Transformational deals make a lot of sense in the bleak banking environment, but that doesn't mean they are an easy sell.

Provident New York Bancorp's (PBNY) $344 million, all-stock deal for Sterling Bancorp (STL) would meld two similarly sized banks with different specialties into a $6.5 billion-asset powerhouse in the New York City region. It would go a long way toward remaking Provident, a thrift, into a commercial lender and fulfill Chief Executive Jack Kopnisky's aspiration of doubling its assets through acquisitions.

The deal metrics, which include lots of opportunities to slash expenses and increase revenues, are textbook examples of why banking observers, especially investment bankers, say this kind of deal is needed in an industry that has roughly 7,000 banks fighting it out in a fragile economy.

Yet few transformative deals are happening. Kopnisky, who says the Sterling deal is the result of a lot of conversations with a lot of bankers, thinks he knows the reason: too much looking in the rearview mirror.

Some bankers "are hoping that the economy gets better or the government changes or something changes in a way that helps them grow and prosper again. I just don't see that happening," Kopnisky said Thursday. "A lot of folks get the math, get the strategy but fail to want to do something about it."

Provident and Sterling — whose investors will split the combined company's stock 53% to 47% — laid out some of the specific benefits they envision. For instance, commercial and industrial loans made up 17% of Provident's loans at the end of 2012, while they made up 44% of Sterling's. On a pro forma basis, the C&I would make up 30%.

Both companies are relatively inefficient, with Provident's efficiency ratio at 63% and Sterling's at 71%. The combined company would improve to a 53% efficiency ratio, following the projected 18% of cost savings.

"With a merger of a similar size, when you put them together you have cost savings of 15% to 20%, so you're more efficient," Kopnisky says. "And with the complementary product lines, you become more effective on each side."

The pro forma data do not reflect revenue enhancements, such as cross-selling, but Louis J. Cappelli, Sterling's chairman and chief executive officer, says those possibilities helped attract him. He will serve as chairman of the combined company, and Provident's bank will take on the Sterling brand.

"There are huge amounts of synergies. For instance, we have a residential mortgage business, and they have 35 odd branches in an area where the mortgage business is very, very active," Cappelli says. "But they haven't used the kinds of marketing skills that our people have."

Though Kopnisky had been vocal about his desire to make this kind of deal happen, some observers were surprised that one came together with Sterling and that it was a negotiated transaction. Sterling is an esteemed commercial lender in New York; if it was going to sell, it was expected to go to the highest bidder, says Matthew Kelley, an analyst at Sterne Agee.

"Sterling is an important piece of the puzzle of commercial banking in New York," Kelley says, adding that he thought Sterling could have been a potential target for bigger banks such as BankUnited (BKU), People's United Financial (PBCT) and Valley National Bancorp (VLY). "This creates a powerful franchise and has the potential for a double dip, meaning maybe they sell in three to five years."

The continuation of the Sterling brand may have played a major role in persuading Sterling to sell, Kelley says.

Cappelli says the name was not the driving factor but a part of the "totality" in negotiations. Nonetheless, he is happy to be a part of the combined organization and to see his bank's brand continuing.

"Jack [Kopnisky] had indicated they were considering changing their name," Cappelli says. "They felt that the Sterling brand in New York is a powerful brand. I share that view."

Kelley also pointed out the market reacted positively to the deal, with Provident's shares up roughly 3% on Thursday, fitting into a larger trend of the market warming up to bank deals.

"We are reaching the point where buyers' stocks are being treated well," Kelley says. "That gives others confidence and should help deal flow."

However, that flow cannot happen until bankers start looking to the future.

"It is difficult for folks to consider change," Kopnisky says. "My partner Lou and I, we will both need to change — but we both consider this a great opportunity to change."

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