Sterling Financial Corp. has agreed to purchase 33 branches in Washington, Idaho and Oregon from KeyBank National Association for $72 million, Sterling Chairman Harold Gilkey said Wednesday.
When completed later this year, he said, the deal will put Sterling among the top five Washington banks and thrifts in number of branches.
The $585 million in deposits involved in the deal also will boost the total in Sterling vaults by 50 percent compared with deposits on hand at the end of 1997.
“This is significant growth for a Spokane institution,” Gilkey said.
The parent of Sterling Savings Association now has 38 branches in Washington and three in Oregon. Gilkey said all the KeyBank locations except one will be kept open following the acquisition.
In Montesano, west of Olympia, Sterling and KeyBank have branches at the same intersection. One will be closed, but all employees at both locations will be retained, he said.
Sterling employs 520; Key, 200. Gilkey said Sterling probably will add 12 positions in Spokane to handle business at the new branches.
In Washington, 11 of the 21 Key branches to be acquired are east of the Cascades and 10 are west.
Two Oregon branches are in the Salem area.
The 10 Idaho offices range from Cascade in the south to Plummer in the north.
Gilkey said the Idaho purchases likely will trigger a move into the Coeur d’Alene market, which Sterling has served from its Spokane Valley office.
“The combination of the two companies gives us an absolute platform for growth,” Gilkey said.
The Key branch purchase is double the size of Sterling’s previous record expansion, the $280 million takeover of Central Evergreen 10 years ago.
Gilkey said the deal will accelerate Sterling’s transformation from a thrift focused on making residential loans to a bank offering a variety of services to businesses and consumers.
Sterling had already installed a new computer system with the change in mind, he said, and last year raised $40 million in additional capital to provide the foundation for future expansion.
“There aren’t many small buyers who could take this on,” Gilkey said.
He added that the price paid KeyBank, though “aggressive,” will not dilute earnings. Profits should increase immediately, he said.
“I think it’s going to be very good for shareholders,” he said.
Analyst Campbell Chaney of Sandler O’Neill in San Francisco agrees. Although a write-down to account for acquisition expenses will hold earnings steady this year, he said, the bottom line should improve 12 percent in 1999.
Chaney, noting that only 25 percent of Sterling loan originations are single-family mortgages, said backing away from that highly competitive market is wise.
“This is a very good deal,” he said.
KeyBank Chairman Gary Allen said the sale to Sterling continues a fallback by the Cleveland-based institution into core markets in 27 metropolitan areas, including Seattle, Tacoma, Portland and Boise.
The company sold off 150 locations in the last year, he noted.
Keybank has $74 billion in assets.
Sterling, which began talking with KeyBank a year ago, acquired everything the company wanted to sell in the Northwest, Gilkey said.
With the branches, Sterling will add loans worth $133 million to its existing portfolio of $1.1 billion at the end of 1997. Total assets are $1.8 billion.
The Keybank branches will bring Sterling’s total in Washington to 58. Only Seafirst Bank, Wells Fargo, U.S. Bank of Washington and Washington Mutual have as many.
Sterling was organized 15 years ago. At the time, Gilkey said, the company was the 53rd largest thrift in the state, based on assets.
“It’s amazing how much can be done in a relatively short period,” he said.