Turning its small-business strategy up a notch, Washington Mutual Inc. has announced plans to buy Western Bank of Coos Bay, Ore.
The transaction, for stock valued at $159 million, brings Seattle-based Washington Mutual a fast-growing, solidly performing, small-business specialist.
Western Bank, with $780 million of assets, will help Washington Mutual "develop a very strong commercial bank to be a companion to our very strong consumer bank," said Kerry M. Killinger, chairman and chief executive officer of $20.3 billion-asset Washington Mutual, in announcing the deal last week.
Washington Mutual's ambitions took shape in June when it agreed to acquire Enterprise Bank, a $132 million-asset institution in Bellevue, Wash.
Since then, Mr. Killinger has stated his intention to build a multibillion-dollar small-business portfolio over the next few years as well as establish a network of community banks in Oregon and Washington.
He said he expected better returns from small-business banking than from the core thrift business. He also sees an opportunity to pick up market share from Oregon-based U.S. Bancorp and Idaho-based West One Bancorp, which plan to merge by yearend, as well as from other multistate banks in the Northwest.
Washington Mutual is paying a steep 234% of Western Bank's book value, said R. Jay Tejera, an analyst with Dain Bosworth in Seattle.
But Mr. Killinger said the deal, expected to be completed next year, will increase earnings within a year, and not due to cost-cutting. He said he was looking for revenue growth by minimizing disruptions to Western Bank and giving it the capital to make bigger loans and acquisitions than it otherwise could.
Western Bank is already a strong performer. The community bank in the third quarter had a 17.19% return on average equity, 1.5% return on average assets, and a net interest margin of 6.05%.
Mr. Killinger said Western Bank has been enjoying an annual growth of more than 20% in its commercial loan portfolio, now at about $330 million. Nonperforming loans have declined for seven years, hovering near 0.2% of total loans since December.
Western Bank will keep its name but scrap its Oregon charter. The company would become part of Washington Mutual's state-chartered Washington bank.
Western Bank's chairman and chief executive, Georges St. Laurent Jr., 59, will continue to run it, reporting to Washington Mutual executive vice president Craig Tall. Washington Mutual plans to retain all of Western Bank's 41 offices even though some are near Washington Mutual branches.
Mr. Killinger said he expected the two organizations to be complementary, with Washington Mutual branches having more of an urban, full-service appeal and Western Bank better suited for smaller towns and rural areas.
He likened the approach to the multiple-branding strategies in the retailing business, which banks don't follow when they use the same names for both retail and wholesale operations.
"Sometimes I think execution may suffer when you try to do both consumer and commercial banking under one roof," Mr. Killinger said.
Mr. St. Laurent called the deal a triumph. He came out of retirement in 1987 to buy a controlling stake in Western Bank to scuttle a $21 million acquisition bid by U.S. Bancorp, which he viewed as undervalued.
The millionaire businessman from New York will see his 39% stake in Western Bank converted to 3.4% of Washington Mutual.
Mr. St. Laurent described the deal as a triumph. He said he had moved to the state to retire on a ranch near Medford, but came out of retirement in 1987 to buy a controlling stake Western Bank. He said he did this in order to scuttle a $21 million acquisition bid by U.S. Bancorp that he said was undervalued.