At first glance, Sterling Financial Corp.'s $65.3 million deal for a Seattle-area thrift would seem to run counter to the Spokane thrift company's strategy of transforming itself into more of a commercial bank.
After all, Lynnwood Financial Group Inc. is the holding company for the $500 million-asset Golf Savings Bank, the fifth-largest mortgage originator in Washington State, with seven mortgage origination offices in the Puget Sound area.
But Harold B. Gilkey, Sterling's chairman and chief executive, said that buying Lynnwood could actually accelerate his company's shift away from its mortgage lending roots.
Golf Savings, which would retain its name, would handle most of the merged outfit's one-to-four-family mortgage loan production, freeing up Sterling up to focus primarily on commercial lending, Mr. Gilkey said.
"We are spending a lot of time, money, and effort in creating the commercial banking product within Sterling Savings Bank," he said, "and one of the ways to do that is segregate the mortgage production out of that banking area."
The cash-and-stock deal was announced Monday.
Daniel G. Byrne, Sterling's chief financial officer, said that the deal would add four cents a share to Sterling's earnings this year. Sterling earned $1.75 a share last year.
Sterling has been aggressively adding commercial loans of late while being less reliant on residential lending. Construction loan originations in the fourth quarter were up 76% from a year earlier, to $588.6 million, and corporate and business loans rose 53%, to $277 million. One-to-four-family originations, meanwhile, fell nearly 38%, to $82.6 million.
Golf Savings has been an active construction lender as well. Its loans rose 71% over all in 2005, to $469 million, driven largely by construction lending. Mr. Gilkey said Golf Savings' construction lending operations would be moved to Sterling's Action Mortgage unit.
The sale is expected to close in the third quarter.
Louis Feldman, an analyst with Hoefer & Arnett Inc. in Portland, said that Sterling has succeeded at turning itself into more of a commercial bank by hiring new lenders and having some mortgage lenders change their specialty. "Those that could adapt did, those that couldn't left," Mr. Feldman said.
He said that because it is a relatively small deal, he did not think it would throw Sterling's plans off track. "What it gives them in my mind is some quality lenders and the opportunity to expand the existing business they have in the mortgage market," he said.
Indeed, Mr. Gilkey said that while he sees the merger helping Sterling become even more like a commercial bank, he said the companies are a good match because they have similar histories. He said that both Sterling and Lynnwood were founded as mortgage companies; Lynnwood created a bank in 2000 to provide a source of funds.
