Umpqua Holdings, Oregon’s biggest bank, is in advanced talks to buy Sterling Financial, the Spokane-based lender backed by Warburg Pincus and Thomas H. Lee Partners, said people with knowledge of the discussions.
The deal may be valued at about $1.8 billion, said one of the people, who asked not to be named because the process is private.
The talks may still collapse and there’s no guarantee a transaction will occur.
Buying Sterling would almost double the size of Portland-based Umpqua to more than $20 billion in assets and almost 400 branches, according to data compiled by Bloomberg.
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The move makes strategic and financial sense because it would help Umpqua expand in California, said Joseph Morford, an analyst with RBC Capital Markets in San Francisco. The bank could save money by closing some Sterling branches, he said.
“Given some of the overlap, we suspect it should be very accretive to earnings,” said Morford, who covers Umpqua and predicts the stock will perform in line with its sector.
Sterling had a market value of about $1.7 billion as of Sept. 6. Its shares rose Monday by 3.5 percent to close at $27.72.
Umpqua advanced 5 percent to $17.11.
Umpqua CEO Raymond Davis has sought to bulk up over the past two years through mergers and acquisitions. The lender, which has about $11.4 billion in assets, completed the purchase of Financial Pacific Holding in July, and last year bought Circle Bancorp, a six-branch lender in Novato, California.
A deal for Sterling would be the second-largest U.S. bank takeover announced this year, behind PacWest Bancorp’s $2.2 billion offer in July for CapitalSource, according to data compiled by Bloomberg.
There have been more than $8 billion in U.S. bank deals announced this year, the data show.
Warburg Pincus and Thomas H. Lee each held more than 20 percent of Sterling’s common stock as of June, data compiled by Bloomberg show.
Spokesmen for Sterling, Warburg and Thomas H. Lee declined to comment. A representative at Umpqua didn’t reply to a request for comment.
Sterling took $303 million from the Treasury Department’s Troubled Asset Relief Program, repaid a year ago through a public stock offering.
The bank, run by CEO Greg Seibly, had $9.9 billion in assets as of midyear, with deposits of $6.6 billion from about 175 branches in Washington, Oregon, Idaho and California.