The megamergers in the Pacific Northwest have left a fair number of branches boarded up. But a Spokane, Wash., thrift has devised a way to capitalize on the situation.

Sterling Savings Association calls its current branching strategy "neutron de novos."

"The neutron bomb leaves the buildings intact but the people are all gone," said William Zuppe, the thrift's chief executive. "Neutron de novos are just the shell of the branch, and all the people and money have vanished."

On July 30, Sterling bought six branches that have no core deposits and no staff. It's a kind of hybrid branch acquisition strategy: Not exactly de novo, and not exactly buying an existing branch - because the selling bank has already abandoned the location.

Yet the strategy will allow Sterling to cheaply enter the Seattle retail market by buying art established banking location. It will take more time, however, to rebuild the business in conformance with Sterling's retail strategy.

The six branches, which will bring Sterling's network to 19, are all at sites closed down by Keycorp since the Albany, N.Y.-based company acquired Puget Sound National Bank in January.

"We feel it is a good strategy for us because there's a lot of unsettledness out there in the consumer community about the changes going on because of these mergers," Mr. Zuppe said.

"We rely on intense consumer service, what we call |hometown helpful.' [The branches] will be a drag on earnings for a while, but it allowed us into the greater-Seattle marketplace and we felt it was a good time to invest in the future."

Heidi Stanley, head of branch operations for Sterling, said the thrift looked at 19 Keycorp properties originally, and cherry-picked the best six. "We've always been an institution that takes advantage of opportunities like this," she said.

In its 10 years, Sterling has been successful with a variety of expansion strategies. It started in 1983 with $2 million in capital, and now has $1.1 billion of assets. It has grown its franchise through de novo branching and government assisted transactions, both before and after implementation of the Financial Institutions Reform, Recovery, and Enforcement Act. It has even overcome capital deficiencies in all three regulatory categories brought about by the 1989 law.

Confident of Wooing Keycorp Customers

Ms. Stanley said the new offices are being "painted green," referring both to Sterling's colors and the remodeling and branch setup process. Although she wouldn't make a prediction, she said she is confident the branches can reattract a strong core deposit and loan base left behind by Keycorp.

Charlotte Chamberlain, a thrift analyst at Los Angeles-based Wedbush Morgan Securities, said Sterling's strategy has been right on target.

Ms. Stanley said there are still dozens of branch properties on the market left over from the Keycorp-Puget Sound and BankAmerica-Security Pacific mergers, and Sterling is actively being pursued as a purchaser.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.