In a letter penned earlier this year, Sterling Financial Corp. executives told shareholders that its Sterling Savings Bank had become the leading community bank in the Pacific Northwest.
What it really would like to do is drop Pacific and North from that proclamation.
Our vision is to become the leading regional community bank in the West, by all measures, says Heidi Stanley, the banks chief operating officer and vice chairwoman. Sterling will continue to expand and execute on that vision.
Currently, all of Sterlings 142 branches are located in Washington, Idaho, Oregon, and Montana, but the companys mortgage-investment subsidiary, Intervest Mortgage Investment Co., now has loan-production offices in Salt Lake City, Phoenix, the Los Angeles area, and Sacramento, Calif.
Stanley says Sterling Financial hasnt identified a market outside of its primary, four-state region to target next, and doesnt know yet whether it will expand through internal growth or by acquisition when it extends its banking network beyond that area.
Louis Feldman, a Portland-based vice president of bank research for Hoefer & Arnett Inc., says it might make sense for Sterling to expand its branch network into one of the communities where Intervest already has a presence, but he also could see it expanding via acquisition.
I could see Colorado or Utah next for them, Feldman says. Nevada is a possibility, but its a pretty hot market for banks right now.
He adds, If he (Gilkey) really, really, really wants to, he has a lot of Montana to go into.
Stanley says that throughout Sterling Financials history, about 50 percent of its growth has occurred through acquisition, and the other half through business growth within its established markets.
Those percentages will shift some when two recent acquisitions are completed.
So far this year, Sterling Financial has agreed to acquire two Pacific Northwest banks, which together should bolster its position in the region.
If completed as anticipated, they would be among the top three transactions, in terms of transaction value, in the companys history, which has included 14 acquisitions in 25 years.
Earlier this month, Sterling agreed to acquire FirstBank NW Corp., of Clarkston, Wash., in a transaction valued at $169.6 million. That acquisition is scheduled to be completed in the fourth quarter of this year, and Sterling hopes to complete its conversion of FirstBanks operations into its own banking network next February, Stanley says.
That transaction carried the highest value of any in Sterlings history, though its acquisition of Klamath First Bancorp Inc., in July 2003, involved a larger amount of total assets.
In February, Sterling agreed to acquire Lynnwood Financial Corp., the Mountlake Terrace, Wash.-based parent of Golf Savings Bank. On June 14, Lynnwood shareholders approved the acquisition, valued at $63.8 million, and its scheduled to be completed in July.
If both transactions are wrapped up as expected, Sterling will have total assets of about $9.2 billion, $6.1 billion in deposits, and $6.3 billion in loans.
Stanley says the transactions serve different purposes for Sterling: FirstBank helps the Spokane-based bank strengthen its standing in markets it already serves. The Lynnwood acquisition positions Sterling in Pacific Northwest markets in which it doesnt currently have a strong foothold, she says.
FirstBank has 21 branches in Eastern Washington, Eastern Oregon, and Idaho. Stanley says the addition of that branch network would especially help Sterling bolster its position in Idaho, where its ranking would climb to fifth from 16th in terms of total deposits.
Some branch consolidation would take place, however. FirstBank and Sterling have branches that serve the same markets in 10 instancesin some cases, Stanley says, the branches are directly across the street from one another. Some of those branches will be closed, though all of FirstBanks 200-plus employees will be offered positions with Sterling, which currently employs about 1,900 people.
Largely because of the expected branch consolidations, Sterling anticipates that the FirstBank transaction would contribute to earnings next year, relatively soon for an acquisition to result in additional profit.
Stanley says FirstBank accepted offers from suitors after receiving a hostile-takeover attempt by shareholder Crescent Capital IV LLC. Clyde Conklin, president and CEO of FirstBank, says it accepted Sterlings offer, because it offered the best price.
Also, he says, We believe Sterling is a solid organization that has similar orientation to community banking. Its a good matchup for shareholder interest moving forward.
The Lynnwood Financial acquisition, meanwhile, gives Sterling a handful of Golf Savings branches in the Puget Sound area, but Stanley says Sterling bought the institution primarily for Golfs home-loan presence in Western Washington.
Once the transaction is completed, Sterling plans to move nearly all of its established home-mortgage activity from its Action Mortgage subsidiary into Golfthe exception is that the loan-by-phone program available to established Sterling customers will remain with Action Mortgage, Stanley says. In turn, all of Golfs contractor-loan activity will be moved to Action, she says.
Golf will remain headquartered in Mountlake Terrace and will operate independently from Sterling Savings Bank, but under the Sterling Financial holding company. Stanley says Sterling hasnt determined yet what the name of the mortgage operation will be.
The mandate for Golf is to grow exponentially, Stanley says. We believe we have the opportunity to grow Golf significantly by keeping it independent.
In the first quarter of this year, Sterling Financial posted first-quarter net income of $15.4 million, or 44 cents a share, down from $15.9 million, or 45 cents a share, in the year-earlier period.
As of March 31, Sterling had total assets of $7.8 billion, up 12 percent from a year earlier. Total loans increased 20 percent, to $5.25 billion, and total deposits increased 24 percent to $5.1 billion.
Contact Linn Parish at (509) 344-1266 or via e-mail at email@example.com.
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