In yet another sign of the tough business environment for small banks, Lynnwood-based The Bank of Washington has agreed to be acquired by a local credit union in the first deal of its kind in Washington State.
The roughly $30 million all-cash deal, expected to be completed early next year, will leave Tacoma-based Sound Credit Union with $1.7 billion in assets and roughly 350 employees at 29 branches in King, Pierce, Snohomish, and Thurston counties.
Most of the 50 employees at Bank of Washington’s five branches and its loan office in downtown Seattle will be offered jobs at Sound Credit Union, said Sound Credit CEO Don Clark. Bank of Washington’s holding company, Washington Bancorp, will not be sold, but will instead be wound down over the next few months, according to Washington Bancorp CEO Marty Steele.
Washington Bancorp’s shareholders will receive $6.40 cents per share in the deal, which was announced Friday morning.
The acquisition is something of a rarity in the world of banking. Nationwide, only 23 credit unions have acquired banks.
The small number isn’t surprising: banks and credit unions have fundamentally different structures and business cultures: For-profit banks are owned by shareholders, while credit unions are owned by their customers. They’re also governed by different regulations, which means mergers or acquisitions tend to require more regulatory approvals.
But these “cross border” mergers, as one banking expert calls them, are likely to become more frequent, thanks to a banking environment that increasingly favors larger financial institutions—and penalizes smaller ones—whether they’re a bank or a credit union.
Tougher banking regulations imposed after the 2008 financial crash have raised the costs of making loans, which smaller banks and credit unions often struggle to profitably absorb. And even as today’s customers are demanding costly features, such as more ATMs, online banking apps, and cybersecurity, many banks are seeing slimmer margins between their own borrowing costs and what they can charge customers for loans.
Bank of Washington is a case in point. The bank is profitable, says Steele. It has seen gains since share prices dipped below $2 in 2014, according to Bloomberg. But Steele said the bank’s current asset base of $210 million is well short of what a bank in the Puget Sound market needs to be viable in the long term. “When you hit $300 million, that’s when your profitability really begins to stabilize,” Steele said. “We weren’t quite there yet.”
While Bank of Washington is growing at around 15 percent a year, or twice the industry average, Steele said, he and the bank’s shareholders preferred the guaranteed scale that would come through a tie-up with Sound Credit Union, with assets of just under $1.6 billion. From Sound Credit Union’s standpoint, Clark said, the bank presented an opportunity to gain a profitable operation with branches in three cities — Edmonds, Mukilteo, and Everett — where Sound had been looking to expand.
Once the merger is completed, Clark, 53, will serve as CEO of the combined organization, while Steele, 61, will become senior vice president and North Sound development officer.