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:



	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.