Umpqua Holdings Buys Sterling Financial

NEW YORK ( TheStreet) -- On Wednesday I profiled 90 publicly-traded community banks in Community Banks With CRE Loan Exposures. My message to these banks is that they should take action to raise capital, trim noncurrent loans or consider merger opportunities.

On Thursday premarket we learned that the Portland, Ore., community bank Umpqua Holdings ( UMPQ) will acquire the Spokane, Wash., savings and loan Sterling Financial ( STSA) in a $2 billion deal.

Sterling is partially owned by private-equity firms Thomas H. Lee Partners LP and Warburg Pincus LLC with both having stakes of about 20.8%.

The deal is a combination of cash and stock valuing Sterling stock at a premium of 26% above its share price of Aug. 30 which was $24.20 and $2.18 in cash. A 26% premium puts the stock at $30.49.

According to the FDIC Quarterly Banking Profile for the second quarter of 2013 Umpqua Holdings ended the second quarter with $11.79 billion in assets, a commercial real estate (CRE) to risk-based capital ratio of 376.8% and with their CRE loan commitments 55.3% funded.

At the end of 2010 Umpqua had $11.67 billion in assets, a CRE to risk-based capital ratio of 423.9% with their CRE loan commitments a stressed out 86% funded. This bank has thus done a good job in reducing CRE exposures and in raising assets.

Umpqua ($16.14) has a hold rating according to ValuEngine with fair value at $12.66, which makes the stock 27.5% overvalued with the stock just below its one-year price target at $16.44. The daily chart profile is negative with the stock trading below its 50-day simple moving average at $16.60. My annual and quarterly value levels are $15.37 and $14.18 with a monthly pivot at $16.72 and semiannual risky level at $18.02.

According to the FDIC Quarterly Banking Profile for second quarter of 2013 Sterling Financial ended the quarter with $9.25 billion in assets, a CRE to risk-based capital ratio of 346.5% and with their CRE loan commitments 68.2% funded.

At the end of 2010 Sterling had $9.5 billion in assets, a CRE to risk-based capital ratio of 349.8% with their CRE loan commitments a stressed out 91.8% funded. This bank has not grown since the end of 2010, but their CRE loan commitment pipeline is better managed.

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The Deal: Umpqua Pays $2B for Sterling Financial