small-business lending by acquiring a bank specializing in that field. The Seattle thrift company - the Northwest's largest - agreed to acquire Enterprise Bank, a one-branch commercial bank in suburban Bellevue. Enterprise has $132 million of assets and $118 million of deposits. It was founded in 1989 by Thomas E. Cleveland, its current chairman, who is to remain in charge when Enterprise becomes a division of Washington Mutual Bank. Washington Mutual Inc., a $19.1 billion-asset holding company that has concentrated on home mortgage and real estate lending, has never made commercial loans and covets Enterprise's focus on small and midsize companies. But chairman and chief executive Kerry Killinger said he sees a substantial growth opportunity in smaller companies that want to deal with a locally based institution. Enterprise will give Washington Mutual the expertise to go after this market, he added. "Since most of the commercial banks in this area are controlled by out- of-region institutions, there's a real strong demand from small to medium- size businesses for a locally owned bank," Mr. Killinger said. The deal, which must be approved by regulators and Enterprise shareholders, is expected to be completed late in the third quarter or early in the fourth quarter through a pooling of shares. The agreement calls for each share of privately held Enterprise to be exchanged for 0.57377 share of Washington Mutual's common stock. The ratio will be adjusted if Washington Mutual's stock rises above $24.50 or falls below $21.25. Washington Mutual shares rose $1.25 on Friday, the day the deal was announced, to $24.125. The agreement valued Enterprise at $26.8 million, or 1.83 times its anticipate book value at closing. The relatively healthy valuation reflects the strength of Enterprise, Mr. Killinger said. The bank earned $513,000 in the first quarter, for a 1.62% return on assets. Mr. Killinger noted that the cost to Washington Mutual is lessened by the fact that it has owned 9.9% of Enterprise since the bank was launched with $10 million of capital from a handful of private investors. As a result, the acquisition won't affect Washington Mutual's earnings in 1995, and is expected to be accretive thereafter. Nearly all of Enterprise's $94 million of loans are to small and midsize businesses, Mr. Cleveland said. The institution also sells private banking and international banking services to Seattle's Chinese community. Enterprise will become part of Washington Mutual's state-chartered bank in Washington, but as a separate division retaining the Enterprise name. It expects to retain all 37 current employees. The merger will allow Enterprise to grow by giving it access to more capital, Mr. Cleveland said, adding, "I'm having to walk away from a lot of business that I don't have the capital to handle." Mr. Killinger said Enterprise aims to hire more employees and may even open more offices. The division is considering picking up employees and branch offices from U.S. Bancorp and West One Bancorp, which are merging and likely to sell overlapping branches. Enterprise also hopes to cherry-pick customers from that merger - between multistate banking companies based in Oregon and Idaho - as it has aimed to do in other big bank mergers. Enterprise has used negative advertising to help it pick up this business. A 1991 Enterprise newspaper ad, after BankAmerica Corp. and Security Pacific announced their merger, asked, "Is this merger as good for you as it is for them?" "In recent years, many local companies have been acquired by large companies based outside the region," Mr. Cleveland said Friday. "The merger will allow Enterprise to serve a greater number of growing businesses locally, while benefiting customers, shareholders, and employees."

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