November 25, 2008 in Business

Sterling could net $303 million from bailout fund

By The Spokesman-Review

Spokane’s Sterling Financial Corp. will receive $303 million from the U.S. Treasury if a tentative deal announced Monday closes.

The investment, one of dozens approved or pending as the Treasury tries to shore up the nation’s financial system, would be the largest involving a Northwest-based financial institution.

Walla Walla-based Banner Bank announced Friday it has received the $124 million it sought under the $250 billion Troubled Asset Relief Program, or TARP.

Spokesmen for both banks said they plan to alert consumers and businesses that credit is available, after weeks of reports that lenders were turning away potential borrowers.

“People are hearing that there’s no money to lend, so they’re not asking,” Banner Vice President Doug Bayne said. “We want them to ask.”

Sterling Executive Vice President Dan Byrne said the lending environment is firming up.

“Good bankers, when they have capital, want to put it to work,” he said. “Over a period of time, the demand will be there.”

Both banks will get the additional capital by selling to Treasury shares of preferred stock that will pay the government 5 percent interest for five years, jumping to 9 percent if the banks do not redeem those shares.

The government also receives warrants that allow it to buy common stock at a fixed price anytime within the next 10 years.

Banner will issue 1.7 million warrants good at $10.89 a share. Banner stock closed Monday at $9.55 a share; in the past year it has traded as low as $7.21 and as high as $31.71.

Byrne said the number of Sterling warrants the government will receive, and the price for Sterling’s shares, will be established after a 20-day period that began Monday.

The deal with Treasury must be approved by the bank’s directors, he said.

Banner President D. Michael Jones, who expects more consolidation in the financial services industry, said the bank might use the federal capital for acquisitions as well as loans.

Banner bought Farmers & Merchants Bank in Spokane in 2007.

AmericanWest Bancorporation, which has applied for $57 million in Treasury funds, has not received a response, spokeswoman Kelly McPhee said. “They’ve asked us to be patient.”

AmericanWest falls $13 million short of one of three federal standards used to determine whether a bank is well-capitalized. Like other banks in the region, including Sterling, AmericanWest has been hurt by loans to contractors and developers who are in default.

Capital is not a problem at Wheatland Bank, and President Sue Horton said that institution will forgo the federal money unless its board of directors has a change of heart.

Closely held banks have until Dec. 8 to apply for the funds. Publicly traded banks had to apply by Nov. 14.

The Treasury plan contains too many conditions that would be troublesome for a small bank that wants to preserve its independence and freedom of action, she said.

Horton said she objects to the federal assistance because it keeps mismanaged banks alive.

“The healthy banks are being hurt by this,” she said.

Although the federal capital may appear cheap at 5 percent, Horton said, the true costs are much higher. And if Wheatland is indeed passing up a sweet deal, the bank will benefit from customers who appreciate its decision not to turn to taxpayers for help, she said.

“We don’t need the TARP plan to bail us out,” Horton said.

Contact Bert Caldwell at (509) 459-5450 or

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