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Owner of Sonoma Bank says it hopes to make acquisitions part of plan

SANTA ROSA/SPOKANE, WASH.  – Sterling Financial, owner of Sonoma Bank, has raised nearly 39 percent of the capital required by regulators and is hoping to acquire failed banks in its attempt to move forward with recapitalization efforts.

So far, the bank has entered into agreements with two private equity firms for a total infusion of $278 million, roughly $139 million each.

That means the bank has to raise another $442 million to meet the regulatory guidelines of $720 million set by the agreement reached in mid March.

Sterling Financial announced in October that its subsidiary, Sterling Savings Bank, had entered into agreements with the Federal Deposit Insurance Corp. requiring it to strengthen its financial position.

The cease-and-desist agreement committed Sterling’s principal banking subsidiary, Sterling Savings Bank, to continue taking actions relating to its capital position, asset quality, liquidity and management oversight.

On May 23, Sterling announced its agreement with Thomas H. Lee Partners and Warburg Pincus Private Equity that upon receiving the approval of the Treasury, the two firms would invest in the bank. On May 26 the Treasury approved the deals.

As part of the Warburg Pincus investment and subject to the closing of the recapitalization transactions and required regulatory approvals, Warburg Pincus Managing Director David Coulter would join the Sterling board of directors.

Sterling President and Chief Executive Officer Greg Seibly said, “We are pleased to announce Warburg Pincus as an investor in Sterling. Warburg Pincus is a highly successful bank sector investor that has long-standing and deep knowledge of our company. We believe that the combination of Warburg and THL represent key components in our efforts to recapitalize the company.”

Mr. Coulter said, “We are looking forward to partnering with Greg Seibly in providing governance input and support for Sterling as the company continues to build on its strong regional banking franchise in the Pacific Northwest.”

Both the Warburg Pincus and THL investments would be conditioned upon each other and on other closing conditions, including, among others, Sterling raising a total of at least $720 million of capital, these investments included.

According to Cara Coon, spokeswoman for the bank, the anticipation is it will close before the contracts with the anchor investors expire, which is Sept. 1, unless mutually extended.

The next strategy that the bank is hoping to take to raise capital is the acquisition of failed banks that the FDIC plans to place in receivership.

However, according to the SEC filing, the bank admits the strategy may not be successful.

“We are not currently qualified to bid on these transactions,” the filing said. “There can be no assurance that we will be successful in the near term or at all. Prolonged or indefinite failure to achieve such qualification could cause us to miss the opportunity to bid on banks that we believe would be attractive acquisition candidates. Even if we become qualified to bid on these transactions, the FDIC may not place banks that meet our strategic objectives into receivership.”

For the last month, Sterling’s stock has traded for less than $1 per share, the amount required by Nasdaq to remain on the list.