Golf Savings to be acquired

With its planned acquisition of Golf Savings Bank in Lynnwood, Sterling Financial could vie to become the second-largest financial institution based in Washington.

The combined company would have $8 billion in assets and 180 branches and loan offices spread across seven Western states.

"It's one of the defining moments in the growth of our organization," Harold Gilkey, chairman and CEO of Spokane-based Sterling Financial, said during a conference call Monday.

The mortgage-lending expertise of Golf Savings will help Sterling become "a significant force in regional mortgage lending," he said.

Golf Savings has become a mortgage-lending juggernaut under the leadership of self-described "hippie banker" Charles Ainslie. Its $1.7 billion in mortgages made it the fifth-largest mortgage originator in the state last year.

The bank is strong in construction lending in the area north of Seattle along the Interstate 5 corridor. That's an area where Sterling, which has 10 branches in the Puget Sound area, sees an opportunity to expand given continued economic growth related to Boeing, Gilkey said.

Sterling is already the state's third-largest financial institution, ending 2005 with $7.6 billion in assets, behind Washington Federal Savings at $8.3 billion and Washington Mutual's $343.1 billion.

Golf's assets have grown at a blistering rate — 79 percent in the past year — so quickly that it doesn't have the capital to expand apace. It needed capital to continue making new loans.

"We either had to stop in our tracks or find a partner," Ainslie said.

Sterling plans to pay $65.3 million for Lynnwood Financial Group, the holding company of Golf Savings and Golf Escrow, both named for founder Ainslie's favorite sport. Golf Savings will become a wholly owned Sterling subsidiary with its own leadership and will retain its own name. The deal is expected to close in the third quarter of this year.

Ainslie stands to receive nearly $15.8 million in cash, plus Sterling stock, a five-year consulting contract and a seat on Golf Savings' board of directors. Other Lynnwood shareholders will receive Sterling stock, which closed up 21 cents, less than 1 percent, at $26.91 Monday.

Jim Grabicki, a longtime bank consultant who worked with Golf Savings and now heads MarinerBank in Port Townsend, said the Northwest has seen a recent increase in bank merger deals.

"One reason is bank stocks are priced fairly well, and so it makes sense for the acquirer to use stock as part of the compensation because they can get more for their dollar," he said.

The price, 6.9 times Lynnwood's 2005 earnings or 1.8 times its tangible book value, is below valuations for other recent Pacific Northwest banking mergers. Book value is roughly a bank's assets minus liabilities.

That was, in part, because Golf funds much of its lending with high-priced CDs and deposits at its single branch in Mountlake Terrace, said Sterling Chief Financial Officer Daniel Byrne.

Ainslie said he plans on giving away his earnings from the deal to his favorite charities, spending time motorcycling with his wife, and "as any chairman of the board, president, CEO and founder of a company called Golf Savings Bank, I'm going to retire to the first tee."

Benjamin J. Romano: bromano@seattletimes.com