At first glance, you might not see Stephen M. Walden and his Interwest Bancorp as a hotshot banker and a go-getting bank.

Based on pastoral Whidbey Island in Puget Sound, north of Seattle, Interwest has all the makings of a quaint, hold-the-fort thrift. And neither Mr. Walden, who is president and chief executive, nor Glenn Mouw, his chief financial officer, has worked anywhere else.

But ambition is not dead in the dejected thrift industry. From his island retreat, Mr. Walden has marched out to meet the competition.

Shunning the big cities, he has fashioned the state's fourth-largest thrift - with $1.4 billion in assets - and is determined to shift its focus to commercial banking.

By availing itself of the opportunities presented by the Wells Fargo- First Interstate and U.S. Bancorp-West One mergers to pick up quality commercial banking talent, Interwest is poised to enhance its role in Washington State.

The thrift has bolstered its growth strategy with a dose of innovation, getting into insurance, retirement plans, IRAs, financial and investment services, and SBA lending.

"It's not that difficult to set ourselves apart, because our industry isn't good at it," Mr. Walden said. "Our industry just isn't good at satisfying its customers."

Founded in 1957, Interwest began branching out after going public in 1991. Instead of battling Washington Mutual and Washington Federal in Seattle, it has flourished in smaller communities.

The thrift maintains the core of its operations in Island County (population 60,000), where it controls a whopping 40% of the deposits. But it has also kept a close eye on the "mainland."

Instead of opening a Seattle office, though, it has focused on outlying areas such as Port Angeles, East Wenatchee, and Ferndale, as well as western and central Washington.

Last July Interwest formed a holding company to increase its flexibility. Later in the year it announced plans to acquire Cornerstone Mortgage and Central Bancorp., the holding company for Central Washington Bank and North Central Washington Bank.

"They're really doing some smart things," said Thatcher S. Thompson, an analyst with Dain Bosworth Inc., Seattle.

Cornerstone's customers are often less than bankable, "so the purchase gives Interwest an easy way to build customers," Mr. Thompson said.

The Cornerstone acquisition will allow Interwest to expand its influence in Seattle's King County and in Snohomish and Skagit counties to the north, and to diversify its product line.

"Central Bancorp. is an excellent franchise, and it isn't too widely dispersed," Mr. Thompson added. "Interwest sees a lot of value in the name and keeping things the same."

Mr. Thompson said Interwest's acquisition of Central was a common-sense move.

"Thrifts have had trouble in the past when they've said that commercial banking is good business and try to get into it from scratch," Mr. Thompson observed. In effect, he said, Interwest executives "are saying ... 'We're not familiar with that territory, and we'll go after someone who knows what they're doing.' "

Interwest appears to be on the right track. It has consistently outperformed other western thrifts with assets under $2.5 billion. In fiscal 1995, Interwest posted a return on assets of 1.04% and a return on equity of 14%, compared with an average 0.6% ROA and 9.1% ROE for its peers.

Mr. Walden said Interwest will keep looking for more quality banks to acquire, though that is becoming difficult. There are nearly 90 independent banks in the state, buy most are very small, and competition for acquisitions is fierce.

"There's more piranha out there feeding on the fish today," he said. "The pressure is on to find a good fit for us."

Mr. Mouw, Interwest's chief financial officer, said that the acquisitions market dictates that Interwest move quickly.

"We've got a window of opportunity of just a few years" before prices become "ridiculous," he said. "There are a few banks out there that are having problems, but they're very few. Overall, banks in Washington are very healthy."

Mr. Walden added: "I don't view it as being easy to find another bank, but you have to be proactive. You can't sit around and wait."

Interwest officials realize that even after a candidate is lined up, there's plenty of work to be done.

"The smaller banks tend to be really paternalistic," Mr. Mouw said. "If they think you don't care about their customers and employees, you'll never even get your foot in the door.

"There's a lot of things you'll never be able to know about another bank, but if you get the right mix of people and dedication to the customers, then it's workable."

Setting trends is nothing new to Interwest, according to Jim Bradshaw, vice president of research with Pacific Crest Securities, Portland, Ore.

"They've taken a couple of different approaches over the years that were very innovative at the time," Mr. Bradshaw said. "They were among the first companies, if not the first, to introduce the adjustable-rate mortgage, and they expanded relatively rapidly but stayed away from the metropolitan areas."

Though dedicated to staying ahead of the industry, Interwest has managed to maintain a homey attitude. When a branch employee learned she needed surgery and would have to miss considerable time from work, a call went out within the thrift. Soon, colleagues had donated 467 sick days to her.

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