A banker friend of mine says a colleague says these days, "In banking, 'flat' is the new 'up.'"

Why bankers would laugh ruefully at such a remark was obvious when I worked on a story last issue about Sterling Financial Corp., of Spokane, seeking approval from shareholders Sept. 21 to increase the number of shares of common stock its board could issue.

At the time, Sterling's market capitalization, or its current share price times the number of shares it had outstanding, was a mere $111 million. That's nothing for a bank that as of June 30 had $12.4 billion in assets, $8.4 billion in loans, and $8.2 billion in deposits.

In theory, you can buy controlling interest in a company for half of its market capitalization plus the price of one additional share of stock, or $55.5 million in Sterling's case.

The low market cap doesn't mean anyone is trying to buy Sterling. To buy any bank now is a dicey proposition, because banks have lots of problems, are setting aside sizable sums for potential loan losses, and generally face heightened risk and diminished prospects. Also, for a buyer to acquire controlling interest, a sufficient number of shares must be available to purchase, which isn't necessarily the case, and a buyer that acquires more than a 5 percent interest must file a report with the government and declare its intentions.

Yet, a stockbroker tells me that the government's treatment of megabanks as too big to fail has boosted those institutions' share prices, but left regional banks such as Sterling to their own devices, which has hurt them. He notes that Banner Corp., of Walla Walla, which has $4.5 billion in assets, had a market cap of about $50 million earlier this week, a sum that isn't much different from what Banner paid for Farmers & Merchants Bank, of Spokane, in 2007. That woeful arithmetic is another sign of the times.

A diminished market cap is enough to make any bank feel vulnerable, and Sterling's proxy statement for the coming shareholder vote said approval would enable its board to issue more shares without delay, including "in transactions that might discourage, delay, or prevent an unsolicited acquisition of control." Notably, Sterling also said it could issue shares to take advantage of "opportunities," which might make some other banks feel vulnerable.

Sterling also said the ability to issue more shares would be helpful if it needs to raise capital, including if it chooses to repay the $303 million in capital it obtained through the U.S. government's Troubled Asset Relief Program. The stockbroker told me the TARP capital isn't cheap, and many institutions want to repay it.

On Monday, Washington Federal Inc., of Seattle, the parent of Washington Federal Savings, announced a $300 million public offering. At about $15 a share, however, its stock has been selling at close to book value. At $2.12 a share, Sterling's shares were selling far below their book value, $15.33 as of June 30, and they closed Monday at $1.99 a share, dropping the company's market capitalization down to $104 million.

Lots of institutions are in similar straits, but Sterling is a Spokane success story. It's the biggest bank headquartered in the Pacific Northwest, which evokes civic pride, and is part of the business fabric here.

Another stockbroker provided some perspective: He said a bank's shareholders' equity needs to be about 8 percent of assets, and as of June 30, Sterling's shareholders' equity was $1.096 billion, or 8.8 percent of assets.

Even though banks' fortunes will turn around in time, you can see why gallows humor is prompting painful laughter right now.