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SPOKANE, Wash. -- Sonoma Bank parent company, Sterling Financial Corporation, announced agreements today to raise a total of $730 million in new capital from institutional, private equity and other accredited investors, exceeding the goal set by regulators and major step forward in the financial institution’s recovery efforts, officials said.

 The transaction is expected to close on or about Aug. 26.

“This commitment of $730 million in new capital represents a major milestone in our recovery plan, and one that will substantially strengthen our capital ratios and provide a solid base for rebuilding long-term franchise value. The focused energies of many at Sterling have helped us to preserve and grow our core banking franchise in support of our customers and communities across the Pacific Northwest. Today’s announcement reflects the investment community’s recognition of this value,” said Greg Seibly, president and chief executive officer.

In March, agreements were reached between the regulators and the company requiring it to shore up its capital as the recession battered Sterling’s loan portfolio. The company was to raise $720 million.

Sterling, with $9.74 billion in assets, is the second largest bank based in Washington state.

It was last October that Sterling Financial announced that 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.

Thomas H. Lee Partners and Warburg Pincus Private Equity, who had previously agreed to invest a total of $278 million, have amended their agreements to increase their investments.

Under the terms of the amendments, both companies would purchase 68,366,000 shares of common stock and 1,709,150 shares of Series B preferred stock, for an aggregate purchase price of approximately $171 million each. They both also would receive warrants.

Upon closing, the two companies will each own an aggregate of 22.6 percent of Sterling’s pro forma common stock on an as-converted basis and after giving effect to the exercise of warrants.

Sterling has also entered into agreements with approximately 30 accredited investors for private placement of 155,268,000 shares of common stock and 3,881,700 shares of Series D preferred stock in exchange for aggregate gross proceeds of approximately $388 million in cash.

In addition, as previously announced, the U.S. Treasury will convert its $303 million investment of preferred stock in Sterling into common shares.

After the closing of the transaction and contingent on regulatory approval, Les Biller, former vice chairman and chief operating officer of Wells Fargo & Company, will serve as chairman of Sterling’s board of directors, and Warbug Managing Director David Coulter and Thomas H. Lee Managing Director Scott Jaeckel would join Sterling’s board of directors.

Mr. Biller said, “These investments reflect a clear vote of confidence in the strength of the Sterling franchise and the great progress Sterling has made in rebuilding and strengthening its balance sheet. I look forward to working with Sterling’s board and management team.”

Mr. Coulter said, "With the capital raise successfully lined up, we are delighted to partner with Sterling in this new and exciting chapter of its development. With its strong regional banking franchise and talented management team, Sterling will now be exceptionally positioned to benefit from the current displacement in the financial services sector and to create meaningful shareholder value.”

Mr. Jaeckel added, “Following the closing of the capital raise, Sterling will be well-capitalized and well-positioned to build on its foundation as a commercial and consumer lending leader in the Pacific Northwest. We look forward to working with the Sterling management team to further develop the bank as a strong platform for growth.”

Each of the THL and WP investments, the private placement transactions and the U.S. Treasury exchange previously announced are conditioned upon each other and on other closing conditions, including, among others, receipt of regulatory approvals and third-party consents, Sterling’s maintenance of asset levels and capital ratios, the absence of material changes in the characteristics of Sterling’s loan portfolio, no occurrence of an “ownership change” that would affect the preservation of certain of Sterling’s deferred tax assets, no occurrence of a material adverse effect and no adverse change in banking or bank holding company law, rule or regulation. Closing of the recapitalization transactions are not conditioned upon receipt of any shareholder approvals.