Just because you can buy a bank, doesn't mean you should.

That's the pointed advice that some analysts are giving Sterling Bancorp in New York, an asset-based lender with a reputation for high-touch service that has helped it take share from bigger banks. After buying several specialty finance companies, Sterling executives are making it known they want to buy a bank in 2011.

The hang-up for some industry observers is that any deal would bring risks — such as problem real estate portfolios — that management is less experienced at handling. They say Sterling should cultivate its specialty in commercial and industrial lending, where there is ample room to grow.

"I would rather them not take on that kind of risk," said Rick Weiss, an analyst at Janney Montgomery Scott. "You should stick with your core skills."

John C. Millman, Sterling's president, said there is no cause for alarm. Sterling has plenty of experience integrating complex financial services firms, and Millman said he expects no difficulty taking on a whole bank. The $2.4 billion-asset company says it has opportunities for in-market deals that would be accretive to capital.

"We believe they would be very low-risk transactions, which would be very easy to integrate," Millman said.

Sterling first showed it was acquisition-minded last year when it disclosed an unsuccessful bid for a failed bank in the New York City area. It raised $69 million through a common stock offering in March and last week filed a shelf registration statement with the Securities and Exchange Commission to raise up to $100 million of additional capital.

With traditional acquisitions expected to pick up this year, Sterling is eyeing sellers in New York, New Jersey and Connecticut with assets of $1 billion or less, Millman said. It is particularly interested in companies that, like Sterling, have the capacity to generate C&I loans or are located in areas that have a high density of small and midsize businesses.

Target markets would include Brooklyn, Queens, Westchester County and northern New Jersey. "We really are encircled by loads of opportunities throughout this metropolitan region," Millman said.

Increased regulatory burdens and higher compliance costs are leading many smaller banks to sell themselves, making it an ideal time for Sterling to shop around, Millman said.

An acquisition "would be accretive to earnings and accretive to capital, and would increase our footprint," he said. "So there are a number of big benefits from an operational perspective that would evolve from a well-thought-out acquisition."

Finding the right fit may prove difficult, analysts said. For one, most community banks focus heavily on real estate lending, and few share Sterling's concentration in C&I loans. About 53% of the company's loans at Sept. 30 were classified as C&I, according to its quarterly filing with the SEC.

"They might be hard-pressed to find a high-quality commercial bank" to buy, said Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.

Sterling has carved a niche in loans of $500,000 to $15 million to small to midsize businesses, mainly service-based companies such as law firms and accountants.

The company controlled 0.18% of the deposits in the New York area as of June 30, according to data from the Federal Deposit Insurance Corp., and it would not be hard to expand that share, Weiss said. The clients Sterling targets are often below the radar-screen of larger banks, and an old-school approach to customer service sets Sterling apart from competitors.

Sterling's customers always expect to get a real person on the line; the company has no voice mail. Once a week the company hosts a luncheon in its private dining room for clients or investors to meet with management.

"One of the biggest complaints about banks is that you don't get true personal service from many banks, and Sterling I think delivers that," DelMonte said.

Headquartered in the heart of Manhattan, Sterling has myriad opportunities to form relationships with small businesses, and buying a bank outside of the city seems unnecessary, analysts said.

Sterling reported a fourth-quarter profit of $3.5 million, its highest quarterly profit in two years and a 76% increase from a year earlier. It posted a 10% increase in loans and a 12% rise in noninterest income from its specialty finance operations, including accounts receivables management, factoring and trade finance fees.

Though Sterling has yet to pay back its $42 million investment from the Troubled Asset Relief Program, it has a 6.8% tangible common equity ratio and is ready to raise more capital.

"I think they've created a franchise that is well positioned at this point," said Collyn Bement Gilbert, an analyst at Stifel, Nicolaus & Co. "I feel like they're on an upward trajectory, and I would want to make sure whatever they did didn't derail them from that trajectory."

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