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The Equal-but-Different Merger of Provident and Sterling

By Scott Van Voorhis

When you shell out hundreds of millions of dollars to buy out a rival, it’s typically your bank’s name that goes on the signs. But as Provident New York forges ahead with its $344 million deal to buy Sterling Bancorp, it is turning that tradition on its head.
When the final regulatory approvals come through later this year, the newly combined bank will adopt the Sterling name, becoming Sterling National Bank. The Provident name will be the one retired. The unusual name change is emblematic of the team approach the two commercially minded New York banks are taking to their union, which Provident CEO Jack Kopnisky jovially compares to dating and getting married.
The two banks say they are eager to capitalize on each other’s strengths to better compete in an ever more competitive and regulatory challenging market. And the ultimate goal is to further grow and expand in what Kopnisky contends is the best areas for banking in the country, the New York metro market. While it has the greatest level of competition, it also has the greatest population and the greatest wealth.

Dating and Marriage, Banker Style
The deal came about after a year of talks between Kopnisky and Louis Cappelli, Sterling’s chairman and CEO. Kopnisky compared it to a long courtship, with both sides assessing each other to determine whether they would be a good banking-market match.
Both banks were similar in the right places, with a focus on lending to small and midsized businesses. Both have focused on expanding, “sticky, long-term” deposits. Yet each bank has carved out a somewhat different niche in this market, creating valuable synergies as well.
“It’s like dating,” Kopnisky said. “You start to date sand see whether there is really something there and whether you believe in the same things. In time you pop the question and hope the person on the other side says yes.”
The two banks now hope to get their marriage off with a grand compromise of sorts, one that has Provident giving up its name in favor of Sterling’s. There are solid business reasons for the decision to take on the Sterling name, even though Provident will hold a controlling, 53 percent stake in the merged bank. For starters, going with the Sterling name will clear up a considerable amount of market confusion that has bedeviled Provident over the years, Kopnisky noted. That’s because there is a similarly-sized Provident Bank of no relation, operating in New Jersey, creating some predictable confusion in this key market, Kopniskey said.
Provident also conducted marketing surveys that looked at both banks names and brands, he said. Sterling came out with higher brand recognition in the crucial Greater New York area, he noted.
Kopnisky and Sterling’s Cappelli will also share top roles at the new bank, with Kopnisky to serve as CEO and Cappelli as chairman.
The merger is expected to yield $34 million in cost savings for the combined bank. Provident and Sterling last year earned $41 million on $257 million in revenue.
“This is the right transaction for Sterling Bancorp’s shareholders, customers and communities,” Cappelli said in a press statement. “For shareholders, it provides a premium to the current value of our stock and creates a banking institution with even greater competitive strength, growth potential and profitability.”
The merger has not been without controversy, with the banks facing a lawsuit from a shareholder arguing the deal is not rich enough.
Others disagree.
“I can say with confidence the transaction is good for shareholders,” said Michael Carrazza, chairman and CEO of Solaia Capital Advisors LLC and chairman of the board of Patriot National Bancorp, Inc. “The operating synergies are expected to approach 18 percent. The combined enterprise will no doubt have an expanded product suite.”
For his part, Kopnisky declined to comment on the lawsuit.

Focus on Organic Growth
While Provident’s Kopnisky spent a year courting Sterling, don’t look for the newly combined bank to quickly hit the acquisition trail. He said the focus now is growing in place, not buying other banks. That will mean buckling down, possibly for years, to focus on growing the combined $6.5 billion bank organically.
So why the merger in the first place?
According to Kopnisky, one aim was bulking up, pushing the newly combined bank past the crucial $5 billion-asset mark, a size that will provide a strong foundation from which to grow.
Individually, the two banks, with Provident at $3.8 billion, and Sterling at $2.7 billion, were more vulnerable as potential acquisition bait. Moreover, joining forces will also help the two banks absorb the increased regulatory costs coming down the pike, a result of the Dodd-Frank financial service sector regulations, he said.
Having achieved the right amount of bulk, Kopnisky now wants to grow the combined bank’s lucrative commercial lending business. The two banks bring complementary product lines to the deal, he noted. Provident comes to the table with a strong construction financing business and commercial real estate loan business. Sterling, by contrast, has carved out a more commercial business lending niche, as opposed to construction and real estate. It’s a package that also includes private banking services targeted at executives of the companies to which it lends.
The combined bank, Sterling National, will be able to offer a range of loans and services that other financial institutions in its size range will find hard to beat, Kopnisky contends.
That includes commercial real estate lending, payroll lending, factoring and equity financing.
“One of the best things about this merger is that it brings to bear a very broad set of lending expertise,” Kopnisky said. “There is virtually no other $7 billion bank out there that has experience” in that range of products, he said.
The new bank will also benefit from offering a range of loan products in another crucial way as well, diversifying the way it makes money.
That means not just relying solely on revenue generated by interest rates on loans, but also fees as well.
“The two banks look like a good fit of different asset categories,” said Walt Mix, head of the financial services practice at Berkeley Research Group.

New Ways of Doing Business
But the merger is more than just about broadening the mix of loans. The new Sterling National also plans on shaking up how it does business, starting with its real estate.
In a first step, new bank will consolidate unneeded real estate, having announced plans to shutter five to seven overlapping branches, according to Kopnisky. The combined bank hopes to shed about 50,000 square feet of space, bringing the total portfolio down to about 350,000. That said, the two banks plan to hold onto both their current headquarters – Provident’s offices are in Montebello, while Sterling’s spread is in Manhattan. That gives the bank more flexibility when recruiting new employees and talent, he said.
The new bank will also move away from the traditional, branch-centered growth strategy, to one that features lending teams with a focus on a particular geographic market, industry niche or ethnic community, Kopnisky said.
Made up of three to five employees each, the new lending and sales teams will target a wide range of niches, from the Italian or Hasidic business communities to New York’s giant health care sector.
“That is where we see the future,” he said. ■

Posted on Monday, June 17, 2013 (Archive on Sunday, September 15, 2013)
Posted by Scott  Contributed by Scott


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