Sterling shareholders will receive 1.671 shares of Umpqua and $2.18 in cash for each share of Sterling common stock they hold. That equates to roughly $30.52 in value based on Umpqua's closing price of $16.96 on Wednesday.
The transaction will create a bank with $22 billion in assets, $15 billion in loans and $16 billion in deposits, the companies said.
The combined company will operate under the Umpqua brand and continue to be led by Umpqua President and Chief Executive Ray Davis. Sterling president and CEO Greg Seibly will join Umpqua Bank as co-president, with Umpqua Bank co-president Cort O'Haver serving in the same capacity.
Spokane, Washington-based Sterling Financial is backed by Warburg Pincus LLC and Thomas H Lee Partners LP, which each own about 21 percent of the lender, according to Thomson Reuters data.
The companies expect the deal to close in the first half of 2014, subject to shareholder and regulatory approvals.
Umpqua expects the acquisition to add 12 percent to its 2015 operating earnings per share, and for tangible book value per common share to be diluted by 4.6 percent once the deal closes.
(Reporting by Lauren Tara LaCapra; Editing by Tim Dobbyn)