Sterling Financial (STSA) in Spokane, Wash., is buying American Heritage Holdings, the holding company of Borrego Springs Bank in La Mesa, Calif., for $6.5 million in cash.

The $9.6 billion-asset Sterling said Monday the deal, which is expected to close in the first quarter of 2013, would expand its lending to small businesses.

Borrego, which has assets of roughly $142 million, focuses on lending to businesses that qualify for loans under the Small Business Administration's 7(a) and 504 programs, which offer lower rates and longer repayment terms than conventional loans. In its 2011 fiscal year, the bank originated 741 loans under Section 7(a) that had a combined total of $161 million, according to the companies.

"Borrego Springs Bank has for many years been a leading SBA originator and for fiscal year 2011 was among the top 20 in the nation," David DePillo, Sterling's chief lending officer, said in a news release. "They have a solid and scalable SBA origination and servicing platform that we expect will have a meaningful positive impact as we continue to ramp up commercial lending efforts with an eye on improving our loan portfolio mix and earnings.

In August, the Treasury Department sold 5.7 million shares it owned in Sterling that the government acquired in 2008 through the Troubled Asset Relief Program. In September, Sterling repurchased a warrant held by the government through the Tarp program that ended the government's stake in the company.

The law firm of Bingham McCutchen advised Sterling on the deal. Sandler O'Neill & Partners and the law firm of Tisdale & Nicholson advised American Heritage.

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