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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Sterling branches out again

Staff writer

Sterling Financial Corp. announced plans Wednesday to buy a Northern California bank in a roughly $196.2 million deal, the latest in a series of acquisitions by the Spokane-based bank holding company.

Purchasing the 25-branch North Valley Bancorp of Redding, Calif., would expand Sterling’s total assets to roughly $12.5 billion. Sterling would offer 196 branches across five Western states after the merger, which still requires approval by North Valley shareholders and government watchdogs.

“I think it gives us a strong competitive edge to continue to grow and provide our Inland Northwest customers with more products and services that will meet their needs,” said Daniel Byrne, executive vice president and CFO of Sterling. “It also provides for greater locations to be able to bank should they be traveling.”

The combined company would have an estimated $8.5 billion in deposits, $9 billion in loans and market capitalization of about $1.7 billion. It would employ more than 3,000.

The merger is a natural extension of Sterling’s branch system between Oregon and central California, and the companies “share a commitment to community banking that makes the two extremely complementary,” Sterling CEO Harold Gilkey said from Redding during a conference call with investors and analysts Wednesday morning.

“I should emphasize that $12.5 billion is still a community bank,” Gilkey said.

Byrne said Sterling remains community-oriented because it allows loan officers and branch personnel to make decisions, whereas larger banks may need to use a centralized loan-approval process.

The deal, expected to close in the third quarter of 2007, would be about 89 percent stock and 11 percent cash. After the merger, North Valley stockholders will own roughly 10 percent of the combined corporation, according to Sterling.

Sterling projects 2008 net income of $154.5 million following the merger, including an estimated $6 million in after-tax cost savings generated largely by cutting North Valley employee compensation and benefits. The company hasn’t determined how many positions will be cut in California, said Sterling spokeswoman Jennifer Lutz, but it is likely that new positions will be created in Spokane.

Sterling has purchased six bank and thrift companies since 1998, including a $335.1 million acquisition of Sonoma National Bank in Santa Rosa, Calif., finalized in late February. Sterling operates 13 branches in central California under the Sonoma name.

The deal is the second-largest of the recent acquisitions by Sterling, which also has branches in Idaho and Montana.

Sterling has a proven track record of mergers and acquisitions, said Michael Cushman, president and CEO of North Valley.

The deal will also help investors in both companies, Gilkey asserted. North Valley stockholders will receive about .74 shares of Sterling stock and $2.80 in cash per share of North Valley, an equivalent to $25.14 per share based on Tuesday’s stock prices.

Sterling is mulling a new name for its California locations to avoid confusing customers with San Francisco-based Sterling Bank and Trust, Byrne said.