SANTA ROSA - Near the anniversary of its acquisition of Novato's Circle Bancorp, Umpqua Holdings Corporation appears poised to grow yet again in the North Bay through the acquisition on Sonoma Bank's Washington-based parent company.
Umpqua Holdings, parent company of Portland, Ore.-based Umpqua Bank, announced Wednesday that it had entered into a definitive agreement to purchase Spokane-based Sterling Financial Corporation in a transaction valued at approximately $2 billion.
The merger, expected for completion in the first half of 2014, will create a combined institution with around $22 billion in assets and 394 branches across Oregon, Washington, Idaho, California and Nevada.
Umpqua Bank currently has 20 branches plus a dedicated commercial banking office in the broader North Bay. The acquisition will add 13 Sonoma Bank -- soon to be Argent Bank -- branches. Those include 11 in the North Bay, one in Concord and one in Walnut Creek.
Sterling’s branches, which operate under the name Sterling Bank outside of California, will operate under the Umpqua name and brand upon completion of the merger. The combined company will have around $15 billion in loans, $16 billion in deposits and 5,000 employees.
Sterling reported $9.9 billion in assets in its most recent financial filing, while Umpqua reported $11.5 billion.
Ray Davis will continue in his role as president and chief executive officer of Umpqua. Greg Seibly, president and CEO of Sterling, will join Umpqua as co-president. Cort O’Haver, currently co-president of Umpqua, will also continue in that role.
The boards of directors of both companies approved the merger unanimously, according to the announcement. The combined company will have a 13-member board, including nine seats for Umpqua and four for Sterling.
Sterling’s largest shareholders, Thomas H. Lee Partners and Warburg Pincus Private Equity, have agreed to support the transaction, according to Umpqua. Each holds nearly 21 percent of Sterling’s stock, after investing millions into the bank’s recapitalization effort that ended in 2010.
Financial regulators had required Sterling to raise more than $700 million in an order from October 2009, an effort that would boost the bank’s capital reserves amid a wave of loan losses. The bank holding company succeeded with the aid of around 30 accredited investors, including about $171 million from each of the two firms.
Sterling shareholders will receive 1.671 shares of Umpqua common stock plus $2.18 in cash for each common share, a total value equal to $30.52 per share. Umpqua shareholders will own about 51 percent of the outstanding shares of the combined company; Sterling shareholders, 49 percent.
The deal represents 167 percent of tangible book value for Sterling -- a fair price for shareholders, said Jeffrey Rulis, a bank analyst in the Portland Office of D.A. Davidson & Co.
While Sterling's upward trajectory was likely to continue, Mr. Rulis said selling now made sense on two fronts -- one providing liquidity to shareholders and, two, allowing the bank to find a strong partner before it would have to cope the higher regulatory burden for institutions above $10 billion in assets.
"As you approach $10 billion in assets, you're sort of looking around in a heightened regulatory environment and low-interest-rate environment," he said. "I think the idea is -- it makes sense to pair up with another institution."
Sterling has been profitable for the past 10 quarters, and has made a number of moves to grow in California. Sterling this year acquired Borrego Springs Bank, a Southern California-based specialist in loans backed by the U.S. Small Business Administration, and announced plans to also acquire a business lender in the region by year-end.
"That's all a testament to the fact that, for Sterling, California is one of their growth markets," said Jamie Williams, Northern California market president for Sterling and Sonoma Bank.
The bank has been adding commercial banking groups in a number of locations, and plans to open a commercial banking office in Roseville in the next two months, Mr. Williams said.
"Being able to take care of that middle-market business in a dedicated office instead of at the retail level has proven very effective for us," he said.
Sterling earlier had announced a plan to unite its California subsidiaries under a new, combined brand by year-end, “Argent Bank.” Those plans will still go forward before the presumed change to Umpqua, said Sterling spokeswoman Cara Coon.
Umpqua acquired Novato-based Circle Bancorp, parent company of the six-branch Circle Bank, in a $25 million transaction completed near the end of last year.
Circle Bank’s long-planned corporate headquarters, under construction at 999 Grant Ave. in Novato at the time of the acquisition, became Umpqua’s flagship branch in the North Bay. The bank opened another high-profile branch in San Francisco this year, emphasizing common and community areas in an aesthetic that has come to define its growing branch network in the Bay Area.
Sterling Financial completed its acquisition of what was once the $1.36 billion-asset Sonoma National Bank in 2007, choosing to shorten its name to “Sonoma Bank.” Sonoma Bank itself had debuted a new logo in March of last year, matching a company-wide rebranding for Sterling.
While acknowledging that some might question the announcement's indication that the combined $22 billion institution would still qualify as a community bank, Mr. Rulis said that the corporate cultures of both Sterling and Umpqua have the hallmark of a much smaller lender.
"North of $20 billion in assets really starts to stretch the definition of 'community bank.' The caveat being -- I've followed these companies from the beginning, and I think there is a community bank thinking embedded in there that will continue as much as possible."
Umpqua expects the acquisition to add 12 percent to its earnings per share in 2015 and dilute its book value per common share by 4.6 percent at closing, according to the announcement.
J.P. Morgan Securities and Wachtell, Lipton, Rosen & Katz advised Umpqua’s board on the transaction. Sandler O’Neill + Partners and Davis Polk & Wardwell advised Sterling’s board.
