Washington Federal Inc. (WFSL) initiated an underwritten public offering of $300 million of its common stock on Monday. The company plans to use proceeds from the offering for general corporate purposes Incorporatedluding capital to support growth and acquisition opportunities. The net proceeds would also qualify as both tangible common equity and regulatory Tier 1 capital.

JPMorgan Securities Inc., a non-banking subsidiary of JPMorgan Chase & Co. (JPM), is acting as the sole book-running manager for the offering. D.A. Davidson & Co. and McAdams Wright Ragen are acting as co-managers. The underwriters will probably get a 30-day option to purchase up to an additional 15% of the shares offered to cover overallotments, if any.

The secondary market for subprime and other non-conforming mortgage loans collapsed during the recent market volatility and housing slump and most companies with an exposure to such loans reported massive losses.

Although Washington Federal has not been immune to the downturn, it suffered less than many of its peers due to better underwriting standards. Its strong net worth also remained a key factor. Moreover, declining deposit rates helped relieve funding concerns to a great extent.

However, the major concern for Washington Federal is the quality of its asset portfolio that deteriorated significantly during the last few quarters. Though the majority of its loan portfolio comprises high-quality, single-family residential loans, we are concerned about its sizable exposure to land acquisition and development and construction loans. Going forward, we expect the increase in non-performing assets and net charge-offs to continue until the housing market begins to recover.

Zacks Investment Research
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