Washington Federal Inc.'s pending purchase of six branches in New Mexico is small in scope but has huge relevance to its nervous investors.

The Seattle-based thrift company — long viewed as a conservative lender with an abundance of capital — has been operating under a memorandum of understanding with the Office of Thrift Supervision for nearly a year.

Since disclosing the MOU last summer, the company has repeatedly tried to assure investors and analysts that it was working hard to satisfy the order and that the regulatory intervention would not hamper its ability to grow.

To some observers, the $13 billion-asset company's disclosure earlier this month that it would buy branches from Beal Financial Corp. in Plano, Texas, may be its biggest confidence-builder so far.

Disclosure of the company's MOU made Jeff Rulis, an analyst at D.A. Davidson, feel as if "the world must be coming to an end," given its stellar reputation.

"Management has been telling us that it wouldn't hinder them from looking at deals, and [the branch deal] partially validates that," Rulis said. "The deal is not a huge needle mover, but it is definitely a major positive."

More broadly, Washington Federal's memorandum was one of numerous examples of head-scratching enforcement actions dealt out by the OTS in the last year. Several observers have accused the OTS, which is set to merge into the Office of the Comptroller of the Currency next month, of being overzealous in its waning hours.

"The OTS was going around giving out MOUs like candy to all the thrifts," said Brett Rabatin, an analyst at Sterne Agee & Leach Inc. "Maybe they wanted to be relevant in the last hour, or in some cases they needed a baton to pass to the OCC."

Calls to the OTS were not immediately returned.

The deal was good news for Washington Federal but shouldn't be viewed as a categorical belt-loosening by the OTS, said Kip Weissman, a partner at Luse, Gorman, Pomerenk & Schick.

"This is clearly a case where there is a level of trust between the OTS" and the thrift, Weissman said. "If you have an MOU, it is difficult to do a deal, so my hat is off to them and to the regulators."

Since the OTS does not publicly disclose the existence of MOUs, it is hard to determine how many thrifts have them, said Lawrence Kaplan, a partner at Paul Hastings.

"The regulators didn't want to be accused of missing something they should have caught. So, if you coughed and didn't cover your mouth, you got an MOU." Kaplan said. "If you have one, you are likely in good company."

Not all MOUs are created equal, Kaplan said, adding that he doesn't see such an order as a roadblock to acquisitions.

Washington Federal's MOU seems largely based on processes and procedures, and not driven by major credit or capital problems. Nor did the MOU bar the company from paying dividends.

"It wasn't your typical regulatory action, but they still get lumped in with the other thrifts … with structural issues you can't fix by just hiring someone," Rabatin said. "More than anything, I was worried that it was going to take up management's time. They would be busy with this rather than looking at ways to deploy their capital."

The Beal Financial purchase is small, adding $253 million of deposits in a state where Washington Federal already operates. The branches are currently part of Charter Bank, which Beal bought from the Federal Deposit Insurance Corp. last year. The company didn't disclose the price, but Joseph Fenech, an analyst at Sandler O'Neill & Partners LP, wrote in a note to clients last week that other recent branch sales had been priced at a premium of about 5% of deposits, implying a $12 million price. Fenech added that he would be surprised if the purchase price was any higher than that estimate. (Sandler O”Neill was involved in the deal, but Fenech said he was not privy to any details.)

Washington Federal had a tangible common equity ratio of 12% at the end of the first quarter; analysts consider a ratio above 6% to be healthy.

The transaction with Beal still requires regulatory approval, but lawyers said Washington Federal likely got the nod before signing the purchase agreement.

What's more, the company has been scouting deals with its regulator's blessing, Roy Whitehead, Washington Federal's chief executive, wrote in an email sent on Friday.

"This year, we have looked at some potential transactions and have received the go-ahead each time we've approached our regulator," Whitehead wrote. "Our ability to work together, even with an MOU in place, indicates a healthy mutual respect."

In fact, the company said in its latest quarterly report with the Securities and Exchange Commission that the OTS had given it permission for another, unnamed acquisition. Washington Federal said in the filing that it opted against the deal.

Some analysts expressed hope that the MOU will be terminated around the time of its first anniversary in late July, perhaps in the final hours before the OCC takes over the OTS. Weissman said that is unlikely.

"I think the OTS is very reluctant to make a decision like that," he said. "Chances are it will take another exam cycle before the order is lifted."

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