NEW YORK ( TheDeal) -- In August 2010, Sterling Financial was like many financial institutions, struggling to pull out of a steep dive caused by the financial crisis.
The Spokane, Wash.-based thrift was losing money, and its shares were trading for under a dollar.
Enter Thomas H. Lee Partners and Warburg Pincus. Seeing promise in Sterling Financial's business, the two buyout firms orchestrated a series of investments in Sterling.
Thomas H. Lee Partners and Warburg Pincus each ponied up $171 million, and each firm received a nearly 23% stake in Sterling Financial, valuing the whole bank at about $750 million.
The firms' faith was rewarded last year when, amid an improving economy, Umpqua Holdings (UMPQ) acquired Sterling for about $2 billion.
Thomas H. Lee Partners and Warburg Pincus weren't alone in seeing opportunities in regional banks beset by the crisis. Although the government created multiple programs to relieve and strengthen banks during the downturn, many needed far more capital to survive and operate efficiently.
Private-equity investors stepped in, focusing on smaller banks that were trading at significant discounts, say, at or below one times tangible book value.
They became a "critical source of capital" for the troubled institutions, one analyst said.
Many of these banks have reached the usual five-year holding period for private-equity investments and are ripe for liquidity events including sales.
In addition to the sale Sterling Financial deal, the analyst pointed to Greenville, S.C.-based Palmetto Bancshares, which was sold to Blairsville, Ga.-based United Community Bank (UCBI) this past April for about $240 million. The company received investments that totaled $78.3 million in 2010 from CapGen Financial Group and Patriot Financial Manager.