In a $26.8 million deal comparable to the whale swallowing the minnow, Seattle-based Washington Mutual today said it will acquire Bellevue's Enterprise Bank. But there is more than meets the eye.
Washington Mutual's assets exceed $19 billion. Enterprise's assets of $132 million are less than 1 percent of that. Washington Mutual, the state's No. 1 mortgage lender, has more than 260 offices in the region. Enterprise has one.
Nonetheless, the deal has broader significance, said R. Jay Tejera, banking analyst with the Dain Bosworth brokerage in Seattle.
"It's not the $129 million in assets they're after. It's the charter," Tejera said.
Washington Mutual's principal business is as a savings bank in the business of making mostly mortgage loans. Enterprise is a commercial bank. Thanks to Washington Mutual's conversion last fall to a holding-company format, it now can operate on the commercial side, meaning it can make loans for such things as boats and cars and do small business lending. Enterprise - with its name, employees, and founder and Chairman Tom Cleveland intact - will operate as the first commercial bank unit of Washington Mutual Bank.
"This acquisition will allow us to diversify our operations and provides a great opportunity to expand Enterprise Bank's presence," said Kerry Killinger, Washington Mutual chairman.
The acquisition will be a stock-only deal. Enterprise shareholders will get just over a half share of Washington Mutual - 0.57377 - for each of their shares. A mechanism was incorporated to adjust the price if Washington Mutual stock moves significantly before the deal closes. Although Enterprise had common stock, trading was available only through the bank.
Enterprise, opened in 1989, was one of a number of small banks created after bigger banks such as Rainier, Peoples and Old National were snapped up by out-of-staters. These smaller banks sought niches in the small-to-medium lending categories, Tejera said.
Enterprise offered a bonus. Partially bankrolled by Far East investors, its staff included Asian-Americans fluent in Chinese to take care of international lending.
Enterprise's first-quarter profit was $513,000, reflecting a return on assets of 1.62 percent. Banks strive for at least 1 percent.
"They are a very, very profitable little bank," Tejera said.
An acquisition made sense, Tejera said, because Enterprise had gone about as far as it could go in saturating its community market. It needed deeper pockets to expand. Washington Mutual was the logical partner since it has owned 9.9 percent of Enterprise since the start.
"The merger will allow Enterprise to serve a greater number of growing businesses locally," said Cleveland, who before founding Enterprise was in international lending for Bank of America.
The agreement requires approval by the Federal Deposit Insurance Corp., the Washington state Director of Financial Institutions and two-thirds of Enterprise's shareholders. It is expected to be completed in the third or fourth quarter this year.