American Heritage Holdings, parent company for Borrego Springs Bank, based in La Mesa and with $142 million in assets, agreed to be acquired by Sterling Savings Bank, a subsidiary of Spokane, Wash. based Sterling Financial Corp.

Sterling Financial said it’s paying $6.5 million in cash for the local bank owned by the Viejas Indian tribe. The troubled bank, which has three branches and seven loan production offices, was operating under a cease and desist order that its primary regulator issued earlier this year.

As of Sept. 30, BSB reported holding $18 million in non-accrual loans and foreclosed real estate, or about 13 percent of its total assets, according to its most recent filing with the Federal Deposit Insurance Corp. Most banks attempt to keep problem loans below 1 percent of total assets.

The transaction that is expected to close in the first quarter of next year is considered a distress sale, given the price Sterling is paying equates to less than half of the bank’s shareholders’ equity of $13.4 million.

A call to Borrego Springs Bank for comment wasn’t returned.

Sterling Financial, with $9.6 billion in assets, said the sale was already approved by the boards of directors of Sterling and AHH, and the shareholders of AHH, but needs regulatory approvals.

The bulk of BSB’s loans were guaranteed by the federal Small Business Administration, and it was this business that Sterling coveted, the bank said.

“Borrego Springs Bank has for many years been a leading SBA originator and for the fiscal year 2011 was among the top 20 in the nation,” said David DePillo, Sterling’s chief lending officer. “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 efforts with an eye on improving our loan portfolio mix and earnings.”

BSB’s board of directors signed a cease and desist order from its primary regulator, the federal Office of the Comptroller of the Currency this summer, but not before BSB’s board resisted that sanction, which puts certain restrictions on the bank’s operations, and requires regular reporting to the OCC.

When the bank balked at signing, the OCC filed a notice of charges administrative action against it, which detailed all the bank’s problems, and revealed a rating on its financial health that was supposedly kept confidential.

In that notice, the OCC revealed BSB’s rating was downgraded from a 2 to 3. The ratings range from 1 to 5 with 1 being the highest, and 5 the worst.

— Mike Allen