & Industrial		33,965		30,348		938		860		3,066		4,864		14.32	%
HELOC		24,033		20,922		2,104		162		846		3,112		12.95	%
Consumer		1,607		1,082		368		60		97		525		32.67	%

	$	360,641	$	307,706	$	25,869	$	9,208	$	17,858	$	52,935		14.68	%

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 Thrift Supervision. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

GENERAL

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

INTEREST RATE RISK

The Company assumes a higher level of interest rate risk as a result of its policy to originate and hold for investment fixed-rate single-family residential (“SFR”) home loans, which are longer-term in nature than the short-term characteristics of its liabilities of customer accounts and borrowed money. At December 31, 2010, the Company had a negative one-year maturity gap of approximately 30% of total assets, which was an increase from the 28% negative one-year maturity gap as of September 30, 2010, and the 23% negative one-year maturity gap as of December 31, 2009. The fiscal year to date increase is due to decreasing cash balances and increasing deposit accounts with maturities less than one year.

The interest rate spread decreased to 3.06% at December 31, 2010 from 3.09% at September 30, 2010. The spread decreased due to a higher proportion of lower yielding investment balances compared to total earning assets as deposit growth has exceeded loan growth. In addition, loan yields are lower as a result of refinancing of fixed-rate mortgages into historically low long-term interest rates. As of December 31, 2010, the weighted average rate on earning assets decreased by 12 basis points compared to September 30, 2010,

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

while the weighted average rates on customer deposit accounts and borrowings decreased by 9 basis points over the same period.

As of December 31, 2010, the Company had decreased total assets by $58,987,000, or 0.4%, from $13,486,379,000 at September 30, 2010. For the quarter ended December 31, 2010, compared to September 30, 2010, loans (both non-covered and covered) decreased $322,282,000, or 3.6%. To help offset the reduced income from loans, investment securities increased $319,661,000, or 12.5%. Cash and cash equivalents of $842,888,000 and stockholders’ equity of $1,838,600,000 provides management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net worth at December 31, 2010 was $1,838,600,000, or 13.69%, of total assets. This was a slight decrease of $2,547,000 from September 30, 2010 when net worth was $1,841,147,000, or 13.65%, of total assets. The Company’s net worth was impacted in the quarter by net income of $24,530,000, the payment of $6,791,000 in cash dividends, treasury stock purchases that totaled $4,561,000, as well as a decrease in other comprehensive income of $16,517,000.

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 Savings 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)
December 31, 2010
Total capital to risk-weighted assets	$	1,612,747		23.83	%	$	534,158		8.00	%	$	676,698		10.00	%
Tier I capital to risk-weighted assets		1,530,085		22.61	%		N/A		N/A			406,019		6.00	%
Core capital to adjusted tangible assets		1,530,085		11.66	%		N/A		N/A			656,091		5.00	%
Core capital to total assets		1,530,085		11.66	%		393,654		3.00	%		N/A		N/A
Tangible capital to tangible assets		1,530,085		11.66	%		196,827		1.50	%		N/A		N/A
September 30, 2010
Total capital to risk-weighted assets		1,619,206		23.39	%		553,761		8.00	%		692,201		10.00	%
Tier I capital to risk-weighted assets		1,534,681		22.17	%		N/A		N/A			415,321		6.00	%
Core capital to adjusted tangible assets		1,534,681		11.67	%		N/A		N/A			657,606		5.00	%
Core capital to total assets		1,534,681		11.67	%		394,563		3.00	%		N/A		N/A
Tangible capital to tangible assets		1,534,681		11.67	%		197,282		1.50	%		N/A		N/A

CHANGES IN FINANCIAL CONDITION

Available-for-sale and held-to-maturity securities : Available-for-sale securities increased $331,022,000, or 13.3%, during the quarter ended December 31, 2010, which included the purchase of $572,539,000 of available-for-sale investment securities. There were no sales of available-for-sale securities during the period. There were no purchases or sales of held-to-maturity securities in the same period. As of December 31, 2010, the Company had net unrealized gains on available-for-sale securities of $33,165,000, net of tax, which were recorded as part of stockholders’ equity. The Company increased its available-for-sale investment portfolio to partially invest additional customer deposits and replace some of the lost interest income on maturing or prepaying loans and mortgage-backed securities.

Loans receivable : During the quarter ended December 31, 2010, the balance of loans receivable decreased 3.3% to $8,142,948,000 compared to $8,423,703,000 at September 30, 2010. 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. The Company’s current decision not to originate and hold in its loan portfolio 30 year fixed-rate loans at rates below 4.50%, due to the duration risk associated with such low mortgage rates, contributed to the net run off of the loan portfolio. Additionally, during the year to date period, $31,528,000 of loans were transferred to REO. If the current

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

low rates on 30 year fixed-rate mortgages persists, management will consider continuing to shrink its loan portfolio. The following table shows the loan portfolio by category for the last three quarters.


Loan Portfolio by Category *	June 30, 2010				September 30, 2010				December 31, 2010
	(In thousands)
Single-family residential	$	6,632,333	74.1	%	$	6,551,836	74.7	%	$	6,333,040	74.9	%
Construction - speculative		180,523	2.0			169,712	1.9			146,933	1.7
Construction - custom		275,509	3.1			256,384	2.9			239,337	2.8
Land - acquisition & development		343,567	3.8			307,230	3.5			275,396	3.3
Land - consumer lot loans		187,548	2.1			186,840	2.1			181,205	2.1
Multi-family		707,784	7.9			697,351	7.9			696,601	8.2
Commercial real estate		312,186	3.5			315,915	3.6			315,332	3.7
Commercial & industrial		96,227	1.1			83,070	1.0			78,082	0.9
HELOC		119,540	1.3			116,143	1.3			115,660	1.4
Consumer		101,219	1.1			92,624	1.1			85,987	1.0

		8,956,436	100	%		8,777,106	100	%		8,467,573	100	%

Less:
Allowance for probable losses		173,427				163,094				159,288
Loans in process		169,423				154,171				129,472
Deferred net origination fees		35,795				36,138				35,865

		378,645				353,403				324,625

	$	8,577,791			$	8,423,703			$	8,142,948

*	Excludes covered loans

Covered loans : As of December 31, 2010, covered loans had decreased 7.8%, or $41,527,000, to $492,947,000, compared to September 30, 2010, due to continued paydowns.

Non-performing assets : Non-performing assets, which excludes covered assets acquired in FDIC-assisted transactions, increased during the quarter ended December 31, 2010 to $442,699,000 from $434,530,000 at September 30, 2010, a 1.9% increase. 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 3.30% at December 31, 2010 compared to 3.22% at September 30, 2010. This level of NPAs remains significantly higher than the 0.82% 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.


	December 31, 2010					September 30, 2010
	(In thousands)
Restructured loans:
Single-family residential	$	218,169		75.1	%	$	207,040		75.9	%
Construction - speculative		10,045		3.5			9,893		3.6
Construction - custom		0		0.0			0		0.0
Land - acquisition & development		32,143		11.1			33,497		12.3
Land - consumer lot loans		7,758		2.7			7,095		2.6
Multi - family		19,883		6.8			12,862		4.7
Commercial real estate		1,480		0.5			1,503		0.6
Commercial & industrial		918		0.3			954		0.3
HELOC		78		0.0			78		0.0
Consumer		0		0.0			0		0.0

Total restructured loans (1)		290,474		100	%		272,922		100	%

Non-accrual loans:
Single-family residential		132,694		51.7	%		115,155		46.9	%
Construction - speculative		33,625		13.1			39,915		16.3
Construction - custom		0		0.0			0		0.0
Land - acquisition & development		53,698		20.9			64,883		26.4
Land - consumer lot loans		8,174		3.2			7,540		3.1
Multi-family		14,069		5.5			4,931		2.0
Commercial real estate		11,721		4.6			10,831		4.4
Commercial & industrial		568		0.2			371		0.2
HELOC		1,170		0.5			929		0.4
Consumer		715		0.3			977		0.4

Total non-accrual loans (2)		256,434		100	%		245,532		100	%

Total REO (3)		156,572					160,754
Total REHI (3)		29,693					28,244

Total non-performing assets	$	442,699				$	434,530

Total non-performing assets and performing restructured loans as a percentage of total assets		5.11	%				4.89	%


(1) Restructured loans were as follows:
Performing	$	242,798		83.6	%	$	225,195		82.5	%
Non-accrual *		47,676		16.4			47,727		17.5

	$	290,474		100	%	$	272,922		100	%

*	- Included in “Total non-accrual loans” above

(2)

The Company recognized interest income on nonaccrual loans of approximately $1,506,000 in the quarter ended December 31, 2010. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $10,993,000 for the quarter ended December 31, 2010.

In addition to the nonaccrual loans reflected in the above table, at December 31, 2010, the Company had $327,762,000 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 7.55% at December 31, 2010.

(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.

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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 75% of restructured loans as of December 31, 2010. 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. The subsequent default rate on restructured single- family mortgage loans has been approximately 15% since inception of the program in November 2008. Concessions for construction (3.5%), land A&D (11.1%) and multi-family loans (2.7%) are typically an extension of maturity combined with a rate reduction of normally 100 bps. The subsequent default rate on restructured commercial loans has been less than 10% since December 2009.

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. Homogenous 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 homogenous 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.


	December 31, 2010								September 30, 2010
	Amount		Loans to Total Loans (1)			Coverage Ratio (2)			Amount		Loans to Total Loans (1)			Coverage Ratio (2)
	(In thousands)
Single-family residential	$	54,797		74.9	%		0.9	%	$	47,381		74.8	%		0.7	%
Construction - speculative		22,765		1.7			15.5			26,666		1.9			15.7
Construction - custom		359		2.8			0.1			450		2.9			0.2
Land - acquisition & development		53,369		3.3			19.4			61,530		3.5			20.0
Land - consumer lot loans		5,181		2.1			2.9			4,793		2.1			2.6
Multi-family		6,296		8.2			0.9			5,050		7.9			0.7
Commercial real estate		3,144		3.7			1.0			3,165		3.6			1.0
Commercial & industrial		6,658		0.9			8.5			6,079		0.9			7.3
HELOC		1,157		1.4			1.0			586		1.3			0.5
Consumer		5,562		1.0			6.5			7,394		1.1			8.0

	$	159,288		100.0	%				$	163,094		100.0	%

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

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

Customer accounts : Customer accounts decreased $6,908,000, or .08%, to $8,845,632,000 at December 31, 2010 compared with $8,852,540,000 at September 30, 2010. The following table shows the composition of the Company’s customer accounts as of the dates shown:

Deposits by Type


	December 31, 2010							September 30, 2010
	(In thousands)
					Wtd. Avg. Rate							Wtd. Avg. Rate
Checking (non-interest)	$	214,091	2.4	%		0.00	%	$	184,240	2.1	%		0.00	%
NOW (interest)		477,760	5.4			0.41	%		482,132	5.4			0.39	%
Savings (passbook/stmt)		236,559	2.7			0.25	%		234,673	2.7			0.51	%
Money Market		1,661,914	18.8			0.41	%		1,653,718	18.7			0.66	%
CD’s		6,255,308	70.7			1.82	%		6,297,777	71.1			1.91	%

Total	$	8,845,632	100	%		1.40	%	$	8,852,540	100	%		1.51	%

FHLB advances and other borrowings : Total borrowings decreased slightly to $2,664,078,000 at December 31, 2010, compared with $2,665,548,000 at September 30, 2010. 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.

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 December 31, 2010, produced net income of $24,530,000 compared to $7,911,000 for the same quarter one year ago. The increase for the quarter resulted primarily from lower credit costs, which included the provision for loan losses and real estate owned expenses. The provision for loan losses decreased $43,750,000, or 62.7%, to $26,000,000 for the quarter ended December 31, 2010, as compared to the same 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, losses recognized on real estate acquired through foreclosure was $10,553,000 for the quarter ended December 31, 2010 as compared to $12,720,000 for the same period 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 12/31/10 and 12/31/09
	Volume			Rate			Total
	(In thousands)
Interest income:
Loans and covered loans	($	1,807	)	$	2,272		$	465
Mortgaged-backed securities		830			(4,417	)		(3,587	)
Investments (1)		1,065			1,977			3,042


All interest-earning assets		88			(168	)		(80	)


Interest expense:
Customer accounts		4,042			(7,793	)		(3,751	)
FHLB advances and other borrowings		(2,382	)		(916	)		(3,298	)


All interest-bearing liabilities		1,660			(8,709	)		(7,049	)

Change in net interest income	($	1,572	)	$	8,541		$	6,969

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

Provision for Loan Losses : The Company recorded a $26,000,000 provision for loan losses during the quarter ended December 31, 2010, while a $69,750,000 provision was recorded for the same quarter one year ago. Non-performing assets amounted to $442,699,000, or 3.30%, of total assets at December 31, 2010, compared to $553,285,000, or 4.37%, of total assets one year ago. The Company had net charge-offs of $29,806,000 for the quarter ended December 31, 2010 compared with $46,037,000 of net charge-offs for the same quarter one year ago. The ratio of net charge-offs to average non-covered loans outstanding was 0.35% and 0.51% for the quarters ended December 31, 2010 and 2009, respectively. The decrease in the provision for loan losses is in response to four primary factors: first, the improvement in the amount of NPAs year-over-year described at the beginning of this paragraph; second, non-accrual loans decreased from $369,777,000 at December 31, 2009, to $256,434,000 at December 31, 2010, a 30.7% decrease; third, the percentage of loans 30 days or more delinquent decreased from 4.74% at December 31, 2009, to 3.41% at December 31, 2010; and finally, the Company’s exposure in the land A&D and speculative construction portfolios, where the majority of losses have come from during this period of the cycle, has decreased from a combined 7.5% of the gross loan portfolio at December 31, 2009, to 5.0% at December 31, 2010. Management expects the provision to remain at elevated levels until NPAs and charge-offs improve

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Financial Information

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

measurably. Management believes the allowance for loan losses, totaling $159,288,000, is sufficient to absorb estimated losses inherent in the portfolio.

See Note E for further discussion and analysis of the allowance for loan losses for the quarter ended December 31, 2010.

Other Income : The quarter ended December 31, 2010 produced total other income of $4,426,000 compared to $24,238,000 for the same quarter one year ago, a decrease of $19,812,000. The quarter ended December 31, 2009 included $20,428,000 of gain on sale of investments, whereas the quarter ended December 31, 2010 included no gain on sale of investments.

Other Expense : The quarter ended December 31, 2010, produced total other expense of $34,279,000 compared to $26,977,000 for the same quarter one year ago, a 27.1% increase. The increase in total other expense over the same comparable period one year ago was primarily due to an increase of $4,086,000 in compensation and benefits, which included the addition of employees from the Horizon transaction with the FDIC. Total other expense for the quarters ended December 31, 2010 and 2009 equaled 1.02% and 0.85%, respectively, of average assets. The number of staff, including part-time employees on a full-time equivalent basis, was 1,226 and 1,085 at December 31, 2010 and 2009, respectively.

Taxes : Income taxes increased $9,153,000, or 197.1%, for the quarter ended December 31, 2010, when compared to the same period one year ago, due to a higher taxable income base. The effective tax rate for the quarter ended December 31, 2010, was 36.00%, compared to 37.00% for the same period one year ago. 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, 2010. 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 2010 Form 10-K.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I – Other Information

Item 4.

Controls and Procedures

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

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

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 will, among other things, eliminate the Office of Thrift Supervision (“OTS”), tighten capital standards, create a new Consumer Financial Protection Bureau and result 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 will significantly change the current bank regulatory structure and affect 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 is particularly significant to the Company and the Bank is the abolition of the OTS, the Bank’s historical federal financial institution regulator, effective one year from the enactment date (with the possibility of a six-month extension). After the agency is abolished, supervision and regulation of the Company will move to the Board of Governors of the Federal Reserve System (“Federal Reserve”) and supervision and regulation of the Bank will move 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 will be subject to consolidated capital requirements and will be required to serve as a source of strength to the Bank. The Bank will be 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 broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be 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 increases 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

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART II – Other Information

bearing transaction accounts will have unlimited deposit insurance from December 31, 2010 through December 31, 2012. The Federal Reserve will also be adopting a rule addressing interchange fees applicable to debit card transactions that is expected to lower 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 will require 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 creates 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 narrows the scope of federal preemption of state laws related to federally chartered institutions.

Many of the provisions of the Act will not become effective until a year or more after its enactment and, if required, the adoption and effectiveness of implementing regulations. In addition, the scope and impact of many of the Act’s provisions 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 of understanding could result in formal enforcement action or regulatory constraints on the Bank.

On July 28, 2010, the Bank entered into a memorandum of understanding with the OTS that requires the Bank to take a number of actions, including among other things: (1) develop a written enterprise risk management program; (2) enhance policies and procedures with respect to construction lending, portfolio valuation and interest rate risk management; (3) develop action plans and programs in the areas of consumer compliance, fair lending, information technology, business continuity and information security; and (4) monitor the Bank’s performance results against its business plan. The memorandum of understanding does not affect dividend policy or require additional capital. Management believes that it is already in compliance with a number of the measures required by the memorandum of understanding and also believes that the Bank will be able to complete any other requirements within the specified timeframes, although compliance will be determined by the OTS and not by us. Compliance with the memorandum of understanding will increase the Bank’s non-interest expenses in amounts that are not expected to, but may

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART II – Other Information

be, material to our results of operations. The memorandum of understanding and the factors that gave rise to it also may have the effect of limiting or delaying our ability or plans to expand strategically. Moreover, a material failure to comply with the memorandum of understanding could subject the Bank to additional regulatory scrutiny or result in a formal enforcement action or constraints on the Bank’s business, any of which could have a material adverse effect on future results of operations, financial condition, growth objectives or other aspects of our business. The requirements of the memorandum of understanding will remain in effect until the OTS decides to terminate, suspend or modify 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 December 31, 2010.


Period	Total Number of Shares Purchased			Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plan (1)		Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period
October 1, 2010 to October 31, 2010		—		$	—			—		2,888,314
November 1, 2010 to November 30, 2010		17,300			14.95			17,300		2,871,014
December 1, 2010 to December 31, 2010		289,300	(2)		14.87	(2)		289,300		2,581,714

Total		306,600		$	14.88			306,600		2,581,714

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

(2)

On October 26, 2008, the Company announced it was asked to participate in the U.S. Treasury’s Capital Purchase Program. As a result, effective November 14, 2008, the Company issued, in a private placement, warrants to the U.S. Treasury to purchase 1,707,456 shares of Company common stock with a strike price of $17.57; the warrants expire November 14, 2018. On March 9, 2010, the Company announced a public offering of the warrants, listed on the Nasdaq Global Select Market under the symbol “WFSLW”. On March 15, 2010, the U.S. Treasury sold, in a secondary public offering, all 1,707,456 warrants, each representing the right to purchase one share of the Company's common stock, at an exercise price of $9.15. The Company purchased, as part of a non-publicly announced plan, in an open-market transaction, the following number of warrants during the period indicated. Per the Company's agreement with its Board of Directors, the purchase of warrants will reduce the number of shares available for repurchase from the stock repurchase program described in footnote 1 above. The following purchases are included in the numbers presented for the same period in the table above.


Period	Total Number of Warrants Purchased		Average Price Paid Per Warrant
October 1, 2010 to October 31, 2010		—	$	—
November 1, 2010 to November 30, 2010		—		—
December 1, 2010 to December 31, 2010		6,600		4.97

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 5.

Other Information

Not applicable

Item 6.

Exhibits

(a)

Exhibits



31.1		Section 302 Certification by the Chief Executive Officer

31.2		Section 302 Certification by the Chief Financial Officer

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

101		Financial Statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010 formatted in XBRL

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.


February 9, 2011				/ S / R OY M. W HITEHEAD
				ROY M. WHITEHEAD Chairman, President and Chief Executive Officer

February 9, 2011				/ S / B RENT J. B EARDALL
				BRENT J. BEARDALL Executive Vice President and Chief Financial Officer