Houston's Sterling Bank fills a void in the marketplace.

George Martinez has been committed to super community banking since he read about the concept in the American Banker several years ago. Chief executive of the then $230 million-asset bank in Houston, George realized that there was not a single large independent bank in metropolitan Houston. His vision was to fill that void.

George and Chip Bryan, the vice chairman, set about to develop a strategy to build a super community bank in the Houston marketplace. Sterling Bank has six community banking offices serving the northwest and west Houston markets and is a firm believer in the super community concept.

Decentralization reigns, so the local offices have significant autonomy. over credit, pricing, and other decisions.

They built an infrastructure that had the capacity to service other banks. They developed a set of policies and procedures that was designed to foster the super community approach and could be transported easily to other financial institutions.

Seeking Out Partners

They then inventoried the market for neighboring companies that might make good merger partners. They outlined a clear set of criteria for such companies, including asset size and performance (which had to be outstanding in order to be nondilutive, since Sterling yields 1.3% on assets).

Sterling believed independent small banks could not have the same impact on the market that larger independent banks could.

Mr. Martinez also sensed a growing market void in Houston. A tremendous dislocation took place after the bank failures in Texas and the purchases of the top seven failed banks by out-of-state companies.

Many markets around the United States have a preference for homegrown banking. The American Banker consumer survey has consistently confirmed this through the years.

Lone Star Pride

Texans are especially proud of their home state and more committed than others to local banking. Sterling felt that building a super community bank could meet the growing need for local decision-making and service levels.

In seeking merger partners, Sterling could offer candidates: a stronger combined entity, improved stock liquidity, enhanced profitability, operating efficiencies, and opportunities for expansion to reach the necessary critical mass for the future.

For example, the stock trades on Nasdaq at an average weekly rate of 22,OOO shares. The company is paying a 9-cent quarterly dividend.

In common with other super community banks, Sterling offered to let merger partners keep their names and charters, senior managements and boards of directors, and decision-making authority.

Some Functions Centralized

Meanwhile, Sterling centralized functions such as data processing, bookkeeping, regulatory compliance, internal auditing, and investment portfolio management.

Sterling communicated the benefits of the super community concept to potential merger candidates. The broader product offerings would allow the combined company to leverage the existing customer base and distribution network as well as enhance fee income.

The greater sophistication represented by the new products would create a competitive advantage relative to other community bank competitors.

At the same time, cost savings would come through standardization of products, consolidation of functions, the use of technology across the system, and the concept of reengineering.

The story is still unfolding. George's vision was formalized less than two years ago. Today the company is already $320 million assets strong and has agreements to merge with two other institutions, which will bring it over the $500 million mark.

Performance fundamentals are strong, as Mr. Martinez focuses on nondilutive, compatible merger targets and as his new partners recognize the shareholder value enhancements as part of the second-largest independent super community bank in Houston.

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