A Sterling Reputation Can Lure Deposits

Several days a week, the top brass at Sterling National Bank treats one of its customers to a private luncheon in the tony dining quarters at the bank’s flagship Manhattan offices, just around the corner from Radio City Music Hall and Rockefeller Center.

The client breaking bread, usually with the bank’s president, chairman, and personal loan officer in attendance, is not likely to be a member of New York City’s elite.Typically, the featured guest will be the owner of a professional services firm or founder of a medium-sized company, perhaps a plumbing supply business with $40 million in sales, reports John Millman, the bank’s president and chief executive.

“We know for sure that J.P. Morgan is not inviting these people over for an intimate meal,” says Millman, 67, who has served as president at the $2.1 billion bank since 1987. “They’ve got bigger fish to fry.” Despite its more modest ambitions, or maybe even because of them, the financial institution, which has 12 offices in and around the Big Apple, has quietly prospered. Even as the Federal Deposit Insurance Corp. has been forced to shutter ailing banks at a rapid clip-the bank regulator had pulled the plug on 118 banks this year by Labor Day- Sterling has actively been lending out money and taking in deposits.

So much so that the bank’s total net loans had grown in a year by roughly 5%, or $58 million as of June 30, 2010, according to data compiled by SNL Financial, a Charlottesville, Virginiau2013based data analysis firm. Not too shabby considering the U.S. economy has been emerging from its bleakest condition in 80 years and financial institutions have balked at lending, particularly to small and medium-sized business.

Collyn Gilbert, a banking analyst at brokerage Stifel Nicolaus, noted in a July 26 report that Sterling’s loan growth “is resulting from Sterling’s ability to take market share from many of its in-market competitors.” She also noted that the bank’s “typical credit has borrowing needs in the $5 million to $12 million range.”

Offering a full panoply of banking products and services, Sterling has adroitly positioned itself to appeal to the New York-area market. Its customer base includes a dizzying array of law, accounting, architectural-anddesign firms, physicians groups, and consultancies, as well as public relations, advertising, and staffing agenciesthat inhabit Manhattan skyscrapers and predominate in the tristate region that includes New York, New Jersey, and Connecticut.

While it has been growing its lending portfolio, Sterling has been adding depositors at even greater rate. Deposits rose to $1.641 billion as of June 30, 2010, up by nearly $337 million or 25% over the previous 12 months. Many of those new accounts, Millman says, are depositors who have been essentially orphaned by the disappearance of so many New York banks.

“We’ve brought in a lot of new clients who felt alienated because their bank either disappeared or was rolled up,” says Millman, who adds that he’s also been able to hire some “incredibly talented” bankers amid all the fallout.

A glance at the top five banks in Bank Director magazine’s most recent rankings finds that Sterling is in good company. Four of the top five “home run hitters” that Bank Director identified last year as the country’s strongest and most profitable banks have also shown solid deposit growth.

Although it was No. 3 in Bank Director’s most recent rankings, Kalispell, Montana’s Glacier Bank’s deposit growth has been nothing short of astonishing, swelling by $1.124 billion to $4.510 billion through June 30, 2010, a 33% increase compared with $3.386 billion a year earlier. Also showing steady deposit growth over this economically difficult 12-month period was No. 1 First Financial Bankshares of Abilene, Texas, which gathered $234 million to rise 9.5% to $2.706 billion. Others in the group show a similar story. (All figures provided by SNL Financial.) John Blaylock, associate director at Sheshunoff & Co., an Austin,Texasu2013based investment bank, says he is not surprised to see a flight to quality among depositors. It parallels the preference that cautious investors are showing toward the stocks of safe-and-sound financial institutions, he says, rather than the high-flyers of a few years ago.

“It makes sense,” he says.”Depositors know their accounts are insured up to $250,000, but many question whether their bank is going to be there tomorrow.”